<PAGE> 1
As filed with the Securities and Exchange Commission on December 29, 1995
Registration No. 33-30431
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 14 /X/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 17 /X/
--------------------------------
CONESTOGA FAMILY OF FUNDS
(Exact Name of Registrant as Specified in Charter)
680 East Swedesford Road
Wayne, Pennsylvania 19087
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 344-2716
Name and Address
of agent for service: Copy to:
- --------------------- --------
Henry S. Hilles, Jr., Esq. Mr. David G. Lee
Drinker Biddle & Reath Conestoga Family of Funds
1345 Chestnut Street 680 East Swedesford Road
Philadelphia, Pennsylvania 19107 Wayne, Pennsylvania 19087
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
Registrant has registered an indefinite number of shares of beneficial
interest in the U.S. Treasury Securities Fund, the Cash Management Fund, the
Tax-Free Fund, the Intermediate Income Fund (formerly, the Limited Maturity
Fund), the Bond Fund (formerly, the Income Fund), the Equity Fund, the
Pennsylvania Tax-Free Bond Fund, the Special Equity Fund, the International
Equity Fund, the Short-Term Income Fund and the Balanced Fund under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for Registrant's fiscal year ended October 31,
1995 was filed with the Commission on November 15, 1995.
================================================================================
<PAGE> 3
CROSS REFERENCE SHEET
THE CONESTOGA CASH MANAGEMENT FUND
THE CONESTOGA TAX-FREE FUND
THE CONESTOGA U.S. TREASURY SECURITIES FUND
THE CONESTOGA EQUITY FUND
THE CONESTOGA SPECIAL EQUITY FUND
THE CONESTOGA BOND FUND
THE CONESTOGA INTERMEDIATE INCOME FUND
THE CONESTOGA PENNSYLVANIA TAX-FREE BOND FUND
THE CONESTOGA INTERNATIONAL EQUITY FUND
THE CONESTOGA SHORT-TERM INCOME FUND
THE CONESTOGA BALANCED FUND
(Retail Shares)
<TABLE>
<CAPTION>
FORM N-1A ITEM NO. PROSPECTUS CAPTION
- ------------------ ------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . Prospectus Summary; Expense Summary
3. Condensed Financial
Information . . . . . . . . . . . . Financial Highlights;
Performance Information
4. General Description of
Registrant . . . . . . . . . . . Cover Page; Investment Objectives and
Policies; Investment Restrictions; General
Information
5. Management of the Fund . . . . . . . Management of the Company
5A. Management's Discussion of
Fund Performance . . . . . . . . Financial Highlights
6. Capital Stock and Other
Securities . . . . . . . . . . . How to Purchase and Redeem Shares; Dividends;
Taxes; General Information
7. Purchase of Securities Being
Offered . . . . . . . . . . . . . Valuation of Shares; How to Purchase and Redeem
Shares
8. Redemption or Repurchase . . . . . . How to Purchase and
Redeem Shares
9. Pending Legal Proceedings . . . . . Inapplicable
</TABLE>
<PAGE> 4
CROSS REFERENCE SHEET
THE CONESTOGA CASH MANAGEMENT FUND
THE CONESTOGA TAX-FREE FUND
THE CONESTOGA U.S. TREASURY SECURITIES FUND
THE CONESTOGA EQUITY FUND
THE CONESTOGA SPECIAL EQUITY FUND
THE CONESTOGA BOND FUND
THE CONESTOGA INTERMEDIATE INCOME FUND
THE CONESTOGA PENNSYLVANIA TAX-FREE BOND FUND
THE CONESTOGA INTERNATIONAL EQUITY FUND
THE CONESTOGA SHORT-TERM INCOME FUND
THE CONESTOGA BALANCED FUND
(Institutional Shares)
<TABLE>
<CAPTION>
FORM N-1A ITEM NO. PROSPECTUS CAPTION
- ------------------ ------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . Prospectus Summary; Expense Summary
3. Condensed Financial
Information . . . . . . . . . . . . Financial Highlights;
Performance Information
4. General Description of
Registrant . . . . . . . . . . . Cover Page; Investment Objectives and
Policies; Investment Restrictions; General
Information
5. Management of the Fund . . . . . . . Management of the Company
5A. Management's Discussion of
Fund Performance . . . . . . . . Financial Highlights
6. Capital Stock and Other
Securities . . . . . . . . . . . How to Purchase and Redeem Shares; Dividends;
Taxes; General Information
7. Purchase of Securities Being
Offered . . . . . . . . . . . . Valuation of Shares; How to Purchase and Redeem
Shares
8. Redemption or Repurchase . . . . . . How to Purchase and
Redeem Shares
9. Pending Legal Proceedings . . . . . Inapplicable
</TABLE>
<PAGE> 5
CONESTOGA FAMILY OF FUNDS
SUPPLEMENT DATED FEBRUARY __, 1996 TO THE
PROSPECTUS DATED FEBRUARY 21, 1995
RETAIL SHARES
THIS SUPPLEMENT TO THE PROSPECTUS SUPERSEDES AND REPLACES ALL EXISTING
SUPPLEMENTS TO THE PROSPECTUS. THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL
INFORMATION BEYOND THAT CONTAINED IN THE PROSPECTUS AND SHOULD BE RETAINED AND
READ IN CONJUNCTION WITH THE PROSPECTUS.
-------------------------------------
(1) Meridian Bancorp, Inc., the parent corporation of Meridian Investment
Company ("MIC"), the investment adviser to Conestoga Family of Funds (the
"Company"), has agreed to merge with CoreStates Financial Corp (the "Merger").
Because the Merger will result in a change in control of MIC, the existing
investment advisory and sub-advisory agreements for the Company will, by their
terms, automatically terminate upon the Merger. The Merger is expected to take
place on or about April 1, 1996.
In connection with the Merger, the Board of Trustees of the Company
approved several changes for the Company. At a meeting held on December 21,
1995, the Trustees approved an Agreement and Plan of Reorganization (the
"Agreement") between the Company and CoreFunds, Inc. ("CoreFunds") which
provides for the merger of each portfolio of the Company (each a "Fund" and,
together, the "Funds") with certain funds of CoreFunds, which are advised by
CoreStates Investment Advisers, Inc. ("CoreStates Advisers"), a wholly-owned
subsidiary of CoreStates Bank, N.A. (which is itself a wholly-owned subsidiary
of CoreStates Financial Corp). The Trustees voted to reorganize the Cash
Management Fund into CoreFunds Cash Reserve Fund, the Tax-Free Fund into the
CoreFunds Tax-Free Reserve Fund, the U.S. Treasury Securities Fund into the
CoreFunds Treasury Reserve Fund, the Equity Fund into the CoreFunds Equity
Fund, the Intermediate Income Fund into the CoreFunds Intermediate Bond Fund,
the Pennsylvania Tax-Free Bond Fund into the CoreFunds Pennsylvania Municipal
Bond Fund, the Balanced Fund into the CoreFunds Balanced Fund and the
International Equity Fund into the CoreFunds International Growth Fund.
Additionally, the Special Equity Fund, Bond Fund and Short-Term Income Fund
each would be reorganized into separate, newly-formed CoreFund investment
portfolios of the same name.
A Special Meeting of the Shareholders of the Funds has been scheduled for
March 22, 1996, at which Shareholders will be asked to approve the Agreement in
connection with the proposed reorganization, including an interim investment
advisory agreement between the Company, on behalf of each Fund, and MIC, and an
interim sub-advisory agreement with Marvin & Palmer Associates, Inc. with
respect to the International Equity Fund. These interim agreements with the
current adviser and sub-adviser would be in effect between the Merger and the
effective times of the reorganization between the Company and CoreFunds as to
particular Funds.
If shareholders of the Company approve the Agreement, substantially all
of the assets and liabilities of the Funds will be transferred to the
corresponding investment portfolio of CoreFunds, and the Company's shareholders
will become shareholders of CoreFunds. The Agreement provides that each holder
of Retail Shares of a Fund will hold, immediately after the reorganization,
Individual Shares of the corresponding investment portfolio of CoreFunds with
the same aggregate net asset value as immediately before the reorganization.
-------------------------------------
<PAGE> 6
(2) THE FOLLOWING INFORMATION REPLACES THE SECTION ENTITLED "EXPENSE SUMMARY"
IN THE RETAIL SHARE PROSPECTUS ON PAGES 4 AND 5:
EXPENSE SUMMARY
The purpose of the following table is to assist a potential purchaser of
Retail Shares of a Fund in understanding the various costs and expenses that an
investor in such Shares of the Fund will bear directly or indirectly.
<TABLE>
<CAPTION>
Conestoga Conestoga Conestoga
Money Equity Conestoga Balanced
Market Funds Funds Bond Funds Fund
------------ -------- ---------- ---------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . 0% 2.0% 2.0% 2.0%
Maximum Sales Load Imposed on Reinvested Dividends . . . . 0% 0% 0% 0%
Deferred Sales Load . . . . . . . . . . . . . . . . . . . . 0% 0% 0% 0%
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . 0% 0% 0% 0%
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . 0% 0% 0% 0%
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury International
ANNUAL FUND OPERATING EXPENSES Cash Management Tax-Free Securities Equity Equity
(as a percentage of average net assets) Fund Fund Fund Fund Fund
-------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Advisory Fees After Fee Waivers(1) . . . . . . . .20% .16% .27% .74% 1.00%
12b-1 Fees After Fee Waivers (2) . . . . . . . . . .25% .05% .15% .25% .25%
Other Expenses After Reimbursements(3) . . . . . .36% .30% .35% .31% .88%
---- ---- ---- ----- -----
Total Fund Operating Expenses . . . . . . . . . .81% .51% .77% 1.30% 2.13%
==== ==== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Special Intermediate Tax-Free Short-Term
Equity Bond Income Bond Income Balanced
Fund Fund Fund Fund Fund Fund
-------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees After Fee Waivers(1) . . .00% .34% .25% .00 .29% .49%
12b-1 Fees After Fee Waivers(2) . . . 00% .25% .25% .00% .25% .25%
Other Expenses After Reimbursements(3) .32% .37% .39% .51% .34% .33%
---- ---- ----- ----- ----- -----
Total Fund Operating Expenses . . . . .32% .96% .89% .51% .88% 1.07%
==== ==== ===== ===== ===== =====
</TABLE>
- ------------------------
(1) Advisory Fees are payable at the maximum annual rates of .40%, .40%, .40%,
.74%, 1.00%, 1.50%, .74%, .74%, .74%, .74% and .75% of the average daily net
assets of the Cash Management Fund, the Tax-Free Fund, the U.S. Treasury
Securities Fund, the Equity Fund, the International Equity Fund, the Special
Equity Fund, the Bond Fund, the Intermediate Income Fund, the Pennsylvania
Tax-Free Bond Fund, the Short-Term Income Fund and the Balanced Fund,
respectively.
(2) 12b-1 fees are payable at the annual rate of .40%. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales
charges permitted by the rules of National Association of Securities Dealers,
Inc. ("NASD") for investment companies without 12b-1 fees. Does not include
other fees which certain financial or other institutions may charge certain
customers in connection with their accounts. (See "MANAGEMENT OF THE FUND --
Distribution and Services Plan.").
(3) "Other Expenses After Reimbursements" include administration fees payable
at the maximum annual rate of .17% of each Fund's average daily net assets.
Before May 1, 1995, administration Fees were payable at the rate of .20% of
each Fund's average net assets pursuant to an administration agreement with a
prior administrator. (See "MANAGEMENT OF THE FUND -- Investment Advisor and
Administrator and Distributor.")
<PAGE> 7
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming:
(1) a 5% annual return;
(2) redemption at the end of each time period; and
(3) the imposition of a maximum sales load at the beginning of the
period.
<TABLE>
<CAPTION>
Cash U.S. Treasury International Special
Management Tax-Free Securities Equity Equity Equity Bond
Fund Fund Fund Fund Fund Fund Fund
------ ------ -------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year . . . $ 8 $ 5 $ 8 $33 $41 $23 $30
3 Years . . . 26 16 25 60 85 30 50
5 Years . . . 45 29 43 90 N/A 38 72
10 Years . . 100 64 95 174 N/A 60 135
<CAPTION>
Intermediate Pennsylvania Short-Term
Income Tax-Free Income Balanced
Fund Bond Fund Fund Fund
------ ---------- ------ --------
<S> <C> <C> <C> <C>
1 Year . . . $29 $25 $29 $31
3 Years . . . 48 36 48 53
5 Years . . . 68 48 N/A N/A
10 Years . . 127 83 N/A N/A
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. THE ABOVE FIGURES WITH RESPECT TO EACH FUND ARE ESTIMATES FOR
THE CURRENT YEAR ONLY. ACTUAL EXPENSES FOR EACH FUND MAY BE GREATER OR LESSER
THAN THOSE SHOWN.
The Expense Summary has been restated with respect to the Cash Management,
Tax-Free, U.S. Treasury Securities, Equity, International Equity, Special
Equity, Bond, Intermediate Income, Pennsylvania Tax-Free Bond, Short-Term
Income and Balanced Funds to reflect various projected fee and expense rates
for the current fiscal year. Without fee waivers and expense reimbursements by
the Investment Advisor and/or administrator, Total Fund Operating Expenses for
the Cash Management Fund, the Tax-Free Fund, the U.S. Treasury Securities Fund,
the Equity Fund, the International Equity Fund, the Special Equity Fund, the
Bond Fund, the Intermediate Income Fund, the Pennsylvania Tax-Free Bond Fund,
the Short-Term Income Fund and the Balanced Fund would be 1.16%, 1.10%, 1.17%,
1.50%, 2.28%, 2.27%, 1.52%, 1.53%, 1.65%, 1.48%, and 1.48%, respectively, for
the current fiscal year. There may be a charge of $7.00 for each redemption
paid by wire. See "MANAGEMENT OF THE FUND-Expenses" for a more complete
discussion of the shareholder transaction expenses and annual operating
expenses of the Funds.
The information in the foregoing fee tables and examples relates only to the
Retail Shares of each Fund. Each of the Company's eleven Funds also offers
another class of Shares known as Institutional Shares. The Institutional
Shares and Retail Shares of each Fund are subject to the same expenses except
that Institutional Shares are not subject to a Rule 12b-1 fee and the
Institutional Shares of the Equity, International Equity, Special Equity, Bond,
Intermediate Income, Pennsylvania Tax-Free Bond, Short-Term Income and Balanced
Funds are not sold with a sales charge.
<PAGE> 8
(3) THE FOLLOWING FINANCIAL HIGHLIGHTS REPLACE THOSE INCLUDED IN THE RETAIL
SHARE PROSPECTUS ON PAGES 5 THROUGH 9:
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the
Company's financial statements incorporated by reference in the Statement of
Additional Information and set forth certain historic investment results of
Shares of each Fund. The Company's financial statements and the data reported
in "Financial Highlights" for the years ended October 31, 1995, 1994, 1993,
1992 and 1991 and the period ended October 31, 1990 with respect to the Cash
Management, Tax-Free, U.S. Treasury Securities, Equity, Bond and Intermediate
Income Funds, the years ended October 31, 1995, 1994 and 1993 and the period
ended October 31, 1992 with respect to the Pennsylvania Tax-Free Bond Fund, the
year ended October 31, 1995 and the period ended October 31, 1994 with respect
to the Special Equity Fund and the periods ended October 31, 1995 with respect
to the International Equity, Short-Term Income and Balanced Funds were audited
by Coopers & Lybrand, L.L.P., the Company's independent accountants, whose
report thereon is incorporated by reference in the Statement of Additional
Information. Further information about the performance of the Company is
contained in the Company's annual report which may be obtained without charge.
The financial data included in this table should be read in conjunction with
the financial statements and related notes incorporated by reference in the
statement of additional information.
The information in the following tables is not necessarily indicative
of future results with respect to Retail Shares. See the "EXPENSE SUMMARY."
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets Ratio of
Value Net Gains from Net Realized Net Asset End of Expenses
Beginning Investment (Losses) on Investment Capital Value End Total Period to Average
of Period Income Investments Income Gains of Period Return* (000) Net Assets
EQUITY FUND
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL
1995(1) $15.00 $0.18 $2.87 $(0.17) $(0.80) $17.08 21.94% $ 6,591 1.34%
PRIOR CLASS
1994 15.39 0.11 0.22 (0.11) (0.61) 15.00 2.21% 50,128 1.49%
1993 13.93 0.14 1.89 (0.14) (0.43) 15.39 14.90% 45,677 1.20%
1992 13.08 0.19 1.02 (0.19) (0.17) 13.93 9.27% 28,103 0.92%
1991 8.95 0.26 4.13 (0.26) __ 13.08 49.37% 12,830 0.54%
1990(2) 10.00 0.14 (1.05) (0.14) __ 8.95 (9.22)% 5,982 0.65%
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Investment Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
EQUITY FUND
- -----------
<S> <C> <C> <C> <C>
RETAIL
1995(1) 1.23% 1.53% 1.04% 119%
PRIOR CLASS
1994 0.75% 1.51% 0.73% 35%
1993 0.94% 1.41% 0.73% 24%
1992 1.47% 1.23% 1.17% 39%
1991 2.30% 1.48% 1.36% 68%
1990(2) 2.29% 1.59% 1.35% 43%
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets Ratio of
Value Net Gains from Net Realized Net Asset End of Expenses
Beginning Investment (Losses) on Investment Capital Value End Total Period to Average
of Period Income Investments Income Gains of Period Return* (000) Net Assets
SPECIAL EQUITY FUND
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL
1995(1) $9.37 $0.12 $2.12 $(0.12) $(0.07) $11.42 24.44% $734 0.27%
PRIOR CLASS
1994(3) 10.00 0.06 (0.63) (0.06) __ 9.37 (5.72)% 10,069 0.15%
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Investment Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
SPECIAL EQUITY FUND
- -------------------
<S> <C> <C> <C> <C>
RETAIL
1995(1) 1.29% 2.24% (0.68)% 129%
PRIOR CLASS
1994(3) 1.06% 2.10% (0.89)% 39%
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets Ratio of
Value Net Gains from Net Realized Net Asset End of Expenses
Beginning Investment (Losses) on Investment Capital Value End Total Period to Average
of Period Income Investments Income Gains of Period Return* (000) Net Assets
INTERNATIONAL EQUITY FUND
- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL
1995(4) $10.00 $0.03 $0.96 $ ___ $ ___ $10.99 9.90% $ 9 2.13%
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Investment Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
INTERNATIONAL EQUITY FUND
- -------------------------
<S> <C> <C> <C> <C>
RETAIL
1995(4) (0.69)% 2.26% (0.83)% 23%
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets Ratio of
Value Net Gains from Net Realized Net Asset End of Expenses
Beginning Investment (Losses) on Investment Capital Value End Total Period to Average
of Period Income Investments Income Gains of Period Return* (000) Net Assets
BALANCED FUND
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL
1995(5) $9.97 $0.11 $0.42 $(0.11) $___ $10.39 5.27% $69 1.07%
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Investment Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
BALANCED FUND
- -------------
<S> <C> <C> <C> <C>
RETAIL
1995(5) 3.37% 1.32% 3.12% 65%
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets Ratio of
Value Net Gains from Net Realized Net Asset End of Expenses
Beginning Investment (Losses) on Investment Capital Value End Total Period to Average
of Period Income Investments Income Gains of Period Return* (000) Net Assets
BOND FUND
- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL
1995(1) $9.81 $0.60 $0.72 $(0.57) $___ $10.56 13.83% $1,373 0.97%
PRIOR CLASS
1994 11.18 0.53 (1.04) (0.52) (0.34) 9.81 (4.75)% 23,377 1.01%
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Investment Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
BOND FUND
- ---------
<S> <C> <C> <C> <C>
RETAIL
1995(1) 6.02% 1.44% 5.55% 352%
PRIOR CLASS
1994 5.07% 1.60% 4.48% 232%
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets Ratio of
Value Net Gains from Net Realized Net Asset End of Expenses
Beginning Investment (Losses) on Investment Capital Value End Total Period to Average
of Period Income Investments Income Gains of Period Return* (000) Net Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 10.89 0.56 0.54 (0.56) (0.25) 11.18 10.63% 27,346 0.88%
1992 10.65 0.70 0.32 (0.68) (0.10) 10.89 9.82% 15,180 0.46%
1991 9.96 0.78 0.69 (0.78) ___ 10.65 15.16% 7,255 0.47%
1990(2) 10.00 0.50 (0.04) (0.50) ___ 9.96 4.64% 4,593 0.68%
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Investment Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
<S> <C> <C> <C> <C>
1993 5.16% 1.49% 4.55% 158%
1992 6.78% 1.24% 6.01% 99%
1991 7.71% 1.41% 6.78% 47%
1990(2) 7.75% 1.62% 6.81% 23%
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets Ratio of
Value Net Gains from Net Realized Net Asset End of Expenses
Beginning Investment (Losses) on Investment Capital Value End Total Period to Average
of Period Income Investments Income Gains of Period Return* (000) Net Assets
INTERMEDIATE INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL
1995(1) $10.27 $0.55 $0.44 $(0.54) $___ $10.72 9.90% $1,230 0.93%
PRIOR CLASS
1994 11.01 0.50 (0.61) (0.49) (0.14) 10.27 (0.97)% 21,247 0.90%
1993 10.87 0.53 0.21 (0.53) (0.07) 11.01 6.99% 24,047 0.78%
1992 10.61 0.65 0.29 (0.64) (0.04) 10.87 9.11% 16,718 0.47%
1991 10.12 0.77 0.50 (0.77) (0.01) 10.61 12.94% 7,116 0.40%
1990(2) 10.00 0.48 0.12 (0.48) ___ 10.12 6.10% 3,986 0.75%
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Investment Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
INTERMEDIATE INCOME FUND
- ------------------------
<S> <C> <C> <C> <C>
RETAIL
1995(1) 5.47% 1.51% 4.89% 260%
PRIOR CLASS
1994 4.66% 1.64% 3.92% 170%
1993 4.89% 1.50% 4.17% 90%
1992 6.31% 1.24% 5.57% 53%
1991 7.69% 1.34% 6.76% 33%
1990(2) 7.42% 1.69% 6.48% 39%
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets Ratio of
Value Net Gains from Net Realized Net Asset End of Expenses
Beginning Investment (Losses) on Investment Capital Value End Total Period to Average
of Period Income Investments Income Gains of Period Return* (000) Net Assets
SHORT-TERM INCOME FUND
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL
1995(6) $10.01 $0.23 $0.02 $(0.22) $___ $10.04 2.57% $11 0.88%
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Investment Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
SHORT-TERM INCOME FUND
- ----------------------
<S> <C> <C> <C> <C>
RETAIL
1995(6) 5.05% 1.33% 4.60% 40%
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets Ratio of
Value Net Gains from Net Realized Net Asset End of Expenses
Beginning Investment (Losses) on Investment Capital Value End Total Period to Average
of Period Income Investments Income Gains of Period Return* (000) Net Assets
PENNSYLVANIA TAX-FREE BOND FUND
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL
1995(1) $9.56 $0.47 $0.67 $(0.46) $(0.01) $10.23 12.30% $820 0.51%
PRIOR CLASS
1994 10.48 0.46 (0.85) (0.46) (0.07) 9.56 (3.90)% 7,008 0.38%
1993 9.77 0.45 0.70 (0.44) -- 10.48 11.94% 5,883 0.51%
1992(7) 10.00 -- (0.23) -- -- 9.77 (2.28)% 3,405 2.67%
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Investment Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
PENNSYLVANIA TAX-FREE BOND FUND
- -------------------------------
<S> <C> <C> <C> <C>
RETAIL
1995(1) 4.64% 1.62% 3.53% 15%
PRIOR CLASS
1994 4.61% 1.57% 3.42% 37%
1993 4.35% 1.63% 3.23% 50%
1992(7) 0.52% 3.41% (0.22%) 31%
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets Ratio of
Value Net Gains from Net Realized Net Asset End of Expenses
Beginning Investment (Losses) on Investment Capital Value End Total Period to Average
of Period Income Investments Income Gains of Period Return* (000) Net Assets
CASH MANAGEMENT FUND
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL
1995(1) $1.00 $0.05 $___ $(0.05) $___ $1.00 5.25% $3,358 0.74%
PRIOR CLASS
1994 1.00 0.03 (0.03) ___ ___ 1.00 3.41% 140,545 0.71%
1993 1.00 0.03 (0.03) ___ ___ 1.00 2.80% 215,223 0.65%
1992 1.00 0.04 (0.04) ___ ___ 1.00 3.79% 113,096 0.48%
1991 1.00 0.06 (0.06) ___ ___ 1.00 6.22% 151,166 0.49%
1990(8) 1.00 0.07 (0.07) ___ ___ 1.00 7.59% 39,061 0.42%
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Investment Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
CASH MANAGEMENT FUND
- --------------------
<S> <C> <C> <C> <C>
RETAIL
1995(1) 5.16% 0.97% 4.93% N/A
PRIOR CLASS
1994 3.32% 0.99% 3.05% N/A
1993 2.75% 0.87% 2.53% N/A
1992 3.76% 0.70% 3.55% N/A
1991 5.84% 0.79% 5.54% N/A
1990(8) 7.95% 0.75% 7.62% N/A
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets Ratio of
Value Net Gains from Net Realized Net Asset End of Expenses
Beginning Investment (Losses) on Investment Capital Value End Total Period to Average
of Period Income Investments Income Gains of Period Return* (000) Net Assets
U.S. TREASURY SECURITIES FUND
- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL
1995(1) $1.00 $0.05 $___ $(0.05) $___ $1.00 5.16% $730 0.73%
PRIOR CLASS
1994 1.00 0.03 (0.03) ___ ___ 1.00 3.07% 325,379 0.72%
1993 1.00 0.03 (0.03) ___ ___ 1.00 2.57% 257,934 0.66%
1992 1.00 0.04 (0.04) ___ ___ 1.00 3.64% 340,904 0.46%
1991 1.00 0.06 (0.06) ___ ___ 1.00 5.96% 341,931 0.51%
1990(8) 1.00 0.07 (0.07) ___ ___ 1.00 7.44% 106,771 0.38%
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Investment Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
<CAPTION>
U.S. TREASURY SECURITIES FUND
- -----------------------------
<C> <C> <C> <C>
RETAIL
1995(1) 5.26% 0.79% 5.20% N/A
PRIOR CLASS
1994 3.03% 0.97% 2.78% N/A
1993 2.55% 0.87% 2.33% N/A
1992 3.65% 0.69% 3.44% N/A
1991 5.61% 0.79% 5.32% N/A
1990(8) 7.73% 0.79% 7.32% N/A
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets Ratio of
Value Net Gains from Net Realized Net Asset End of Expenses
Beginning Investment (Losses) on Investment Capital Value End Total Period to Average
of Period Income Investments Income Gains of Period Return* (000) Net Assets
TAX-FREE FUND
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL
1995(1) $1.00 $0.03 $___ $(0.03) $___ $1.00 3.39% $1,282 0.48%
PRIOR CLASS
1994 1.00 0.02 (0.02) ___ ___ 1.00 2.21% 54,904 0.37%
1993 1.00 0.02 (0.02) ___ ___ 1.00 1.97% 46,239 0.45%
1992 1.00 0.03 (0.03) ___ ___ 1.00 2.88% 46,295 0.33%
1991 1.00 0.04 (0.04) ___ ___ 1.00 4.44% 45,647 0.43%
1990(8) 1.00 0.05 (0.05) ___ ___ 1.00 5.31% 24,167 0.31%
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Investment Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
TAX-FREE FUND
- -------------
<S> <C> <C> <C> <C>
RETAIL
1995(1) 3.35% 0.88% 2.95% N/A
PRIOR CLASS
1994 2.22% 1.05% 1.53% N/A
1993 1.95% 0.96% 1.44% N/A
1992 2.83% 0.73% 2.45% N/A
1991 4.37% 0.87% 3.93% N/A
1990(8) 5.57% 0.91% 4.97% N/A
</TABLE>
*Total Return figures do not reflect applicable sales loads.
(1) On February 21, 1995 the shares of the Fund were exchanged for
Institutional shares or redesignated as Retail shares. For the year ended
October 31, 1995, the Financial Highlights' ratios of expenses, ratios of
net investment income, total return, and the per share investment
activities and distributions are presented on a basis whereby the Fund's
net investment income, expenses, and distributions for the period November
1, 1994 through February 20, 1995 were allocated to each class of shares
based upon the relative net assets of each class of shares as of February
21, 1995 and the results combined therewith the results of operations and
distributions for each applicable class for the period February 21, 1995
through October 31, 1995.
(2) Commenced operations on February 28, 1990. All ratios for the period have
been annualized.
(3) Commenced operations on March 15, 1994. All ratios for the period have
been annualized.
(4) Commenced operations on May 15, 1995. All ratios for the period have been
annualized.
(5) Commenced operations on June 29, 1995. All ratios for the period have
been annualized.
(6) Commenced operations on May 17, 1995. All ratios for the period have been
annualized.
(7) Commenced operations on September 21, 1992. All ratios for the period
have been annualized.
(8) Commenced operations on November 27, 1989. All ratios for the period have
been annualized.
(4) THE FOLLOWING SECTION IS ADDED TO PAGE 15, BEFORE "HOW TO PURCHASE AND
REDEEM SHARES":
RISK FACTORS
Certain risk factors associated with investments in some or all of the
Funds are discussed in the following paragraphs. A general discussion of risk
factors is contained in "PROSPECTUS SUMMARY - Investment Risks and
Characteristics," and other risks are identified throughout the sections
entitled "INVESTMENT OBJECTIVES AND POLICIES" AND "OTHER INVESTMENT POLICIES."
DERIVATIVE SECURITIES
A "derivative" is often defined as an instrument that derives its value
from the price of different securities, interest or currency exchange rates, or
indices. The Company considers the following types of securities to be
"derivatives" because they may present atypical or unexpected risks: forward
foreign currency contracts, futures contracts, put and call options purchased
on securities and indices, asset-backed and mortgage-backed securities,
"stripped securities" and variable and floating rate notes. The Funds will not
acquire such derivatives for speculative purposes, and will only acquire them
for investment or hedging purposes as specifically described in this Prospectus
and in the Statement of Additional Information.
FOREIGN SECURITIES
The Equity Funds and the Balanced Fund may invest in securities of
foreign issuers. Investment in securities of foreign issuers involves certain
risks not ordinarily associated with investments in securities of domestic
issuers. Such risks include fluctuations in foreign exchange rates,
difficulties in predicting international trade patterns, political, social and
economic instability in the country of the issuer, foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements), foreign withholding and income taxation, the
<PAGE> 11
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions (which might adversely affect the payment of
principal and interest), difficulty in obtaining and enforcing judgments
against foreign issuers, and the possible imposition of exchange controls or
other foreign government laws or restrictions. With respect to certain
countries, there is also the possibility of expropriation of assets,
nationalization of assets, limits on removal of currency or other assets,
confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries.
Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies. Confiscatory taxation or
diplomatic developments could also affect investment in some countries. In
addition, foreign branches of U.S. banks, foreign banks and foreign issuers may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to
domestic branches of U.S. banks and U.S. domestic issuers.
PENNSYLVANIA TAX-FREE BOND FUND
This Fund is classified as a non-diversified investment company under
the Investment Company Act of 1940. Investment return on a non-diversified
portfolio typically is dependent upon the performance of a smaller number of
securities relative to the number held in a diversified portfolio.
Consequently, the change in value of any one security may affect the overall
value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject its net asset value per share to greater
fluctuation. In addition, a non-diversified portfolio may be more susceptible
to economic, political and regulatory developments affecting the portfolio's
investment sector than a diversified investment portfolio with similar
objectives would be.
Because the Fund will normally invest 80% or more of its net assets in
Pennsylvania Municipal Obligations, it is more susceptible to factors affecting
Pennsylvania issuers than is a comparable municipal bond fund not concentrated
in the obligations of issuers located in a single state. Pennsylvania
tax-exempt issuers may be adversely affected by local political and economic
conditions and developments within Pennsylvania. Although the General Fund of
the Commonwealth (the principal operating fund of the Commonwealth) experienced
deficits in fiscal 1990 and 1991, tax increases and spending decreases have
resulted in surpluses the last three years; as of June 30, 1994, the General
Fund had a surplus of $892.9 million. The deficit in the Commonwealth's
unreserved/undesignated funds also has been eliminated, and there was a surplus
of $79.2 million at June 30, 1994. However, rising unemployment, a relatively
high proportion of persons 65 and older, and court ordered increases in
healthcare reimbursement rates continue to place increased pressures on the tax
resources of the Commonwealth and its municipalities. In addition, certain
litigation is pending against the Commonwealth that could adversely affect its
ability to pay debt service. See the Statement of Additional Information for
further discussion of investment considerations associated with Pennsylvania
Municipal Obligations.
General obligations of Pennsylvania are currently rated "AA-" by S&P
and Fitch and "A1" by Moody's. There can be no assurance that the economic
conditions on which these ratings are based will continue or that particular
bond issues may not be adversely affected by changes in economic, political or
other conditions.
(5) THE SECTION ENTITLED "GOVERNMENT AND RELATED OBLIGATIONS" UNDER "OTHER
INVESTMENT POLICIES" ON PAGE 23 IS REPLACED WITH THE FOLLOWING TWO SECTIONS:
GOVERNMENT AND RELATED OBLIGATIONS
The Funds may invest in Treasury bills, notes and bonds and other
obligations issued or guaranteed by the U.S. Treasury. The Funds may also
acquire repurchase agreements secured by U.S. Treasury obligations. The Funds
(except the U.S. Treasury Fund) may also invest in other obligations issued or
guaranteed by agencies or instrumentalities of the U.S. Government. These
obligations may differ from U.S. Treasury obligations in their interest rates,
maturities, and times of issuance.
Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, may borrow from the Treasury in its discretion; others,
such as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the
<PAGE> 12
instrumentality. No assurance can be given that the U.S. Government will
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. The obligations of
such agencies and instrumentalities will be purchased only when the Investment
Advisor deems the credit risk with respect thereto to be minimal.
"STRIPPED" SECURITIES
Each Fund may invest in "stripped" securities, which are U.S. Treasury
bonds and notes the unmatured interest coupons of which have been separated
from the underlying principal obligation. Stripped securities are zero coupon
obligations that are normally issued at a discount to their "face value," and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors.
The U.S. Treasury Fund may only invest in stripped securities issued by the
U.S. Treasury and recorded in the Federal Reserve book-entry record keeping
system. A number of securities firms and banks have stripped the interest
coupons and resold them in custodian receipt programs with proprietary names
such as Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual
on Treasuries ("CATS"). Privately-issued stripped securities such as TIGRS and
CATS are not themselves guaranteed by the U.S. Government, but the future
payment of principal or interest on U.S. Treasury obligations which they
represent is so guaranteed. Such securities will be purchased only when the
Investment Advisor deems the credit risk with respect thereto to be minimal.
(6) THE SECTION ENTITLED "OTHER INVESTMENT POLICIES - SPECIAL RISKS AND
CONSIDERATIONS" ON PAGES 32 AND 33 IS ELIMINATED.
(7) THE SECOND AND THIRD PARAGRAPHS OF THE SECTION ENTITLED "TAXES -
PENNSYLVANIA STATE TAX" ON PAGES 38 AND 39 ARE ELIMINATED AND REPLACED WITH
THE FOLLOWING:
Distributions attributable to interest from Pennsylvania Municipal
Obligations or Federal Obligations is not subject to the Philadelphia School
District Net Income Tax. However, distributions attributable to gain from the
disposition of Pennsylvania Municipal Obligations or Federal Obligations are
subject to the Philadelphia School District Net Income Tax, except that
distributions attributable to gain on any investment held for more than six
months are exempt. A shareholder's gain on the disposition of shares in one of
the Funds that he has held for more than six months will not be subject to the
Philadelphia School District Net Income Tax.
Shareholders of the Tax-Free, U.S. Treasury Securities and Pennsylvania
Tax-Free Bond Funds are not subject to the county personal property tax imposed
on residents of Pennsylvania by the Act of June 17, 1913, P.L. 507, as amended,
to the extent that a Fund is comprised of Pennsylvania Municipal Obligations
and Federal Obligations.
(8) THE FIRST SENTENCE OF THE SECTION ENTITLED "MANAGEMENT OF THE COMPANY -
CUSTODIANS AND TRANSFER AGENT" ON PAGE 43 IS ELIMINATED AND REPLACED WITH
THE FOLLOWING:
Citibank, N.A. serves as custodian for each Fund other than the
International Equity Fund. CoreStates Bank, N.A. is expected to replace
Citibank, N.A. as custodian for these Funds on or about March 7, 1996.
PLEASE RETAIN FOR FUTURE REFERENCE
<PAGE> 13
CONESTOGA FAMILY OF FUNDS
SUPPLEMENT DATED FEBRUARY __, 1996 TO THE
PROSPECTUS DATED FEBRUARY 21, 1995
INSTITUTIONAL SHARES
THIS SUPPLEMENT TO THE PROSPECTUS SUPERSEDES AND REPLACES ALL EXISTING
SUPPLEMENTS TO THE PROSPECTUS. THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL
INFORMATION BEYOND THAT CONTAINED IN THE PROSPECTUS AND SHOULD BE RETAINED AND
READ IN CONJUNCTION WITH THE PROSPECTUS.
-------------------------------------
Meridian Bancorp, Inc., the parent corporation of Meridian Investment
Company ("MIC"), the investment adviser to Conestoga Family of Funds (the
"Company"), has agreed to merge with CoreStates Financial Corp (the "Merger").
Because the Merger will result in a change in control of MIC, the existing
investment advisory and sub-advisory agreements for the Company will, by their
terms, automatically terminate upon the Merger. The Merger is expected to take
place on or about April 1, 1996.
In connection with the Merger, the Board of Trustees of the Company
approved several changes for the Company. At a meeting held on December 21,
1995, the Trustees approved an Agreement and Plan of Reorganization (the
"Agreement") between the Company and CoreFunds, Inc. ("CoreFunds") which
provides for the merger of each portfolio of the Company (each a "Fund" and,
together, the "Funds") with certain funds of CoreFunds, which are advised by
CoreStates Investment Advisers, Inc. ("CoreStates Advisers"), a wholly-owned
subsidiary of CoreStates Bank, N.A. (which is itself a wholly-owned subsidiary
of CoreStates Financial Corp). The Trustees voted to reorganize the Cash
Management Fund into CoreFunds Cash Reserve Fund, the Tax-Free Fund into the
CoreFunds Tax-Free Reserve Fund, the U.S. Treasury Securities Fund into the
CoreFunds Treasury Reserve Fund, the Equity Fund into the CoreFunds Equity
Fund, the Intermediate Income Fund into the CoreFunds Intermediate Bond Fund,
the Pennsylvania Tax-Free Bond Fund into the CoreFunds Pennsylvania Municipal
Bond Fund, the Balanced Fund into the CoreFunds Balanced Fund and the
International Equity Fund into the CoreFunds International Growth Fund.
Additionally, the Special Equity Fund, Bond Fund and Short-Term Income Fund
each would be reorganized into separate, newly-formed CoreFund investment
portfolios of the same name.
A Special Meeting of the Shareholders of the Funds has been scheduled for
March 22, 1996, at which Shareholders will be asked to approve the Agreement in
connection with the proposed reorganization, including an interim investment
advisory agreement between the Company, on behalf of each Fund, and MIC, and an
interim sub-advisory agreement with Marvin & Palmer Associates, Inc. with
respect to the International Equity Fund. These interim agreements with the
current adviser and sub-adviser would be in effect between the Merger and the
effective times of the reorganization between the Company and CoreFunds as to
particular Funds.
If shareholders of the Company approve the Agreement, substantially all
of the assets and liabilities of the Funds will be transferred to the
corresponding investment portfolio of CoreFunds, and the Company's shareholders
will become shareholders of CoreFunds. The Agreement provides that each holder
of Institutional Shares of a Fund will hold, immediately after the
reorganization, Institutional Shares of the corresponding investment portfolio
of CoreFunds with the same aggregate net asset value as immediately before the
reorganization.
-------------------------------------
<PAGE> 14
THE FOLLOWING INFORMATION REPLACES THE SECTION ENTITLED "EXPENSE SUMMARY" IN
THE INSTITUTIONAL SHARE PROSPECTUS ON PAGES 4 AND 5:
EXPENSE SUMMARY
The purpose of the following table is to assist a potential purchaser of
Institutional Shares of a Fund in understanding the various costs and expenses
that an investor in such Shares of the Fund will bear directly or indirectly.
<TABLE>
<CAPTION>
Conestoga Conestoga Conestoga
Money Equity Conestoga Balanced
Market Funds Funds Bond Funds Fund
------------ -------- ---------- ---------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . 0% 0% 0% 0%
Maximum Sales Load Imposed on Reinvested Dividends . . . . 0% 0% 0% 0%
Deferred Sales Load . . . . . . . . . . . . . . . . . . . . 0% 0% 0% 0%
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . 0% 0% 0% 0%
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . 0% 0% 0% 0%
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury International
ANNUAL FUND OPERATING EXPENSES Cash Management Tax-Free Securities Equity Equity
(as a percentage of average net assets) Fund Fund Fund Fund Fund
-------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Advisory Fees After Fee Waivers(1) . . . . . . . .20% .16% .27% .74% 1.00%
Other Expenses After Reimbursements(2) . . . . . .36% .30% .35% .31% .88%
---- ---- ----- ------ -----
Total Fund Operating Expenses . . . . . . . . . .56% .46% .62% 1.05% 1.88%
==== ==== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Special Intermediate Tax-Free Short-Term
Equity Bond Income Bond Income Balanced
Fund Fund Fund Fund Fund Fund
-------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees After Fee Waivers(1) . . . .00% .34% .25% .00% .29% .49%
Other Expenses After Reimburse-
ments (2) . . . . . . . . . . . . . .32% .37% .39% .51% .34% .33%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses . . . .32% .71% .64% .51% .63% .82%
===== ===== ===== ===== ===== =====
</TABLE>
- ------------------------
(1) Advisory Fees are payable at the maximum annual rates of .40%, .40%, .40%,
.74%, 1.00%, 1.50%, .74%, .74%, .74%, .74% and .75% of the average daily net
assets of the Cash Management Fund, the Tax-Free Fund, the U.S. Treasury
Securities Fund, the Equity Fund, the International Equity Fund, the Special
Equity Fund, the Bond Fund, the Intermediate Income Fund, the Pennsylvania
Tax-Free Bond Fund, the Short-Term Income Fund and the Balanced Fund,
respectively.
(2) "Other Expenses After Reimbursements" include administration fees payable
at the maximum annual rate of .17% of each Fund's average daily net assets.
Before May 1, 1995, administration fees were payable at the rate of .20% of
each Fund's average net assets pursuant to an administration agreement with a
prior administrator. (See "MANAGEMENT OF THE FUND -- Investment Advisor and
Administrator and Distributor.")
<PAGE> 15
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming:
(1) a 5% annual return;
(2) redemption at the end of each time period; and
(3) the imposition of a maximum sales load at the beginning of the
period.
<TABLE>
<CAPTION>
Cash U.S. Treasury International Special
Management Tax-Free Securities Equity Equity Equity Bond
Fund Fund Fund Fund Fund Fund Fund
------ ------ -------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year . . . $6 $5 $6 $11 $19 $3 $7
3 Years . . . 18 15 20 33 59 10 23
5 Years . . . 31 26 35 58 N/A 18 40
10 Years . . 70 58 77 128 N/A 41 88
</TABLE>
<TABLE>
<CAPTION>
Intermediate Pennsylvania Short-Term
Income Tax-Free Income Balanced
Fund Bond Fund Fund Fund
------ ---------- ------ --------
<S> <C> <C> <C> <C>
1 Year . . . $7 $5 $6 $8
3 Years . . . 20 16 20 26
5 Years . . . 36 29 N/A N/A
10 Years . . 80 64 N/A N/A
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. THE ABOVE FIGURES WITH RESPECT TO EACH FUND ARE ESTIMATES FOR
THE CURRENT YEAR ONLY. ACTUAL EXPENSES FOR EACH FUND MAY BE GREATER OR LESSER
THAN THOSE SHOWN.
The Expense Summary has been restated with respect to the Cash Management,
Tax-Free, U.S. Treasury Securities, Equity, International Equity, Special
Equity, Bond, Intermediate Income and Pennsylvania Tax-Free Bond, Short-Term
Income and Balanced Funds to reflect various projected fee and expense rates
for the current fiscal year. Without fee waivers and expense reimbursements by
the Investment Advisor and/or administrator, Total Fund Operating Expenses for
the Cash Management Fund, the Tax-Free Fund, the U.S. Treasury Securities Fund,
the Equity Fund, the International Equity Fund, the Special Equity Fund, the
Bond Fund, the Intermediate Income Fund, the Pennsylvania Tax-Free Bond Fund,
the Short-Term Income Fund and the Balanced Fund would be .76%, .70%, .77%,
1.10%, 1.88%, 1.97%, 1.12%, 1.13%, 1.25%, 1.08%, and 1.08%, respectively, for
the current fiscal year. There may be a charge of $7.00 for each redemption
paid by wire. See "MANAGEMENT OF THE FUND-Expenses" for a more complete
discussion of the shareholder transaction expenses and annual operating
expenses of the Funds.
The information in the foregoing fee tables and examples relates only to the
Institutional Shares of each Fund. Each of the Company's eleven Funds also
offers another class of Shares known as Retail Shares. The Institutional
Shares and Retail Shares of each Fund are subject to the same expenses except
that Institutional Shares are not subject to a Rule 12b-1 fee and the
Institutional Shares of the Equity, International Equity, Special Equity, Bond,
Intermediate Income, Pennsylvania Tax-Free Bond, Short-Term Income and Balanced
Funds are not sold with a sales charge.
<PAGE> 16
THE FOLLOWING FINANCIAL HIGHLIGHTS REPLACE THOSE INCLUDED IN THE
INSTITUTIONAL SHARE PROSPECTUS ON PAGES 5 THROUGH 9:
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the
Company's financial statements incorporated by reference in the Statement of
Additional Information and set forth certain historic investment results of
Shares of each Fund. The Company's financial statements and the data reported
in "Financial Highlights" for the years ended October 31, 1995, 1994, 1993,
1992 and 1991 and the period ended October 31, 1990 with respect to the Cash
Management, Tax-Free, U.S. Treasury Securities, Equity, Bond and Intermediate
Income Funds, the years ended October 31, 1995, 1994 and 1993 and the period
ended October 31, 1992 with respect to the Pennsylvania Tax-Free Bond Fund, the
year ended October 31, 1995 and the period ended October 31, 1994 with respect
to the Special Equity Fund and the periods ended October 31, 1995 with respect
to the International Equity, Short-Term Income and Balanced Funds were audited
by Coopers & Lybrand, L.L.P., the Company's independent accountants, whose
report thereon is incorporated by reference in the Statement of Additional
Information. Further information about the performance of the Company is
contained in the Company's annual report which may be obtained without charge.
The financial data included in this table should be read in conjunction with
the financial statements and related notes incorporated by reference in the
statement of additional information.
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets
Value Net Gains from Net Realized Net Asset End of
Beginning Investment (Losses) on Investment Capital Value End Total Period
of Period Income Investments Income Gains of Period Return* (000)
EQUITY FUND
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 15.00 0.19 2.87 (0.19) (0.80) 17.07 22.00% 378,352
PRIOR CLASS
1994 15.39 0.11 0.22 (0.11) (0.61) 15.00 2.21% 50,128
1993 13.93 0.14 1.89 (0.14) (0.43) 15.39 14.90% 45,677
1992 13.08 0.19 1.02 (0.19) (0.17) 13.93 9.27% 28,103
1991 8.95 0.26 4.13 (0.26) __ 13.08 49.37% 12,830
1990(2) 10.00 0.14 (1.05) (0.14) __ 8.95 (9.22)% 5,982
<CAPTION>
SPECIAL EQUITY FUND
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 9.37 0.12 2.12 (0.12) (0.07) 11.42 24.44% 57,396
PRIOR CLASS
1994(3) 10.00 0.06 (0.63) (0.06) __ 9.37 (5.72)% 10,069
<CAPTION>
INTERNATIONAL EQUITY FUND
- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(4) 10.00 -- 1.01 ___ ___ 11.01 10.10% 13,372
<CAPTION>
BALANCED FUND
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(5) 10.00 0.12 0.37 (0.11) ___ 10.38 4.89% 38,494
<CAPTION>
BOND FUND
- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 9.81 0.61 0.71 (0.58) ___ 10.55 13.87% 194,442
PRIOR CLASS
1994 11.18 0.53 (1.04) (0.52) (0.34) 9.81 (4.75)% 23,377
1993 10.89 0.56 0.54 (0.56) (0.25) 11.18 10.63% 27,346
1992 10.65 0.70 0.32 (0.68) (0.10) 10.89 9.82% 15,180
1991 9.96 0.78 0.69 (0.78) ___ 10.65 15.16% 7,255
1990(2) 10.00 0.50 (0.04) (0.50) ___ 9.96 4.64% 4,593
</TABLE>
<TABLE>
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Ratio of Investment Net Assets Net Assets
Expenses Income (Excluding (Excluding Portfolio
to Average to Average Waivers and Waivers and Turnover
Net Assets Net Assets Reimbursements) Reimbursements) Rate
EQUITY FUND
- -----------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 1.05% 1.44% 1.10% 1.44% 119%
PRIOR CLASS
1994 1.49% 0.75% 1.51% 0.73% 35%
1993 1.20% 0.94% 1.41% 0.73% 24%
1992 0.92% 1.47% 1.23% 1.17% 39%
1991 0.54% 2.30% 1.48% 1.36% 68%
1990(2) 0.65% 2.29% 1.59% 1.35% 43%
<CAPTION>
SPECIAL EQUITY FUND
- -------------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 0.32% 1.14% 1.97% (0.51)% 129%
PRIOR CLASS
1994(3) 0.15% 1.06% 2.10% (0.89)% 39%
<CAPTION>
INTERNATIONAL EQUITY FUND
- -------------------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(4) 1.88% (0.10)% 1.88% (0.10)% 23%
<CAPTION>
BALANCED FUND
- -------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(5) 0.82% 3.66% 1.07% 3.41% 65%
<CAPTION>
BOND FUND
- ---------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 0.71% 6.09% 1.12% 5.68% 352%
PRIOR CLASS
1994 1.01% 5.07% 1.60% 4.48% 232%
1993 0.88% 5.16% 1.49% 4.55% 158%
1992 0.46% 6.78% 1.24% 6.01% 99%
1991 0.47% 7.71% 1.41% 6.78% 47%
1990(2) 0.68% 7.75% 1.62% 6.81% 23%
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
Net
Realized and Distributions
Net Asset Unrealized Dividends from Net Assets
Value Net Gains from Net Realized Net Asset End of
Beginning Investment (Losses) on Investment Capital Value End Total Period
of Period Income Investments Income Gains of Period Return* (000)
INTERMEDIATE INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 10.27 0.57 0.42 (0.55) ___ 10.71 9.92% 138,243
PRIOR CLASS
1994 11.01 0.50 (0.61) (0.49) (0.14) 10.27 (0.97)% 21,247
1993 10.87 0.53 0.21 (0.53) (0.07) 11.01 6.99% 24,047
1992 10.61 0.65 0.29 (0.64) (0.04) 10.87 9.11% 16,718
1991 10.12 0.77 0.50 (0.77) (0.01) 10.61 12.94% 7,116
1990(2) 10.00 0.48 0.12 (0.48) ___ 10.12 6.10% 3,986
<CAPTION>
SHORT-TERM INCOME FUND
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(4) 10.00 0.25 0.03 (0.23) ___ 10.05 2.87% 36,058
<CAPTION>
PENNSYLVANIA TAX-FREE BOND FUND
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 9.56 0.47 0.67 (0.46) (0.01) 10.23 12.30% 5,977
PRIOR CLASS
1994 10.48 0.46 (0.85) (0.46) (0.07) 9.56 (3.90)% 7,008
1993 9.77 0.45 0.70 (0.44) -- 10.48 11.94% 5,883
1992(6) 10.00 -- (0.23) -- -- 9.77 (2.28)% 3,405
<CAPTION>
CASH MANAGEMENT FUND
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 1.00 0.05 ___ (0.05) ___ 1.00 5.43% 234,520
PRIOR CLASS
1994 1.00 0.03 (0.03) ___ ___ 1.00 3.41% 140,545
1993 1.00 0.03 (0.03) ___ ___ 1.00 2.80% 215,223
1992 1.00 0.04 (0.04) ___ ___ 1.00 3.79% 113,096
1991 1.00 0.06 (0.06) ___ ___ 1.00 6.22% 151,166
1990(7) 1.00 0.07 (0.07) ___ ___ 1.00 7.59% 39,061
<CAPTION>
U.S. TREASURY SECURITIES FUND
- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 1.00 0.05 ___ (0.05) ___ 1.00 5.27% 444,529
PRIOR CLASS
1994 1.00 0.03 (0.03) ___ ___ 1.00 3.07% 325,379
1993 1.00 0.03 (0.03) ___ ___ 1.00 2.57% 257,934
1992 1.00 0.04 (0.04) ___ ___ 1.00 3.64% 340,904
1991 1.00 0.06 (0.06) ___ ___ 1.00 5.96% 341,931
1990(7) 1.00 0.07 (0.07) ___ ___ 1.00 7.44% 106,771
<CAPTION>
TAX-FREE FUND
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 1.00 0.03 ___ (0.03) ___ 1.00 3.43% 60,509
PRIOR CLASS
1994 1.00 0.02 (0.02) ___ ___ 1.00 2.21% 54,904
1993 1.00 0.02 (0.02) ___ ___ 1.00 1.97% 46,239
1992 1.00 0.03 (0.03) ___ ___ 1.00 2.88% 46,295
1991 1.00 0.04 (0.04) ___ ___ 1.00 4.44% 45,647
1990(7) 1.00 0.05 (0.05) ___ ___ 1.00 5.31% 24,167
</TABLE>
<TABLE>
<CAPTION>
Ratio
of Net
Ratio of Investment
Ratio of Expenses Income
Net to Average to Average
Ratio of Investment Net Assets Net Assets
Expenses Income (Excluding (Excluding Portfolio
to Average to Average Waivers and Waivers and Turnover
Net Assets Net Assets Reimbursements) Reimbursements) Rate
INTERMEDIATE INCOME FUND
- ------------------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 0.64% 5.72% 1.15% 5.21% 260%
PRIOR CLASS
1994 0.90% 4.66% 1.64% 3.92% 170%
1993 0.78% 4.89% 1.50% 4.17% 90%
1992 0.47% 6.31% 1.24% 5.57% 53%
1991 0.40% 7.69% 1.34% 6.76% 33%
1990(2) 0.75% 7.42% 1.69% 6.48% 39%
<CAPTION>
SHORT-TERM INCOME FUND
- ----------------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(4) 0.63% 5.43% 1.08% 4.98% 40%
<CAPTION>
PENNSYLVANIA TAX-FREE BOND FUND
- -------------------------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 0.51% 4.64% 1.65% 3.50% 15%
PRIOR CLASS
1994 0.38% 4.61% 1.57% 3.42% 37%
1993 0.51% 4.35% 1.63% 3.23% 50%
1992(6) 2.67% 0.52% 3.41% (0.22%) 31%
<CAPTION>
CASH MANAGEMENT FUND
- --------------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 0.56% 5.32% 0.79% 5.09% N/A
PRIOR CLASS
1994 0.71% 3.32% 0.99% 3.05% N/A
1993 0.65% 2.75% 0.87% 2.53% N/A
1992 0.48% 3.76% 0.70% 3.55% N/A
1991 0.49% 5.84% 0.79% 5.54% N/A
1990(7) 0.42% 7.95% 0.75% 7.62% N/A
<CAPTION>
U.S. TREASURY SECURITIES FUND
- -----------------------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 0.62% 5.14% 0.78% 4.98% N/A
PRIOR CLASS
1994 0.72% 3.03% 0.97% 2.78% N/A
1993 0.66% 2.55% 0.87% 2.33% N/A
1992 0.46% 3.65% 0.69% 3.44% N/A
1991 0.51% 5.61% 0.79% 5.32% N/A
1990(7) 0.38% 7.73% 0.79% 7.32% N/A
<CAPTION>
TAX-FREE FUND
- -------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL
1995(1) 0.46% 3.37% 0.83% 3.00% N/A
PRIOR CLASS
1994 0.37% 2.22% 1.05% 1.53% N/A
1993 0.45% 1.95% 0.96% 1.44% N/A
1992 0.33% 2.83% 0.73% 2.45% N/A
1991 0.43% 4.37% 0.87% 3.93% N/A
1990(7) 0.31% 5.57% 0.91% 4.97% N/A
</TABLE>
*Total Return figures do not reflect applicable sales loads.
(1) On February 21, 1995 the shares of the Fund were exchanged for
Institutional shares or redesignated as Retail shares. For the year ended
October 31, 1995, the Financial Highlights' ratios of expenses, ratios of
net investment income, total return, and the per share investment
activities and distributions are presented on a basis whereby the Fund's
net investment income, expenses, and distributions for the period November
1, 1994 through February 20, 1995 were allocated to each class of shares
based upon the relative net assets of each class of shares as of February
21, 1995 and the results combined therewith the results of operations and
distributions for each applicable class for the period February 21, 1995
through October 31, 1995.
(2) Commenced operations on February 28, 1990. All ratios for the period have
been annualized.
(3) Commenced operations on March 15, 1994. All ratios for the period have
been annualized.
(4) Commenced operations on May 15, 1995. All ratios for the period have been
annualized.
(5) Commenced operations on June 27, 1995. All ratios for the period have
been annualized.
<PAGE> 18
(6) Commenced operations on September 21, 1992. All ratios for the period
have been annualized.
(7) Commenced operations on November 27, 1989. All ratios for the period have
been annualized.
THE THIRD AND FOURTH SENTENCES OF THE SECOND PARAGRAPH OF THE SECTION ENTITLED
"OTHER INVESTMENT POLICIES-SPECIAL RISKS AND CONSIDERATIONS" ON PAGE 28 ARE
ELIMINATED AND REPLACED WITH THE FOLLOWING:
Although the General Fund of the Commonwealth (the principal operating
fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991, tax
increases and spending decreases have resulted in surpluses in the last three
years; as of June 30, 1994, the General Fund had a surplus of $892.9 million.
The deficit in the Commonwealth's unreserved/undesignated funds also has been
eliminated, and there was a surplus of $79.2 million at June 30, 1994.
THE SECOND AND THIRD PARAGRAPHS OF THE SECTION ENTITLED "TAXES-PENNSYLVANIA
STATE TAX" ON PAGE 34 ARE ELIMINATED AND REPLACED WITH THE FOLLOWING:
Distributions attributable to interest from Pennsylvania Municipal
Obligations or Federal Obligations is not subject to the Philadelphia School
District Net Income Tax. However, distributions attributable to gain from the
disposition of Pennsylvania Municipal Obligations or Federal Obligations are
subject to the Philadelphia School District Net Income Tax, except that
distributions attributable to gain on any investment held for more than six
months are exempt. A shareholder's gain on the disposition of shares in one of
the Funds that he has held for more than six months will not be subject to the
Philadelphia School District Net Income Tax.
Shareholders of the Tax-Free, U.S. Treasury Securities and Pennsylvania
Tax-Free Bond Funds are not subject to the county personal property tax imposed
on residents of Pennsylvania by the Act of June 17, 1913, P.L.507, as amended,
to the extent that a Fund is comprised of Pennsylvania Municipal Obligations
and Federal Obligations.
THE FIRST SENTENCE OF THE SECTION ENTITLED "MANAGEMENT OF THE COMPANY -
CUSTODIANS AND TRANSFER AGENT" ON PAGE 38 IS ELIMINATED AND REPLACED WITH THE
FOLLOWING:
Citibank, N.A. serves as custodian for each Fund other than the
International Equity Fund. CoreStates Bank, N.A. is expected to replace
Citibank, N.A. as custodian for these Funds on or about March 7, 1996.
PLEASE RETAIN FOR FUTURE REFERENCE
<PAGE> 19
RETAIL SHARES
Cash Management Fund
Tax-Free Fund
U.S. Treasury Securities Fund
Equity Fund
Special Equity Fund
Bond Fund
Intermediate Income Fund
Pennsylvania Tax-Free Bond Fund
Balanced Fund
Short-Term Income Fund
International Equity Fund
------------------------------------------------------
PROSPECTUS
FEBRUARY 21, 1995
------------------------------------------------------
<PAGE> 20
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................................................................. 2
Expense Summary..................................................................... 4
Financial Highlights................................................................ 5
Investment Objectives and Policies.................................................. 10
How to Purchase and Redeem Shares................................................... 15
Valuation of Shares................................................................. 22
Dividends........................................................................... 23
Other Investment Policies........................................................... 23
Investment Restrictions............................................................. 33
Taxes............................................................................... 35
Performance Information............................................................. 39
Management of the Company........................................................... 41
General Information................................................................. 44
</TABLE>
[MERIDIAN INNVESTMENT COMPANY LOGO]
INVESTMENT ADVISOR
SEI FINANCIAL SERVICES COMPANY
DISTRIBUTOR
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE COMPANY
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
CON-F-001-01
<PAGE> 21
CONESTOGA FAMILY OF FUNDS
RETAIL SHARES
680 East Swedesford Road For information,
Wayne, Pennsylvania 19087-1658 call (800) 344-2716
Conestoga Family of Funds (the "Company") is an open-end management investment
company. This Prospectus describes the eleven separate investment portfolios
(the "Funds") which are offered by the Company, each of which is advised by
Meridian Investment Company (the "Investment Advisor"). These Funds enable the
Company to meet a wide range of investment needs. This Prospectus relates to a
separate series of shares (the "Retail Shares") of each of the Funds.
MONEY MARKET FUNDS
THE CONESTOGA CASH MANAGEMENT FUND'S investment objective is to seek current
income with liquidity and stability of principal.
THE CONESTOGA TAX-FREE FUND'S investment objective is to seek current income
which is exempt from regular federal income tax with liquidity and stability of
principal.
THE CONESTOGA U.S. TREASURY SECURITIES FUND'S investment objective is to seek
current income with liquidity and stability of principal.
EQUITY FUNDS
THE CONESTOGA EQUITY FUND seeks capital growth by investing principally in a
diversified portfolio of common stocks.
THE CONESTOGA INTERNATIONAL EQUITY FUND'S investment objective is to seek
long-term growth of capital.
THE CONESTOGA SPECIAL EQUITY FUND seeks capital growth by investing
principally in a diversified portfolio of common stocks.
BOND FUNDS
THE CONESTOGA BOND (FORMERLY THE INCOME) FUND'S investment objective is to
seek to maximize long-term total return by investing principally in a
diversified portfolio of debt securities.
THE CONESTOGA INTERMEDIATE INCOME (FORMERLY THE LIMITED MATURITY) FUND has a
primary investment objective of seeking current income by investing principally
in a diversified portfolio of debt securities with remaining or expected
maturities of ten years or less, and a secondary objective of seeking capital
growth.
THE CONESTOGA PENNSYLVANIA TAX-FREE BOND FUND'S investment objective is to
seek a high level of current income consistent with the preservation of capital,
which income is exempt from federal individual income tax and, to the extent
possible, from Pennsylvania state and local personal income tax, and is not a
tax preference item under the federal alternative minimum tax.
THE CONESTOGA SHORT-TERM INCOME FUND'S investment objective is to seek
consistent current income with relative stability of principal by investing
principally in a diversified portfolio of investment grade debt securities.
BALANCED FUND
THE BALANCED FUND'S investment objective is to seek a balance of capital
appreciation and current income consistent with the preservation of capital.
The Investment Advisor is located in Malvern, Pennsylvania. Marvin & Palmer
Associates, Inc. is the sub-investment advisor to the International Equity Fund.
SEI Financial Management Corporation acts as the Company's administrator and SEI
Financial Services Company acts as the Company's distributor. FUND SHARES ARE
NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, THE
INVESTMENT ADVISOR OR ANY OF ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED BY,
GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. EACH OF THE CASH MANAGEMENT, TAX-FREE AND U.S. TREASURY
SECURITIES FUNDS SEEKS TO MAINTAIN ITS NET ASSET VALUE PER SHARE AT $1.00 FOR
PURPOSES OF PURCHASES AND REDEMPTIONS, ALTHOUGH THERE CAN BE NO ASSURANCE THAT
IT WILL BE ABLE TO DO SO ON A CONTINUOUS BASIS. INVESTMENT IN ANY FUND INVOLVES
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the information about Retail Shares of
the Funds that a prospective investor ought to know before investing. Investors
should read this Prospectus and retain it for future reference. The Statement of
Additional Information bears the same date as this Prospectus, is incorporated
by reference in its entirety into this Prospectus, and is available upon request
without charge by writing to the Company at its address or by calling the
Company at the telephone number shown above.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is February 21, 1995.
<PAGE> 22
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
Shares Offered................ Units of Beneficial Interest of a separate class (the
"Retail Shares") of each Fund.
Offering Price and
Sale Charge................. The public offering price of Retail Shares of each Fund is
equal to its net asset value per Share which, with respect
to the Cash Management, Tax-Free and U.S. Treasury
Securities Funds (the "Money Market Funds"), the Company
will seek to maintain at $1.00 and, with respect to the
Equity, Special Equity, International Equity, Bond,
Intermediate Income, Pennsylvania Tax-Free Bond, Short-Term
Income and Balanced Funds (the "Non-Money Market Funds"),
includes a sales charge.
Minimum Purchase.............. $1,000 minimum initial investment with no minimum subsequent
investment.
Investment Objectives......... MONEY MARKET FUNDS: The CASH MANAGEMENT FUND and the U.S.
TREASURY SECURITIES FUND will each seek current income with
liquidity and stability of principal. The TAX-FREE FUND will
seek current income which is exempt from regular federal
income tax with liquidity and stability of principal.
EQUITY FUNDS: The EQUITY FUND and the SPECIAL EQUITY FUND
will each seek capital growth by investing primarily in a
diversified portfolio of common stocks. The INTERNATIONAL
EQUITY FUND will seek long-term growth of capital.
BOND FUNDS: The BOND FUND will seek to maximize long-term
total return by investing principally in a diversified
portfolio of debt securities. The INTERMEDIATE INCOME FUND
has a primary investment objective of seeking current income
by investing principally in a diversified portfolio of debt
securities with expected or remaining maturities of ten
years or less, and a secondary objective of seeking capital
growth. The investment objective of the PENNSYLVANIA
TAX-FREE BOND FUND is to seek a high level of current income
consistent with the preservation of capital, which income is
exempt from federal individual income tax and, to the extent
possible, from Pennsylvania state and local personal income
tax, and is not a tax preference item under the federal
alternative minimum tax. Shares of the Pennsylvania Tax-Free
Bond Fund will be exempt from Pennsylvania personal property
taxes. The SHORT-TERM INCOME FUND'S investment objective is
to seek consistent current income with relative stability of
principal by investing principally in a diversified
portfolio of investment grade debt securities.
BALANCED FUND: The BALANCED FUND'S investment objective is
to seek a balance of capital appreciation and current income
consistent with the preservation of capital.
Investment Policies........... MONEY MARKET FUNDS: The CASH MANAGEMENT FUND invests
principally in short-term high-quality money market
instruments. The TAX-FREE FUND invests principally in
short-term high-quality municipal obligations the interest
on which is exempt from regular federal income tax and not
treated as a specific tax preference item under the federal
alternative minimum tax. The U.S. TREASURY SECURITIES FUND
invests exclusively in short-term obligations issued or
guaranteed by the U.S. Treasury and in repurchase agreements
secured by U.S. Treasury instruments.
</TABLE>
2
<PAGE> 23
<TABLE>
<S> <C>
EQUITY FUNDS: The EQUITY FUND will normally invest at least
80% of its total assets in common stocks. The SPECIAL EQUITY
FUND will normally invest in common stocks of domestic
companies that the Investment Advisor expects will
experience growth in earnings and price. The INTERNATIONAL
EQUITY FUND will normally invest at least 65% of its total
assets in an internationally diversified portfolio of equity
securities which trade in markets other than the United
States.
BOND FUNDS: The BOND FUND will normally invest at least 80%
of its total assets in debt securities of all types. The
INTERMEDIATE INCOME FUND will normally invest at least 80%
of its total assets in debt securities of all types with
maximum expected or remaining maturities of ten years or
less. The PENNSYLVANIA TAX-FREE BOND FUND will invest
substantially all of its assets (but in no event less than
80%) in investment grade municipal securities the interest
on which is exempt from federal individual income tax and
from Pennsylvania state and local personal income tax, and
is not treated as a specific tax preference item under the
federal alternative minimum tax. The SHORT-TERM INCOME FUND
will invest principally in investment grade debt securities
of all types with maximum expected or remaining maturities
of three years or less. The Fund will normally have an
average dollar-weighted portfolio maturity of approximately
one year.
BALANCED FUND: The BALANCED FUND will normally invest at all
times at least 30% of the value of its total assets in
fixed-income securities and no more than 70% in equity
securities.
Investment Risks and
Characteristics............. Funds investing in debt and equity securities are subject to
market risk. Market risk is the possibility that prices of
securities held by a Fund will decline over a short or even
extended period. Stock markets tend to be cyclical, with
periods of generally declining prices. The cycles will
affect the value of a fund investing in equity securities.
Funds investing in equity securities of foreign companies
also will be subject to the risks of fluctuations in the
values of foreign currencies relative to the U.S. dollar and
other risks, including future political and economic
developments and the possible imposition of exchange
controls or other foreign governmental laws or restrictions.
Funds investing in debt securities are subject to market
risk caused by fluctuations in interest rates and are
subject to the risk that particular issuers will be unable
to meet their obligations. See "Investment Objectives and
Policies" and "Other Investment Policies" in the Prospectus
and "Investments, Policies and Restrictions" in the
Statement of Additional Information.
Dividends and Capital Gains... Dividends from net income are generally declared and paid
annually with respect to the International Equity Fund,
quarterly with respect to the Equity Fund, the Special
Equity Fund and the Balanced Fund and monthly with respect
to the Bond Funds. Dividends from net income are declared
daily and paid monthly with respect to the Money Market
Funds. Net realized capital gains are distributed at least
annually.
Investment Advisor............ Meridian Investment Company. Marvin & Palmer Associates,
Inc. (the "Sub-advisor") serves as the sub-advisor for the
International Equity Fund.
Distributor................... SEI Financial Services Company.
</TABLE>
3
<PAGE> 24
EXPENSE SUMMARY
The purpose of the following table is to assist a potential purchaser of
Retail Shares of a Fund in understanding the various costs and expenses that an
investor in such Shares of the Fund will bear directly or indirectly.
<TABLE>
<CAPTION>
CONESTOGA CONESTOGA CONESTOGA
MONEY EQUITY CONESTOGA BALANCED
MARKET FUNDS FUNDS BOND FUNDS FUND
------------ ------------ ---------- -------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)............................................. 0% 2.0% 2.0% 2.0%
Maximum Sales Load Imposed on Reinvested Dividends............ 0% 0% 0% 0%
Deferred Sales Load........................................... 0% 0% 0% 0%
Redemption Fees............................................... 0% 0% 0% 0%
Exchange Fee.................................................. 0% 0% 0% 0%
</TABLE>
<TABLE>
<CAPTION>
U.S.
CASH TREASURY INTERNATIONAL
MANAGEMENT TAX-FREE SECURITIES EQUITY EQUITY
FUND FUND FUND FUND FUND
---------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees After Fee Waivers(1)............... .34% .25% .32% .74% 1.00%
12b-1 Fees After Fee Waivers(2).................. .25% .08% .25% .40% .40%
Other Expenses After Reimbursements(3)........... .25% .32% .25% .27% .92%
----- ----- ----- ----- ------
Total Fund Operating Expenses.................... .84% .65% .82% 1.41% 2.32%
=========== =========== ============ ========== ===========
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA
SPECIAL INTERMEDIATE TAX-FREE SHORT-TERM
EQUITY BOND INCOME BOND INCOME BALANCED
FUND FUND FUND FUND FUND FUND
------- ---------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees After Fee Waivers(1)....... .50% .40% .40% .25% .50% .75%
12b-1 Fees After Fee Waivers(2).......... .40% .32% .39% .00% .40% .40%
Other Expenses After Reimbursements(3)... .39% .28% .25% .59% .37% .48%
------- ----- ----- ----- ----- ------
Total Fund Operating Expenses............ 1.29% 1.00% 1.04% .84% 1.27% 1.63%
====== =========== =========== ============ ========== ===========
</TABLE>
- ---------
(1) Advisory Fees are payable at the maximum annual rates of .40%, .40%, .40%,
.74%, 1.00%, 1.50%, .74%, .74%, .74%, .74% and .75% of the average daily net
assets of the Cash Management Fund, the Tax-Free Fund, the U.S. Treasury
Securities Fund, the Equity Fund, the International Equity Fund, the Special
Equity Fund, the Bond Fund, the Intermediate Income Fund, the Pennsylvania
Tax-Free Bond Fund, the Short-Term Income Fund and the Balanced Fund,
respectively.
(2) 12b-1 fees are payable at the annual rate of .40%. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales
charges permitted by the rules of National Association of Securities
Dealers, Inc. ("NASD") for investment companies without 12b-1 fees. Does not
include other fees which certain financial or other institutions may charge
certain customers in connection with their accounts. (See "MANAGEMENT OF THE
FUND -- Distribution and Services Plan.").
(3) "Other Expenses After Reimbursements" include administrative fees. Until
April 30, 1995, administration fees will equal .20% of each Fund's average
net assets. Effective May 1, 1995, an Administration Agreement with a new
Administrator provides that administration fees will not exceed .17% of each
Fund's average net assets. (See "MANAGEMENT OF THE FUND -- Investment
Advisor and Administrator and Distributor.")
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming: (1) a
5% annual return; (2) redemption at the end of each time period; and (3)
the imposition of a maximum sales load at the beginning of the period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cash Management Fund.................... $ 9 $27 $47 $104
Tax-Free Fund........................... $ 7 $21 $36 $ 81
U.S. Treasury Securities Fund........... $ 8 $26 $46 $101
Equity Fund............................. $ 34 $64 $96 $186
International Equity Fund............... $ 43 $91
Special Equity Fund..................... $ 36 $60 $89 $173
Bond Fund............................... $ 30 $51 $74 $140
Intermediate Income Fund................ $ 30 $52 $76 $145
Pennsylvania Tax-Free Bond Fund......... $ 28 $46 $66 $122
Short-Term Income Fund.................. $ 33 $59
Balanced Fund........................... $ 36 $70
</TABLE>
4
<PAGE> 25
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. THE INTERNATIONAL EQUITY, SHORT-TERM INCOME AND BALANCED FUNDS
ARE NEW. THE ABOVE FIGURES WITH RESPECT TO EACH FUND ARE ESTIMATES FOR THE
CURRENT YEAR ONLY. ACTUAL EXPENSES FOR EACH FUND MAY BE GREATER OR LESSER THAN
THOSE SHOWN.
The Expense Summary has been restated with respect to the Cash Management,
Tax-Free, U.S. Treasury Securities, Equity, Bond, Intermediate Income and
Pennsylvania Tax-Free Bond Funds to reflect various projected fee and expense
rates for the fiscal year ending October 31, 1995. The Special Equity Fund did
not commence investment operations until March 15, 1994. The International
Equity, Short-Term Income and Balanced Funds are expected to commence operations
shortly after the effective date of this Prospectus. Without fee waivers and
expense reimbursements by the Investment Advisor, Total Fund Operating Expenses
for the Cash Management Fund, the Tax-Free Fund, the U.S. Treasury Securities
Fund, the Equity Fund, the International Equity Fund, the Special Equity Fund,
the Bond Fund, the Intermediate Income Fund, the Pennsylvania Tax-Free Bond
Fund, the Short-Term Income Fund and the Balanced Fund would be 1.10%, 1.17%,
1.10%, 1.43%, 2.37%, 2.29%, 1.44%, 1.44%, 2.46%, 1.56%, and 1.68%, respectively,
for the fiscal year or period ending October 31, 1995. Certain of the fee
waivers and expense reimbursements reflected in the Expense Summary are based
upon informal commitments of the Investment Advisor in connection with the
implementation of the Company's multiple class structure to waive or reimburse
certain expenses until February 1996; there can be no assurance that such
commitments will continue thereafter. There may be a charge of $7.00 for each
redemption paid by wire. See "MANAGEMENT OF THE FUND -- Expenses" for a more
complete discussion of the shareholder transaction expenses and annual operating
expenses of the Funds.
The information in the foregoing fee tables and examples relates only to the
Retail Shares of each Fund. Each of the Company's eleven Funds also offer
another class of Shares known as Institutional Shares. The Institutional Shares
and Retail Shares of each Fund are subject to the same expenses except that
Institutional Shares are not subject to a Rule 12b-1 fee and the Institutional
Shares of the Equity, International Equity, Special Equity, Bond, Intermediate
Income, Pennsylvania Tax-Free Bond, Short-Term Income and Balanced Funds are not
sold with a sales charge.
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplements the Company's
financial statements contained in the Statement of Additional Information and
sets forth certain historic investment results of Shares of each Fund that had
commenced investment operations prior to the date of this Prospectus. The
Company's financial statements and the data reported in "Financial Highlights"
for the years ended October 31, 1994, 1993, 1992 and 1991 and period ended
October 31, 1990 with respect to the Cash Management, Tax-Free, U.S. Treasury
Securities, Equity, Bond and Intermediate Income Funds, the years ended October
31, 1994 and 1993 and period ended October 31, 1992 with respect to the
Pennsylvania Tax-Free Bond Fund, and the period ended October 31, 1994 with
respect to the Special Equity Fund were audited by the Company's independent
auditors, whose report thereon is incorporated by reference in the Statement of
Additional Information. Further information about the performance of the Company
is contained in the Company's annual report which may be obtained without
charge.
The information in the following tables is not necessarily indicative of
future results with respect to the Retail Shares. See the "EXPENSE SUMMARY."
5
<PAGE> 26
CASH MANAGEMENT FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, NOVEMBER 27, 1989
-------------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990(1)
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net Investment Income....................... 0.034 0.028 0.037 0.060 0.073
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net Investment Income....................... (0.034) (0.028) (0.037) (0.060) (0.073)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =================
TOTAL RETURN.................................. 3.41% 2.80% 3.79% 6.22% 7.59%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)........... $140,545 $215,223 $113,096 $151,166 $39,061
Ratio of Expenses to Average Net Assets..... 0.71% 0.65% 0.48% 0.49% 0.42%(2)
Ratio of Net Investment Income to Average
Net Assets................................ 3.32% 2.75% 3.76% 5.84% 7.95%(2)
Ratio of Expenses to Average Net Assets*.... 0.99% 0.87% 0.70% 0.79% 0.75%(2)
Ratio of Net Investment Income to Average
Net Assets*............................... 3.05% 2.53% 3.55% 5.54% 7.62%(2)
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or shareholder
servicing plan fees were voluntarily reduced. If such voluntary fee
reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
TAX-FREE FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, NOVEMBER 27, 1989
---------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990(1)
------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
INVESTMENT ACTIVITIES
Net Investment Income........................... 0.022 0.020 0.028 0.044 0.052
------- ------- ------- ------- -------
Distributions
Net Investment Income........................... (0.022) (0.020) (0.028) (0.044) (0.052)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =================
TOTAL RETURN...................................... 2.21% 1.97% 2.88% 4.44% 5.31%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)............... $54,904 $46,239 $46,295 $45,647 $24,167
Ratio of Expenses to Average Net Assets......... 0.37% 0.45% 0.33% 0.43% 0.31%(2)
Ratio of Net Investment Income to Average
Net Assets.................................... 2.22% 1.95% 2.83% 4.37% 5.57%(2)
Ratio of Expenses to Average Net Assets*........ 1.05% 0.96% 0.73% 0.87% 0.91%(2)
Ratio of Net Investment Income to Average
Net Assets*................................... 1.53% 1.44% 2.45% 3.93% 4.97%(2)
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or shareholder
servicing plan fees were voluntarily reduced. If such voluntary fee
reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
6
<PAGE> 27
U.S. TREASURY SECURITIES FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, NOVEMBER 27, 1989
-------------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990(1)
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
INVESTMENT ACTIVITIES
Net Investment Income....................... 0.030 0.025 0.036 0.058 0.073
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income....................... (0.030) (0.025) (0.036) (0.058) (0.073)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =================
TOTAL RETURN.................................. 3.07% 2.57% 3.64% 5.96% 7.44%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)........... $325,379 $257,934 $340,904 $341,931 $ 106,771
Ratio of Expenses to Average Net Assets..... 0.72% 0.66% 0.46% 0.51% 0.38%(2)
Ratio of Net Investment Income to Average
Net Assets................................ 3.03% 2.55% 3.65% 5.61% 7.73%(2)
Ratio of Expenses to Average Net Assets*.... 0.97% 0.87% 0.69% 0.79% 0.79%(2)
Ratio of Net Investment Income to Average
Net Assets*............................... 2.78% 2.33% 3.44% 5.32% 7.32%(2)
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or shareholder
servicing plan fees were voluntarily reduced. If such voluntary fee
reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
EQUITY FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, FEBRUARY 28, 1990
-------------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990(1)
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 15.39 $ 13.93 $ 13.08 $ 8.95 $ 10.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net Investment Income....................... 0.11 0.14 0.19 0.26 0.14
Net Realized and Unrealized Gains (Losses)
on Investments............................ 0.22 1.89 1.02 4.13 (1.05)
-------- -------- -------- -------- -------
Total from Investment Activities........ 0.33 2.03 1.21 4.39 (0.91)
DISTRIBUTIONS
Net Investment Income....................... (0.11) (0.14) (0.19) (0.26) (0.14)
Net Realized Gains.......................... (0.61) (0.43) (0.17)
-------- -------- -------- -------- -------
Total Distributions..................... (0.72) (0.57) (0.36) (0.26) (0.14)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD................ $ 15.00 $ 15.39 $ 13.93 $ 13.08 $ 8.95
======== ======== ======== ======== =================
TOTAL RETURN.................................. 2.21% 14.90% 9.27% 49.37% (9.22)%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)........... $ 50,128 $ 45,677 $ 28,103 $ 12,830 $ 5,982
Ratio of Expenses to Average Net Assets..... 1.49% 1.20% 0.92% 0.54% 0.65%(2)
Ratio of Net Investment Income to Average
Net Assets................................ 0.75% 0.94% 1.47% 2.30% 2.29%(2)
Ratio of Expenses to Average Net Assets*.... 1.51% 1.41% 1.23% 1.48% 1.59%(2)
Ratio of Net Investment Income to Average
Net Assets*............................... 0.73% 0.73% 1.17% 1.36% 1.35%(2)
Portfolio Turnover Rate....................... 35.41% 23.68% 38.90% 68.15% 42.78%
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or shareholder
servicing plan fees were voluntarily reduced. If such voluntary fee
reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
7
<PAGE> 28
SPECIAL EQUITY FUND
(For a Fund Share Outstanding Throughout the Period presented.)
<TABLE>
<CAPTION>
MARCH 15, 1994 TO
OCTOBER 31,
1994(1)
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................................................... $ 10.00
-------
INVESTMENT ACTIVITIES
Net Investment Income...................................................................... 0.06
Net Realized and Unrealized Gains (Losses) on Investments.................................. (0.63)
-------
Total from Investment Activities....................................................... (0.57)
DISTRIBUTIONS
Net Investment Income...................................................................... (0.06)
Net Realized Gains.........................................................................
-------
Total Distributions.................................................................... (0.06)
-------
NET ASSET VALUE, END OF PERIOD............................................................... $ 9.37
=================
TOTAL RETURN................................................................................. (5.72)%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000).......................................................... $10,069
Ratio of Expenses to Average Net Assets.................................................... 0.15%(2)
Ratio of Net Investment Income to Average Net Assets....................................... 1.06%(2)
Ratio of Expenses to Average Net Assets*................................................... 2.10%(2)
Ratio of Net Investment Income to Average Net Assets*...................................... (0.89)%(2)
Portfolio Turnover Rate...................................................................... 38.70%
</TABLE>
- ---------
* During the periods the investment advisory, administration, and/or
shareholder servicing plan fees were voluntarily reduced. If such voluntary
fee reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
BOND FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, FEBRUARY 28, 1990
--------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990(1)
------- ------- ------- ------ -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 11.18 $ 10.89 $ 10.65 $ 9.96 $ 10.00
------- ------- ------- ------ ------
INVESTMENT ACTIVITIES
Net Investment Income......................... 0.53 0.56 0.70 0.78 0.50
Net Realized and Unrealized Gains (Losses) on
Investments................................. (1.04) 0.54 0.32 0.69 (0.04)
------- ------- ------- ------ ------
Total from Investment Activities.......... (0.51) 1.10 1.02 1.47 0.46
------- ------- ------- ------ ------
DISTRIBUTIONS
Net Investment Income......................... (0.52) (0.56) (0.68) (0.78) (0.50)
Net Realized Gains............................ (0.34) (0.25) (0.10)
------- ------- ------- ------ ------
Total Distributions....................... (0.86) (0.81) (0.78) (0.78) (0.50)
------- ------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD.................. $ 9.81 $ 11.18 $ 10.89 $10.65 $ 9.96
======= ======= ======= ====== ================
TOTAL RETURN.................................... (4.75)% 10.63% 9.82% 15.16% 4.64%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)............. $23,377 $27,346 $15,180 $7,255 $ 4,593
Ratio of Expenses to Average Net Assets....... 1.01% 0.88% 0.46% 0.47% 0.68%(2)
Ratio of Net Investment Income to Average
Net Assets.................................. 5.07% 5.16% 6.78% 7.71% 7.75%(2)
Ratio of Expenses to Average Net Assets*...... 1.60% 1.49% 1.24% 1.41% 1.62%(2)
Ratio of Net Investment Income to Average
Net Assets*................................. 4.48% 4.55% 6.01% 6.78% 6.81%(2)
Portfolio Turnover Rate......................... 231.88% 158.51% 99.03% 47.30% 22.57%
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or shareholder
servicing plan fees were voluntarily reduced. If such voluntary fee
reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
8
<PAGE> 29
INTERMEDIATE INCOME FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, FEBRUARY 28, 1990
--------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990(1)
------- ------- ------- ------ -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $11.01 $ 10.87 $ 10.61 $10.12 $ 10.00
------- ------- ------- ------ ------
INVESTMENT ACTIVITIES
Net Investment Income......................... 0.50 0.53 0.65 0.77 0.48
Net Realized and Unrealized Gains (Losses) on
Investments................................. (0.61) 0.21 0.29 0.50 0.12
------- ------- ------- ------ ------
Total from Investment Activities.......... (0.11) 0.74 0.94 1.27 0.60
------- ------- ------- ------ ------
DISTRIBUTIONS
Net Investment Income......................... (0.49) (0.53) (0.64) (0.77) (0.48)
Net Realized Gains............................ (0.14) (0.07) (0.04) (0.01)
------- ------- ------- ------ ------
Total Distributions....................... (0.63) (0.60) (0.68) (0.78) (0.48)
------- ------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD.................. $ 10.27 $ 11.01 $ 10.87 $10.61 $ 10.12
======= ======= ======= ====== ================
TOTAL RETURN.................................... (0.97%) 6.99% 9.11% 12.94% 6.10%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)............. $21,247 $24,047 $16,718 $7,116 $ 3,986
Ratio of Expenses to Average Net Assets....... 0.90% 0.78% 0.47% 0.40% 0.75%(2)
Ratio of Net Investment Income to Average
Net Assets.................................. 4.66% 4.89% 6.31% 7.69% 7.42%(2)
Ratio of Expenses to Average Net Assets*...... 1.64% 1.50% 1.24% 1.34% 1.69%(2)
Ratio of Net Investment Income to Average
Net Assets*................................. 3.92% 4.17% 5.57% 6.76% 6.48%(2)
Portfolio Turnover Rate......................... 170.23% 90.17% 53.28% 32.94% 39.36%
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or shareholder
servicing plan fees were voluntarily reduced. If such voluntary fee
reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
PENNSYLVANIA TAX-FREE BOND FUND
(For a Fund Share Outstanding Throughout the Year and Period presented.)
<TABLE>
<CAPTION>
SEPTEMBER 21,
YEAR ENDED 1992 TO
OCTOBER 31, OCTOBER 31,
1994 1993 1992(1)
------ ----------- -------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $10.48 $ 9.77 $ 10.00
------ ----------- ------
INVESTMENT ACTIVITIES
Net Investment Income................................................... 0.46 0.45 --
Net Realized and Unrealized Gains (Losses) on Investments............... (0.85) 0.70 (0.23)
------ ----------- ------
Total from Investment Activities.................................... (0.39) 1.15 (0.23)
------ ----------- ------
DISTRIBUTIONS
Net Investment Income................................................... (0.46) (0.44)
Net Realized Gains...................................................... (0.07)
------ ----------- ------
Total Distributions................................................. (0.53) (0.44)
------ ----------- ------
NET ASSET VALUE, END OF PERIOD............................................ $ 9.56 $ 10.48 $ 9.77
====== =========== =============
TOTAL RETURN.............................................................. (3.90)% 11.94% (2.28)%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)....................................... $7,008 $ 5,883 $ 3,405
Ratio of Expenses to Average Net Assets................................. 0.38% 0.51% 2.67%(2)
Ratio of Net Investment Income to Average Net Assets.................... 4.61% 4.35% 0.52%(2)
Ratio of Expenses to Average Net Assets*................................ 1.57% 1.63% 3.41%(2)
Ratio of Net Investment Income to Average Net Assets*................... 3.42% 3.23% (0.22)%(2)
Portfolio Turnover Rate................................................... 37.23% 50.19% 31.37%
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or shareholder
servicing plan fees were voluntarily reduced. If such voluntary fee
reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
9
<PAGE> 30
INVESTMENT OBJECTIVES AND POLICIES
MONEY MARKET FUNDS
THE CONESTOGA CASH MANAGEMENT FUND
The investment objective of the Cash Management Fund is to seek current income
with liquidity and stability of principal. The Cash Management Fund will invest
only in those obligations which are considered by the Investment Advisor to
present minimal credit risk and which at the time of purchase are rated of a
high quality, i.e., rated in the highest rating category by a nationally
recognized statistical rating organization ("Rating Organization") in the case
of commercial paper; or rated in one of the two highest rating categories by a
Rating Organization in the case of bonds; or which are unrated at the time of
purchase but are determined to be of comparable quality by the Investment
Advisor pursuant to guidelines approved by the Company's Board of Trustees. All
securities or instruments in which the Cash Management Fund invests have
remaining maturities of 397 days or less, although instruments subject to
repurchase agreements may bear longer maturities. The average dollar-weighted
maturity of the securities in the Cash Management Fund will not exceed 90 days.
Obligations purchased by the Cash Management Fund are limited to U.S.
dollar-denominated obligations which the Board of Trustees has determined
present minimal credit risks.
THE CONESTOGA U.S. TREASURY SECURITIES FUND
The U.S. Treasury Securities Fund invests exclusively in short-term
obligations issued or guaranteed by the U.S. Treasury and in repurchase
agreements secured by U.S. Treasury instruments. All securities or instruments
in which the U.S. Treasury Securities Fund invests have remaining maturities of
397 days or less, although instruments subject to repurchase agreements may bear
longer maturities. The average dollar-weighted maturity of the securities in the
U.S. Treasury Securities Fund will not exceed 90 days. Obligations purchased by
the U.S. Treasury Securities Fund are limited to U.S. dollar-denominated
obligations which the Board of Trustees has determined present minimal credit
risks.
To the extent permitted by state and local law, in addition to being suitable
for individuals, institutions, custody and certain trust accounts, the U.S.
Treasury Securities Fund offers an economical and convenient vehicle for the
investment of available cash by state and local governments, their political
subdivisions, agencies, instrumentalities and public authorities, as well as by
trustees and others, of proceeds of tax-exempt bond issues, whether or not
subject to arbitrage limitations or rebate requirements under the Internal
Revenue Code of 1986 as amended. Potential investors should consult their legal
advisors to determine whether or not their state and local statutes, regulations
and applicable governing instruments (such as bond indentures and resolutions)
permit such investors to purchase Shares in the U.S. Treasury Securities Fund.
The U.S. Treasury Securities Fund offers the advantages of liquidity,
diversification and combined investing power, thereby avoiding the generally
greater expense of executing a large number of small transactions. Moreover,
investment in the U.S. Treasury Securities Fund relieves the investor of many
management and administrative burdens associated with the direct purchase and
sale of U.S. Treasury securities. These include selection of investments;
surveying the market for the best terms at which to buy and sell; scheduling and
monitoring maturities and reinvestments; receipt, delivery and safekeeping of
securities; and recordkeeping.
THE CONESTOGA TAX-FREE FUND
The investment objective of the Tax-Free Fund is to seek current income which
is exempt from regular federal income tax with liquidity and stability of
principal. The assets of the Tax-Free Fund will be primarily invested in
high-quality bonds and notes issued by, or on behalf of, states (including the
District of Columbia), territories, and possessions of the United States and
their respective authorities, agencies, instrumentalities, and political
subdivisions, the interest on which is exempt from regular federal income tax
and is not treated as a specific tax preference item under the federal
alternative minimum tax ("Municipal Obligations"), and which have remaining
maturities of 397 days or less. The average dollar-weighted maturity of the
securities in the Tax-Free Fund will not exceed 90 days. As a matter of
fundamental policy, under normal market conditions, at least 80% of the Tax-Free
Fund's total assets will be invested in Municipal Obligations.
The Tax-Free Fund may invest in private activity bonds (e.g., bonds issued by
industrial development
10
<PAGE> 31
authorities) that are issued by or on behalf of public authorities to finance
various privately-operated facilities. Private activity bonds are included in
the term "Municipal Obligations" only if the interest paid thereon is exempt
from regular federal income tax and is not treated as a specific tax preference
item under the federal alternative minimum tax for either individuals or
corporations. See "TAXES."
Under normal market conditions, the Tax-Free Fund may invest up to 20% of its
total assets in obligations, the interest on which is either subject to regular
federal income taxation or is treated as a specific tax preference item under
the federal alternative minimum tax ("Taxable Obligations"). If deemed
appropriate for temporary defensive purposes, the Tax-Free Fund may increase its
holdings in Taxable Obligations to over 20% of its total assets and may also
hold uninvested cash reserves pending investment. When the Fund is so invested,
its investment objective may not be achieved. Uninvested cash reserves will not
earn income. Taxable Obligations may include obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities (some of which may be
subject to repurchase agreements), certificates of deposit and banker's
acceptances of selected banks, private activity bonds and commercial paper
meeting the Tax-Free Fund's quality standards (as described below) for
tax-exempt commercial paper. These obligations are described further in the
Statement of Additional Information.
The Tax-Free Fund will invest only in those Municipal Obligations which are
considered by the Investment Advisor to present minimal credit risks and which
at the time of purchase are rated high quality, i.e., rated in one of the two
highest rating categories assigned by a Rating Organization in the case of
bonds; rated in the highest rating category assigned by a Rating Organization in
the case of notes, variable rate demand notes and tax-exempt commercial paper;
or which are unrated at the time of purchase but are determined to be of
comparable quality by the Investment Advisor pursuant to guidelines approved by
the Company's Board of Trustees. Municipal Obligations may be purchased in
reliance upon a rating only where the Rating Organization is not affiliated with
the issuer or guarantor of the Municipal Obligations. If a security is subject
to a demand feature, the security must receive both a short-term and a long-term
high quality rating or must be determined to be of comparable quality by the
Investment Advisor; except that where the demand feature is considered to be
"unconditional" under the Investment Company Act of 1940, the security may be
acquired solely in reliance on a short-term high quality rating or a
determination of comparable quality by the Investment Advisor. The applicable
Municipal Obligations ratings are described in the Appendix to the Statement of
Additional Information.
The Tax-Free Fund is not intended to constitute a balanced investment program
and is not designed for investors seeking capital appreciation or maximum
tax-exempt income irrespective of fluctuations in principal. Investment in the
Tax-Free Fund would not be appropriate for tax-deferred plans, such as IRA or
Keogh plans. Investors should consult a tax or other financial advisor to
determine whether investment in the Tax-Free Fund would be appropriate.
EQUITY FUNDS
THE CONESTOGA EQUITY FUND
The investment objective of the Equity Fund is to seek capital growth by
investing principally in a diversified portfolio of common stocks of companies
with large, medium or small capitalizations. The Equity Fund will normally
invest at least 80% of the value of its total assets in common stocks. The Fund
may also invest up to 20% of the value of its total assets in securities
convertible into common stocks, preferred stocks, corporate bonds, notes,
warrants, and short-term obligations (with maturities of 18 months or less) such
as commercial paper (including variable amount master demand notes), banker's
acceptances, certificates of deposit, repurchase agreements, obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, and
demand and time deposits of domestic and foreign banks and savings and loan
associations. During temporary defensive periods, the Fund has the ability to
hold up to 100% of its total assets in short-term obligations including domestic
bank certificates of deposit, banker's acceptances and repurchase agreements
secured by U.S. Government securities.
Stocks held by the Equity Fund may be listed on a national securities exchange
or may be unlisted securities with an established over-the-counter market. The
Investment Advisor has developed a quantitative process which evaluates stocks
in a number of ways, including the ratios of market price to book value, recent
changes in market price, return on equity, price to earnings ratios, dividend
paying abilities, and liquidity. The Investment Advisor
11
<PAGE> 32
believes that its quantitative approach reduces subjectivity in the stock
selection process.
Equity securities such as those in which the Equity Fund may invest are more
volatile and carry more risk than some other forms of investment. Depending upon
the performance of the Fund's investments, the net asset value per Share of the
Fund may decrease instead of increase.
THE CONESTOGA INTERNATIONAL EQUITY FUND
The investment objective of the International Equity Fund is to seek long-term
growth of capital. Under normal market conditions, the Fund will invest at least
65% of its total assets in an internationally diversified portfolio of equity
securities which trade in markets other than the United States. Generally, these
securities will be issued by companies (i) domiciled in countries other than the
United States, or (ii) that derive at least 50% of either their revenues or
their pre-tax income from activities outside of the United States. Equity
securities include for this purpose common and preferred stock, securities
(bonds and preferred stock) convertible into common stock, warrants and
securities representing underlying international securities such as American
Depositary Receipts, or ADRs, and European Depositary Receipts, or EDRs. The
Fund may also hold depositary or custodial receipts representing beneficial
interests in any of the foregoing securities.
The Fund may invest in securities of issuers with large, medium or small
capitalizations in any country, including, but not limited to, Argentina,
Australia, Austria, Belgium, Canada, Chile, Colombia, Denmark, Finland, France,
Germany, Hong Kong, India, Ireland, Israel, Italy, Japan, South Korea, Malaysia,
Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Singapore,
Spain, Sweden, Switzerland, Taiwan, Thailand, the United Kingdom and Venezuela.
Normally, the Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
Fund's assets could be invested in U.S. companies.
Initial emphasis in the selection of investments is expected to be placed on
selection of countries in which to invest, followed by selection of industries
or sectors within or across countries and by selection of individual stocks
corresponding to the industries or sectors selected. Investments are expected to
be made primarily in developed markets and larger capitalization companies.
However, the Fund also may invest in emerging markets where smaller
capitalization companies are the norm.
Under normal market conditions, it is expected that the Fund will be fully
invested in equity securities and related hedging instruments (except for
short-term investments of cash for liquidity purposes and pending investment).
However, during temporary defensive periods, the Fund may invest up to 100% of
its total assets in short-term obligations (with maturities of 12 months or
less) consisting of commercial paper (including variable amount master demand
notes), bankers' acceptances, certificates of deposit, repurchase and reverse
repurchase agreements, and demand and time deposits of domestic or foreign banks
and savings and loan associations, and in money market mutual funds.
THE CONESTOGA SPECIAL EQUITY FUND
The investment objective of the Special Equity Fund is to seek capital growth
by investing principally in a diversified portfolio of common stocks. The
Special Equity Fund will normally invest in common stocks of domestic companies
that the Investment Advisor expects will experience growth in earnings and
price. The Fund may invest up to 35% of its total assets in foreign securities.
The Fund may also purchase securities convertible into common stocks, preferred
stocks, notes, warrants, and, for daily case management purposes, short-term
obligations (with maturities of 18 months or less) such as commercial paper
(including variable amount master demand notes), banker's acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, and demand and time
deposits of domestic and foreign banks and savings and loan associations. During
temporary defensive periods, the Fund has the ability to hold up to 100% of its
total assets in short-term obligations, including domestic bank certificates of
deposit, banker's acceptances and repurchase agreements secured by U.S.
Government securities. The Investment Advisor's quantitative process described
above under "The Conestoga Equity Fund" will be utilized for the Special Equity
Fund.
Many of the companies in which the Special Equity Fund invests will be small
and medium capitalized companies. Small capitalized companies are those
organizations with "stock market capitalizations" between $100 million and $1
billion
12
<PAGE> 33
and medium capitalized companies are those organizations with stock market
capitalizations between $1 billion and $5 billion. "Stock market
capitalizations" means the total number of common shares outstanding multiplied
by the market price per share.
The Special Equity Fund will normally purchase the securities of small and
medium capitalized companies across a wide range of industry sectors. These
securities may be traded over-the-counter or listed on an exchange and may or
may not pay dividends. Small and medium capitalized companies may be more
vulnerable than larger, more established organizations to adverse business or
economic developments. In particular, small capitalized companies may have
limited product lines, markets and financial resources and may be dependent upon
a relatively small management group. Accordingly, equity securities such as
those in which the Fund may invest are more volatile and carry more risk than
some other forms of investment. Depending upon the performance of the Fund's
investments, the net asset value per Share of the Fund may decrease instead of
increase.
BOND FUNDS
THE CONESTOGA BOND FUND
The investment objective of the Bond Fund is to seek to maximize long-term
total return by investing principally in a diversified portfolio of debt
securities. The Bond Fund will normally invest at least 80% of the value of its
total assets in debt securities of all types. Debt securities include domestic
and foreign bonds, debentures, notes, equipment lease and trust certificates,
asset-backed and mortgage-backed securities, and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. In
addition, a portion of the Fund may from time to time be invested in first
mortgage loans and participation certificates in pools of mortgages issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, in
preferred stocks, and in debt securities which are convertible into, or
exchangeable for, common stocks, common stock obtained upon the conversion or
exchange of such securities, and short-term money market instruments and money
market funds. Some of the securities in which the Fund invests may have warrants
or options attached.
THE CONESTOGA INTERMEDIATE INCOME FUND
The Intermediate Income Fund has a primary investment objective of seeking
current income by investing principally in a diversified portfolio of debt
securities with expected or remaining maturities of ten years or less, and a
secondary objective of seeking capital growth. The Fund will normally have an
average dollar-weighted portfolio maturity of three to ten years. The Fund will
normally invest at least 80% of the value of its total assets in debt securities
of all types. Debt securities include domestic and foreign bonds, debentures,
notes, equipment lease and trust certificates, asset-backed and mortgage-backed
securities, and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. In addition, a portion of the Fund may from time
to time be invested in first mortgage loans and participation certificates in
pools of mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, in preferred stocks, and in debt securities which are
convertible into, or exchangeable for, common stocks, common stock obtained upon
the conversion or exchange of such securities, and short-term money market
instruments and money market funds. Some of the securities in which the Fund
invests may have warrants or options attached.
THE CONESTOGA PENNSYLVANIA TAX-FREE
BOND FUND
The investment objective of the Pennsylvania Tax-Free Bond Fund is to seek a
high level of current income consistent with the preservation of capital, which
income is exempt from federal individual income tax and from Pennsylvania state
and local personal income tax, and is not a tax preference item under the
federal alternative minimum tax. Shares of the Fund will be exempt from
Pennsylvania personal property taxes. To achieve this objective, the Fund
anticipates that it will invest primarily in Pennsylvania Municipal Obligations
(as defined below). Under normal market conditions, the Fund will invest
substantially all of its total assets (but in no event less than 80%) in
investment grade municipal securities issued by the Commonwealth of Pennsylvania
and its political subdivisions, agencies, instrumentalities and authorities
("Pennsylvania Municipal Obligations"), the interest on which, in the opinion of
bond counsel to the issuer, is exempt from federal individual income tax and
Pennsylvania state and local personal income tax, and is not treated as a
specific tax preference item under the federal alternative
13
<PAGE> 34
minimum tax. During temporary defensive periods, the Fund may invest without
limitation in other types of securities. These securities may include other
types of bonds, notes, variable rate demand notes and commercial paper, provided
such securities are rated within the relevant categories applicable to the
Pennsylvania Municipal Obligations, or if unrated, are of comparable quality as
determined by the Investment Advisor at the time of purchase. Other debt
obligations, such as bank obligations, may be included. Since the Fund's
purchases will be limited to investment grade securities, it will not acquire
lower quality securities which would carry higher yields and also greater risk.
Pennsylvania Municipal Obligations acquired by the Pennsylvania Tax-Free Bond
Fund will be investment grade at the time of purchase -- that is, obligations
rated in one of the four highest rating categories assigned by a Rating
Organization in the case of bonds; rated "Duff 1," "Duff 2," or "Duff 3" by D&P,
"F-1" or "F-2" by Fitch, "SP-1" or "SP-2" by S&P, or "MIG-1" or "MIG-2" by
Moody's in the case of notes; rated "Duff 1," "Duff 2," or "Duff 3" by D&P,
"F-1" or "F-2" by Fitch, or "VMIG-1" or "VMIG-2" by Moody's in the case of
variable rate demand notes; or rated "Duff 1," "Duff 2," or "Duff 3" by D&P,
"F-1" or "F-2" by Fitch, "A-1" or "A-2" by S&P, or "Prime-1" or "Prime-2" by
Moody's in the case of tax-exempt commercial paper. Unrated obligations acquired
by the Fund will be determined by the Investment Advisor to be of comparable
quality at the time of purchase to rated obligations that may be acquired by the
Fund. Obligations rated in the lowest of the top four rating categories ("BBB"
by D&P, Fitch, or S&P, or "Baa" by Moody's) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade bonds. Subsequent to its purchase by the Fund, an issue
of Pennsylvania Municipal Obligations may cease to be rated, or its rating may
be reduced below the minimum rating required for purchase by the Fund. The
Investment Advisor will consider such an event in determining whether the Fund
should continue to hold the obligation. See "Appendix A" to the Statement of
Additional Information for a description of these rating designations.
THE CONESTOGA SHORT-TERM INCOME FUND
The investment objective of the Short-Term Income Fund is to seek consistent
current income with relative stability of principal by investing principally in
a diversified portfolio of investment grade debt securities. Under normal
conditions, the Fund's portfolio securities will have maximum expected or
remaining maturities of three years or less. The Fund will normally have an
average dollar-weighted portfolio maturity of approximately one year.
The Fund will invest principally in debt securities, including bonds,
debentures, notes, equipment lease and trust certificates, asset-backed and
mortgage-backed securities, and obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. The Fund may invest up to 35%
of its total assets in U.S. dollar denominated international debt securities for
which the primary trading market is in the United States ("Yankee Bonds").
BALANCED FUND
THE CONESTOGA BALANCED FUND
The investment objective of the Balanced Fund is to seek a balance of capital
appreciation and current income consistent with the preservation of capital. The
Fund seeks to achieve its objective through a policy of diversified investment
in fixed income and equity securities. Equity securities will be selected on the
basis of the potential for capital appreciation; current income will not be a
significant consideration. Fixed income securities will be selected in an effort
to maximize total return with respect to the fixed income portion of the Fund's
portfolio. An investor should not consider an investment in the Fund to be a
complete investment program.
The Fund's policy is to invest at all times at least 30% of the value of its
total assets in fixed-income securities and no more than 70% in equity
securities. The actual percentage of assets invested in fixed-income and equity
securities will vary from time to time depending of the judgment of the
Investment Advisor as to the general market and economic conditions, trends and
yields, interest rates and fiscal and monetary developments. The Fund will not
purchase a security if as a result less than 30% of its total assets will be in
fixed-income securities (including short-term obligations, long-term debt
securities, and convertible debt securities and
14
<PAGE> 35
preferred stocks to the extent their value is attributable to their fixed income
characteristics).
During temporary, defensive periods, the Fund may invest up to 100% of its
total assets in short-term obligations (with maturities of 12 months or less)
consisting of commercial paper (including variable amount master demand notes),
bankers' acceptances, certificates of deposit, repurchase and reverse repurchase
agreements, and demand and time deposits of domestic or foreign banks and
savings and loan associations, and in money market mutual funds.
Stocks held by the Balanced Fund may be listed on a national securities
exchange or may be unlisted securities with an established over-the-counter
market. The Investment Advisor has developed a quantitative process which
evaluates stocks in a number of ways, including the ratios of market price to
book value, recent changes in market price, return on equity, price to earnings
ratios, dividend paying abilities, and liquidity. The Investment Advisor
believes that its quantitative approach reduces subjectivity in the stock
selection process.
Fixed income securities include both debt securities and preferred stocks,
which may be convertible into, or exchangeable for, common stocks. Debt
securities include domestic and foreign bonds, Yankee Bonds, debentures, notes,
equipment lease and trust certificates, asset-backed and mortgage-backed
securities, obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, first mortgage loans and participation
certificates in pools of mortgages issued or guaranteed by the U.S. Government
or its agencies or instrumentalities. Some of the securities in which the Fund
invests may have warrants or options attached.
GENERAL
The investment objective of each of the Cash Management Fund, U.S. Treasury
Securities Fund, Tax-Free Fund, Equity Fund, Special Equity Fund, Bond Fund,
Intermediate Income Fund and Pennsylvania Tax-Free Bond Fund is fundamental and
may not be changed without a vote of the holders of a majority of the
outstanding voting securities of the Fund. The investment objective of each of
the International Equity Fund, Short-Term Income Fund and Balanced Fund may be
changed by the Board of Trustees of the Company.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Retail Shares of each Fund are sold on a continuous basis by the Company's
distributor, SEI Financial Services Company (the "Distributor"), and may be
purchased directly by mail, by telephone or by wire. The principal office of the
Distributor is 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. Retail
Shares may also be purchased through a broker-dealer who has established a
dealer agreement with the Distributor. The minimum initial purchase is $1,000;
however, there is no minimum subsequent purchase. The minimum may be waived if
purchases are made in connection with qualified pension plans, payroll savings
plans or other employer plans. (But see "PURCHASING SHARES -- Auto Invest Plan"
below for minimum investment requirements under that plan.) Purchasers will pay
the sum of the next calculated net asset value per Share of a Fund selected
after the Distributor's agent's receipt of an order to purchase Shares plus a
sales charge (see "PURCHASING RETAIL SHARES -- Sales Charges" below).
PURCHASES OF RETAIL SHARES
Retail Shares may also be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by the Investment Advisor, its
related companies or their correspondents ("Entities"). With respect to the
Money Market Funds, these procedures may include instructions under which a
Customer's account is "swept" automatically no less frequently than weekly and
amounts in excess of a minimum amount agreed upon by an Entity and its Customer
are invested by the Distributor in Shares of one or more of the Money Market
Funds depending upon the type of account or the instructions of the Customer.
Retail Shares of a Fund sold to an Entity acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of Customers will normally be
held of record by Entity. With respect to Retail Shares so sold, it is the
responsibility of the holder of record to transmit purchase or redemption orders
15
<PAGE> 36
to the Distributor and to deliver funds for the purchase thereof on a timely
basis.
PURCHASE BY MAIL
To purchase Retail Shares of a Fund by mail, complete an Account Registration
Form and return it along with a check or money order made payable to the
appropriate Fund to:
The Conestoga Family of Funds
P.O. Box 1912
Boston, MA 02105
An Account Registration Form can be obtained by calling the Company at (800)
344-2716.
PURCHASE BY TELEPHONE OR BY WIRE
To purchase Retail Shares of a Fund by telephone or by wire, your Account
Registration Form must have been previously received by the Distributor. To
place an order by telephone or by wire call the Company's toll-free number (800)
344-2716. Payment for Retail Shares ordered by telephone may be made by check
and must be received by the Distributor at the address above within seven
calendar days of the telephone order. If payment for the Retail Shares is not
received within seven days, or if a check timely received does not clear, the
purchase may be cancelled and the investor could be liable for any losses or
fees incurred. When purchasing Retail Shares by wire, contact the Distributor
for wire instructions.
OTHER INFORMATION REGARDING PURCHASES
MONEY MARKET FUNDS: Retail Shares of these Funds are purchased at the net
asset value per Share of each such Fund (see "VALUATION OF SHARES") next
determined after receipt by the Distributor of an order in good form to purchase
Retail Shares. An order to purchase Retail Shares will be deemed to have been
received by the Distributor only when federal funds with respect thereto are
available to the Company's custodian for investment. Federal funds are monies
credited to a bank's account with a Federal Reserve Bank. Payment for an order
to purchase Retail Shares which is transmitted by federal funds wire will be
available the same day for investment by the Company's custodian, if received
prior to noon. Payments transmitted by other means (such as by check drawn on a
member of the Federal Reserve System) will normally be converted into federal
funds within two banking days after receipt. The Company strongly recommends
that investors of substantial amounts use federal funds to purchase Retail
Shares.
Purchases of Retail Shares of the Money Market Funds will be effected only on
a Business Day (as defined in "VALUATION OF SHARES") of the Company. An order
received prior to a Valuation Time on any Business Day will be executed at the
net asset value determined as of the next Valuation Time on the date of receipt.
An order received after the last Valuation Time on any Business Day will be
executed at the net asset value determined as of the next Valuation Time on the
next Business Day of the Company. In the case of an order placed through a
broker-dealer, it is the responsibility of the broker-dealer to transmit the
order to the Distributor promptly. Retail Shares purchased before 12:00 noon,
(Eastern Time) begin earning dividends on the same Business Day. All Retail
Shares continue to earn dividends through the day before their redemption.
There is no sales charge imposed by the Company in connection with the
purchase of Retail Shares in the Money Market Funds. Sales charges apply to
Retail Share purchases of the other Funds.
EQUITY, BOND AND BALANCED FUNDS: Purchases of Retail Shares in the Non-Money
Market Funds will be effected only on a Business Day. The purchase price will be
the net asset value per share (see "VALUATION OF SHARES"), plus the applicable
sales charge, as determined on the Business Day the order is received in good
form by the Distributor, but only if the Distributor receives the order in good
form by 4:00 P.M. Eastern Time. Otherwise, the price will be determined as of
4:00 P.M. Eastern Time on the next Business Day. In the case of an order for
purchase of Retail Shares placed through a broker-dealer, it is the
responsibility of the broker-dealer to transmit the order to the Distributor by
4:00 P.M. Eastern Time. If the broker-dealer fails to do so, the investor's
right to that day's closing price must be settled between the investor and the
broker-dealer.
ALL FUNDS: The minimum investment is $1,000 for the initial purchase of Retail
Shares by an investor. There is no minimum investment for subsequent purchases.
The minimum may be waived if purchases are made in connection with qualified
pension plans or other employer plans. (But see "HOW TO PURCHASE AND REDEEM
SHARES -- Auto Invest Plan" below for minimum investment requirements under that
plan.)
Depending upon the terms of a particular Customer account, an Entity may
charge its Customers account fees for services provided in connection with
investment in the Funds. Information concerning these services and any charges
will be provided by
16
<PAGE> 37
the Entities. This Prospectus should be read in conjunction with any such
information so received from the Entities.
The Company reserves the right to reject any order for the purchase of its
Retail Shares in whole or in part.
Every Shareholder will receive a confirmation of each transaction in its
account, which will also show the total number of Retail Shares of a Fund owned
by the Shareholder. Confirmation of purchases and redemptions of Retail Shares
of the Funds by the Investment Advisor or one of its affiliates or their
correspondents on behalf of a Customer will be sent to the Investment Advisor or
the affiliate. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Retail Shares of the Funds will not be
issued.
SALES CHARGES
The public offering price of Retail Shares of the Non-Money Market Funds
equals the sum of the net asset value per Share of the applicable Fund plus a
sales load in accordance with the table below. SEI Financial Services Company
receives this sales charge as Distributor. The Distributor will act only on its
own behalf as principal if it chooses to enter into selling agreements with
selected dealers or others, and in such event, the Distributor may reallow the
sales charge as dealer discounts and brokerage commissions as follows:
<TABLE>
<CAPTION>
DEALER
DISCOUNTS
SALES SALES AND BROKERAGE
CHARGE AS CHARGE AS COMMISSIONS
% OF NET % OF AS % OF
AMOUNT OFFERING OFFERING
INVESTED PRICE PRICE
--------- --------- --------------
<S> <C> <C> <C>
Less than
$50,000..... 2.04% 2.00% 1.80%
$50,000 but
less than
$250,000.... 1.52 1.50 1.35
$250,000 but
less than
$500,000.... 1.27 1.25 1.13
$500,000 but
less than
$1,000,000... 1.01 1.00 0.90
$1,000,000 or
more........ 0.50 0.50 0.45
</TABLE>
The Distributor, in its sole discretion, may pay certain dealers all or part
of the portion of the sales charge it receives. However, a broker or dealer who
receives a reallowance in excess of 90% of the sales charge may be deemed to be
an "underwriter" as that term is defined in Section 2(11) of the Securities Act
of 1933, as amended. The Distributor, at its expense, will also provide
additional compensation to dealers in connection with sales of Retail Shares of
the Funds. Compensation will include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding the Funds, and/or other
dealer-sponsored special events. In some instances, this compensation will be
made available only to certain dealers whose representatives have sold a
significant amount of Retail Shares. Compensation will include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Compensation will also include the following types of non-cash
compensation offered through sales contests: (i) vacation trips, including the
provision of travel arrangements and lodging at luxury resorts at an exotic
location, (ii) tickets for entertainment events (such as concerts, cruises and
sporting events) and (iii) merchandise (such as clothing, trophies, clocks and
pens). Dealers may not use sales of Retail Shares to qualify for this
compensation to the extent such may be prohibited by the laws of any state or
any self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of the aforementioned compensation is paid for by any Fund or
its Shareholders.
From time to time, dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers.
SALES CHARGE WAIVERS
The following classes of investors may purchase Retail Shares of the Non-Money
Market Funds with no sales charge:
(1) Existing Shareholders of the applicable Fund upon the automatic
reinvestment of dividend and capital gain distributions;
(2) Trustees of the Company and officers, directors, employees and retired
employees of the Investment Advisor and its affiliates, SEI Financial
Services Company and its affiliates, and spouses and minor children of
each of the foregoing;
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<PAGE> 38
(3) Investors for whom the Investment Advisor or one of its affiliates
(except a Conestoga IRA (as defined below)), acts in a fiduciary,
advisory, custodial, agency or similar capacity and for whom purchases
are made through such accounts;
(4) Investors who purchase Retail Shares of the applicable Fund through a
payroll deduction plan, a 401(k) plan, a 403(b) plan or other similar
retirement plans which by its terms permits purchases of such Shares;
(5) Investors investing in a Conestoga Fund direct individual retirement
account (a "Conestoga IRA") may make both initial and subsequent
purchases without a sales charge if the initial purchase is funded in
whole or in part by assets directly transferred to the Conestoga IRA
from a distribution made by a qualified retirement plan maintained
through the asset management affiliates of Meridian Bancorp, Inc.;
(6) Employees (and their spouses and children under the age of 21) of any
broker-dealer with which the Distributor enters into a dealer
agreement to sell shares of the Funds; and
(7) Orders placed on behalf of other investment companies distributed by
the Distributor or any of its affiliates.
The Distributor may change or eliminate the foregoing waivers at any time. The
Distributor may also periodically waive the sales charge for all investors with
respect to any Fund.
DIRECTED DIVIDEND OPTION
A Shareholder may elect to have all income dividends and capital gains
distributions from a Fund paid by check, reinvested in shares of the Fund or, if
eligible, reinvested in shares of another Fund (collectively, the "Directed
Dividend Option"), without the payment of a sales charge. A reinvestment may not
be made in another Fund, however, unless the shareholder holds the minimum
number of shares in such other Fund and, if this test is met, the entire
directed dividend (100%) must be reinvested into such other Fund. In addition,
this option is available only if the shares in the other Fund have the same
Shareholder registration.
The Directed Dividend Option may be modified or terminated by the Company at
any time after notice to participating Shareholders. Participation in the
Directed Dividend Option may be terminated or changed by the Shareholder at any
time by writing the Distributor.
CONESTOGA IRAS
A Conestoga IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
Conestoga IRA contributions may be tax-deductible and earnings are tax-deferred.
Under the Tax Reform Act of 1986, the tax deductibility of IRA contributions is
restricted or eliminated for individuals who participate in certain employer
pension plans and whose annual income exceeds certain limits. Existing IRA's and
future contributions up to the IRA maximums, whether deductible or not, still
earn income on a tax-deferred basis.
All Conestoga IRA distribution requests must be made in writing to SEI
Financial Services Company. Any additional deposits to a Conestoga IRA must
distinguish the type and year of the contribution.
For more information on a Conestoga IRA call the Company at (800) 344-2716.
Investment in Retail Shares of the Tax-Free Fund, the Pennsylvania Tax-Free Bond
Fund or any tax-exempt mutual fund would not be appropriate for any of the
Conestoga IRAs. Shareholders are advised to consult a tax advisor on Conestoga
IRA contribution and withdrawal requirements and restrictions.
LETTERS OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter of
Intent which expresses the investor's intention to purchase Retail Shares of the
Non-Money Market Funds sold with a sales load at a specified total public
offering price within a designated 13-month period. Each purchase of Retail
Shares under a Letter of Intent will be made at the net asset value plus the
sales charge applicable at the time of such purchase, assuming the purchase of
the total dollar amount indicated in the Letter of Intent.
A Letter of Intent is not a binding obligation upon the investor to purchase
the full amount indicated. The minimum initial investment under a Letter of
Intent is 5% of such amount. Retail Shares purchased with the first 5% of such
amount will be held in escrow (although registered in the name of the investor)
to secure payment of the higher sales
18
<PAGE> 39
charge applicable to the Retail Shares actually purchased if the full amount
indicated is not purchased. Escrowed Retail Shares will be involuntarily
redeemed to pay the additional sales charge, if necessary. Dividends on escrowed
Retail Shares, whether paid in cash or reinvested in additional Retail Shares,
are not subject to escrow. The escrowed Retail Shares may not be redeemed or
transferred by the investor until all purchases pursuant to the Letter of Intent
have been made or the higher sales charge has been paid. When the full amount
indicated has been purchased, the escrow will be released. To the extent that an
investor purchases more than the dollar amount indicated on the Letter of Intent
and qualifies for a further reduced sales charge, the sales charge will be
recalculated based on the entire amount purchased during the 13-month period.
Any reduction in sales charges will be used to purchase additional Retail Shares
of the Fund for the investor's account.
A Letter of Intent may include purchases of Retail Shares made not more than
90 days prior to the date the investor signs a Letter of Intent; however, the
13-month period during which the Letter of Intent is in effect will begin on the
date of the earliest purchase to be included. All such adjustments will be made
at the conclusion of the Letter of Intent period at the then current net asset
value. To receive the correct public offering price, Shareholders must, at the
time of purchase, give the Distributor sufficient information to permit
confirmation of qualification.
For further information about Letters of Intent, interested investors should
contact the Company at (800) 344-2716. This program, however, may be modified or
eliminated at any time or from time to time by the Company without notice.
AUTO INVEST PLAN
The Auto Invest Plan enables Shareholders of any of the Funds to make regular
monthly or quarterly purchases of Retail Shares through automatic deductions
from their bank accounts. With Shareholder authorization, State Street Bank and
Trust Company (the "Transfer Agent") will deduct the amount specified from the
Shareholder's bank account which will automatically be invested in Retail Shares
at the public offering price on the dates of the deduction. The required minimum
initial investment when opening an account using the Auto Invest Plan is $100;
the minimum amount for subsequent investments in a Fund is $50. To participate
in the Auto Invest Plan, Shareholders should complete the appropriate section of
the account application which can be acquired by calling (800) 344-2716. For a
Shareholder to change the Auto Invest instructions, the request must be made in
writing to the Distributor.
CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, investors have the
privilege of combining concurrent purchases of the Non-Money Market Funds. For
example, if a shareholder concurrently invested $20,000 in one of these eight
Funds and a total of $30,000 in one or more of the other Funds, the sales charge
would be that applicable to a $50,000 purchase as shown in the table above.
RIGHTS OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to purchase
Retail Shares at the public offering price applicable to the total of (a) the
dollar amount of all of the Non-Money Market Funds then being purchased plus (b)
an amount equal to the then current net asset value of the purchaser's combined
holdings of the Retail Shares of all eight of such Funds. To receive the correct
public offering price pursuant to the right of accumulation, Shareholders must,
at the time of purchase, give the Distributor sufficient information to permit
confirmation of qualification.
EXCHANGE PRIVILEGE
The Company offers an exchange program whereby Shareholders who have paid a
sales load on purchases of Retail Shares of the Non-Money Market Funds are
entitled to exchange those Retail Shares for Retail Shares of another Non-Money
Market Fund at the net asset value per Share. As a result, no additional sales
load will be incurred with respect to such an exchange. Shareholders may also
exchange Retail Shares of the Money Market Funds (each a "no-load Fund") for
Retail Shares of another Money Market Fund at the net asset value per Share
without payment of a sales load. Shareholders who wish to move all or part of
their investments from a Money Market Fund to a Non-Money Market Fund will be
required to use the procedures described herein with respect to purchases and
redemptions of Retail Shares. If, however, Retail Shares of a Money Market Fund
were acquired by a previous exchange from Retail Shares of a Non-Money Market
Fund, then such
19
<PAGE> 40
Retail Shares of the Money Market Fund may be exchanged for Retail Shares of a
Non-Money Market Fund without payment of any additional load or sales charge. To
receive the correct public offering price, Shareholders must, at the time of
purchase, give the Distributor sufficient information to permit confirmation of
qualification. The foregoing exchange privilege may be exercised only once
during a calendar year and only upon written authorization by the Shareholder
and may be modified or terminated by the Company at any time.
The Retail Shares exchanged must have a current value of at least $1,000.
Share exchanges will only be permitted where the Retail Shares to be acquired
may legally be sold in the investor's state of residence. An exchange is
considered to be a sale of Retail Shares for federal income tax purposes on
which a Shareholder may realize a capital gain or loss. A Shareholder may
telephone an exchange request by calling (800) 344-2716 or by providing written
instructions to the Distributor. An investor should consult the Distributor for
further information regarding exchanges. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. If a
Shareholder is unable to contact the Distributor by telephone, a Shareholder may
also mail the exchange request to the Distributor at the address listed under
"Redeeming Shares -- By Mail." The Company reserves the right to modify or
terminate the exchange privilege described above at any time and to reject any
exchange request. Any Shareholder who wishes to make an exchange should obtain
and review the current prospectus of the Fund in which he or she wishes to
invest before making the exchange.
The Company's exchange privilege is not intended to afford shareholders a way
to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Company and increase transaction costs, the Company has
established a policy of limiting or preventing future exchanges by a Shareholder
if there is excessive exchange activity. Exchange activity will not be deemed
excessive if limited to four substantive exchange redemptions from a Fund during
any calendar year.
REDEMPTION OF SHARES
With respect to the Non-Money Market Funds, Shareholders may redeem their
Retail Shares without charge on any day that net asset value is calculated (see
"VALUATION OF SHARES"). Redemptions will be effected at the net asset value per
share next determined after receipt of a redemption request. Redemptions may be
requested by mail or by telephone.
With respect to the Money Market Funds, Retail Shares may ordinarily be
redeemed by mail or by telephone. However, all or part of a Customer's Retail
Shares may be redeemed in accordance with instructions and limitations
pertaining to his or her account at an Entity. For example, if a Customer has
agreed with an Entity to maintain a minimum balance in his or her account with
the Entity, and the balance in that account falls below that minimum, the
Customer may be obliged to redeem, or the Entity may redeem for and on behalf of
the Customer, all or part of the Customer's Retail Shares of a Fund to the
extent necessary to maintain the required minimum balance. There may be no
notice period affording shareholders an opportunity to increase the account
balance in order to avoid an involuntary redemption by an Entity.
REDEMPTION BY MAIL
A written request for redemption must be submitted to the Distributor. The
Distributor's address is: SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658. The Distributor may require a
signature guarantee by an eligible guarantor institution. For purposes of this
policy, the term "eligible guarantor institution" shall include banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing agencies
and savings associations as those terms are defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended. The Distributor reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check is payable to
the Shareholder(s) of record and (2) the redemption check is mailed to the
Shareholder(s) at the address of record or the proceeds are either mailed or
wired to a commercial bank account previously designated on the Account
Registration Form. There is no charge for having redemption requests mailed to a
designated bank account.
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<PAGE> 41
Account changes may also require a signature guarantee. Please call the
Company at (800) 344-2716 for more information.
REDEMPTION BY TELEPHONE
Retail Shares may be redeemed by telephone if the Account Registration Form
reflects that the Shareholder has that capability. The Shareholder may have the
proceeds mailed to his or her address or mailed or sent electronically to a
commercial bank account previously designated on the Account Registration Form.
Under most circumstances, payments will be transmitted on the next Business Day.
Electronic redemption requests may be made by the Shareholder by telephone to
the Company at (800) 344-2716. The Distributor may reduce the amount of a
electronic redemption by the Fund's custodian's then-current electronic
redemption charge. This charge, if applied, is presently $7.00 for each wire
redemption. There is no charge for having payment of redemption requests mailed
to a designated bank account. For telephone redemptions, call the Distributor at
(800) 344-2716. It is not necessary for Shareholders to confirm telephone
redemption requests in writing. During periods of significant economic or market
change, telephone redemptions may be difficult to complete. If a Shareholder is
unable to contact the Company by telephone, a Shareholder may also mail the
redemption request to the Distributor at the address listed above under
"Redemption By Mail." Neither the Distributor, the Transfer Agent, the
Investment Advisor nor the Company will be liable for any losses, damages,
expenses and/or costs arising out of any telephone transactions (including
exchanges and redemptions) effected in accordance with the Funds' telephone
transaction procedures, upon instructions reasonably believed to be genuine.
Each Fund will employ procedures designed to provide reasonable assurance that
instructions communicated by telephone are genuine; if these procedures are not
followed, a Fund may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures include recording all phone conversations,
sending confirmations to Shareholders within 72 hours of the telephone
transaction, verifying the account name and a Shareholder's account number or
tax identification number and sending redemption proceeds only to the address of
record or to a previously authorized bank account. If, due to temporary adverse
conditions, Shareholders are unable to effect telephone transactions, they may
also mail redemption requests to the Company.
REDEMPTION BY CHECK
Free check writing is available with respect to the Money Market Funds. With
this service, a Shareholder may write an unlimited amount of checks per month in
the amount of $1,000 or more. To establish this checkwriting service after
opening an account in a Fund, a Shareholder must contact the Distributor by
telephone or mail to obtain an Account Registration Form. To obtain checks, a
Shareholder must complete the Signature Card that accompanies the Account
Registration Form. A Shareholder will receive the dividends and distributions
declared on the shares to be redeemed up to the day that a check is presented
for payment. Upon 30 days' prior written notice to Shareholders, the check
writing privilege may be modified or terminated. An investor may not close an
account in one of the Funds by writing a check.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund to make regular
monthly or quarterly redemptions of Retail Shares. With Shareholder
authorization, the Transfer Agent will automatically redeem Retail Shares at the
net asset value on the dates of the withdrawal and have the amount specified
transferred to the Shareholder as designated on their Account Registration Form.
The required minimum withdrawal is $100. To participate in the Auto Withdrawal
Plan, Shareholders should complete the appropriate section of the Account
Registration Form, which can be obtained by calling (800) 344-2716. Purchases of
additional shares concurrent with withdrawals are ordinarily disadvantageous to
Shareholders because of tax liabilities and sales charges. For a Shareholder to
change the Auto Withdrawal instructions, the request must be made in writing to
the Distributor.
OTHER INFORMATION REGARDING REDEMPTION OF
RETAIL SHARES
All redemption orders are effected at the net asset value per share next
determined after a properly completed redemption order has been received, as
described above. The proceeds paid upon redemption of Retail Shares in a Fund
may be more or less than the amount invested. Payment to Shareholders for Retail
Shares redeemed will normally be made within seven days after receipt by the
Distributor of the request for redemption. To the extent possible, however, the
Company will attempt to honor requests from Shareholders for (a) next day
payments
21
<PAGE> 42
upon redemption of Retail Shares in the Non-Money Market Funds if received by
the Distributor before 4:00 P.M., Eastern Time, on a Business Day or, if
received after 4:00 P.M., Eastern Time, within two Business Days or (b)same day
payments upon redemption of Retail Shares in the Money Market Funds if the
request for redemption is received by the Distributor before 12:00 noon, Eastern
Time, on a Business Day or, if the request for redemption is received after
12:00 noon, Eastern Time, to honor requests for payment on the next Business
Day; unless it would be disadvantageous in the opinion of the Investment
Advisor, to the Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner.
At various times a Fund may be requested to redeem Retail Shares for which it
has not yet received good payment. In such circumstances, the forwarding of
proceeds may be delayed for up to fifteen days until payment has been collected
for the purchase of such Retail Shares. Such delay may be avoided if Retail
Shares are purchased by wire transfer of federal funds. The Funds intend to pay
cash for all Retail Shares redeemed, but under abnormal conditions which make
payment in cash unwise, payment may be made wholly or partly in portfolio
securities at their then current market value equal to the redemption price. In
such cases, an investor may incur brokerage costs in converting such securities
to cash.
Due to relatively high cost of handling small investments, the Company
reserves the right to involuntarily redeem, at net asset value, the Retail
Shares of any Shareholder if, because of redemptions of Retail Shares (and not
solely as a result of market price movements) by or on behalf of the
Shareholder, the account of such Shareholder has a value of less than $1,000.
Before the Company exercises its right to redeem such Retail Shares and to send
the proceeds to the Shareholder, the Shareholder will be given notice that the
value of the Retail Shares in his or her account is less than the minimum amount
and will be allowed 60 days to make an additional investment in an amount which
will increase the value of the account to at least $500. In addition, the
Company reserves the right to redeem, at net asset value, Retail Shares of any
Shareholder to cover any loss resulting from the failure of the Distributor to
receive payment within the time permitted for Retail Shares purchased by
telephone order.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION --
Matters Affecting Redemption" and "Net Asset Value" in the Statement
of Additional Information for examples of when the Company may
suspend the right of redemption or redeem Retail Shares involuntarily if it
appears appropriate to do so in light of the Company's responsibilities under
the Investment Company Act of 1940.
VALUATION OF SHARES
The net asset value of each of the Money Market Funds is determined, and the
Retail Shares of each such Fund are priced, as of 12:00 noon and the close of
regular trading on the New York Stock Exchange ("NYSE") (generally, 4:00 P.M.,
Eastern Time) on each Business Day of the Company. The net asset value of each
of the Non-Money Market Funds is determined, and the Retail Shares of each such
Fund are priced, as of the close of regular trading on the NYSE (generally, 4:00
P.M., Eastern Time) on each Business Day. Each time the net asset value of a
Fund is determined and its Retail Shares priced is referred to as a "Valuation
Time." As used herein, a "Business Day" constitutes any day on which the NYSE is
open for trading and the Federal Reserve Bank of Philadelphia is open, except
days on which there are not sufficient changes in the value of the Fund's
portfolio securities that the Fund's net asset value might be materially
affected, or days during which no Shares are tendered for redemption and no
orders to purchase Shares are received. Currently, either the NYSE or the
Federal Reserve Bank of Philadelphia is closed on the customary national
business holidays of New Year's Day, Martin Luther King, Jr., Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's
Day, Thanksgiving Day and Christmas Day. Net asset value per Share for purposes
of pricing sales and redemptions is calculated by dividing the value of all
securities and other assets belonging to the Retail Shares of a Fund less the
liabilities charged to such class of such Fund by the number of its outstanding
Retail Shares.
The assets in the Money Market Funds are each valued based upon the amortized
cost method. Pursuant to the rules and regulations of the Securities and
Exchange Commission regarding the use of the
22
<PAGE> 43
amortized cost method, the Money Market Funds will each maintain a
dollar-weighted average portfolio maturity of 90 days or less. Although the
Company seeks to maintain the net asset value per Retail Share of the Money
Market Funds at $1.00 each, there can be no assurance that net asset value will
not vary.
The net asset value per Retail Share of the Non-Money Market Funds will
fluctuate as the value of the investment portfolio of each Fund changes. The
securities in these Funds will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. For further information about
valuation of investments, see the Statement of Additional Information.
DIVIDENDS
MONEY MARKET FUNDS: The net income of each of these Funds is declared daily
as a dividend to the respective Shareholders of each such Fund at the close of
business on the day of declaration. Dividends are paid monthly, and a
Shareholder's dividends will automatically be reinvested in additional full and
fractional Retail Shares of such Fund at net asset value as of the date of
payment, unless the Shareholder elects to receive dividends in cash or directs
such dividends to another Fund (see "How To Purchase And Redeem
Shares -- Directed Dividend Option"). Reinvested dividends receive the same tax
treatment as dividends paid in cash. In the case of redemptions, dividends will
be paid in cash not later than seven Business Days after a Shareholder's
complete redemption of his or her Retail Shares in the Cash Management, Tax Free
and U.S. Treasury Securities Funds. Such election, or any revocation thereof,
must be made in writing to the Transfer Agent at The BFDS Building, 2 Heritage
Drive, Quincy, MA 02171, and will become effective with respect to dividends
paid after its receipt by the Transfer Agent.
NON-MONEY MARKET FUNDS: The net income of the International Equity Fund is
generally declared annually, the net income of each of the Equity, the Special
Equity and the Balanced Funds is generally declared quarterly, and the net
income of each of the Bond, Intermediate Income, Pennsylvania Tax-Free Bond and
Short-Term Income Funds (collectively, the "Bond Funds") is generally declared
monthly, as a dividend to the respective Shareholders at the close of business
on the record date. Dividends are generally paid annually with respect to the
International Equity Fund, quarterly with respect to the Equity, Special Equity
and Balanced Funds, and monthly with respect to the Bond Funds. Distributable
net realized capital gains are distributed at least annually. A Shareholder will
automatically receive all income dividends and capital gain distributions from
the Fund in additional full and fractional Shares of the Fund at net asset value
as of the date of payment, unless the Shareholder elects to receive dividends or
distributions in cash. Such election, or any revocation thereof, must be made in
writing to the Transfer Agent at The BFDS Building, 2 Heritage Drive, Quincy, MA
02171, and will become effective with respect to dividends and distributions
having record dates after its receipt by the Transfer Agent.
OTHER INVESTMENT POLICIES
GOVERNMENT AND RELATED OBLIGATIONS
The Funds may invest in Treasury bills, notes and bonds and other obligations
issued or guaranteed by the U.S. Treasury, as well as "stripped" U.S. Treasury
obligations such as Treasury Receipts representing either future interest or
principal payments. Stripped securities are issued at a discount to their "face
value," and may exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest are returned to
investors. The Funds may also acquire repurchase agreements secured by U.S.
Treasury obligations.
The Funds (except the U.S. Treasury Fund) may also invest in other obligations
issued or guaranteed by the agencies or instrumentalities of the U.S.
Government. These obligations may differ from U.S. Treasury obligations in their
interest rates, maturities, and times of issuance. These Funds may also purchase
interests in U.S. Treasury securities (such as TIGRs and CATS). TIGRs and CATS
are not issued by the U.S. Treasury. Participations
23
<PAGE> 44
other than those issued or guaranteed by the U.S. are not obligations of the
U.S. Government.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association and the Export-Import Bank
of the United States, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal National Mortgage Association,
may borrow from the Treasury in its discretion; others, such as those of the
Student Loan Marketing Association, are supported by the discretionary authority
of the U.S. Government to purchase the agency's obligations; still others, such
as those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government will provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. The obligations of such agencies and
instrumentalities and stripped securities will only be purchased when the
Investment Advisor deems the credit risk with respect thereto to be minimal.
BANKER'S ACCEPTANCES
The Cash Management Fund may invest in banker's acceptances guaranteed by
domestic and foreign banks if, at the time of investment, the guarantor bank has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements) and the bank, its
parent or holding company is rated "A/B" or better at the time of investment by
Thomson BankWatch, Inc., or unrated at the time of purchase but are determined
to be institutions of comparable quality by the Investment Advisor pursuant to
guidelines approved by the Company's Board of Trustees. For a description of the
rating symbols of Thomson BankWatch, Inc., see Appendix "A" to the Statement of
Additional Information.
CERTIFICATES OF DEPOSIT AND TIME DEPOSITS
The Cash Management Fund may invest in certificates of deposit and time
deposits of domestic and foreign banks and savings and loan associations if (a)
at the time of investment the depositary institution has capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of its most recently
published financial statements) and the depositary institution, its parent or
holding company is rated "A/B" or better at the time of investment by Thomson
BankWatch, Inc., (b) the principal amount of the instrument is insured in full
by the FDIC or the Federal Savings and Loan Insurance Corporation, or (c) which
are unrated at the time of purchase but are determined to be at comparable
quality by the Investment Advisor pursuant to guidelines approved by the
Company's Board of Trustees.
The Funds (except the U.S. Treasury Securities Fund) may invest in Eurodollar
Certificates of Deposits ("ECDs") which are U.S. dollar-denominated certificates
of deposit issued by offices of foreign and domestic banks located outside the
United States; Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs") which are essentially the same as ETDs
except they are issued by Canadian offices of Canadian banks; and Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States.
The Cash Management Fund will not invest in excess of 10% of its total assets
in time deposits, including ETDs and CTDs but not including certificates of
deposit, with maturities in excess of seven days which are subject to penalties
upon early withdrawal.
COMMERCIAL PAPER
The Funds (except the U.S. Treasury Securities Fund) may invest in short-term
promissory notes issued by corporations (including variable amount master demand
notes). In the case of the Cash Management and the Tax-Free Funds, such
instruments must at the time of purchase (1) have received the highest
short-term rating by at least two Rating Organizations, (2) have received the
highest short-term rating by the only rating agencies to have rated the notes,
or (3) are unrated, but are determined to be of comparable quality pursuant to
guidelines adopted by the Board of Trustees. Instruments may be purchased in
reliance upon a rating only when the rating organization is not affiliated with
the issuer or guarantor of the instrument. For a description of the rating
symbols used in this paragraph, see the Appendix to the Statement of Additional
Information. The Funds (except the U.S. Treasury Securities Fund) may also
invest in foreign commercial paper which is U.S.
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dollar-denominated commercial paper issued by a foreign corporation or a foreign
counterpart of a U.S. corporation.
ZERO COUPON OBLIGATIONS
The Cash Management, Bond, Intermediate Income, Short-Term and Balanced Funds
may invest in zero coupon obligations, which have greater price volatility than
coupon obligations and which will not result in the payment of interest until
maturity, provided that immediately after any purchase not more than 5% of the
value of the net assets of the respective Fund would be invested in such
obligations.
FOREIGN SECURITIES
The Equity Funds and the Balanced Fund may invest in securities of foreign
issuers by acquiring both sponsored and unsponsored American Depositary Receipts
("ADRs"). ADRs are receipts issued by a bank or trust company in the United
States evidencing ownership of underlying securities of a foreign issuer.
Unsponsored ADRs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as for sponsored ADRs, and the
prices of unsponsored ADRs may be more volatile than if such instruments were
sponsored by the issuer. The Equity Funds may also invest in securities issued
by foreign branches of U.S. banks and foreign banks, in Canadian commercial
paper, and in Europaper (U.S. dollar-denominated commercial paper of a foreign
issuer). As stated above, certain Funds may invest in ECDs, ETDs, CTDs, and
Yankee CDs. The Cash Management Fund may also acquire securities issued by
foreign branches of U.S. banks, foreign banks, or other foreign issuers only
when the Investment Advisor believes that the risks associated with such
instruments are minimal. The Bond, Intermediate Income, Short-Term Income and
Balanced Funds may invest in Yankee Bonds.
For many foreign securities, U.S. dollar-denominated American Depositary
Receipts, or ADRs, which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate the risk inherent in investing in the
securities of foreign issuers. However, by investing in ADRs rather than
directly in stock of foreign issuers, the Fund can avoid currency risks during
the settlement period for either purchases or sales. In general, there is a
large, liquid market in the United States for many ADRs. The information
available for ADRs is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are traded,
which standards are more uniform and more exacting than those to which many
foreign issuers may be subject. The Fund may also invest in European Depositary
Receipts, or EDRs, which are receipts evidencing an arrangement with a European
bank similar to that for ADRs and are designed for use in the European
securities markets. EDRs are not necessarily denominated in the currency of the
underlying security.
Certain ADRs and EDRs, typically those denominated as unsponsored, require the
holders thereof to bear most of the costs of such facilities while issuers of
sponsored facilities normally pay more of the costs thereof. The depositary of
an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited securities
or to pass through the voting rights to facility holders in respect to the
deposited securities, whereas the depositary of a sponsored facility typically
distributes shareholder communications and passes through the voting rights.
Investment in securities of foreign issuers involves certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, difficulties in predicting
international trade patterns, political, social and economic instability in the
country of the issuer, foreign trading practices (including higher trading
commissions, custodial charges and delayed settlements), foreign withholding and
income taxation, the possible establishment of exchange controls or the adoption
of other foreign governmental restrictions (which might adversely affect the
payment of principal and interest), difficulty in obtaining and enforcing
judgments against foreign issuers, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. With respect to
certain countries, there is also the possibility of expropriation of assets,
nationalization of assets, limits on removal of currency or other assets,
confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries.
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Foreign companies generally are not subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
domestic companies. There is generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the U.S. Confiscatory
taxation or diplomatic developments could also affect investment in those
countries. In addition, foreign branches of U.S. banks, foreign banks and
foreign issuers may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks and U.S. domestic issuers.
FOREIGN CURRENCY TRANSACTIONS
The value of the assets of the International Equity Fund as measured in U.S.
dollars may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. The Fund will conduct
its foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market, or through
forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract ("forward currency contracts") involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These forward currency contracts are
traded directly between currency traders (usually large commercial banks) and
their customers. The Fund may enter into forward currency contracts in order to
hedge against adverse movements in exchange rates between currencies.
For example, when the International Equity Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may want to
establish the U.S. dollar cost or proceeds, as the case may be. By entering into
a forward currency contract in U.S. dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, the
Fund can help to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the U.S. dollar and such foreign currency. Additionally, for example, when the
Fund believes that a foreign currency may suffer a substantial decline against
the U.S. dollar, it may enter into a forward currency sale contract to sell an
amount of that foreign currency approximating the value of some or all of the
Fund's portfolio securities or other assets denominated in such foreign
currency, or when the Fund believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, it may enter into a forward
currency purchase contract to buy that foreign currency for a fixed U.S. dollar
amount. However, these contracts tend to limit potential gains which might
result from positive changes in currency relationships. The Fund may also hedge
its foreign currency exchange rate risk by engaging in currency financial
futures and options transactions. The forecasting of short-term currency market
movement is extremely difficult and whether short-term hedging strategies would
be successful is highly uncertain.
The International Equity Fund does not intend to enter into such forward
contracts if the Fund would have more than 15% of the value of its total assets
committed to such contracts on a regular or continuous basis. In addition, the
Fund does not intend to enter into forward currency contracts or maintain a net
exposure in such contracts where it would be obligated to deliver an amount of
foreign currency in excess of the value of its portfolio securities or other
assets denominated in that currency.
For further information about the characteristics, risks and possible benefits
of option, futures and foreign currency transactions, see "Investment
Objectives, Policies and Restrictions" in the Statement of Additional
Information.
OPTIONS
The Equity Funds and the Balanced Fund may also purchase put and call options
on securities and the International Equity Fund may purchase put and call
options on foreign currencies, in each case for the purposes of hedging against
market risks related to its portfolio securities and/or adverse movements in
exchange rates between currencies, as applicable. Purchasing options is a
specialized investment technique that entails a substantial risk of a complete
loss of the amounts paid as premiums to writers of options. These Funds may also
engage in writing call options from time to time as the Investment Advisor
(and/or the Sub-advisor with respect to the International Equity Fund) deems
appropriate. These Funds will write only covered call options (options on
securities owned by the Funds). These Funds will forego any capital appreciation
above the exercise price on securities on
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<PAGE> 47
which it has written a call option. In order to close out a call option it has
written, a Fund will enter into a "closing purchase transaction" -- the purchase
of a call option on the same security with the same exercise price and
expiration date as the call option which the Fund previously wrote on a
particular security. When a portfolio security subject to a call option is sold,
a Fund will effect a closing purchase transaction to close out any existing call
option on that security. If a Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise. Under
normal conditions, it is not expected that the underlying value of portfolio
securities subject to such options would exceed 50% of the net assets of a Fund.
The International Equity Fund, as part of its option transactions, also may,
for hedging purposes, purchase index put and call options and write index
options. As with options on individual securities, the Fund will write only
covered index call options. Through the writing or purchase of index options,
the Fund can seek to achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. Price movements in securities which the Fund owns
or intends to purchase would not be expected to correlate directly with
movements in the level of an index and, therefore, the Fund bears the risk of a
loss on an index option that is not completely offset by movements in the price
of such securities. Because index options are settled in cash, a call writer
cannot determine the amount of its settlement obligations in advance and, unlike
call writing on specific securities, cannot provide in advance for, or cover,
its potential settlement obligations by acquiring and holding the underlying
securities. The Fund may be required to segregate assets or provide an initial
margin to cover index options that would require it to pay cash upon exercise.
The Cash Management Fund and the Tax-Free Fund may acquire "puts" with respect
to obligations held in their portfolios. Under a put, a Fund would have the
right to sell a specified obligation within a specified period of time at a
specified price. A put would be sold, transferred, or assigned only with the
underlying obligation. A Fund will acquire puts solely to facilitate portfolio
liquidity, shorten the maturity of the underlying obligations, or permit the
investment of the Fund's assets at a more favorable rate of return. The
aggregate price of a security subject to a put may be higher than the price
which otherwise would be paid for the security without such an option, thereby
increasing the security's cost and reducing its yield.
FUTURES CONTRACTS
The International Equity Fund may also enter into contracts for the future
delivery of securities and futures contracts based on a specific security, class
of securities, or an index, purchase or sell options on any such futures
contracts and engage in related closing transactions. A futures contract on a
securities index is an agreement obligating either party to pay, and entitling
the other party to receive, while the contract is outstanding, cash payments
based on the level of a specified securities index.
The International Equity Fund may engage in such futures contracts in an
effort to hedge against market risks. For example, when interest rates are
expected to rise or market values of portfolio securities are expected to fall,
the Fund can seek through the sale of futures contracts to offset a decline in
the value of its portfolio securities. When interest rates are expected to fall
or market values are expected to rise, the Fund, through the purchase of such
contracts, can attempt to secure better rates or prices for the Fund than might
later be available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the International Equity Fund the right (but not the
obligation), for a specified price, to sell or to purchase the underlying
futures contract, upon exercise of the option, at any time during the option
period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of the market value of the International
Equity Fund's total assets, and the value of securities that are the subject of
such futures and options (both for receipt and delivery) may not exceed 33 1/3%
of the market value of the Fund's total assets. Futures transactions will be
limited to the extent necessary to maintain the Fund's qualification as a
regulated investment company.
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Futures transactions involve brokerage costs and require the International
Equity Fund to segregate assets to cover contracts that would require it to
purchase securities. The Fund may lose the expected benefit of futures
transactions if interest rates, exchange rates or securities prices move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of the Fund's futures positions may not
prove to be effectively correlated with the value of its portfolio securities,
which would limit the value of the Fund's hedge against interest rate, exchange
rate and/or market risk, and would give rise to additional risks. There is no
assurance of liquidity in the secondary market for purposes of closing out
futures positions.
MUNICIPAL OBLIGATIONS
The two principal classifications of Municipal Obligations which may be held
by the Tax-Free Fund or the Pennsylvania Tax-Free Bond Fund are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Private activity
bonds are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Municipal Obligations may include rated and unrated variable and floating rate
tax-exempt notes, which may have a stated maturity in excess of 397 days but
which will, in such event, be subject to a demand feature that will permit a
Fund to demand payment of the principal of the note either (i) at any time upon
not more than 30 days' notice or (ii) at specified intervals not exceeding 397
days and upon no more than 30 days' notice. There may be no active secondary
market with respect to a particular variable or floating rate note.
Nevertheless, the periodic readjustments of their interest rates tend to assure
that their value to a Fund will approximate their par value. Variable and
floating rate notes for which no readily available market exists will not be
purchased in an amount which, together with all other illiquid securities held
by the Fund, exceed 10% of the Tax-Free Fund's total assets or 15% of the
Pennsylvania Tax-Free Bond Fund's total assets unless such notes are subject to
a demand feature that will permit a Fund to demand payment of the principal
within seven days after demand by the Fund.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor the Investment Advisor will review the proceedings relating to the
issuance of Municipal Obligations or the bases for such opinions.
The Tax-Free Fund may invest more than 25% of its assets in Municipal
Obligations which are related in such a way that an economic, business, or
political development or change affecting one such security would likewise
affect the other Municipal Obligations. Examples of such securities are
obligations the payment of which is dependent upon similar types of projects or
projects located in the same state. Such investments would be made only if
deemed necessary or appropriate by the Tax-Free Fund's Investment Advisor. To
the extent that the Tax-Free Fund's assets are concentrated in Municipal
Obligations that are so related, the Tax-Free Fund will be subject to the
peculiar risks presented by such Municipal Obligations, such as negative
developments in a particular industry or state, to a greater extent than it
would be if the Tax-Free Fund's assets were not so concentrated.
REPURCHASE AGREEMENTS
Securities held by each Fund may be subject to repurchase agreements. There is
no limit on a Fund's investments in repurchase agreements. Under the terms of a
repurchase agreement, a Fund would acquire securities from financial
institutions such as banks insured by the Federal Deposit Insurance Corporation
with capital, surplus, and undivided profits in excess of $100,000,000 (as of
the
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date of their most recently published financial statements) or registered
broker-dealers which the Investment Advisor (and/or the Sub-advisor with respect
to the International Equity Fund) deems creditworthy pursuant to guidelines
approved by the Company's Board of Trustees, subject to the seller's agreement
to repurchase such securities at a mutually agreed-upon date and price. The
repurchase price would generally equal the price paid by a Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain the value of collateral held
pursuant to the agreement at not less than 102% of the repurchase price
(including accrued interest). The Investment Advisor will monitor the value of
the collateral on an ongoing basis to ensure that the required value is
maintained. In addition, securities subject to repurchase agreements will be
held in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, a Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities by the Fund were delayed pending court action. Securities
subject to repurchase agreements will be held by the Company's custodian or
another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by a Fund under the
Investment Company Act of 1940.
An increase in interest rates will generally reduce the value of the
investments in each Fund and a decline in interest rates will generally increase
the value of those investments. Depending upon the prevailing market conditions,
the Investment Advisor (and/or the Sub-advisor with respect to the International
Equity Fund) may purchase debt securities at a discount from face value, which
produces a yield greater than the coupon rate. Conversely, if debt securities
are purchased at a premium over face value, the yield will be lower than the
coupon rate. In making investment decisions, the Investment Advisor (and/or the
Sub-advisor with respect to the International Equity Fund) will consider many
factors other than current yield, including the preservation of capital, the
potential for realizing capital appreciation, maturity, and yield to maturity.
INVESTMENT COMPANIES
In connection with the management of its daily cash position, each of the
Funds may invest up to 5% of the value of its total assets in the shares of a
money market fund. However, no more than 10% of a Fund's total assets may be
invested in the securities of money market mutual funds in the aggregate.
Securities of other investment companies will be acquired by a Fund within the
limits prescribed by the Investment Company Act of 1940. As a shareholder of
another investment company, a Fund would bear along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Fund bears directly in connection with its own operations. However, in
order to avoid the imposition of additional fees as a result of investments by a
Fund in Shares of the Money Market Funds or other portfolios served by the
Investment Advisor ("acquired fund"), the Investment Advisor will reduce its
fees to the investing Fund by an amount based on the fee formula charged to the
acquired Fund.
"WHEN-ISSUED" SECURITIES
Each Fund may also purchase debt securities on a "when-issued" basis.
"When-issued" securities are new securities purchased for delivery beyond the
normal settlement date at a stated price and yield thereby involving the risk
that the yield obtained in the transaction will be less than that available in
the market when delivery takes place. A Fund will generally not pay for such
securities and no income accrues on the securities until they are received.
Securities purchased on a "when-issued" basis are recorded as an asset when
purchased and are thereafter subject to changes in value based upon changes in
the general level of interest rates. Each Fund expects that commitments to
purchase "when-issued" securities will not exceed 25% of the value of its total
assets under normal market conditions, and that commitments by each Fund to
purchase "when-issued" securities will not exceed 60 days. If commitments to
purchase "when-
issued" securities ever exceeded 25% of the value of its assets, a Fund's
liquidity and the Investment Advisor's (and/or Sub-advisor's with respect to the
International Equity Fund) ability to manage it might be adversely affected. In
"when-issued" transactions, a Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause the Fund to miss a price or
yield considered to
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be advantageous. While purchases may be considered a form of leverage, a Fund
does not intend to purchase "when-issued" securities for speculative purposes
but only for the purpose of acquiring portfolio securities.
SHORT-TERM TRADING AND PORTFOLIO TURNOVER
The Equity Funds, the Bond Funds and the Balanced Fund may engage in the
technique of short-term trading. Such trading involves the selling of securities
held for a short time, ranging from several months to less than a day. The
object of such short-term trading is to increase the potential for capital
appreciation and/or income of a Fund in order to take advantage of what the
Investment Advisor (and/or the Sub-advisor with respect to the International
Equity Fund) believes are changes in market, industry, or individual company
conditions or outlook. Any such trading would increase a Fund's turnover rate
and its transaction costs.
Portfolio turnover may vary greatly from year to year as well as within a
particular year. High turnover rates will generally result in higher brokerage
commissions and other transaction costs to the Fund. Distributions resulting
from any net short-term capital gains are considered ordinary income for
federal income tax purposes. (See "TAXES.")
REVERSE REPURCHASE AGREEMENTS
Each Fund may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with the investment restrictions described
below. Pursuant to such agreements, a Fund would sell portfolio securities to
financial institutions such as banks or broker-dealers, and agree to repurchase
them at a mutually agreed-upon date and price. At the time a Fund enters into a
reverse repurchase agreement, it will place in a segregated custodial account
assets such as U.S. Government securities or other liquid high-grade debt
obligations consistent with the Fund's investment restrictions having a value
equal to the repurchase price (including accrued interest), and will
subsequently monitor the account to ensure that such equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the price at which such Fund
is obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by a Fund under the Investment Company Act of 1940.
ILLIQUID SECURITIES
The Non-Money Market Funds may each invest up to 15% and the Money Market
Funds may each invest up to 10% of the value of their respective net assets in
illiquid securities, including repurchase agreements with remaining maturities
in excess of seven days (except that the Bond Fund, the Intermediate Income Fund
and the Equity Fund will not acquire repurchase agreements with maturities in
excess of seven days if such investment, together with other investments in such
Fund which are not readily marketable, exceeds 10% of such Fund's total assets),
time deposits with maturities in excess of seven days, non-negotiable time
deposits, and other securities which are not readily marketable. This limitation
on illiquid securities also includes restricted securities, except those that
may be purchased by institutional buyers under Rule 144A and for which a liquid
trading market exists, as determined by the Company's Board of Trustees or the
Investment Advisor. See the Statement of Additional Information for further
discussion of Rule 144A securities.
ASSET-BACKED SECURITIES
The Cash Management, Bond, Intermediate Income, Short-Term Income and Balanced
Funds may purchase asset-backed securities. Like other debt securities,
asset-backed securities (i.e., securities backed by mortgages, installment sales
contracts, credit card receivables or other assets) are subject to declines in
market value during periods of rising interest rates. However, due to the
possibility of prepayment of the underlying obligations, asset-backed securities
have less potential for capital appreciation than other debt securities of
comparable maturities during periods of declining interest rates. As a result,
asset-backed securities may be less effective than other fixed income securities
as a means of locking in attractive interest rates for the long term.
Asset-backed securities purchased at a premium to par may subject the these
Funds to losses equal to any unamortized premium if such obligations are repaid
prior to their scheduled maturities. The Cash Management, Bond, Intermediate
Income, Short-Term Income and Balanced Funds will invest only in
privately-issued asset-backed securities which are readily marketable and rated
at the time of purchase in the two highest rating categories assigned by a
Rating Organization. For a
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description of rating symbols see Appendix "A" to the Statement of Additional
Information.
MORTGAGE-BACKED SECURITIES
The Bond, Intermediate Income, Short-Term Income and Balanced Funds may
purchase mortgage-backed securities. The investment objective of the
Intermediate Income Fund permits it to purchase mortgage-backed and certain
other securities with stated maturities in excess of ten years if the expected
maturities are ten years or less. The average life of mortgage-backed securities
varies with the maturities of the underlying mortgage instruments, which have
maximum maturities of 40 years. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments. The rate of such prepayments, and hence
the average life of the certificates, will be a function of current market
interest rates and current conditions in the relevant housing markets. Estimated
average life will be determined by the Investment Advisor, and such securities
may be purchased by the Intermediate Income Fund if the estimated average life
is determined to be 6 years or less. Various independent mortgage-backed
securities dealers publish average remaining life data using proprietary models
and, in making such determinations for the Intermediate Income Fund, the
Investment Advisor will rely on such data except to the extent such data are
deemed unreliable by the Investment Advisor. The Investment Advisor might deem
data unreliable which appeared to present a significantly different average
remaining expected life for a security than data relating to the average
remaining life of comparable securities as provided by other independent
mortgage-backed securities dealers.
The Bond, Intermediate Income and Balanced Funds will invest only in
privately-issued mortgage-backed securities which are readily marketable and
rated at the time of purchase in the two highest rating categories assigned by a
Rating Organization. For a description of rating symbols see Appendix "A" to the
Statement of Additional Information.
CORPORATE OBLIGATIONS
The Non-Money Market Funds also may invest in bonds, notes and debentures of
U.S. corporate issuers. Such obligations, in the case of debentures, will
represent unsecured promises to pay, in the case of notes and bonds, may be
secured by mortgages on real property or security interests in personal property
and will vary in their interest rates, maturities and times of issuance. These
Funds will invest in corporate debt securities only if they are rated at the
time of purchase within the four highest rating groups assigned by a Rating
Organization or, if unrated, which the Investment Advisor (and/or the
Sub-advisor with respect to the International Equity Fund) deems to be of
comparable quality. Such securities are considered high or medium-grade
securities. Debt obligations rated in the fourth highest rating group have some
speculative characteristics and repayment of principal and interest are more
likely to be adversely affected by adverse economic conditions or changing
circumstances than are obligations in the higher rated categories.
SHORT-TERM OBLIGATIONS
The Non-Money Market Funds may each ordinarily hold some short-term
obligations (with maturities of 18 months or less) such as domestic and foreign
commercial paper (including variable amount master demand notes), banker's
acceptances, certificates of deposit and demand and time deposits of domestic
and foreign branches of U.S. banks and foreign banks, and repurchase agreements.
STAND-BY COMMITMENTS
The Pennsylvania Tax-Free Bond Fund may acquire stand-by commitments with
respect to Pennsylvania Municipal Obligations held in its portfolio. Under a
"stand-by commitment," a dealer agrees to purchase, at the Fund's option,
specified municipal obligations at a price equal to their amortized cost value
plus accrued interest. The Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
MUNICIPAL NOTES
Municipal notes in which the Pennsylvania Tax-Free Bond Fund may invest
include project notes, demand notes, and short-term municipal obligations
(including tax anticipation notes, revenue anticipation notes, construction loan
notes and short-term discount notes and tax-exempt commercial paper) rated in
the highest rating category assigned by a Rating Organization.
MUNICIPAL LEASES
The Pennsylvania Tax-Free Bond Fund may invest in municipal leases and
participations therein.
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These are obligations in the form of a lease or installment purchase which is
issued by state and local governments to acquire equipment and facilities. Bonds
from such obligations are generally exempt from local and state taxes in the
state of issuance. "Participations" in such leases are undivided interests in a
portion of the total obligation. Participations entitle their holders to receive
a pro rata share of all payments under the lease. A trustee is usually
responsible for administering the terms of the Participation and enforcing the
participants' rights in the underlying lease.
Municipal leases frequently involve special risks not normally associated with
general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the governmental issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations are deemed to be inapplicable because of the inclusion
in many leases or contracts or "non-appropriation" clauses which provide that
the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis.
Municipal leases represent a relatively new type of financing. In certain
instances the tax-exempt status of the obligations will not be subject to the
legal opinion of a nationally recognized "bond counsel," as is customarily
required in larger issues of Pennsylvania obligations. However, in all cases the
Pennsylvania Tax-Free Bond Fund will require that a municipal lease purchased by
the Fund be covered by a legal opinion (typically from the issuer's counsel) to
the effect that, as of the effective date of such lease, the lease is the valid
and binding obligation of the governmental issuer.
Certain municipal lease obligations may be deemed illiquid for the purpose of
the Pennsylvania Tax-Free Bond Fund's investment of up to 15% of the value of
its net assets in illiquid securities. In determining the liquidity of municipal
lease obligations, the Investment Advisor will consider a variety of factors,
including the following guidelines which have been adopted by the Board of
Trustees: (1) the frequency of trades and quotes for the obligation; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the willingness of dealers to undertake to make a
market in the security; (4) the nature of the marketplace trades; (5) the
general creditworthiness of the municipality and the importance of the property
covered by the lease to the municipality; and (6) the likelihood that the
marketability of the obligation will be maintained throughout the time the
obligation is held by the Fund.
SPECIAL RISKS AND CONSIDERATIONS
The Pennsylvania Tax-Free Bond Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940. Investment return
on a non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a nondiversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
nondiversified portfolio to greater fluctuation. In addition, a non-diversified
portfolio may be more susceptible to economic, political and regulatory
developments than a diversified investment portfolio with similar objectives
would be.
Because the Fund will normally invest 80% or more of its net assets in
Pennsylvania Municipal Obligations, it is more susceptible to factors affecting
Pennsylvania issuers than is a comparable municipal bond fund not concentrated
in the obligations of issuers located in a single state. Pennsylvania tax-exempt
issuers may be adversely affected by local political and economic conditions and
developments within Pennsylvania. Although the General Fund of the Commonwealth
(the principal operating fund of the Commonwealth) experienced deficits in
fiscal 1990 and 1991, tax increases and spending decreases helped return the
General Fund balance to a surplus at June 30, 1992 of $87.5 million and at June
30, 1993 of $698.9 million. The deficit in the Commonwealth's unre
served/undesignated funds also has been eliminated, and there was a surplus of
$64.4 million at June 30, 1993. However, rising unemployment, a relatively high
proportion of persons 65 and older, and court ordered increases in healthcare
reimbursement rates continue to place increased pressures on the tax resources
of the Commonwealth and its municipalities. In addition, certain litigation is
pending against the Commonwealth that could adversely affect its ability to pay
debt service. See
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the Statement of Additional Information for further discussion of investment
considerations associated with Pennsylvania Municipal Obligations.
General obligations of Pennsylvania are currently rated "AA-" by S&P and Fitch
and "A1" by Moody's. There can be no assurance that the economic conditions on
which these ratings are based will continue or that particular bond issues may
not be adversely affected by changes in economic, political or other conditions.
INVESTMENT RESTRICTIONS
The Funds are subject to a number of fundamental investment restrictions that
may be changed only by a vote of a majority of the outstanding Shares (as
defined in the Statement of Additional Information) of each Fund.
MONEY MARKET FUNDS
CASH MANAGEMENT FUND
The Cash Management Fund may not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Cash
Management Fund's total assets would be invested in such issuer, except that up
to 25% of the value of the Cash Management Fund's total assets may be invested
without regard to such 5% limitation. (Regulations prohibit investments in
excess of the 5% limitation in more than one issuer or for more than three
business days after purchase.)
2. Purchase any securities which would cause more than 25% of the value of the
Cash Management Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, domestic bank certificates of deposit or banker's
acceptances, and repurchase agreements secured by bank instruments or
obligations of the U.S. Government or its agencies or instrumentalities; (b)
wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of their parents; and (c) utilities will be divided according to
their services. For example, gas, gas transmission, electric and gas, electric,
and telephone will each be considered a separate industry.
CASH MANAGEMENT AND U.S. TREASURY
SECURITIES FUNDS
The Cash Management and U.S. Treasury Securities Funds may not:
1. Borrow money or issue senior securities, except that each Fund may borrow
from banks and enter into reverse repurchase agreements for temporary purposes
in amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets, except in connection
with any such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of such Fund's total assets at the time of
its borrowing. Neither Fund will purchase securities while its borrowings
(including reverse repurchase agreements) exceed 5% of the total assets of such
Fund.
2. Make loans, except that each Fund may purchase or hold debt instruments in
accordance with its investment objective and policies, may lend portfolio
securities in accordance with its investment objective and policies, and may
enter into repurchase agreements.
U.S. TREASURY SECURITIES FUND
The U.S. Treasury Securities Fund may not purchase securities other than
short-term obligations issued or guaranteed by the U.S. Treasury, and repurchase
agreements secured by U.S. Treasury obligations.
TAX-FREE FUND
The Tax-Free Fund may not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of its total assets
would be invested in such issuer (except that up to 25% of the value of the
Tax-Free Fund's total assets may be invested without regard to such 5%
limitation). For purposes of this limitation, a security is considered to be
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issued by the government entity (or entities) whose assets and revenues back the
security; with respect to a private activity bond that is backed only by the
assets and revenues of a non-governmental user, a security is considered to be
issued by such non-governmental user.
2. Purchase any securities which would cause 25% or more of the Tax-Free
Fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry; provided that this limitation shall not apply to Municipal Obligations
or governmental guarantees of Municipal Obligations; and provided, further, that
for the purpose of this limitation only, private activity bonds that are backed
only by the assets and revenues of a non-governmental user shall not be deemed
to be Municipal Obligations.
3. Borrow money or issue senior securities, except that the Tax-Free Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Tax-Free Fund's total
assets at the time of its borrowing. The Tax-Free Fund will not purchase
securities while any borrowings are outstanding.
NON-MONEY MARKET FUNDS
The Equity Funds, the Bond Fund and the Intermediate Income, Short-Term Income
and Balanced Funds may not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the total assets
of such Fund would be invested in such issuer, or hold more than 10% of any
class of securities of the issuer or more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the total assets
of each such Fund may be invested without regard to such limitations. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the value of the
total assets of such Fund at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
3. Borrow money or issue senior securities, except that such Funds may borrow
from banks or enter into reverse repurchase agreements for temporary purposes in
amounts up to 10% of the value of their respective total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the total assets of such Fund
at the time of its borrowing. Such Funds will not purchase securities while
their borrowings (including reverse repurchase agreements) exceed 5% of their
respective total assets.
4. Make loans, except that such Funds may purchase or hold debt instruments
and lend portfolio securities in accordance with their respective investment
objectives and policies, and may enter into repurchase agreements.
For the purposes of Investment Restriction 2 above, each of the Equity Funds
treats, as a matter of non-fundamental policy that may be changed without a vote
of shareholders, all supranational organizations as a single industry and each
foreign government (and all of its agencies) as a separate industry.
The Pennsylvania Tax-Free Bond Fund may not:
1. Purchase securities of any one issuer (other than obligations issued or
guaranteed by the U.S. Government, the Commonwealth of Pennsylvania, and their
agencies, authorities, instrumentalities or political subdivisions) if
immediately thereafter more than 5% of the value of the Fund's
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total assets would be invested in the securities of any one issuer, except that
up to 50% of the value of the Fund's total assets may be invested without regard
to this 5% limitation, provided, however, that not more than 25% of the Fund's
total assets may be invested in securities of one issuer. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, a security is considered to be issued by such non-
governmental user. In accordance with regulations promulgated by the Securities
and Exchange Commission, the guarantor of a guaranteed security may be
considered to be an issuer in connection with such guarantee.
2. Purchase any securities which would cause more than 25% of the value of its
total assets at the time of purchase to be invested in municipal obligations
with similar characteristics (such as private activity bonds where the payment
of principal and interest is the ultimate responsibility of issuers in the same
industry, pollution control revenue bonds, housing finance agency bonds or
hospital bonds) or the securities of issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, other
governmental issuers of municipal bonds, and their respective agencies,
authorities, instrumentalities or political subdivisions.
3. Borrow money or issue senior securities, except from domestic banks for
temporary purposes and then in amounts not in excess of 10% of the value of its
total assets at the time of such borrowing (provided that the Fund may borrow
pursuant to reverse repurchase agreements in accordance with its investment
policies and in amounts not in excess of 10% of the value of its total assets at
the time of such borrowing); or mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's total
assets at the time of such borrowing. The Fund will not purchase securities
while borrowings (including reverse repurchase agreements) in excess of 5% of
its total assets are outstanding.
4. Make loans, except that (i) the Fund may purchase or hold debt instruments
in accordance with its investment objective and policies, and may enter into
repurchase agreements with respect to portfolio securities, and (ii) the Fund
may lend portfolio securities against collateral consisting of cash or
securities which are consistent with the Fund's permitted investments, where the
value of the collateral is equal at all times to at least 100% of the value of
the securities loaned.
***
Certain additional investment restrictions, and information about the Fund's
investments, are in the Statement of Additional Information.
TAXES
FEDERAL INCOME TAXES
Each of the Funds of the Company is treated as a separate entity for federal
tax purposes and intend to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). Such qualification
generally relieves a Fund of liability for federal income taxes to the extent
the Fund's earnings are distributed in accordance with the Code.
The following discussion summarizes some of the important federal tax
considerations generally affecting the Fund and its Shareholders and is not
intended as a substitute for careful tax planning. Accordingly, investors in the
Fund should consult their tax advisors with specific reference to their own tax
situation. Shareholders are also advised to consult their tax advisors
concerning state and local taxes, which may differ from the federal income taxes
discussed.
MONEY MARKET FUNDS: For each of the Money Market Funds, qualification as a
regulated investment company under the Code requires, among other things, that
each Fund distribute to its Shareholders an amount equal to at least 90% of its
investment company taxable income and at least 90% of its tax-exempt income net
of certain deductions for each taxable year. In general, the investment company
taxable income of a Fund will be its taxable income, including interest, subject
to certain adjustments and excluding the excess of any net long-term capital
gain for the taxable year over the net short-term capital loss, if any, for such
year. The Company contemplates declaring as dividends 100% of the investment
company taxable income of
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each of the Money Market Funds (before deduction of dividends paid). Such
dividends will be taxable as ordinary income to the respective Shareholders of
the Cash Management and U.S. Treasury Securities Funds who are not currently
exempt from federal income taxes, whether such dividends are received in cash or
reinvested in additional shares. Federal income taxes for distributions to
individual retirement accounts and qualified retirement plans are deferred under
the Code. Because all of the net investment income of the Cash Management and
U.S. Treasury Securities Funds are expected to be derived from earned interest,
it is anticipated that no part of any distribution will be eligible for the
dividends received deduction for corporations.
For the Tax-Free Fund, qualification as a regulated investment company under
the Code for a taxable year requires, among other things, that it distribute to
its Shareholders an amount equal to at least the sum of 90% of its
exempt-interest income, net of certain deductions, and 90% of its investment
company taxable income (if any) for such year. Certain dividends derived from
exempt-interest income (known as exempt-interest dividends) may be treated by
the Tax-Free Fund's Shareholders as items of interest excludable from their
federal gross income. (Shareholders who may be treated as a "substantial user"
or a "related person" to such user under the Code are advised to consult a tax
advisor with respect to whether exempt-interest dividends retain the exclusion.)
However, such dividends may be taxable to Shareholders under state or local law
as ordinary income, even though all or a portion of the distributions may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such taxes. A percentage of the interest on indebtedness
incurred by a Shareholder to purchase or carry Retail Shares of the Tax-Free
Fund, equal to the percentage of the total non-capital gain dividends
distributed among the Shareholder's taxable year that is tax-exempt dividends,
will not be deductible for federal income tax purposes. It should be noted that,
upon the sale or exchange of Retail Shares of the Tax-Free Fund, if the
Shareholder has not held such Shares for more than six months, any loss on the
sale or exchange of those shares will be disallowed to the extent of tax-exempt
dividends received with respect to the Shares.
If the Tax-Free Fund should hold certain private activity bonds issued after
August 7, 1986, Shareholders must include, as an item of tax preference, the
portion of dividends paid by the Tax-Free Fund that is attributable to interest
on such bonds in their federal alternative minimum taxable income for purposes
of determining liability (if any) for the federal alternative minimum tax
applicable to individuals and the federal alternative minimum tax and the
environmental tax applicable to corporations. Corporations must also take all
exempt-interest dividends into account in determining certain adjustments for
federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed on the excess of the corporation's
modified federal alternative minimum taxable income over $2,000,000.
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
To the extent dividends paid to Shareholders of the Tax-Free Fund are derived
from taxable income (for example, from interest on certificates of deposit or
repurchase agreements) or from long-term or short-term capital gains, such
dividends will be subject to federal income tax.
The U.S. Treasury Securities Fund, the Cash Management Fund and the Tax-Free
Fund do not expect to realize any long-term capital gains and, therefore, do not
foresee paying any "capital gain dividends" as described in the Code.
Dividends declared by a Fund in October, November or December of any year
payable to Shareholders of record on a specified date in such months will be
deemed to have been received by Shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made to them each year.
THE EQUITY FUNDS, THE BOND FUND AND THE INTERMEDIATE INCOME, SHORT-TERM INCOME
AND BALANCED FUNDS: Qualification as a regulated investment company under the
Code for a taxable year requires, among other things, that each of these Funds
distribute to its Shareholders an amount equal to at least 90% of its investment
company taxable income and at least 90% of its tax-exempt income net of certain
deductions for each taxable year. In general, each such Fund's investment
company taxable income will be its taxable income, including dividends, interest
and short-term capital gains (the excess of net short-term capital gain over net
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long-term capital loss), subject to certain adjustments and excluding the excess
of any net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. The policy of the Fund is to distribute as
dividends substantially all of its investment company taxable income each year.
With respect to the Equity Funds, the dividends received deduction for
corporations will apply to such ordinary income distributions to the extent of
the total qualifying dividends received by a Fund from domestic corporations for
the taxable year. Because substantially all of the net investment income of the
Bond, Intermediate Income, Short-Term Income and Balanced Funds are expected to
be derived from earned interest, it is anticipated that no part of any
distributions from such Funds will be eligible for the dividends received
deduction for corporations.
Distribution by each of the Equity Funds, the Bond Fund and the Intermediate
Income, Short-Term Income and Balanced Funds of the excess of net long-term
capital gain over net short-term capital loss is taxable to Shareholders as
long-term capital gain, regardless of how long the Shareholder has held the
Retail Shares and whether such gains are received in cash or reinvested in
additional Retail Shares. Such distributions are not eligible for the dividends
received deduction for corporations.
Dividends declared by a fund in October, November or December of any year
payable to Shareholders of record on a specified date in such months will be
deemed to have been received by Shareholders and paid by the Funds on December
31 of such year if such dividends are actually paid during January of the
following year.
Investors considering buying Retail Shares on or just before the record date
of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a Shareholder upon his or her
redemption, transfer or exchange of Retail Shares of any of the Non-Money Market
Funds depending upon the tax basis and their price at the time of redemption,
transfer, or exchange. Generally, a Shareholder may include sales charges
incurred upon the purchase of Fund Shares in his or her tax basis for such
Shares for the purpose of determining gain or loss on a redemption, transfer or
exchange of such Shares. However, if the Shareholder effects an exchange of such
Shares for Shares of another Fund within 90 days of the purchase and is able to
reduce the sales charges applicable to new Shares (by virtue of the Company's
exchange privilege), the amount equal to such reduction may not be included in
the tax basis of the Shareholder's exchanged Shares but may be included (subject
to the same limitation) in the tax basis of the new Shares.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made each year.
THE PENNSYLVANIA TAX-FREE BOND FUND: Qualification as a regulated investment
company under the Code for a taxable year requires, among other things, that the
Pennsylvania Tax-Free Bond Fund distribute to its Shareholders an amount equal
to at least 90% of its tax-exempt income and at least 90% of its investment
company taxable income (if any) for each taxable year. In general, the
Pennsylvania Tax-Free Bond Fund's investment company taxable income will be its
taxable income, including dividends, interest and short-term capital gains (the
excess of net short-term capital gain over net long-term capital loss), subject
to certain adjustments and excluding the excess of any net long-term capital
gain for the taxable year over the net short-term capital loss, if any, for such
year. The policy of the Pennsylvania Tax-Free Bond Fund is to distribute as
dividends substantially all of its investment company taxable income each year.
If, at the close of each quarter of its taxable year, at least 50% of the value
of the Fund's total assets is invested in obligations exempt from federal income
tax, the Fund will be eligible to pay dividends that are excludable by
shareholders from gross income for federal income tax purposes ("exempt interest
dividends"), unless under the circumstances applicable to the particular
Shareholder the exclusion would be disallowed. (See Statement of Additional
Information--"Taxes"). The total amount of exempt interest dividends paid by the
Fund to Shareholders with respect to any taxable year cannot exceed the amount
of federally tax-exempt interest received by the Fund during the year less any
expenses allocable to such interest. The Pennsylvania Tax-Free Bond Fund,
however, does not expect to realize significant long-term capital gains and,
therefore, does not foresee paying significant "capital gains dividends" as
described in the Code.
A percentage of the interest on indebtedness incurred or continued to purchase
or carry Retail Shares of the Pennsylvania Tax-Free Bond Fund, equal to the
percentage of the total non-capital gain
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dividends distributed during the Shareholder's taxable year that is exempt
interest dividends, will not be deductible for federal income tax purposes. It
should be noted that, upon the sale or exchange of Shares of the Pennsylvania
Tax-Free Bond Fund, if the Shareholder has not held such Retail Shares for more
than six months, any loss on the sale or exchange of those Retail Shares will be
disallowed to the extent of the tax-exempt dividends received with respect to
the Retail Shares.
A taxable gain or loss may be realized by a Shareholder upon his or her
redemption, transfer or exchange of Retail Shares of the Pennsylvania Tax-Free
Bond Fund depending upon the tax basis of such shares when purchased and their
price at the redemption, transfer, or exchange. Generally, a Shareholder may
include sales charges incurred upon the purchase of Retail Shares in his or her
tax basis for such Shares for the purpose of determining gain or loss on a
redemption, transfer or exchange of such shares. However, if the Shareholder
effects an exchange of such shares for shares of another Fund within 90 days of
the purchase and is able to reduce the sales charges applicable to new shares
(by virtue of the Company's exchange privilege), the amount equal to such
reduction may not be included in the tax basis of the Shareholder's exchanged
Shares but may be included (subject to the same limitation) in the tax basis of
the new Shares.
If the Pennsylvania Tax-Free Bond Fund should hold certain private activity
bonds issued after August 7, 1986, Shareholders must include, as an item of tax
preference, the portion of dividends paid by the Fund that is attributable to
interest on such bonds in their federal alternative minimum taxable income for
purposes of determining liability (if any) for the 26-28% alternative minimum
tax applicable to individuals and the 20% alternative minimum tax and the
environment tax applicable to corporations. Corporations must also take all
exempt-interest dividends into account in determining certain adjustments for
federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of .12% on the excess of
the corporation's modified federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
Dividends declared by the Pennsylvania Tax-Free Bond Fund in October, November
or December of any year payable to Shareholders of record on a specified date in
such months will be deemed to have been received by Shareholders and paid by the
Fund on December 31 of such year if such dividends are actually paid during
January of the following year.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made to them each year.
PENNSYLVANIA STATE TAX
Under current Pennsylvania law, shareholders of the Tax-Free, U.S. Treasury
Securities and Pennsylvania Tax-Free Bond Funds will not be subject to
Pennsylvania Personal Income Tax on distributions from the Funds attributable to
interest income from Pennsylvania Municipal Obligations or from obligations of
the United States, its territories and certain of its agencies and
instrumentalities ("Federal Obligations"). However, Pennsylvania Personal Income
Tax will apply to distributions from the Funds attributable to gain realized on
the disposition of any investment, including Pennsylvania Municipal Obligations
or Federal Obligations, or to interest income from investments other than
Pennsylvania Municipal Obligations or Federal Obligations. Shareholders also
will be subject to the Pennsylvania Personal Income tax on any gain they realize
on the disposition of shares in one of the Funds.
Distributions attributable to interest or gain from Pennsylvania Municipal
Obligations or Federal Obligations are not currently subject to the Philadelphia
School District Net Income Tax. However, it is anticipated that rules similar to
those described above for the Pennsylvania Personal Income Tax ultimately will
be applied, and a recently enacted Pennsylvania statute specifically authorized
local taxation of gains on Pennsylvania Municipal Obligations and Federal
Obligations. Accordingly, there can be no assurance that distributions made by
the Tax-Free, U.S. Treasury Securities and Pennsylvania Tax-Free Bond Funds that
are attributable to such gains will be exempt from the Philadelphia School
District Net Income Tax, except that gains attributable to any investment held
for more than six months will continue to be exempt. A shareholder's gain on the
disposition of a share in one of the Funds that he has held for more than six
months will not be subject to the Philadelphia School District Net Income Tax.
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Shareholders of the Tax-Free, U.S. Treasury Securities and Pennsylvania
Tax-Free Bond Funds are not subject to any of the personal property taxes
currently in effect in Pennsylvania to the extent that a Fund is comprised of
Pennsylvania Municipal Obligations and Federal Obligations. The taxes referred
to include the county personal property tax imposed on residents of Pennsylvania
by the Act of June 17, 1913, P.L. 507, as amended, and the additional personal
property taxes imposed on Pittsburgh residents by the School District of
Pittsburgh under the Act of June 20, 1947, P.L. 733, as amended, and by the City
of Pittsburgh under Ordinance No. 599 of December 28, 1967.
PERFORMANCE INFORMATION
MONEY MARKET FUNDS: Seven-day yields are computed for each of the Cash
Management, Tax-Free and U.S. Treasury Securities Funds by determining the net
change in the value of a hypothetical pre-existing account in each such Fund
which has a balance of one Retail Share at the beginning of the period, dividing
the net change by the value of the account at the beginning of the period to
obtain the base period return, and multiplying the base period return by 365/7.
The net change in the value of an account in each such Fund includes the value
of additional Retail Shares purchased with dividends from the original Retail
Share and dividends declared on the original Share and any such additional
Retail Shares, net of all fees charged to all Shareholder accounts in proportion
to the length of the base period and such Fund's average account size, but does
not include gains and losses or unrealized appreciation and depreciation. In
addition, these Funds may use effective annualized yield quotations computed on
a compounded basis by adding 1 to the base period return (calculated as
described above), raising that sum to a power equal to 365/7, and subtracting 1
from the result.
The Tax-Free Fund may also present its "taxable equivalent yield" and "taxable
equivalent effective yield" with respect to its Retail Shares which reflect the
amount of income subject to federal income taxation that a taxpayer in a stated
tax bracket would have to earn in order to obtain the same after-tax income as
that derived from the yield and effective yield, respectively, of the Tax-Free
Fund. The taxable equivalent yield and taxable equivalent effective yield will
be significantly higher than the yield and effective yield of the Tax-Free Fund.
From time to time, performance information for the Funds showing their average
annual total return, aggregate total return and yield may be presented in
advertisements, sales literature and in reports to Shareholders. The Funds'
performance information may be quoted and compared to those of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, the yields of these Funds may be compared to the IBC/Donoghue's
Money Fund Average, which is an average compiled by IBC/Donoghue's Money Fund
Report of Holliston, MA 01746, a widely recognized independent publication that
monitors the performance of money market funds, to the average yields reported
by the Bank Rate Monitor from money market deposit accounts offered by the 50
leading banks and thrift institutions in the top six standard metropolitan
statistical areas, or to data prepared by Lipper Analytical Services, Inc., as
well as to yield data as reported in publications such as Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week,
American Banker, Fortune, Institutional Banker, Institutional Investor, Ibbotson
Associates, Inc., Morningstar, Inc., CDA/Wiesenberger, Pensions and Investments,
U.S.A. Today and local newspapers. In addition to yield information, general
information about these Funds that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to Shareholders. Reports to shareholders may contain performance information on
any fund of the Company.
Yields will fluctuate and any quotation of yield should not be considered as
representative of the future performance of any Fund. Since yields fluctuate,
yield data cannot necessarily be used to compare an investment in these Funds'
Shares with bank deposits, savings accounts, and similar investment alternatives
which often provide an agreed or guaranteed fixed yield for a stated period of
time. Shareholders should remember that performance and yield are generally
functions of kind and quality of the investments held in a portfolio, portfolio
maturity, operating expenses, and market conditions. Any fees charged by an
affiliate of the Investment Advisor or correspondents thereof with respect to
customer accounts in investing in shares of these Funds will not be included in
yield calculations; such fees, if charged, would reduce the actual yield from
that quoted.
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NON-MONEY MARKET FUNDS: From time to time performance information with
respect to Retail Shares for these Funds showing each Fund's average annual
total return, aggregate total return and yield may be presented in
advertisements, sales literature and in reports to Shareholders. Such
performance figures are based on historical earnings and are not intended to
indicate future performance. Average annual total return will be calculated on
an annual basis (with respect to the International Equity, Short-Term Income and
Balanced Funds, for certain periods since the establishment of such Fund), and
will, unless otherwise noted, reflect the imposition of the maximum sales
charge. For the information of Shareholders not subject to a sales charge, the
Funds may also publish average annual total returns which include no sales
charge. Average annual total return is measured by comparing the value of an
investment in a Fund at the beginning of the relevant period to the redemption
value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions) and annualizing
the result. Aggregate total return is calculated similarly, however, the
resulting difference is not annualized. Yield will be computed by dividing such
Fund's net investment income per share earned during a recent 30-day period by
such Fund's per share maximum offering price (reduced by any undeclared earned
income expected to be paid shortly as a dividend) on the last day of the period
and annualizing the result.
Quotations of total return will reflect the maximum sales load charged by a
Fund, except that the Fund may also provide, in conjunction with such
quotations, additional quotations that do not reflect a sales charge when the
quotations are being provided to investors who are exempt from the sales charges
described in this Prospectus. Similarly, a Fund may provide yield quotations in
investor communications (other than advertisements) based on a share's net asset
value (rather than its maximum offering price) per share on the last day of the
period covered by the yield computation. Because these additional quotations
will not reflect the maximum sales charge payable by non-exempt investors, such
performance quotations will be higher than the performance quotations computed
in the manner described in the preceding paragraph.
The Pennsylvania Tax-Free Bond Fund may also quote its "taxable equivalent
yield" which demonstrates the level of taxable yield necessary to produce an
after-tax equivalent to the Fund's tax-free yield. It is calculated by
increasing the Fund's yield (calculated as above) by the amount necessary to
reflect the payment of federal and Pennsylvania income taxes at a stated tax
rate. The taxable equivalent yield will always be higher than the Fund's yield.
Investors may also judge the performance of a Fund, by comparing it to the
performance of other mutual funds with comparable investment objectives and
policies through various mutual fund or market indices such as those prepared by
Dow Jones & Co., Inc. and Standard & Poor's Ratings Group, Division of McGraw
Hill and to data prepared by Lipper Analytical Services, Inc. Comparisons may
also be made to indices or data published in Money Magazine, Forbes, Barron's,
The Wall Street Journal, The New York Times, Business Week, American Banker,
Fortune, Institutional Banker, Institutional Investor, Ibbotson Associates,
Inc., Morningstar, Inc., CDA/Wiesenberger, Pensions and Investments, U.S.A.
Today and local newspapers. In addition to yield information, general
information about these Funds that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to Shareholders. Reports to Shareholders may contain performance information on
any Fund of the Company.
Yield and total return are functions of the type and quality of instruments
held in the portfolio, operating expenses, and market conditions. Consequently,
current yields and total return will fluctuate and are not necessarily
representative of future results. Any fees charged by an affiliate of the
Investment Advisor or a correspondent thereof with respect to customer accounts
for investing in shares of the Fund will not be included in performance
calculations; such fees, if charged, would reduce the actual yield and total
return from that quoted.
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MANAGEMENT OF THE COMPANY
TRUSTEES
Overall responsibility for management of the Company rests with its Board of
Trustees, who are elected by the Shareholders of the Company's Funds. The
Statement of Additional Information contains the names of and general background
information concerning each trustee.
INVESTMENT ADVISOR
Meridian Investment Company (the "Investment Advisor") is the investment
advisor of the Company. Located in Malvern, Pennsylvania, the Investment Advisor
is a subsidiary of Meridian Bancorp, Inc., a regional multi-bank holding company
with assets over $14 billion, providing a full array of financial and asset
management, commercial banking, and real estate services. As of November 1,
1994, the Investment Advisor managed and advised a total of $5.0 billion in a
variety of balanced, equity and fixed-income portfolios.
Subject to the general supervision of the Company's Board of Trustees and in
accordance with the investment objectives and restrictions of each Fund, the
Investment Advisor manages the Funds, makes decisions with respect to and places
orders for all purchases and sales of the Funds' investment securities, and
maintains the Funds' records relating to such purchases and sales.
The following individuals serve as portfolio managers for the Funds and are
primarily responsible for the day-to-day management of the portfolios:
Craig A. Moyer, CFA, is a Senior Vice President and Senior Fixed Income
Manager. Mr. Moyer has been with Meridian Investment Company (or a predecessor)
since 1977. Mr. Moyer began his investment career in 1974 and obtained his B.A.
from Pennsylvania State University. Mr. Moyer has been a part of the Fixed
Income Unit overseeing the Bond Funds since their inception. Mr. Moyer currently
manages the Intermediate Income Fund and the Balanced Fund.
Cathy L. Rahab is an Assistant Vice President and Portfolio Manager with
Meridian Investment Company. Ms. Rahab began her investment career in 1986 and
obtained her B.S. in Business Administration from Villanova University. Ms.
Rahab joined the Fixed Income Unit in July of 1994. Mr. Rahab currently manages
the Money Market Funds and the Short-Term Income Fund.
Christine M. Frampton is an Investment Officer and Fixed Income Portfolio
Manager with Meridian Investment Company since April 1990. Ms. Frampton began
her investment career with Merrill Lynch & Co. in 1987 and obtained her B.A.
from University of Delaware and M.B.A. from St. Joseph's University. Ms.
Frampton has been part of the Fixed Income Unit overseeing the Bond Funds since
September, 1992. Ms. Frampton currently manages the Pennsylvania Tax-Free Fund.
Joseph E. Stocke, CFA, is a Senior Vice President and Senior Equity Manager.
Mr. Stocke has been with Meridian Investment Company (or a predecessor) since
1983. Mr. Stocke began his investment career in 1982 and obtained his B.S. in
Economics attending The Wharton School, and University of Pennsylvania and
completed graduate courses at New York University. Mr. Stocke has been part of
the Equity Unit overseeing the Equity Fund and the Special Equity Fund since
their inception. Mr. Stocke currently manages the Balanced Fund.
Leslie M. Varrelman is a Vice President and Fixed Income Manager and has been
with Meridian Investment Company since January 1994. Previously Ms. Varrelman
was Vice President of CoreStates Investment Advisers where she managed the
commingled fixed income funds and managed the Limited Maturity Products area.
Ms. Varrelman obtained her B.S. in Business Administration from Juniata College
in 1981. Ms. Varrelman currently manages the Bond Fund.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Company, the Investment Advisor is entitled to
receive a fee from the Fund, computed daily and paid monthly, at an annual rate
equal to the lesser of (a) (i) .40% of the average daily net assets of each of
the Cash Management, Tax-Free and U.S. Treasury Securities Funds, (ii) .74% of
the average daily net assets of each of the Equity, Bond, Intermediate Income,
Pennsylvania Tax-Free Bond and Short Term Income Funds, (iii) .75% of the
average daily net assets of the Balanced Fund, (iv) 1.00% of the average daily
net assets of the International Equity Fund and (v) 1.50% of the average daily
net assets of the Special Equity Fund, or (b) such fee as may from time to time
be agreed upon in writing by a Fund and the Investment Advisor in advance of the
period to which the fee relates. See "Expense
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Summary." The maximum investment advisory fees payable by the Special Equity,
Balanced and International Equity Funds respectively, are higher than the
investment advisory fees paid by most comparable mutual funds.
SUB-ADVISOR
Marvin & Palmer Associates, Inc., 1201 N. Market Street, Suite 2300,
Wilmington, Delaware 19801-1165, is Sub-advisor for the International Equity
Fund under an agreement with the Advisor (the "Sub-advisory Agreement"). The
Sub-advisor is responsible for the investment and reinvestment of the
International Equity Fund's assets and the placement of brokerage transactions
in connection therewith. For its services under the Sub-advisory Agreement, the
Sub-advisor is paid a monthly fee by the Investment Advisor calculated on an
annual basis equal to .75% of the first $100 million of International Equity
Fund's average daily net assets, .70% of the second $100 million of
International Equity Fund's average daily net assets, .65% of the third $100
million of International Equity Fund's average daily net assets, and .60% of
International Equity Fund's average daily net assets in excess of $300 million.
The Sub-advisor, a privately held company, was founded in 1986 by David F.
Marvin and Stanley Palmer. The stock of the Sub-advisor is owned by Messrs.
Marvin and Palmer and twenty other holders. The Sub-advisor is engaged in the
management of global, non-United States and emerging markets equity portfolios
for institutional accounts. At September 30, 1994, the Sub-advisor managed a
total of $2.8 billion in investments for 47 institutional investors.
The following five individuals will share the management of International
Equity Fund on behalf of the Sub-advisor:
David F. Marvin, CFA, is chairman of the Sub-advisor and founded the firm
together with Mr. Palmer in 1986. Before founding the Subadvisor, Mr. Marvin was
Vice president in charge of DuPont Corporation's $10 billion internally-managed
pension fund. Prior to that Mr. Marvin was Associate Portfolio Manager, and the
Head Portfolio Manager, for Investors Diversified Services' IDS Stock Fund. Mr.
Marvin started in the investment business in 1965 as a security analyst for
Chicago Title & Trust Company. He received his M.B.A. from Northwestern
University and his B.S. from the University of Illinois, and is a Chartered
Financial Analyst and a member of the Financial Analysts Federation.
Stanley Palmer, CFA, is President of the Sub-advisor and co-founder of the
firm. Mr. Palmer was Equity Portfolio Manager for DuPont Corporation from 1978
through 1986, an analyst and portfolio manager at Investors Diversified Services
from 1971 through 1978, and an analyst at Harris Trust & Savings Bank from 1964
through 1971. He received his M.B.A. from the University of Iowa and his
B.S. from Gustavus Adolphus College, and is a Chartered Financial Analyst and a
member of the Financial Analysts Federation.
Terry B. Mason is a Vice President and Portfolio Manager of the Sub-advisor.
Before joining the Sub-advisor, Mr. Mason was employed for 14 years by DuPont
Corporation,the last five as international equity analyst and international
trader. He received his M.B.A. from Widener University and his B.A. from
Glassboro State College.
Jay F. Middleton is a portfolio manager for the Sub-advisor and joined the
firm in 1989. He received his B.A. from Wesleyan University.
Todd D. Marvin is a portfolio manager for the Sub-advisor and joined the firm
in 1991. Before joining the Sub-advisor, Mr. Marvin was employed by Oppenheimer
& Company as an analyst in investment banking. Mr. Marvin received his B.A. from
Wesleyan University.
ADMINISTRATOR AND DISTRIBUTOR
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), provides the Company with administrative
services, including fund accounting, regulatory reporting, necessary office
space, equipment, personnel and facilities. SEI Financial Services Company (the
"Distributor"), a wholly-owned subsidiary of SEI, serves as distributor.
Effective May 1, 1995, the Administrator will receive a fee, which is
calculated daily and paid monthly, at a maximum annual rate of 0.17% of the
average daily net assets of each Fund. Until April 30, 1995, the current
administrator will receive administration fees equal to .20% of the average
daily net assets of each Fund.
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CUSTODIANS AND TRANSFER AGENT
Citibank, N.A. serves as custodian for each Fund other than the International
Equity Fund. The Bank of New York serves as custodian for the International
Equity Fund. The Administrator also serves as Transfer Agent for the Company.
State Street Bank and Trust Company serves as the Sub-Transfer Agent for the
Company pursuant to an agreement with the Administrator.
DISTRIBUTION AND SERVICES PLAN
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to pay directly or indirectly expenses associated with the distribution of its
shares in accordance with a plan adopted by an investment company's trustees and
approved by its shareholders. Pursuant to such Rule, with respect to Retail
Shares of the International Equity, Short-Term Income and Balanced Funds, and
subject to shareholder approval with respect to Retail Shares of each of the
other Funds, the Company has adopted a Distribution and Services Plan (the
"Distribution Plan"). Pursuant to the Distribution Plan, each Fund is be
authorized to pay or reimburse the distributor for certain expenses that are
incurred in connection with shareholder and distribution Services.
Payments under the Distribution Plan are calculated daily and paid monthly at
an annual rate not to exceed .40% of the average daily net asset value of Retail
Shares of each Fund. Such amount may be used by the Distributor to pay (i) banks
and their affiliates (including Meridian Bank and its affiliates), and other
institutions, including broker-dealers (collectively "Shareholder
Organizations") in connection with providing administrative support services to
the holders of a Fund's Retail Shares or (ii) financial institutions and
industry professionals (such as insurance companies, investment counsellors,
accountants and estate planning firms (but not including banks and savings and
loan associations)), broker-dealers, and the Distributor's affiliates and
subsidiaries (collectively, "Participating Organizations") in connection with
providing distribution services and for expenses assumed in connection with such
services. Payments pursuant to the Distribution Plan are used (i) to compensate
organizations for providing distribution assistance relating to Retail Shares,
(ii) for promotional activities intended to result in the sale of Retail Shares
such as to pay for the preparation, printing and distribution of prospectuses to
other than current shareholders, (iii) printing and distributing advertising and
sales literature and reports to shareholders used in connection with this sale
of a Fund's Retail Shares, and (iv) personnel and communicative equipment used
in servicing shareholder accounts and prospective shareholder inquiries.
Fees paid pursuant to the Distribution Plan are accrued daily and paid
monthly, and are charged as expenses of Retail Shares of a Fund as accrued.
The services provided by Shareholder Organizations may include processing
purchase, exchange, and redemption requests from Customers and placing orders
with the Transfer Agent; processing dividend and distribution payments from a
Fund on behalf of Customers; providing information periodically to Customers
showing their ownership of shares; providing sub-accounting with respect to
Shares beneficially owned by Customers or the information necessary for
sub-accounting; responding to inquiries from Customers concerning their
investment in shares; arranging for bank wires; and providing such other similar
services as may be reasonably requested.
The Company understands that Shareholder Organizations may charge fees to
their Customers who are the owners of shares in connection with their Customer
accounts. These fees would be in addition to any amounts which may be received
by a Shareholder Organization under its Servicing Agreement with the Company.
The Servicing Agreements require, however, a Shareholder Organization to
disclose to its Customers any compensation payable to the Shareholder
Organization by the Company and any other compensation payable by the Customers
in connection with the investment of their assets in shares. Customers of
Shareholder Organizations should read this Prospectus in light of the terms
governing their accounts with their Shareholder Organizations.
The services provided by Participating Organizations may include aggregating
and placing purchase exchange and redemption orders directly with the Company's
Transfer Agent, engaging in advertising with respect to a fund's Retail Shares,
preparing, printing and distributing a fund prospectus, reports and sales
literature, and such other similar services as the Distributor may reasonably
request to the extent that Participating Organization is permitted to do so
under applicable statutes, rules or regulations. A participating organization
may from time to time also undertake to perform administration
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support services similar to those identified above with respect to Shareholder
Organizations.
Conflict of interest restrictions may apply to the receipt by Shareholder
Organizations of compensation from the Company in connection with the investment
of fiduciary assets in shares. Shareholder Organizations, including banks
regulated by the Comptroller of the Currency, the Federal Reserve Board, or the
FDIC, and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor, or state securities
commissions, are urged to consult their legal advisers before investing such
assets in shares.
EXPENSES
The Investment Advisor and the Administrator each bear all expenses in
connection with the performance of their services as investment advisor and
administrator, respectively, other than the cost of securities (including
brokerage commissions) purchased for the Company. Each Fund of the Company will
bear expenses relating to its respective operations including the following:
taxes; interest; brokerage fees and commissions; fees and travel expenses of the
Trustees of the Company; Securities and Exchange Commission fees; state
securities qualification expenses; costs of preparing and printing prospectuses
for regulatory purposes and for distribution to current Shareholders; outside
auditing and legal expenses; advisory and administration fees; fees and
out-of-pocket expenses of the custodian and transfer agent; expenses incurred
for pricing securities owned by each respective Fund; insurance premiums; costs
of maintenance of the Company's existence; costs of Shareholders' reports and
meetings; proxy solicitation expenses; costs of Board of Trustees meetings and
any extraordinary expenses incurred in each Fund's operation. The holders of
Retail Shares of a Fund will not bear the cost of any activity primarily
intended to result in the distribution of its Shares; such costs will be borne
by the Distributor.
BANKING LAWS
Future changes in federal or state statutes and regulations relating to
permissible activities of banks or bank holding companies and their subsidiaries
and affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which the Investment Advisor may continue to perform investment
advisory services for the Company. See the Statement of Additional Information
- -- "Banking Laws" for further discussion.
GENERAL INFORMATION
DESCRIPTION OF THE COMPANY AND ITS SHARES
The Company was organized as a Massachusetts trust with transferrable Shares
on August 1, 1989. The Company consists of eleven portfolios, each having two
classes of shares, Institutional Shares and Retail Shares: the Cash Management
Fund; the Tax-Free Fund; the U.S. Treasury Securities Fund; the Equity Fund; the
International Equity Fund; the Special Equity Fund; the Bond Fund; the
Intermediate Income Fund; the Pennsylvania Tax-Free Bond Fund; the Short-Term
Income Fund and the Balanced Fund. Each Share represents an equal proportionate
interest in a Fund with other Shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
that Fund as are declared at the discretion of the Board of Trustees. Shares
have a par value of $.001 per Share and do not have preemptive or conversion
rights.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for any fractional shares held. Shareholders will
vote in the aggregate and not by class except as otherwise expressly required by
law. For example, Shareholders of the Funds will vote in the aggregate with
other shareholders of the Company with respect to the election of Trustees and
the ratification of the selection of independent accountants. Shareholders of a
Fund will vote as a Fund, however, and not in the aggregate with other
shareholders of the Company, for purposes of approval of that Fund's investment
advisory agreement. Voting rights are not cumulative and, accordingly, holders
of more than 50% of the aggregate Shares of the Company may elect all of the
Trustees.
As of November 1, 1994, Meridian Bancorp, Inc. indirectly possessed or shared
power to dispose or vote with respect to more than 25% of the outstanding shares
of the Company and therefore may be
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<PAGE> 65
considered to be a controlling person of the Company for purposes of the Act.
Annual meetings of Shareholders are not required by the Agreement and
Declaration of Trust, the Investment Company Act of 1940 or other authority
except, under certain circumstances, to elect Trustees, amend the Agreement and
Declaration of Trust, approve investment advisory and distribution agreements,
ratify the selection of accountants and to satisfy certain other requirements.
Shareholders owning not less than 10% of the outstanding shares of the Company
entitled to vote may cause the Board of Trustees to call a special meeting of
Shareholders. At such a meeting, a quorum of Shareholders (constituting a
majority of votes attributable to all outstanding Shares of the Company), by
majority vote, has the power to remove one or more Trustees. To the extent
required by law, the Company will assist in Shareholder communication in such
matters.
MULTIPLE CLASSES OF SHARES
In addition to Retail Shares, the Company also offers Institutional Shares of
the Funds, under an exemptive order granted by the Securities and Exchange
Commission. Institutional Shares are sold through procedures that are
established by the Distributor to bank trust departments purchasing
Institutional Shares on behalf of the fiduciary, advisory, agency, custody or
other similar accounts maintained by, or on behalf of, their customers.
Institutional Shares are not sold subject to a sales charge and do not bear
expenses under the Distribution Plan pertaining to Retail Shares. In addition,
Retail Shares may bear additional retail transfer agency expenses. A sales
person or other person entitled to receive compensation for selling or servicing
the shares may receive different compensation with respect to one particular
class of shares over another in the same Fund. For further details regarding
eligibility requirements for the purchase of Institutional Shares, call the
Company at (800) 344-2716.
The amount of dividends payable with respect to Institutional Shares will
exceed dividends on Retail Shares as a result of the 12b-1 fees applicable to
Retail Shares.
MISCELLANEOUS
Shareholders will receive unaudited mid-year reports and audited annual
reports describing the investment operations of all of the Company's Funds. The
Company may include information in its Annual Reports and Semi-Annual Reports to
Shareholders that (i) describes general economic trends, (ii) describes general
trends within the financial services industry or the mutual fund industry, (iii)
describes past or anticipated portfolio holdings for Funds within the Company or
(iv) describes investment management strategies for such Funds. Such information
is provided to inform Shareholders of the activities of a Fund for the most
recent fiscal year or half-year and to provide the views of the Advisor and/or
Company officers regarding expected trends and strategies.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to" a Fund means the consideration received by the Company
upon the issuance or sale of Shares in that Fund, together with all income,
earnings, profits, and proceeds derived from the investment thereof including
any proceeds from the sale, exchange, or liquidation of such investments, and
any funds or payments derived from any reinvestment of such proceeds, and any
general assets of the Company not readily identified as belonging to a
particular Fund that are allocated to that Fund by the Company's Board of
Trustees. The Board of Trustees may allocate such general assets in any manner
it deems fair and equitable. It is anticipated that the factor that will be used
by the Board of Trustees in making allocations of general assets to particular
Funds will be the relative net assets of the respective Funds at the time of
allocation. Assets belonging to a particular Fund are charged with the direct
liabilities and expenses in respect of that Fund, and with a share of the
general liabilities and expenses of the Company not readily identified as
belonging to a particular Fund that are allocated to that Fund in proportion to
the relative net asset values of the respective Funds at the time of allocation.
The allocations of general assets and general liabilities and expenses of the
Company to particular Funds will be determined in accordance with generally
accepted accounting principles. Determinations by the Board of Trustees of the
Company as to the timing of the allocation of general liabilities and expenses
and as to the timing and allocable portion of any general assets with respect to
a particular Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Company or a particular
Fund means the affirmative vote, at a meeting of Shareholders duly called, of
the lesser of (a) 67% or more of the votes of Shareholders of the
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<PAGE> 66
Company or such Fund present at a meeting at which the holders of more than 50%
of the votes attributable to Shareholders of record of the Company or such Fund
are represented in person or by proxy, or (b) the holders of more than 50% of
the outstanding votes of Shareholders of the Company or such Fund.
Inquiries regarding the Fund may be directed in writing to the Company at 680
East Swedesford Road, Wayne, PA 19087-1658, or by calling toll-free (800)
344-2716.
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INSTITUTIONAL SHARES
Cash Management Fund
Tax-Free Fund
U.S. Treasury Securities Fund
Equity Fund
Special Equity Fund
Bond Fund
Intermediate Income Fund
Pennsylvania Tax-Free Bond Fund
Balanced Fund
Short-Term Income Fund
International Equity Fund
------------------------------------------------------
PROSPECTUS
FEBRUARY 21, 1995
------------------------------------------------------
<PAGE> 70
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 2
Expense Summary....................................................................... 4
Financial Highlights.................................................................. 5
Investment Objectives and Policies.................................................... 10
How to Purchase and Redeem Shares..................................................... 15
Valuation of Shares................................................................... 18
Dividends............................................................................. 18
Other Investment Policies............................................................. 19
Investment Restrictions............................................................... 28
Taxes................................................................................. 31
Performance Information............................................................... 34
Management of the Company............................................................. 36
General Information................................................................... 39
</TABLE>
[MERIDIAN Investment Company LOGO]
INVESTMENT ADVISOR
SEI FINANCIAL SERVICES COMPANY
DISTRIBUTOR
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE COMPANY
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
CON-F-002-01
<PAGE> 71
CONESTOGA FAMILY OF FUNDS
INSTITUTIONAL SHARES
<TABLE>
<S> <C>
680 East Swedesford Road For information,
Wayne, Pennsylvania 19087-1658 call (800) 344-2716.
</TABLE>
Conestoga Family of Funds (the "Company") is an open-end management investment
company. This Prospectus describes the eleven separate investment portfolios
(the "Funds") which are offered by the Company, each of which is advised by
Meridian Investment Company (the "Investment Advisor"). These Funds enable the
Company to meet a wide range of investment needs. This Prospectus relates to a
separate series of shares (the "Institutional Shares") of each of the Funds.
MONEY MARKET FUNDS
THE CONESTOGA CASH MANAGEMENT FUND'S investment objective is to seek current
income with liquidity and stability of principal.
THE CONESTOGA TAX-FREE FUND'S investment objective is to seek current income
which is exempt from regular federal income tax with liquidity and stability of
principal.
THE CONESTOGA U.S. TREASURY SECURITIES FUND'S investment objective is to seek
current income with liquidity and stability of principal.
EQUITY FUNDS
THE CONESTOGA EQUITY FUND seeks capital growth by investing principally in a
diversified portfolio of common stocks.
THE CONESTOGA INTERNATIONAL EQUITY FUND'S investment objective is to seek
long-term growth of capital.
THE CONESTOGA SPECIAL EQUITY FUND seeks capital growth by investing
principally in a diversified portfolio of common stocks.
BOND FUNDS
THE CONESTOGA BOND (FORMERLY THE INCOME) FUND'S investment objective is to
seek to maximize long-term total return by investing principally in a
diversified portfolio of debt securities.
THE CONESTOGA INTERMEDIATE INCOME (FORMERLY THE LIMITED MATURITY) FUND has a
primary investment objective of seeking current income by investing principally
in a diversified portfolio of debt securities with remaining or expected
maturities of ten years or less, and a secondary objective of seeking capital
growth.
THE CONESTOGA PENNSYLVANIA TAX-FREE BOND FUND'S investment objective is to
seek a high level of current income consistent with the preservation of capital,
which income is exempt from federal individual income tax and, to the extent
possible, from Pennsylvania state and local personal income tax, and is not a
tax preference item under the federal alternative minimum tax.
THE CONESTOGA SHORT-TERM INCOME FUND'S investment objective is to seek
consistent current income with relative stability of principal by investing
principally in a diversified portfolio of investment grade debt securities.
BALANCED FUND
THE BALANCED FUND'S investment objective is to seek a balance of capital
appreciation and current income consistent with the preservation of capital.
The Investment Advisor is located in Malvern, Pennsylvania. Marvin & Palmer
Associates, Inc. is the sub-investment advisor to the International Equity Fund.
SEI Financial Management Corporation acts as the Company's administrator and SEI
Financial Services Company acts as the Company's distributor. FUND SHARES ARE
NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, THE
INVESTMENT ADVISOR OR ANY OF ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED BY,
GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. EACH OF THE CASH MANAGEMENT, TAX-FREE AND U.S. TREASURY
SECURITIES FUNDS SEEKS TO MAINTAIN ITS NET ASSET VALUE PER SHARE AT $1.00 FOR
PURPOSES OF PURCHASES AND REDEMPTIONS, ALTHOUGH THERE CAN BE NO ASSURANCE THAT
IT WILL BE ABLE TO DO SO ON A CONTINUOUS BASIS. INVESTMENT IN ANY FUND INVOLVES
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the information about Institutional
Shares of the Funds that a prospective investor ought to know before investing.
Investors should read this Prospectus and retain it for future reference. The
Statement of Additional Information bears the same date as this Prospectus, is
incorporated by reference in its entirety into this Prospectus, and is available
upon request without charge by writing to the Company at its address or by
calling the Company at the telephone number shown above.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is February 21, 1995.
<PAGE> 72
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
Shares Offered................ Units of Beneficial Interest of a separate class (the
"Institutional Shares") of each Fund.
Offering Price and
Sales Charge................ The public offering price of Institutional Shares of each
Fund is equal to its net asset value per Share which, with
respect to the Cash Management, Tax-Free and U.S. Treasury
Securities Funds, the Company will seek to maintain at
$1.00.
Minimum Purchase.............. $1,000 minimum initial investment with no minimum subsequent
investment.
Investment Objectives......... MONEY MARKET FUNDS: the CASH MANAGEMENT FUND and the U.S.
TREASURY SECURITIES FUND will each seek current income with
liquidity and stability of principal. The TAX-FREE FUND will
seek current income which is exempt from regular federal
income tax with liquidity and stability of principal.
EQUITY FUNDS: The EQUITY FUND and the SPECIAL EQUITY FUND
will each seek capital growth by investing primarily in a
diversified portfolio of common stocks. The INTERNATIONAL
EQUITY FUND will seek long-term growth of capital.
BOND FUNDS: The BOND FUND will seek to maximize long-term
total return by investing principally in a diversified
portfolio of debt securities. The INTERMEDIATE INCOME FUND
has a primary investment objective of seeking current income
by investing principally in a diversified portfolio of debt
securities with expected or remaining maturities of ten
years or less, and a secondary objective of seeking capital
growth. The investment objective of the PENNSYLVANIA
TAX-FREE BOND FUND is to seek a high level of current income
consistent with the preservation of capital, which income is
exempt from federal individual income tax and, to the extent
possible, from Pennsylvania state and local personal income
tax, and is not a tax preference item under the federal
alternative minimum tax. Shares of the Pennsylvania Tax-Free
Bond Fund will be exempt from Pennsylvania personal property
taxes. The SHORT-TERM INCOME FUND'S investment objective is
to seek consistent current income with relative stability of
principal by investing principally in a diversified
portfolio of investment grade debt securities.
BALANCED FUND: The BALANCED FUND'S investment objective is
to seek a balance of capital appreciation and current income
consistent with the preservation of capital.
Investment Policies........... MONEY MARKET FUNDS: The CASH MANAGEMENT FUND invests
principally in short-term high-quality money market
instruments. The TAX-FREE FUND invests principally in
short-term high-quality municipal obligations the interest
on which is exempt from regular federal income tax and not
treated as a specific tax preference item under the federal
alternative minimum tax. The U.S. TREASURY SECURITIES FUND
invests exclusively in short-term obligations issued or
guaranteed by the U.S. Treasury and in repurchase agreements
secured by U.S. Treasury instruments.
</TABLE>
2
<PAGE> 73
<TABLE>
<S> <C>
EQUITY FUNDS: The EQUITY FUND will normally invest at least
80% of its total assets in common stocks. The SPECIAL EQUITY
FUND will normally invest in common stocks of domestic
companies that the Investment Advisor expects will
experience growth in earnings and price. The INTERNATIONAL
EQUITY FUND will normally invest at least 65% of its total
assets in an internationally diversified portfolio of equity
securities which trade in markets other than the United
States.
BOND FUNDS: The BOND FUND will normally invest at least 80%
of its total assets in debt securities of all types. The
INTERMEDIATE INCOME FUND will normally invest at least 80%
of its total assets in debt securities of all types with
maximum expected or remaining maturities of ten years or
less. The PENNSYLVANIA TAX-FREE BOND FUND will invest
substantially all of its assets (but in no event less than
80%) in investment grade municipal securities the interest
on which is exempt from federal individual income tax and
from Pennsylvania state and local personal income tax, and
is not treated as a specific tax preference item under the
federal alternative minimum tax. The SHORT-TERM INCOME FUND
will invest principally in investment grade debt securities
of all types with maximum expected or remaining maturities
of three years or less. The Fund will normally have an
average dollar-weighted portfolio maturity of approximately
one year.
BALANCED FUND: The BALANCED FUND will normally invest at all
times at least 30% of the value of its total assets in
fixed-income securities and no more than 70% in equity
securities.
Investment Risks and
Characteristics............. Funds investing in debt and equity securities are subject to
market risk. Market risk is the possibility that prices of
securities held by a Fund will decline over a short or even
extended period. Stock markets tend to be cyclical, with
periods of generally declining prices. The cycles will
affect the value of a fund investing in equity securities.
Funds investing in equity securities of foreign companies
also will be subject to the risks of fluctuations in the
values of foreign currencies relative to the U.S. dollar and
other risks, including future political and economic
developments and the possible imposition of exchange
controls or other foreign governmental laws or restrictions.
Funds investing in debt securities are subject to market
risk caused by fluctuations in interest rates and are
subject to the risk that particular issuers will be unable
to meet their obligations. See "Investment Objectives and
Policies" and "Other Investment Policies" in the Prospectus
and "Investments, Policies and Restrictions" in the
Statement of Additional Information.
Dividends and Capital Gains... Dividends from net income are generally declared and paid
annually with respect to the International Equity Fund,
quarterly with respect to the Equity Fund, the Special
Equity Fund and the Balanced Fund and monthly with respect
to the Bond Funds. Dividends from net income are declared
daily and paid monthly with respect to the Money Market
Funds. Net realized capital gains are distributed at least
annually.
Investment Advisor............ Meridian Investment Company. Marvin & Palmer Associates,
Inc. (the "Sub-advisor") serves as the sub-advisor for the
International Equity Fund.
Distributor................... SEI Financial Services Company.
</TABLE>
3
<PAGE> 74
EXPENSE SUMMARY
The purpose of the following table is to assist a potential purchaser of
Institutional Shares of a Fund in understanding the various costs and expenses
that an investor in such Shares of the Fund will bear directly or indirectly.
<TABLE>
<CAPTION>
CONESTOGA CONESTOGA CONESTOGA
MONEY EQUITY CONESTOGA BALANCED
MARKET FUNDS FUNDS BOND FUNDS FUND
------------ ------------- ---------- -------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)............................................ 0% 0% 0% 0%
Maximum Sales Load Imposed on Reinvested Dividends........... 0% 0% 0% 0%
Deferred Sales Load.......................................... 0% 0% 0% 0%
Redemption Fees.............................................. 0% 0% 0% 0%
Exchange Fee................................................. 0% 0% 0% 0%
</TABLE>
<TABLE>
<CAPTION>
CASH U.S. TREASURY INTERNATIONAL
MANAGEMENT TAX-FREE SECURITIES EQUITY EQUITY
FUND FUND FUND FUND FUND
---------- ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES EQUITY (as a
percentage of average net assets)
Advisory Fees After Fee Waivers(1).............. .34% .25% .32% .74% 1.00%
Other Expenses After Reimbursements(2).......... .25% .32% .25% .27% .92%
----- ----- ----- ---------- ------
Total Fund Operating Expenses................... .59% .57% .57% 1.01% 1.92%
=========== =========== ============ ========== ===========
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA
SPECIAL INTERMEDIATE TAX-FREE SHORT-TERM
EQUITY BOND INCOME BOND INCOME BALANCED
FUND FUND FUND FUND FUND FUND
------- ---------- ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees After Fee Waivers(1)...... .50% .40% .40% .25% .50% .75%
Other Expenses After
Reimbursements(2)..................... .39% .28% .28% .59% .37% .48%
------- ----- ----- ----- ----- ------
Total Fund Operating Expenses........... .89% .68% .68% .84% .87% 1.23%
====== =========== =========== ============ ========== ===========
</TABLE>
- ---------
(1) Advisory Fees are payable at the maximum annual rates of .40%, .40%, .40%,
.74%, 1.00%, 1.50%, .74%, .74%, .74%, .74% and .75% of the average daily net
assets of the Cash Management Fund, the Tax-Free Fund, the U.S. Treasury
Securities Fund, the Equity Fund, the International Equity Fund, the Special
Equity Fund, the Bond Fund, the Intermediate Income Fund, the Pennsylvania
Tax-Free Bond Fund, the Short-Term Income Fund and the Balanced Fund,
respectively.
(2) "Other Expenses" After Reimbursements include administration fees. Until
April 30, 1995, administration fees will equal .20% of each Fund's net
assets. Effective May 1, 1995, an Administration Agreement with a new
Administrator provides that administration fees will not exceed .17% of each
Fund's average assets. (See "MANAGEMENT OF THE FUND -- Investment Advisor
and Administrator and Distributor.")
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming: (1) a
5% annual return; (2) redemption at the end of each time period; and (3)
the imposition of a maximum sales load at the beginning of the period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cash Management Fund.................... $ 6 $19 $33 $ 74
Tax-Free Fund........................... $ 6 $18 $32 $ 71
U.S. Treasury Securities Fund........... $ 6 $18 $32 $ 71
Equity Fund............................. $ 10 $32 $56 $124
International Equity Fund............... $ 19 $60
Special Equity Fund..................... $ 9 $28 $49 $110
Bond Fund............................... $ 7 $22 $38 $ 85
Intermediate Income Fund................ $ 7 $22 $38 $ 85
Pennsylvania Tax-Free Bond Fund......... $ 9 $27 $47 $104
Short-Term Income Fund.................. $ 9 $28
Balanced Fund........................... $ 13 $39
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. THE INTERNATIONAL EQUITY, SHORT-TERM INCOME AND BALANCED FUNDS
ARE NEW. THE ABOVE FIGURES WITH RESPECT TO EACH FUND ARE ESTIMATES FOR THE
CURRENT YEAR ONLY. ACTUAL EXPENSES FOR EACH FUND MAY BE GREATER OR LESSER THAN
THOSE SHOWN.
4
<PAGE> 75
The Expense Summary has been restated with respect to the Cash Management,
Tax-Free, U.S. Treasury Securities, Equity, Bond, Intermediate Income and
Pennsylvania Tax-Free Bond Funds to reflect various projected fee and expense
rates for the fiscal year ending October 31, 1995. The Special Equity Fund did
not commence investment operations until March 15, 1994. The International
Equity, Short-Term Income and Balanced Funds are expected to commence operations
shortly after the effective date of this Prospectus. Without fee waivers and
expense reimbursements by the Investment Advisor, Total Fund Operating Expenses
for the Cash Management Fund, the Tax-Free Fund, the U.S. Treasury Securities
Fund, the Equity Fund, the International Equity Fund, the Special Equity Fund,
the Bond Fund, the Intermediate Income Fund, the Pennsylvania Tax-Free Bond
Fund, the Short-Term Income Fund and the Balanced Fund would be .70%, .77%,
.70%, 1.06%, 1.97%, 1.94%, 1.07%, 1.07%, 2.06%, 1.16%, and 1.28%, respectively,
for the fiscal year or period ending October 31, 1995. Certain of the fee
waivers and expense reimbursements reflected in the Expense Summary are based
upon informal commitments of the Investment Advisor in connection with the
implementation of the Company's multiple class structure to waive or reimburse
certain expenses until February 1996; there can be no assurance that such
commitments will continue thereafter. There may be a charge of $7.00 for each
redemption paid by wire. See "MANAGEMENT OF THE FUND -- Expenses" for a more
complete discussion of the shareholder transaction expenses and annual operating
expenses of the Funds.
The information in the foregoing fee tables and examples relates only to the
Institutional Shares of each Fund. Each of the Company's eleven Funds also offer
another class of Shares known as Retail Shares. The Institutional Shares and
Retail Shares of each Fund are subject to the same expenses except that
Institutional Shares are not subject to a Rule 12b-1 fee and the Institutional
Shares of the Equity, International Equity, Special Equity, Bond, Intermediate
Income, Pennsylvania Tax-Free Bond, Short-Term Income and Balanced Funds are not
sold with a sales charge.
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplements the Company's
financial statements contained in the Statement of Additional Information and
sets forth certain historic investment results of Shares of each Fund that had
commenced investment operations prior to the date of this Prospectus. The
Company's financial statements and the data reported in "Financial Highlights"
for years ended October 31, 1994, 1993, 1992 and 1991 and period ended October
31, 1990 with respect to the Cash Management, Tax-Free, U.S. Treasury
Securities, Equity, Bond and Intermediate Income Funds, the year ended October
31, 1994 and 1993 and period ended October 31, 1992 with respect to the
Pennsylvania Tax-Free Bond Fund and the period ended October 31, 1994 with
respect to the Special Equity Fund were audited by the Company's independent
auditors, whose report thereon is incorporated by reference in the Statement of
Additional Information. Further information about the performance of the Company
is contained in the Company's annual report which may be obtained without
charge.
5
<PAGE> 76
CASH MANAGEMENT FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31,(1) NOVEMBER 27, 1989
-------------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990(1)
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net Investment Income........................ 0.034 0.028 0.037 0.060 0.073
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net Investment Income........................ (0.034) (0.028) (0.037) (0.060) (0.073)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =================
TOTAL RETURN................................... 3.41% 2.80% 3.79% 6.22% 7.59%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)............ $140,545 $215,223 $113,096 $151,166 $39,061
Ratio of Expenses to Average Net Assets...... 0.71% 0.65% 0.48% 0.49% 0.42%(2)
Ratio of Net Investment Income to Average
Net Assets................................. 3.32% 2.75% 3.76% 5.84% 7.95%(2)
Ratio of Expenses to Average Net Assets*..... 0.99% 0.87% 0.70% 0.79% 0.75%(2)
Ratio of Net Investment Income to Average
Net Assets*................................ 3.05% 2.53% 3.55% 5.54% 7.62%(2)
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such voluntary
fee reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
TAX-FREE FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, NOVEMBER 27, 1989
-------------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990(1)
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net Investment Income........................ 0.022 0.020 0.028 0.044 0.052
-------- -------- -------- -------- -------
DISTRIBUTIONS
Net Investment Income........................ (0.022) (0.020) (0.028) (0.044) (0.052)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =================
TOTAL RETURN................................... 2.21% 1.97% 2.88% 4.44% 5.31%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)............ $ 54,904 $ 46,239 $ 46,295 $ 45,647 $24,167
Ratio of Expenses to Average Net Assets...... 0.37% 0.45% 0.33% 0.43% 0.31%(2)
Ratio of Net Investment Income to Average
Net Assets................................. 2.22% 1.95% 2.83% 4.37% 5.57%(2)
Ratio of Expenses to Average Net Assets*..... 1.05% 0.96% 0.73% 0.87% 0.91%(2)
Ratio of Net Investment Income to Average
Net Assets*................................ 1.53% 1.44% 2.45% 3.93% 4.97%(2)
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such voluntary
fee reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
6
<PAGE> 77
U.S. TREASURY SECURITIES FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, NOVEMBER 27, 1989
-------------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990(1)
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
INVESTMENT ACTIVITIES
Net Investment Income........................ 0.030 0.025 0.036 0.058 0.073
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income........................ (0.030) (0.025) (0.036) (0.058) (0.073)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =================
TOTAL RETURN................................... 3.07% 2.57% 3.64% 5.96% 7.44%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)............ $325,379 $257,934 $340,904 $341,931 $ 106,771
Ratio of Expenses to Average Net Assets...... 0.72% 0.66% 0.46% 0.51% 0.38%(2)
Ratio of Net Investment Income to Average
Net Assets................................. 3.03% 2.55% 3.65% 5.61% 7.73%(2)
Ratio of Expenses to Average Net Assets*..... 0.97% 0.87% 0.69% 0.79% 0.79%(2)
Ratio of Net Investment Income to Average
Net Assets*................................ 2.78% 2.33% 3.44% 5.32% 7.32%(2)
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such voluntary
fee reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
EQUITY FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, FEBRUARY 28, 1990
-------------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990(1)
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 15.39 $ 13.93 $ 13.08 $ 8.95 $ 10.00
-------- -------- -------- -------- --------
INVESTMENT ACTIVITIES
Net Investment Income........................ 0.11 0.14 0.19 0.26 0.14
Net Realized and Unrealized Gains (Losses) on
Investments................................ 0.22 1.89 1.02 4.13 (1.05)
-------- -------- -------- -------- --------
Total from Investment Activities......... 0.33 2.03 1.21 4.39 (0.91)
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income........................ (0.11) (0.14) (0.19) (0.26) (0.14)
Net Realized Gains........................... (0.61) (0.43) (0.17)
-------- -------- -------- -------- --------
Total Distributions...................... (0.72) (0.57) (0.36) (0.26) (0.14)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD................. $ 15.00 $ 15.39 $ 13.93 $ 13.08 $ 8.95
======== ======== ======== ======== =================
TOTAL RETURN................................... 2.21% 14.90% 9.27% 49.37% (9.22)%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)............ $ 50,128 $ 45,677 $ 28,103 $ 12,830 $ 5,982
Ratio of Expenses to Average Net Assets...... 1.49% 1.20% 0.92% 0.54% 0.65%(2)
Ratio of Net Investment Income to Average
Net Assets................................. 0.75% 0.94% 1.47% 2.30% 2.29%(2)
Ratio of Expenses to Average Net Assets*..... 1.51% 1.41% 1.23% 1.48% 1.59%(2)
Ratio of Net Investment Income to Average
Net Assets*................................ 0.73% 0.73% 1.17% 1.36% 1.35%(2)
Portfolio Turnover Rate........................ 35.41% 23.68% 38.90% 68.15% 42.78%
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such voluntary
fee reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
7
<PAGE> 78
SPECIAL EQUITY FUND
(For a Fund Share Outstanding Throughout the Period presented.)
<TABLE>
<CAPTION>
MARCH 15, 1994 TO
OCTOBER 31,
1994(1)
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................................................... $ 10.00
-------
INVESTMENT ACTIVITIES
Net Investment Income...................................................................... 0.06
Net Realized and Unrealized Gains (Losses) on Investments.................................. (0.63)
-------
Total from Investment Activities....................................................... (0.57)
-------
DISTRIBUTIONS
Net Investment Income...................................................................... (0.06)
Net Realized Gains.........................................................................
-------
Total Distributions.................................................................... (0.06)
-------
NET ASSET VALUE, END OF PERIOD............................................................... $ 9.37
=================
TOTAL RETURN................................................................................. (5.72)%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000).......................................................... $10,069
Ratio of Expenses to Average Net Assets.................................................... 0.15%(2)
Ratio of Net Investment Income to Average Net Assets....................................... 1.06%(2)
Ratio of Expenses to Average Net Assets*................................................... 2.10%(2)
Ratio of Net Investment Income to Average Net Assets*...................................... (0.89)%(2)
Portfolio Turnover Rate...................................................................... 38.70%
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such voluntary
fee reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
BOND FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, FEBRUARY 28, 1990
--------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990(1)
------- ------- ------- ------ -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 11.18 $ 10.89 $ 10.65 $ 9.96 $ 10.00
------- ------- ------- ------ ------
INVESTMENT ACTIVITIES
Net Investment Income............................. 0.53 0.56 0.70 0.78 0.50
Net Realized and Unrealized Gains (Losses) on
Investments..................................... (1.04) 0.54 0.32 0.69 (0.04)
------- ------- ------- ------ ------
Total from Investment Activities.............. (0.51) 1.10 1.02 1.47 0.46
------- ------- ------- ------ ------
DISTRIBUTIONS
Net Investment Income............................. (0.52) (0.56) (0.68) (0.78) (0.50)
Net Realized Gains................................ (0.34) (0.25) (0.10)
------- ------- ------- ------ ------
Total Distributions........................... (0.86) (0.81) (0.78) (0.78) (0.50)
------- ------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD...................... $ 9.81 $ 11.18 $ 10.89 $10.65 $ 9.96
======= ======= ======= ====== =================
TOTAL RETURN........................................ (4.75)% 10.63% 9.82% 15.16% 4.64%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)................. $23,377 $27,346 $15,180 $7,255 $ 4,593
Ratio of Expenses to Average Net Assets........... 1.01% 0.88% 0.46% 0.47% 0.68%(2)
Ratio of Net Investment Income to Average
Net Assets...................................... 5.07% 5.16% 6.78% 7.71% 7.75%(2)
Ratio of Expenses to Average Net Assets*.......... 1.60% 1.49% 1.24% 1.41% 1.62%(2)
Ratio of Net Investment Income to Average
Net Assets*..................................... 4.48% 4.55% 6.01% 6.78% 6.81%(2)
Portfolio Turnover Rate............................. 231.88% 158.51% 99.03% 47.30% 22.57%
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such voluntary
fee reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
8
<PAGE> 79
INTERMEDIATE INCOME FUND
(For a Fund Share Outstanding Throughout the Years and Period presented.)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, FEBRUARY 28, 1990
--------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991 1990(1)
------- ------- ------- ------ -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 11.01 $ 10.87 $ 10.61 $10.12 $ 10.00
------- ------- ------- ------ ------
INVESTMENT ACTIVITIES
Net Investment Income............................. 0.50 0.53 0.65 0.77 0.48
Net Realized and Unrealized Gains (Losses) on
Investments..................................... (0.61) 0.21 0.29 0.50 0.12
------- ------- ------- ------ ------
Total from Investment Activities.............. (0.11) 0.74 0.94 1.27 0.60
------- ------- ------- ------ ------
DISTRIBUTIONS
Net Investment Income............................. (0.49) (0.53) (0.64) (0.77) (0.48)
Net Realized Gains................................ (0.14) (0.07) (0.04) (0.01)
------- ------- ------- ------ ------
Total Distributions........................... (0.63) (0.60) (0.68) (0.78) (0.48)
------- ------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD...................... $ 10.27 $ 11.01 $ 10.87 $10.61 $ 10.12
======= ======= ======= ====== =================
TOTAL RETURN........................................ (0.97)% 6.99% 9.11% 12.94% 6.10%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)................. $21,247 $24,047 $16,718 $7,116 $ 3,986
Ratio of Expenses to Average Net Assets........... 0.90% 0.78% 0.47% 0.40% 0.75%(2)
Ratio of Net Investment Income to Average
Net Assets...................................... 4.66% 4.89% 6.31% 7.69% 7.42%(2)
Ratio of Expenses to Average Net Assets*.......... 1.64% 1.50% 1.24% 1.34% 1.69%(2)
Ratio of Net Investment Income to Average
Net Assets*..................................... 3.92% 4.17% 5.57% 6.76% 6.48%(2)
Portfolio Turnover Rate............................. 170.23% 90.17% 53.28% 32.94% 39.36%
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such voluntary
fee reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
PENNSYLVANIA TAX-FREE BOND FUND
(For a Fund Share Outstanding Throughout the Year and Period presented.)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 21, 1992
OCTOBER 31, TO OCTOBER 31,
1994 1993 1992(1)
------ ---------------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................ $10.48 $ 9.77 $ 10.00
------ ------ ------
INVESTMENT ACTIVITIES
Net Investment Income......................................... 0.46 0.45
Net Realized and Unrealized Gains (Losses) on Investments..... (0.85) 0.70 (0.23)
------ ------ ------
Total from Investment Activities.......................... (0.39) 1.15 (0.23)
------ ------ ------
DISTRIBUTIONS
Net Investment Income......................................... (0.46) (0.44)
Net Realized Gains............................................ (0.07)
------ ------ ------
Total Distributions....................................... (0.53) (0.44)
------ ------ ------
NET ASSET VALUE, END OF PERIOD.................................. $ 9.56 $10.48 $ 9.77
====== ================ ===================
TOTAL RETURN.................................................... (3.90)% 11.94% (2.28)%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of Period (000)............................. $7,008 $5,883 $ 3,405
Ratio of Expenses to Average Net Assets....................... 0.38% 0.51% 2.67%(2)
Ratio of Net Investment Income to Average Net Assets.......... 4.61% 4.35% 0.52%(2)
Ratio of Expenses to Average Net Assets*...................... 1.57% 1.63% 3.41%(2)
Ratio of Net Investment Income to Average Net Assets*......... 3.42% 3.23% (0.22)%(2)
Portfolio Turnover Rate......................................... 37.23% 50.19% 31.37%
</TABLE>
- ---------
* During the periods the investment advisory, administration and/or
shareholder servicing plan fees were voluntarily reduced. If such voluntary
fee reductions had not occurred the ratios would have been as indicated.
(1) Period from commencement of operations.
(2) Annualized.
9
<PAGE> 80
INVESTMENT OBJECTIVES AND POLICIES
MONEY MARKET FUNDS
THE CONESTOGA CASH MANAGEMENT FUND
The investment objective of the Cash Management Fund is to seek current income
with liquidity and stability of principal. The Cash Management Fund will invest
only in those obligations which are considered by the Investment Advisor to
present minimal credit risk and which at the time of purchase are rated of a
high quality, i.e., rated in the highest rating category by a nationally
recognized statistical rating organization ("Rating Organization") in the case
of commercial paper; or rated in one of the two highest rating categories by a
Rating Organization in the case of bonds; or which are unrated at the time of
purchase but are determined to be of comparable quality by the Investment
Advisor pursuant to guidelines approved by the Company's Board of Trustees. All
securities or instruments in which the Cash Management Fund invests have
remaining maturities of 397 days or less, although instruments subject to
repurchase agreements may bear longer maturities. The average dollar-weighted
maturity of the securities in the Cash Management Fund will not exceed 90 days.
Obligations purchased by the Cash Management Fund are limited to U.S.
dollar-denominated obligations which the Board of Trustees has determined
present minimal credit risks.
THE CONESTOGA U.S. TREASURY SECURITIES FUND
The U.S. Treasury Securities Fund invests exclusively in short-term
obligations issued or guaranteed by the U.S. Treasury and in repurchase
agreements secured by U.S. Treasury instruments. All securities or instruments
in which the U.S. Treasury Securities Fund invests have remaining maturities of
397 days or less, although instruments subject to repurchase agreements may bear
longer maturities. The average dollar-weighted maturity of the securities in the
U.S. Treasury Securities Fund will not exceed 90 days. Obligations purchased by
the U.S. Treasury Securities Fund are limited to U.S. dollar-denominated
obligations which the Board of Trustees has determined present minimal credit
risks.
To the extent permitted by state and local law, in addition to being suitable
for individuals, institutions, custody and certain trust accounts, the U.S.
Treasury Securities Fund offers an economical and convenient vehicle for the
investment of available cash by state and local governments, their political
subdivisions, agencies, instrumentalities and public authorities, as well as by
trustees and others, of proceeds of tax-exempt bond issues, whether or not
subject to arbitrage limitations or rebate requirements under the Internal
Revenue Code of 1986 as amended. Potential investors should consult their legal
advisors to determine whether or not their state and local statutes, regulations
and applicable governing instruments (such as bond indentures and resolutions)
permit such investors to purchase Shares in the U.S. Treasury Securities Fund.
The U.S. Treasury Securities Fund offers the advantages of liquidity,
diversification and combined investing power, thereby avoiding the generally
greater expense of executing a large number of small transactions. Moreover,
investment in the U.S. Treasury Securities Fund relieves the investor of many
management and administrative burdens associated with the direct purchase and
sale of U.S. Treasury securities. These include selection of investments;
surveying the market for the best terms at which to buy and sell; scheduling and
monitoring maturities and reinvestments; receipt, delivery and safekeeping of
securities; and recordkeeping.
THE CONESTOGA TAX-FREE FUND
The investment objective of the Tax-Free Fund is to seek current income which
is exempt from regular federal income tax with liquidity and stability of
principal. The assets of the Tax-Free Fund will be primarily invested in
high-quality bonds and notes issued by, or on behalf of, states (including the
District of Columbia), territories, and possessions of the United States and
their respective authorities, agencies, instrumentalities, and political
subdivisions, the interest on which is exempt from regular federal income tax
and is not treated as a specific tax preference item under the federal
alternative minimum tax ("Municipal Obligations"), and which have remaining
maturities of 397 days or less. The average dollar-weighted maturity of the
securities in the Tax-Free Fund will not exceed 90 days. As a matter of
fundamental policy, under normal market conditions, at least 80% of the Tax-Free
Fund's total assets will be invested in Municipal Obligations.
The Tax-Free Fund may invest in private activity bonds (e.g., bonds issued by
industrial development authorities) that are issued by or on behalf of public
10
<PAGE> 81
authorities to finance various privately-operated facilities. Private activity
bonds are included in the term "Municipal Obligations" only if the interest paid
thereon is exempt from regular federal income tax and is not treated as a
specific tax preference item under the federal alternative minimum tax for
either individuals or corporations. See "TAXES."
Under normal market conditions, the Tax-Free Fund may invest up to 20% of its
total assets in obligations, the interest on which is either subject to regular
federal income taxation or is treated as a specific tax preference item under
the federal alternative minimum tax ("Taxable Obligations"). If deemed
appropriate for temporary defensive purposes, the Tax-Free Fund may increase its
holdings in Taxable Obligations to over 20% of its total assets and may also
hold uninvested cash reserves pending investment. When the Fund is so invested,
its investment objective may not be achieved. Uninvested cash reserves will not
earn income. Taxable Obligations may include obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities (some of which may be
subject to repurchase agreements), certificates of deposit and banker's
acceptances of selected banks, private activity bonds and commercial paper
meeting the Tax-Free Fund's quality standards (as described below) for
tax-exempt commercial paper. These obligations are described further in the
Statement of Additional Information.
The Tax-Free Fund will invest only in those Municipal Obligations which are
considered by the Investment Advisor to present minimal credit risks and which
at the time of purchase are rated high quality, i.e., rated in one of the two
highest rating categories assigned by a Rating Organization in the case of
bonds; rated in the highest rating category assigned by a Rating Organization in
the case of notes, variable rate demand notes and tax-exempt commercial paper;
or which are unrated at the time of purchase but are determined to be of
comparable quality by the Investment Advisor pursuant to guidelines approved by
the Company's Board of Trustees. Municipal Obligations may be purchased in
reliance upon a rating only where the Rating Organization is not affiliated with
the issuer or guarantor of the Municipal Obligations. If a security is subject
to a demand feature, the security must receive both a short-term and a long-term
high quality rating or must be determined to be of comparable quality by the
Investment Advisor; except that where the demand feature is considered to be
"unconditional" under the Investment Company Act of 1940, the security may be
acquired solely in reliance on a short-term high quality rating or a
determination of comparable quality by the Investment Advisor. The applicable
Municipal Obligations ratings are described in Appendix "A" to the Statement of
Additional Information.
The Tax-Free Fund is not intended to constitute a balanced investment program
and is not designed for investors seeking capital appreciation or maximum
tax-exempt income irrespective of fluctuations in principal. Investment in the
Tax-Free Fund would not be appropriate for tax-deferred plans, such as IRA or
Keogh plans. Investors should consult a tax or other financial advisor to
determine whether investment in the Tax-Free Fund would be appropriate.
EQUITY FUNDS
THE CONESTOGA EQUITY FUND
The investment objective of the Equity Fund is to seek capital growth by
investing principally in a diversified portfolio of common stocks of companies
with large, medium or small capitalizations. The Equity Fund will normally
invest at least 80% of the value of its total assets in common stocks. The Fund
may also invest up to 20% of the value of its total assets in securities
convertible into common stocks, preferred stocks, corporate bonds, notes,
warrants, and short-term obligations (with maturities of 18 months or less) such
as commercial paper (including variable amount master demand notes), banker's
acceptances, certificates of deposit, repurchase agreements, obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, and
demand and time deposits of domestic and foreign banks and savings and loan
associations. During temporary defensive periods, the Fund has the ability to
hold up to 100% of its total assets in short-term obligations including domestic
bank certificates of deposit, banker's acceptances and repurchase agreements
secured by U.S. Government securities.
Stocks held by the Equity Fund may be listed on a national securities exchange
or may be unlisted securities with an established over-the-counter market. The
Investment Advisor has developed a quantitative process which evaluates stocks
in a number of ways, including the ratios of market price to book value, recent
changes in market price, return on equity, price to earnings ratios, dividend
paying
11
<PAGE> 82
abilities, and liquidity. The Investment Advisor believes that its quantitative
approach reduces subjectivity in the stock selection process.
Equity securities such as those in which the Equity Fund may invest are more
volatile and carry more risk than some other forms of investment. Depending upon
the performance of the Fund's investments, the net asset value per Share of the
Fund may decrease instead of increase.
THE CONESTOGA INTERNATIONAL EQUITY FUND
The investment objective of the International Equity Fund is to seek long-term
growth of capital. Under normal market conditions, the Fund will invest at least
65% of its total assets in an internationally diversified portfolio of equity
securities which trade in markets other than the United States. Generally, these
securities will be issued by companies (i) domiciled in countries other than the
United States, or (ii) that derive at least 50% of either their revenues or
their pre-tax income from activities outside of the United States. Equity
securities include for this purpose common and preferred stock, securities
(bonds and preferred stock) convertible into common stock, warrants and
securities representing underlying international securities such as American
Depositary Receipts, or ADRs, and European Depositary Receipts, or EDRs. The
Fund may also hold depositary or custodial receipts representing beneficial
interests in any of the foregoing securities.
The Fund may invest in securities of issuers with large, medium or small
capitalizations in any country, including but not limited to, Argentina,
Australia, Austria, Belgium, Canada, Chile, Colombia, Denmark, Finland, France,
Germany, Hong Kong, India, Ireland, Israel, Italy, Japan, South Korea, Malaysia,
Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Singapore,
Spain, Sweden, Switzerland, Taiwan, Thailand, the United Kingdom and Venezuela.
Normally, the Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
Fund's assets could be invested in U.S. companies.
Initial emphasis in the selection of investments is expected to be placed on
selection of countries in which to invest, followed by selection of industries
or sectors within or across countries and by selection of individual stocks
corresponding to the industries or sectors selected. Investments are expected to
be made primarily in developed markets and larger capitalization companies.
However, the Fund also may invest in emerging markets where smaller
capitalization companies are the norm.
Under normal market conditions, it is expected that the Fund will be fully
invested in equity securities and related hedging instruments (except for
short-term investments of cash for liquidity purposes and pending investment).
However, during temporary defensive periods, the Fund may invest up to 100% of
its total assets in short-term obligations (with maturities of 12 months or
less) consisting of commercial paper (including variable amount master demand
notes), banker's acceptances, certificates of deposit, repurchase and reverse
repurchase agreements, and demand and time deposits of domestic or foreign banks
and savings and loan associations, and in money market mutual funds.
THE CONESTOGA SPECIAL EQUITY FUND
The investment objective of the Special Equity Fund is to seek capital growth
by investing principally in a diversified portfolio of common stocks. The
Special Equity Fund will normally invest in common stocks of domestic companies
that the Investment Advisor expects will experience growth in earnings and
price. The Fund may invest up to 35% of its total assets in foreign securities.
The Fund may also purchase securities convertible into common stocks, preferred
stocks, notes, warrants, and, for daily case management purposes, short-term
obligations (with maturities of 18 months or less) such as commercial paper
(including variable amount master demand notes), banker's acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, and demand and time
deposits of domestic and foreign banks and savings and loan associations. During
temporary defensive periods, the Fund has the ability to hold up to 100% of its
total assets in short-term obligations, including domestic bank certificates of
deposit, banker's acceptances and repurchase agreements secured by U.S.
Government securities. The Investment Advisor's quantitative process described
above under "The Conestoga Equity Fund" will be utilized for the Special Equity
Fund.
Many of the companies in which the Special Equity Fund invests will be small
and medium
12
<PAGE> 83
capitalized companies. Small capitalized companies are those organizations with
"stock market capitalizations" between $100 million and $1 billion and medium
capitalized companies are those organizations with stock market capitalizations
between $1 billion and $5 billion. "Stock market capitalizations" means the
total number of common shares outstanding multiplied by the market price per
share.
The Special Equity Fund will normally purchase the securities of small and
medium capitalized companies across a wide range of industry sectors. These
securities may be traded over-the-counter or listed on an exchange and may or
may not pay dividends. Small and medium capitalized companies may be more
vulnerable than larger, more established organizations to adverse business or
economic developments. In particular, small capitalized companies may have
limited product lines, markets and financial resources and may be dependent upon
a relatively small management group. Accordingly, equity securities such as
those in which the Fund may invest are more volatile and carry more risk than
some other forms of investment. Depending upon the performance of the Fund's
investments, the net asset value per Share of the Fund may decrease instead of
increase.
BOND FUNDS
THE CONESTOGA BOND FUND
The investment objective of the Bond Fund is to seek to maximize long-term
total return by investing principally in a diversified portfolio of debt
securities. The Bond Fund will normally invest at least 80% of the value of its
total assets in debt securities of all types. Debt securities include domestic
and foreign bonds, debentures, notes, equipment lease and trust certificates,
asset-backed and mortgage-backed securities, and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. In
addition, a portion of the Fund may from time to time be invested in first
mortgage loans and participation certificates in pools of mortgages issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, in
preferred stocks, and in debt securities which are convertible into, or
exchangeable for, common stocks, common stock obtained upon the conversion or
exchange of such securities, and short-term money market instruments and Money
Market Funds. Some of the securities in which the Fund invests may have warrants
or options attached.
THE CONESTOGA INTERMEDIATE INCOME FUND
The Intermediate Income Fund has a primary investment objective of seeking
current income by investing principally in a diversified portfolio of debt
securities with expected or remaining maturities of ten years or less, and a
secondary objective of seeking capital growth. The Fund will normally have an
average dollar-weighted portfolio maturity of three to ten years. The Fund will
normally invest at least 80% of the value of its total assets in debt securities
of all types. Debt securities include domestic and foreign bonds, debentures,
notes, equipment lease and trust certificates, asset-backed and mortgage-backed
securities, and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. In addition, a portion of the Fund may from time
to time be invested in first mortgage loans and participation certificates in
pools of mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, in preferred stocks, and in debt securities which are
convertible into, or exchangeable for, common stocks, common stock obtained upon
the conversion or exchange of such securities, and short-term money market
instruments and Money Market Funds. Some of the securities in which the Fund
invests may have warrants or options attached.
THE CONESTOGA PENNSYLVANIA TAX-FREE
BOND FUND
The investment objective of the Pennsylvania Tax-Free Bond Fund is to seek a
high level of current income consistent with the preservation of capital, which
income is exempt from federal individual income tax and from Pennsylvania state
and local personal income tax, and is not a tax preference item under the
federal alternative minimum tax. Shares of the Fund will be exempt from
Pennsylvania personal property taxes. To achieve this objective, the Fund
anticipates that it will invest primarily in Pennsylvania Municipal Obligations
(as defined below). Under normal market conditions, the Fund will invest
substantially all of its total assets (but in no event less than 80%) in
investment grade municipal securities issued by the Commonwealth of Pennsylvania
and its political subdivisions, agencies, instrumentalities and authorities
("Pennsylvania Municipal Obligations"), the interest on which, in the opinion of
bond counsel to
13
<PAGE> 84
the issuer, is exempt from federal individual income tax and Pennsylvania state
and local personal income tax, and is not treated as a specific tax preference
item under the federal alternative minimum tax. During temporary defensive
periods, the Fund may invest without limitation in other types of securities.
These securities may include other types of bonds, notes, variable rate demand
notes and commercial paper, provided such securities are rated within the
relevant categories applicable to the Pennsylvania Municipal Obligations, or if
unrated, are of comparable quality as determined by the Investment Advisor at
the time of purchase. Other debt obligations, such as bank obligations, may be
included. Since the Fund's purchases will be limited to investment grade
securities, it will not acquire lower quality securities which would carry
higher yields and also greater risk.
Pennsylvania Municipal Obligations acquired by the Pennsylvania Tax-Free Bond
Fund will be investment grade at the time of purchase -- that is, obligations
rated in one of the four highest rating categories assigned by a Rating
Organization in the case of bonds; rated "Duff 1," "Duff 2," or "Duff 3" by
D&P, "F-1" or "F-2" by Fitch, "SP-1" or "SP-2" by S&P, or "MIG-1" or "MIG-2" by
Moody's in the case of notes; rated "Duff 1," "Duff 2," or "Duff 3" by D&P,
"F-1" or "F-2" by Fitch, or "VMIG-1" or "VMIG-2" by Moody's in the case of
variable rate demand notes; or rated "Duff 1," "Duff 2," or "Duff 3" by D&P,
"F-1" or "F-2" by Fitch, "A-1" or "A-2" by S&P, or "Prime-1" or "Prime-2" by
Moody's in the case of tax-exempt commercial paper. Unrated obligations
acquired by the Fund will be determined by the Investment Advisor to be of
comparable quality at the time of purchase to rated obligations that may be
acquired by the Fund. Obligations rated in the lowest of the top four rating
categories ("BBB" by D&P, Fitch, or S&P, or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. Subsequent to its purchase
by the Fund, an issue of Pennsylvania Municipal Obligations may cease to be
rated, or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Investment Advisor will consider such an event in
determining whether the Fund should continue to hold the obligation. See
"Appendix A" to the Statement of Additional Information for a description of
these rating designations.
THE CONESTOGA SHORT-TERM INCOME FUND
The investment objective of the Short-Term Income Fund is to seek consistent
current income with relative stability of principal by investing principally in
a diversified portfolio of investment grade debt securities. Under normal
conditions, the Fund's portfolio securities will have maximum expected or
remaining maturities of three years or less. The Fund will normally have an
average dollar-weighted portfolio maturity of approximately one year.
The Fund will invest principally in debt securities, including bonds,
debentures, notes, equipment lease and trust certificates, asset-backed and
mortgage-backed securities, and obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. The Fund may invest up to 35%
of its total assets in U.S. dollar denominated international debt securities for
which the primary trading market is in the United States ("Yankee Bonds").
BALANCED FUND
THE CONESTOGA BALANCED FUND
The investment objective of the Balanced Fund is to seek a balance of capital
appreciation and current income consistent with the preservation of capital. The
Fund seeks to achieve its objective through a policy of diversified investment
in fixed income and equity securities. Equity securities will be selected on the
basis of the potential for capital appreciation; current income will not be a
significant consideration. Fixed income securities will be selected in an effort
to maximize total return with respect to the fixed income portion of the Fund's
portfolio. An investor should not consider an investment in the Fund to be a
complete investment program.
The Fund's policy is to invest at all times at least 30% of the value of its
total assets in fixed-income securities and no more than 70% in equity
securities. The actual percentage of assets invested in fixed-income and equity
securities will vary from time to time depending of the judgment of the
Investment Advisor as to the general market and economic conditions, trends and
yields, interest rates and fiscal and monetary developments. The Fund will not
purchase a security if as a result less than 30%
14
<PAGE> 85
of its total assets will be in fixed-income securities (including short-term
obligations, long-term debt securities, and convertible debt securities and
preferred stocks to the extent their value is attributable to their fixed income
characteristics).
During temporary defensive periods, the Fund may invest up to 100% of its
total assets in short-term obligations (with maturities of 12 months or less)
consisting of commercial paper (including variable amount master demand notes),
banker's acceptances, certificates of deposit, repurchase and reverse repurchase
agreements, and demand and time deposits of domestic or foreign banks and
savings and loan associations, and in money market mutual funds.
Stocks held by the Balanced Fund may be listed on a national securities
exchange or may be unlisted securities with an established over-the-counter
market. The Investment Advisor has developed a quantitative process which
evaluates stocks in a number of ways, including the ratios of market price to
book value, recent changes in market price, return on equity, price to earnings
ratios, dividend paying abilities, and liquidity. The Investment Advisor
believes that its quantitative approach reduces subjectivity in the stock
selection process.
Fixed income securities include both debt securities and preferred stocks,
which may be convertible into, or exchangeable for, common stocks. Debt
securities include domestic and foreign bonds, Yankee Bonds, debentures, notes,
equipment lease and trust certificates, asset-backed and mortgage-backed
securities, obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, first mortgage loans and participation
certificates in pools of mortgages issued or guaranteed by the U.S. Government
or its agencies or instrumentalities. Some of the securities in which the Fund
invests may have warrants or options attached.
GENERAL
The investment objective of each of the Cash Management Fund, U.S. Treasury
Securities Fund, Tax-Free Fund, Equity Fund, Special Equity Fund, Bond Fund,
Intermediate Income Fund and Pennsylvania Tax-Free Bond Fund is fundamental and
may not be changed without a vote of the holders of a majority of the
outstanding voting securities of the Fund. The investment objective of each of
the International Equity Fund, Short-Term Income Fund and Balanced Fund may be
changed by the Board of Trustees of the Company.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Institutional Shares of each Fund are sold on a continuous basis by the
Company's distributor, SEI Financial Services Company (the "Distributor") in
connection with the requirements of qualified accounts maintained by or on
behalf of certain persons ("Customers") by the Investment Advisor, its related
companies or their correspondents ("Entities"). With respect to the Cash
Management, Tax-Free and U.S. Treasury Securities Funds (collectively, the
"Money Market Funds"), these procedures may include instructions under which a
Customer's account is "swept" automatically no less frequently than weekly and
amounts in excess of a minimum amount agreed upon by an Entity and its Customer
are invested by the Distributor in Shares of one or more of the Money Market
Funds depending upon the type of account or the instructions of the Customer.
The principal office of the Distributor is 680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658.
Institutional Shares of a Fund sold to an Entity acting in a fiduciary,
advisory, custodial, or other similar capacity on behalf of Customers will
normally be held of record by the Entity. With respect to Institutional Shares
so sold, it is the responsibility of the holder of record to transmit purchase
or redemption orders to the Distributor and to deliver funds for the purchase
thereof on a timely basis. Beneficial ownership of Institutional Shares of the
Funds will be recorded by the Entities and reflected in the account statements
provided to Customers. Entities may exercise voting authority for those
Institutional Shares for which they had been granted authority by the Customer.
The minimum initial purchase is $1,000; however, there is no minimum subsequent
purchase. The minimum may be waived if purchases are made in connection with
qualified pension plans, payroll savings plans or other employer plans.
Purchasers will pay the sum of the next calculated net asset value per Share of
a Fund selected after the Distributor's agent's receipt of an order to purchase
Shares.
15
<PAGE> 86
OTHER INFORMATION REGARDING PURCHASES
MONEY MARKET FUNDS: Institutional Shares of these Funds are purchased at the
net asset value per Share of each such Fund (see "VALUATION OF SHARES") next
determined after receipt by the Distributor of an order in good form to purchase
Institutional Shares. An order to purchase Institutional Shares will be deemed
to have been received by the Distributor only when federal funds with respect
thereto are available to the Company's custodian for investment. Federal funds
are monies credited to a bank's account with a Federal Reserve Bank. Payment for
an order to purchase Institutional Shares which is transmitted by federal funds
wire will be available the same day for investment by the Company's custodian,
if received prior to noon. Payments transmitted by other means (such as by check
drawn on a member of the Federal Reserve System) will normally be converted into
federal funds within two banking days after receipt. The Company strongly
recommends that investors of substantial amounts use federal funds to purchase
Institutional Shares.
Purchases of Institutional Shares of the Money Market Funds will be effected
only on a Business Day (as defined in "VALUATION OF SHARES") of the Company. An
order received prior to a Valuation Time on any Business Day will be executed at
the net asset value determined as of the next Valuation Time on the date of
receipt. An order received after the last Valuation Time on any Business Day
will be executed at the net asset value determined as of the next Valuation Time
on the next Business Day of the Company. Institutional Shares purchased before
12:00 noon, (Eastern Time) begin earning dividends on the same Business Day. All
Institutional Shares continue to earn dividends through the day before their
redemption.
EQUITY, BOND AND BALANCED FUNDS: Purchases of Institutional Shares in these
Funds (the "Non-Money Market Funds") will be effected only on a Business Day.
The purchase price will be the net asset value per share (see "VALUATION OF
SHARES") as determined on the Business Day the order is received in good form by
the Distributor, but only if the Distributor receives the order in good form by
4:00 P.M. Eastern Time. Otherwise, the price will be determined as of 4:00 P.M.
Eastern Time on the next Business Day.
ALL FUNDS: The minimum investment is $1,000 for the initial purchase of
Institutional Shares by an investor. There is no minimum investment for
subsequent purchases. The minimum may be waived if purchases are made in
connection with qualified pension plans or other employer plans.
Depending upon the terms of a particular Customer account, an Entity may
charge its Customers account fees for services provided in connection with
investment in the Funds. Information concerning these services and any charges
will be provided by the Entities. This Prospectus should be read in conjunction
with any such information so received from the Entities.
The Company reserves the right to reject any order for the purchase of its
Institutional Shares in whole or in part.
Every Shareholder will receive a confirmation of each transaction in its
account, which will also show the total number of Institutional Shares of a Fund
owned by the Shareholder. Confirmation of purchases and redemptions of
Institutional Shares of the Funds by the Investment Advisor or one of its
affiliates or their correspondents on behalf of a Customer will be sent to the
Investment Advisor or the affiliate. Shareholders may rely on these statements
in lieu of certificates. Certificates representing Institutional Shares of the
Funds will not be issued.
EXCHANGE PRIVILEGE
Shareholders may exchange Institutional Shares of various Funds for
Institutional Shares of all or any of the Company's other Funds at respective
net asset values, provided that the Shareholder making the exchange is eligible
on the date of exchange to purchase Institutional Shares and the exchange is
made in states where it is legally authorized. An exchange is considered a sale
of shares and will result in a capital gain or loss for federal income tax
purposes. To receive the public offering price, Shareholders must, at the time
of purchase, give the Distributor sufficient information to permit confirmation
of qualification.
An Entity should notify the Company of its desire to make an exchange on
behalf of its Customer, and the Distributor will furnish the shareholder with
the prospectus of the appropriate class of shares of the Fund and the
appropriate authorization form.
The Institutional Shares exchanged must have a current value of at least
$1,000. A Shareholder may make an exchange request by calling
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(800) 344-2716 or by providing written instructions to the Distributor. An
investor should consult the Distributor for further information regarding
exchanges. During periods of significant economic or market change, telephone
exchanges may be difficult to complete.
REDEMPTION OF SHARES
Shareholders may redeem their Institutional Shares on any day that net asset
value is calculated (see "VALUATION OF SHARES"). Redemptions will be effected at
the net asset value per share next determined after receipt of a redemption
request. Redemptions may be requested by mail or by telephone. However, all or
part of a Customer's Institutional Shares may be redeemed in accordance with
instructions and limitations pertaining to his or her account at an Entity. For
example, if a Customer has agreed with an Entity to maintain a minimum balance
in his or her account with the Entity, and the balance in that account falls
below that minimum, the Customer may be obliged to redeem, or the Entity may
redeem for and on behalf of the Customer, all or part of the Customer's
Institutional Shares of a Fund to the extent necessary to maintain the required
minimum balance. There may be no notice period affording shareholders an
opportunity to increase the account balance in order to avoid an involuntary
redemption by an Entity.
REDEMPTION BY MAIL
A written request for redemption must be submitted to the Distributor. The
Distributor's address is: SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658. There is no charge for having redemption
requests mailed to a designated bank account.
OTHER INFORMATION REGARDING REDEMPTION OF
INSTITUTIONAL SHARES
All redemption orders are effected at the net asset value per share next
determined after a properly completed redemption order has been received, as
described above. The proceeds paid upon redemption of Institutional Shares in a
Fund may be more or less than the amount invested. Payment to Shareholders for
Institutional Shares redeemed will normally be made within seven days after
receipt by the Distributor of the request for redemption. To the extent
possible, however, the Company will attempt to honor requests from Shareholders
for (a) next day payments upon redemption of Institutional Shares in the
Non-Money Market Funds if received by the Distributor before 4:00 P.M., Eastern
Time, on a Business Day or, if received after 4:00 P.M., Eastern Time, within
two Business Days or (b) same day payments upon redemption of Institutional
Shares in the Money Market Funds if the request for redemption is received by
the Distributor before 12:00 noon, Eastern Time, on a Business Day or, if the
request for redemption is received after 12:00 noon, Eastern Time, to honor
requests for payment on the next Business Day; unless it would be
disadvantageous in the opinion of the Investment Advisor to the Fund to sell or
liquidate portfolio securities in an amount sufficient to satisfy requests for
payments in that manner.
At various times a Fund may be requested to redeem Institutional Shares for
which it has not yet received good payment. In such circumstances, the
forwarding of proceeds may be delayed for up to fifteen days until payment has
been collected for the purchase of such Institutional Shares. Such delay may be
avoided if Institutional Shares are purchased by wire transfer of federal funds.
The Funds intend to pay cash for all Institutional Shares redeemed, but under
abnormal conditions which make payment in cash unwise, payment may be made
wholly or partly in portfolio securities at their then current market value
equal to the redemption price. In such cases, an investor may incur brokerage
costs in converting such securities to cash.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION -- Matters Affecting
Redemption" and "Net Asset Value" in the Statement of Additional Information for
examples of when the Company may suspend the right of redemption or redeem
Institutional Shares involuntarily if it appears appropriate to do so in light
of the Company's responsibilities under the Investment Company Act of 1940.
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VALUATION OF SHARES
The net asset value of each of the Money Market Funds is determined, and the
Institutional Shares of each such Fund are priced, as of 12:00 noon and the
close of regular trading on the New York Stock Exchange ("NYSE") (generally,
4:00 P.M., Eastern Time) on each Business Day of the Company. The net asset
value of each of the Non-Money Market Funds is determined, and the Shares of
each such Fund are priced, as of the close of regular trading on the NYSE
(generally 4:00 P.M., Eastern Time) on each Business Day. Each time the net
asset value of a Fund is determined and its Institutional Shares priced is
referred to as a "Valuation Time." As used herein, a "Business Day" constitutes
any day on which the NYSE is open for trading and the Federal Reserve Bank of
Philadelphia is open, except days on which there are not sufficient changes in
the value of the Fund's portfolio securities that the Fund's net asset value
might be materially affected, or days during which no Shares are tendered for
redemption and no orders to purchase Shares are received. Currently, either the
NYSE or the Federal Reserve Bank of Philadelphia is closed on the customary
national business holidays of New Year's Day, Martin Luther King, Jr.,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day. Net asset value
per Share for purposes of pricing sales and redemptions is calculated by
dividing the value of all securities and other assets belonging to the
Institutional Shares of a Fund less the liabilities charged to such class of
such Fund by the number of its outstanding Institutional Shares.
The assets in the Money Market Funds are each valued based upon the amortized
cost method. Pursuant to the rules and regulations of the Securities and
Exchange Commission regarding the use of the amortized cost method, the Money
Market Funds will each maintain a dollar-weighted average portfolio maturity of
90 days or less. Although the Company seeks to maintain the net asset value per
Institutional Share of the Money Market Funds at $1.00 each, there can be no
assurance that net asset value will not vary.
The net asset value per Institutional Share of the Non-Money Market Funds will
fluctuate as the value of the investment portfolio of each Fund changes. The
securities in these Funds will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. For further information about
valuation of investments, see the Statement of Additional Information.
DIVIDENDS
MONEY MARKET FUNDS: The net income of each of these Funds is declared daily as
a dividend to the respective Shareholders of each such Fund at the close of
business on the day of declaration. Dividends are paid monthly, and a
Shareholder's dividends will automatically be reinvested in additional full and
fractional Institutional Shares of such Fund at net asset value as of the date
of payment, unless the Shareholder elects to receive dividends in cash or
directs such dividends to another Fund (see "How To Purchase And Redeem
Shares--Directed Dividend Option"). Reinvested dividends receive the same tax
treatment as dividends paid in cash. In the case of redemptions, dividends will
be paid in cash not later than seven Business Days after a Shareholder's
complete redemption of his or her Institutional Shares in the Cash Management,
Tax-Free and U.S. Treasury Securities Funds. Such election, or any revocation
thereof, must be made in writing to the Transfer Agent, at State Street Bank and
Trust Company, (the "Transfer Agent") at The BFDS Building, 2 Heritage Drive,
Quincy, MA 02171, and will become effective with respect to dividends paid after
its receipt by the Transfer Agent.
NON-MONEY MARKET FUNDS: The net income of the International Equity Fund is
generally declared annually, the net income of each of the Equity, the Special
Equity and the Balanced Funds is generally declared quarterly, and the net
income of each of the Bond, Intermediate Income, Pennsylvania Tax-Free Bond and
Short-Term Income Funds (collectively, the "Bond Funds") is generally declared
monthly, as a dividend to the respective Shareholders at the close of business
on the record date. Dividends are generally paid annually with respect to the
International Equity Fund, quarterly with respect to the Equity, the Special
Equity and the Balanced Funds, and monthly with respect to the Bond Funds.
Distributable net realized capital
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gains are distributed at least annually. A Shareholder will automatically
receive all income dividends and capital gain distributions from the Fund in
additional full and fractional Shares of the Fund at net asset value as of the
date of payment, unless the Shareholder elects to receive dividends or
distributions in cash. Such election, or any revocation thereof, must be made in
writing to the Transfer Agent at The BFDS Building, 2 Heritage Drive, Quincy, MA
02171, and will become effective with respect to dividends and distributions
having record dates after its receipt by the Transfer Agent.
OTHER INVESTMENT POLICIES
GOVERNMENT AND RELATED OBLIGATIONS
The Funds may invest in Treasury bills, notes and bonds and other obligations
issued or guaranteed by the U.S. Treasury, as well as "stripped" U.S. Treasury
obligations such as Treasury Receipts representing either future interest or
principal payments. Stripped securities are issued at a discount to their "face
value," and may exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest are returned to
investors. The Funds may also acquire repurchase agreements secured by U.S.
Treasury obligations.
The Funds (except the U.S. Treasury Fund) may also invest in other obligations
issued or guaranteed by the agencies or instrumentalities of the U.S.
Government. These obligations may differ from U.S. Treasury obligations in their
interest rates, maturities, and times of issuance. These Funds may also purchase
interests in U.S. Treasury securities (such as TIGRs and CATS). TIGRs and CATS
are not issued by the U.S. Treasury. Participations other than those issued or
guaranteed by the U.S. are not obligations of the U.S. Government.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association and the Export-Import Bank
of the United States, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal National Mortgage Association,
may borrow from the Treasury in its discretion; others, such as those of the
Student Loan Marketing Association, are supported by the discretionary authority
of the U.S. Government to purchase the agency's obligations; still others, such
as those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government will provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. The obligations of such agencies and
instrumentalities and stripped securities will only be purchased when the
Investment Advisor deems the credit risk with respect thereto to be minimal.
BANKER'S ACCEPTANCES
The Cash Management Fund may invest in banker's acceptances guaranteed by
domestic and foreign banks if, at the time of investment, the guarantor bank has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements) and the bank, its
parent or holding company is rated "A/B" or better at the time of investment by
Thomson BankWatch, Inc., or unrated at the time of purchase but are determined
to be institutions of comparable quality by the Investment Advisor pursuant to
guidelines approved by the Company's Board of Trustees. For a description of the
rating symbols of Thomson BankWatch, Inc., see Appendix "A" to the Statement of
Additional Information.
CERTIFICATES OF DEPOSIT AND TIME DEPOSITS
The Cash Management Fund may invest in certificates of deposit and time
deposits of domestic and foreign banks and savings and loan associations if (a)
at the time of investment the depositary institution has capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of its most recently
published financial statements) and the depositary institution, its parent or
holding company is rated "A/B" or better at the time of investment by Thomson
BankWatch, Inc., (b) the principal amount of the instrument is insured in full
by the FDIC or the Federal Savings and Loan Insurance Corporation, or (c) which
are unrated at the time of purchase but are determined to be at comparable
quality by the Investment Advisor pursuant to guidelines approved by the
Company's Board of Trustees.
The Funds (except the U.S. Treasury Securities Fund) may invest in Eurodollar
Certificates of
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Deposits ("ECDs") which are U.S. dollar-denominated certificates of deposit
issued by offices of foreign and domestic banks located outside the United
States; Eurodollar Time Deposits ("ETDs") which are U.S. dollar-denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time
Deposits ("CTDs") which are essentially the same as ETDs except they are issued
by Canadian offices of Canadian banks; and Yankee Certificates of Deposit
("Yankee CDs") which are certificates of deposit issued by a U.S. branch of a
foreign bank denominated in U.S. dollars and held in the United States.
The Cash Management Fund will not invest in excess of 10% of its total assets
in time deposits, including ETDs and CTDs but not including certificates of
deposit, with maturities in excess of seven days which are subject to penalties
upon early withdrawal.
COMMERCIAL PAPER
The Funds (except the U.S. Treasury Securities Fund) may invest in short-term
promissory notes issued by corporations (including variable amount master demand
notes). In the case of the Cash Management and Tax-Free Funds, such instruments
at the time of purchase (1) have received the highest short-term rating by at
least two Rating Organizations, (2) have received the highest short-term rating
by the only rating agencies to have rated the notes, or (3) are unrated, but are
determined to be of comparable quality pursuant to guidelines adopted by the
Board of Trustees. Instruments may be purchased in reliance upon a rating only
when the rating organization is not affiliated with the issuer or guarantor of
the instrument. For a description of the rating symbols used in this paragraph,
see the Appendix to the Statement of Additional Information. The Funds (except
the U.S. Treasury Securities Fund) may also invest in foreign commercial paper
("FCP") which is U.S. dollar-denominated commercial paper issued by a foreign
corporation or a foreign counterpart of a U.S. corporation.
ZERO COUPON OBLIGATIONS
The Cash Management, Bond, Intermediate Income, Short-Term and Balanced Funds
may invest in zero coupon obligations, which have greater price volatility than
coupon obligations and which will not result in the payment of interest until
maturity, provided that immediately after any purchase not more than 5% of the
value of the net assets of the respective Fund would be invested in such
obligations.
FOREIGN SECURITIES
The Equity Funds and the Balanced Fund may invest in securities of foreign
issuers by acquiring both sponsored and unsponsored American Depositary Receipts
("ADRs"). ADRs are receipts issued by a bank or trust company in the United
States evidencing ownership of underlying securities of a foreign issuer.
Unsponsored ADRs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as for sponsored ADRs, and the
prices of unsponsored ADRs may be more volatile than if such instruments were
sponsored by the issuer. The Equity Funds may also invest in securities issued
by foreign branches of U.S. banks and foreign banks, in Canadian commercial
paper, and in Europaper (U.S. dollar-denominated commercial paper of a foreign
issuer). As stated above, certain Funds may invest in ECDs, ETDs, CTDs, and
Yankee CDs. The Cash Management Fund may also acquire securities issued by
foreign branches of U.S. banks, foreign banks, or other foreign issuers only
when the Investment Advisor believes that the risks associated with such
instruments are minimal. The Bond, Intermediate Income, Short-Term Income and
Balanced Funds may invest in Yankee Bonds.
For many foreign securities, U.S. dollar-denominated American Depositary
Receipts, or ADRs, which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate the risk inherent in investing in the
securities of foreign issuers. However, by investing in ADRs rather than
directly in stock of foreign issuers, the Fund can avoid currency risks during
the settlement period for either purchases or sales. In general, there is a
large, liquid market in the United States for many ADRs. The information
available for ADRs is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are traded,
which standards are more uniform and more exacting than those to which many
foreign issuers may be subject. The Fund may also invest in European Depositary
Receipts, or
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EDRs, which are receipts evidencing an arrangement with a European bank similar
to that for ADRs and are designed for use in the European securities markets.
EDRs are not necessarily denominated in the currency of the underlying security.
Certain ADRs and EDRs, typically those denominated as unsponsored, require the
holders thereof to bear most of the costs of such facilities while issuers of
sponsored facilities normally pay more of the costs thereof. The depositary of
an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited securities
or to pass through the voting rights to facility holders in respect to the
deposited securities, whereas the depositary of a sponsored facility typically
distributes shareholder communications and passes through the voting rights.
Investment in securities of foreign issuers involves certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, difficulties in predicting
international trade patterns, political, social and economic instability in the
country of the issuer, foreign trading practices (including higher trading
commissions, custodial charges and delayed settlements), foreign withholding and
income taxation, the possible establishment of exchange controls or the adoption
of other foreign governmental restrictions (which might adversely affect the
payment of principal and interest), difficulty in obtaining and enforcing
judgments against foreign issuers, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. With respect to
certain countries, there is also the possibility of expropriation of assets,
nationalization of assets, limits on removal of currency or other assets,
confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries.
Foreign companies generally are not subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
domestic companies. There is generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the U.S. Confiscatory
taxation or diplomatic developments could also affect investment in those
countries. In addition, foreign branches of U.S. banks, foreign banks and
foreign issuers may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks and U.S. domestic issuers.
FOREIGN CURRENCY TRANSACTIONS
The value of the assets of the International Equity Fund as measured in U.S.
dollars may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. The Fund will conduct
its foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market, or through
forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract ("forward currency contracts") involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These forward currency contracts are
traded directly between currency traders (usually large commercial banks) and
their customers. The Fund may enter into forward currency contracts in order to
hedge against adverse movements in exchange rates between currencies.
For example, when the International Equity Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may want to
establish the U.S. dollar cost or proceeds, as the case may be. By entering into
a forward currency contract in U.S. dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, the
Fund can help to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the U.S. dollar and such foreign currency. Additionally, for example, when the
Fund believes that a foreign currency may suffer a substantial decline against
the U.S. dollar, it may enter into a forward currency sale contract to sell an
amount of that foreign currency approximating the value of some or all of the
Fund's portfolio securities or other assets denominated in such foreign
currency, or when the Fund believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, it may enter into a forward
currency purchase contract to buy that foreign currency for a fixed U.S. dollar
amount.
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However, these contracts tend to limit potential gains which might result from
positive changes in currency relationships. The Fund may also hedge its foreign
currency exchange rate risk by engaging in currency financial futures and
options transactions. The forecasting of short-term currency market movement is
extremely difficult and whether short-term hedging strategies would be
successful is highly uncertain.
The International Equity Fund does not intend to enter into such forward
contracts if the Fund would have more than 15% of the value of its total assets
committed to such contracts on a regular or continuous basis. In addition, the
Fund does not intend to enter into forward currency contracts or maintain a net
exposure in such contracts where it would be obligated to deliver an amount of
foreign currency in excess of the value of its portfolio securities or other
assets denominated in that currency.
For further information about the characteristics, risks and possible benefits
of option, futures and foreign currency transactions, see "Investment
Objectives, Policies and Restrictions" in the Statement of Additional
Information.
OPTIONS
The Equity Funds and the Balanced Fund may also purchase put and call options
on securities and the International Equity Fund may purchase put and call
options on foreign currencies, in each case for the purposes of hedging against
market risks related to its portfolio securities and/or adverse movements in
exchange rates between currencies, as applicable. Purchasing options is a
specialized investment technique that entails a substantial risk of a complete
loss of the amounts paid as premiums to writers of options. These Funds may also
engage in writing call options from time to time as the Investment Advisor
(and/or the Sub-advisor with respect to the International Equity Fund) deems
appropriate. These Funds will write only covered call options (options on
securities owned by the Funds). These Funds will forego any capital appreciation
above the exercise price on securities on which it has written a call option. In
order to close out a call option it has written, a Fund will enter into a
"closing purchase transaction"--the purchase of a call option on the same
security with the same exercise price and expiration date as the call option
which the Fund previously wrote on a particular security. When a portfolio
security subject to a call option is sold, a Fund will effect a closing purchase
transaction to close out any existing call option on that security. If a Fund is
unable to effect a closing purchase transaction, it will not be able to sell the
underlying security until the option expires or the Fund delivers the underlying
security upon exercise. Under normal conditions, it is not expected that the
underlying value of portfolio securities subject to such options would exceed
50% of the net assets of a Fund.
The International Equity Fund, as part of its option transactions, also may,
for hedging purposes, purchase index put and call options and write index
options. As with options on individual securities, the Fund will write only
covered index call options. Through the writing or purchase of index options,
the Fund can seek to achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. Price movements in securities which the Fund owns
or intends to purchase would not be expected to correlate directly with
movements in the level of an index and, therefore, the Fund bears the risk of a
loss on an index option that is not completely offset by movements in the price
of such securities. Because index options are settled in cash, a call writer
cannot determine the amount of its settlement obligations in advance and, unlike
call writing on specific securities, cannot provide in advance for, or cover,
its potential settlement obligations by acquiring and holding the underlying
securities. The Fund may be required to segregate assets or provide an initial
margin to cover index options that would require it to pay cash upon exercise.
The Cash Management Fund and the Tax-Free Fund may acquire "puts" with respect
to obligations held in their portfolios. Under a put, a Fund would have the
right to sell a specified obligation within a specified period of time at a
specified price. A put would be sold, transferred, or assigned only with the
underlying obligation. A Fund will acquire puts solely to facilitate portfolio
liquidity, shorten the maturity of the underlying obligations, or permit the
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investment of the Fund's assets at a more favorable rate of return. The
aggregate price of a security subject to a put may be higher than the price
which otherwise would be paid for the security without such an option, thereby
increasing the security's cost and reducing its yield.
FUTURES CONTRACTS
The International Equity Fund may also enter into contracts for the future
delivery of securities and futures contracts based on a specific security, class
of securities, or an index, purchase or sell options on any such futures
contracts and engage in related closing transactions. A futures contract on a
securities index is an agreement obligating either party to pay, and entitling
the other party to receive, while the contract is outstanding, cash payments
based on the level of a specified securities index.
The International Equity Fund may engage in such futures contracts in an
effort to hedge against market risks. For example, when interest rates are
expected to rise or market values of portfolio securities are expected to fall,
the Fund can seek through the sale of futures contracts to offset a decline in
the value of its portfolio securities. When interest rates are expected to fall
or market values are expected to rise, the Fund, through the purchase of such
contracts, can attempt to secure better rates or prices for the Fund than might
later be available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the International Equity Fund the right (but not the
obligation), for a specified price, to sell or to purchase the underlying
futures contract, upon exercise of the option, at any time during the option
period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of the market value of the International
Equity Fund's total assets, and the value of securities that are the subject of
such futures and options (both for receipt and delivery) may not exceed 33-1/3%
of the market value of the Fund's total assets. Futures transactions will be
limited to the extent necessary to maintain the Fund's qualification as a
regulated investment company.
Futures transactions involve brokerage costs and require the International
Equity Fund to segregate assets to cover contracts that would require it to
purchase securities. The Fund may lose the expected benefit of futures
transactions if interest rates, exchange rates or securities prices move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of the Fund's futures positions may not
prove to be effectively correlated with the value of its portfolio securities,
which would limit the value of the Fund's hedge against interest rate, exchange
rate and/or market risk, and would give rise to additional risks. There is no
assurance of liquidity in the secondary market for purposes of closing out
futures positions.
MUNICIPAL OBLIGATIONS
The two principal classifications of Municipal Obligations which may be held
by the Tax-Free Fund or the Pennsylvania Tax-Free Bond Fund are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Private activity
bonds are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Municipal Obligations may include rated and unrated variable and floating rate
tax-exempt notes, which may have a stated maturity in excess of 397 days but
which will, in such event, be subject to a demand feature that will permit a
Fund to demand payment of the principal of the note either (i) at any time upon
not more than 30 days' notice or (ii) at specified intervals not exceeding 397
days and upon no more than 30 days' notice. There may be no active secondary
market with respect to a
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particular variable or floating rate note. Nevertheless, the periodic
readjustments of their interest rates tend to assure that their value to a Fund
will approximate their par value. Variable and floating rate notes for which no
readily available market exists will not be purchased in an amount which,
together with all other illiquid securities held by the Fund, exceed 10% of the
Tax-Free Fund's total assets or 15% of the Pennsylvania Tax-Free Bond Fund's
total assets unless such notes are subject to a demand feature that will permit
a Fund to demand payment of the principal within seven days after demand by the
Fund.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor the Investment Advisor will review the proceedings relating to the
issuance of Municipal Obligations or the bases for such opinions.
The Tax-Free Fund may invest more than 25% of its assets in Municipal
Obligations which are related in such a way that an economic, business, or
political development or change affecting one such security would likewise
affect the other Municipal Obligations. Examples of such securities are
obligations the payment of which is dependent upon similar types of projects or
projects located in the same state. Such investments would be made only if
deemed necessary or appropriate by the Tax-Free Fund's Investment Advisor. To
the extent that the Tax-Free Fund's assets are concentrated in Municipal
Obligations that are so related, the Tax-Free Fund will be subject to the
peculiar risks presented by such Municipal Obligations, such as negative
developments in a particular industry or state, to a greater extent than it
would be if the Tax-Free Fund's assets were not so concentrated.
REPURCHASE AGREEMENTS
Securities held by each Fund may be subject to repurchase agreements. There is
no limit on a Fund's investments in repurchase agreements. Under the terms of a
repurchase agreement, a Fund would acquire securities from financial
institutions such as banks insured by the Federal Deposit Insurance Corporation
with capital, surplus, and undivided profits in excess of $100,000,000 (as of
the date of their most recently published financial statements) or registered
broker-dealers which the Investment Advisor (and/or the Sub-advisor with respect
to the International Equity Fund) deems creditworthy pursuant to guidelines
approved by the Company's Board of Trustees, subject to the seller's agreement
to repurchase such securities at a mutually agreed-upon date and price. The
repurchase price would generally equal the price paid by a Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain the value of collateral held
pursuant to the agreement at not less than 102% of the repurchase price
(including accrued interest). The Investment Advisor will monitor the value of
the collateral on an ongoing basis to ensure that the required value is
maintained. In addition, securities subject to repurchase agreements will be
held in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, a Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities by the Fund were delayed pending court action. Securities
subject to repurchase agreements will be held by the Company's custodian or
another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by a Fund under the
Investment Company Act of 1940.
An increase in interest rates will generally reduce the value of the
investments in each Fund and a decline in interest rates will generally increase
the value of those investments. Depending upon the prevailing market conditions,
the Investment Advisor (and/or the Sub-advisor with respect to the International
Equity Fund) may purchase debt securities at a discount from face value, which
produces a yield greater than the coupon rate. Conversely, if debt securities
are purchased at a premium over face value, the yield will be lower than the
coupon rate. In making investment decisions, the Investment Advisor (and/or the
Sub-advisor with respect to the International Equity Fund) will consider many
factors other than current yield, including the preservation of capital, the
potential for realizing capital appreciation, maturity, and yield to maturity.
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INVESTMENT COMPANIES
In connection with the management of its daily cash position, each of the
Funds may invest up to 5% of the value of its total assets in the shares of a
money market fund. However, no more than 10% of a Fund's total assets may be
invested in the securities of money market mutual funds in the aggregate.
Securities of other investment companies will be acquired by a Fund within the
limits prescribed by the Investment Company Act of 1940. As a shareholder of
another investment company, a Fund would bear along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Fund bears directly in connection with its own operations. However, in
order to avoid the imposition of additional fees as a result of investments by a
Fund in Shares of the Money Market Funds or other portfolios served by the
Investment Advisor ("acquired fund"), the Investment Advisor will reduce its
fees to the investing Fund by an amount based on the fee formula charged to the
acquired Fund.
"WHEN-ISSUED" SECURITIES
Each Fund may also purchase debt securities on a "when-issued" basis.
"When-issued" securities are new securities purchased for delivery beyond the
normal settlement date at a stated price and yield thereby involving the risk
that the yield obtained in the transaction will be less than that available in
the market when delivery takes place. A Fund will generally not pay for such
securities and no income accrues on the securities until they are received.
Securities purchased on a "when-issued" basis are recorded as an asset when
purchased and are thereafter subject to changes in value based upon changes in
the general level of interest rates. Each Fund expects that commitments to
purchase "when-issued" securities will not exceed 25% of the value of its total
assets under normal market conditions, and that commitments by each Fund to
purchase "when-issued" securities will not exceed 60 days. If commitments to
purchase "when-issued" securities ever exceeded 25% of the value of its assets,
a Fund's liquidity and the Investment Advisor's (and/or Sub-advisor's with
respect to the International Equity Fund) ability to manage it might be
adversely affected. In "when-issued" transactions, a Fund relies on the seller
to complete the transaction; the seller's failure to do so may cause the Fund to
miss a price or yield considered to be advantageous. While purchases may be
considered a form of leverage, a Fund does not intend to purchase "when-issued"
securities for speculative purposes but only for the purpose of acquiring
portfolio securities.
SHORT-TERM TRADING AND PORTFOLIO TURNOVER
The Equity Funds, the Bond Funds and the Balanced Fund may engage in the
technique of short-term trading. Such trading involves the selling of securities
held for a short time, ranging from several months to less than a day. The
object of such short-term trading is to increase the potential for capital
appreciation and/or income of a Fund in order to take advantage of what the
Investment Advisor (and/or the Sub-advisor with respect to the International
Equity Fund) believes are changes in market, industry, or individual company
conditions or outlook. Any such trading would increase a Fund's turnover rate
and its transaction costs.
Portfolio turnover may vary greatly from year to year as well as within a
particular year. High turnover rates will generally result in higher brokerage
commissions and other transaction costs to the Fund. Distributions resulting
from any net short-term capital gains are considered ordinary income for federal
income tax purposes. (See "TAXES.")
REVERSE REPURCHASE AGREEMENTS
Each Fund may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with the investment restrictions described
below. Pursuant to such agreements, a Fund would sell portfolio securities to
financial institutions such as banks or broker-dealers, and agree to repurchase
them at a mutually agreed-upon date and price. At the time a Fund enters into a
reverse repurchase agreement, it will place in a segregated custodial account
assets such as U.S. Government securities or other liquid high-grade debt
obligations consistent with the Fund's investment restrictions having a value
equal to the repurchase price (including accrued interest), and will
subsequently monitor the account to ensure that such equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the price at which such Fund
is obligated to repurchase the securities. Reverse repurchase
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agreements are considered to be borrowings by a Fund under the Investment
Company Act of 1940.
ILLIQUID SECURITIES
The Non-Money Market Funds may each invest up to 15% and the Money Market
Funds may each invest up to 10% of the value of their respective net assets in
illiquid securities, including repurchase agreements with remaining maturities
in excess of seven days (except that the Bond Fund, the Intermediate Income Fund
and the Equity Fund will not acquire repurchase agreements with maturities in
excess of seven days if such investment, together with other investments in such
Fund which are not readily marketable, exceeds 10% of such Fund's total assets),
time deposits with maturities in excess of seven days, non-negotiable time
deposits, and other securities which are not readily marketable. This limitation
on illiquid securities also includes restricted securities, except those that
may be purchased by institutional buyers under Rule 144A and for which a liquid
trading market exists, as determined by the Company's Board of Trustees or the
Investment Advisor. See the Statement of Additional Information for further
discussion of Rule 144A securities.
ASSET-BACKED SECURITIES
The Cash Management, Bond, Intermediate Income, Short-Term Income and Balanced
Funds may purchase asset-backed securities. Like other debt securities,
asset-backed securities (i.e., securities backed by mortgages, installment sales
contracts, credit card receivables or other assets) are subject to declines in
market value during periods of rising interest rates. However, due to the
possibility of prepayment of the underlying obligations, asset-backed securities
have less potential for capital appreciation than other debt securities of
comparable maturities during periods of declining interest rates. As a result,
asset-backed securities may be less effective than other fixed income securities
as a means of locking in attractive interest rates for the long term.
Asset-backed securities purchased at a premium to par may subject these Funds to
losses equal to any unamortized premium if such obligations are repaid prior to
their scheduled maturities. The Cash Management, Bond, Intermediate Income, and
Balanced Funds will invest only in privately-issued asset-backed securities
which are readily marketable and rated at the time of purchase in the two
highest rating categories assigned by a Rating Organization. For a description
of rating symbols see Appendix "A" to the Statement of Additional Information.
MORTGAGE-BACKED SECURITIES
The Bond, Intermediate Income, Short-Term Income and Balanced Funds may
purchase mortgage-backed securities. The investment objective of the
Intermediate Income Fund permits it to purchase mortgage-backed and certain
other securities with stated maturities in excess of ten years if the expected
maturities are ten years or less. The average life of mortgage-backed securities
varies with the maturities of the underlying mortgage instruments, which have
maximum maturities of 40 years. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments. The rate of such prepayments, and hence
the average life of the certificates, will be a function of current market
interest rates and current conditions in the relevant housing markets. Estimated
average life will be determined by the Investment Advisor, and such securities
may be purchased by the Intermediate Income Fund if the estimated average life
is determined to be 6 years or less. Various independent mortgage-backed
securities dealers publish average remaining life data using proprietary models
and, in making such determinations for the Intermediate Income Fund, the
Investment Advisor will rely on such data except to the extent such data are
deemed unreliable by the Investment Advisor. The Investment Advisor might deem
data unreliable which appeared to present a significantly different average
remaining expected life for a security than data relating to the average
remaining life of comparable securities as provided by other independent
mortgage-backed securities dealers.
The Bond, Intermediate Income and Balanced Funds will invest only in
privately-issued mortgage-backed securities which are readily marketable and
rated at the time of purchase in the two highest rating categories assigned by a
Rating Organization. For a description of rating symbols see Appendix "A" to the
Statement of Additional Information.
CORPORATE OBLIGATIONS
The Non-Money Market Funds also may invest in bonds, notes and debentures of
U.S. corporate issuers. Such obligations, in the case of debentures, will
represent unsecured promises to pay, in the case of notes and bonds, may be
secured by mortgages on
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real property or security interests in personal property and will vary in their
interest rates, maturities and times of issuance. These Funds will invest in
corporate debt securities only if they are rated at the time of purchase within
the four highest rating groups assigned by a Rating Organization or, if unrated,
which the Investment Advisor (and/or the Sub-advisor with respect to the
International Equity Fund) deems to be of comparable quality. Such securities
are considered high or medium-grade securities. Debt obligations rated in the
fourth highest rating group have some speculative characteristics and repayment
of principal and interest are more likely to be adversely affected by adverse
economic conditions or changing circumstances than are obligations in the higher
rated categories.
SHORT-TERM OBLIGATIONS
The Non-Money Market Funds may each ordinarily hold some short-term
obligations (with maturities of 18 months or less) such as domestic and foreign
commercial paper (including variable amount master demand notes), banker's
acceptances, certificates of deposit and demand and time deposits of domestic
and foreign branches of U.S. banks and foreign banks, and repurchase agreements.
STAND-BY COMMITMENTS
The Pennsylvania Tax-Free Bond Fund may acquire stand-by commitments with
respect to Pennsylvania Municipal Obligations held in its portfolio. Under a
"stand-by commitment," a dealer agrees to purchase, at the Fund's option,
specified municipal obligations at a price equal to their amortized cost value
plus accrued interest. The Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
MUNICIPAL NOTES
Municipal notes in which the Pennsylvania Tax-Free Bond Fund may invest
include project notes, demand notes, and short-term municipal obligations
(including tax anticipation notes, revenue anticipation notes, construction loan
notes and short-term discount notes and tax-exempt commercial paper) rated in
the highest rating category assigned by a Rating Organization.
MUNICIPAL LEASES
The Pennsylvania Tax-Free Bond Fund may invest in municipal leases and
participations therein. These are obligations in the form of a lease or
installment purchase which is issued by state and local governments to acquire
equipment and facilities. Bonds from such obligations are generally exempt from
local and state taxes in the state of issuance. "Participations" in such leases
are undivided interests in a portion of the total obligation. Participations
entitle their holders to receive a pro rata share of all payments under the
lease. A trustee is usually responsible for administering the terms of the
Participation and enforcing the participants' rights in the underlying lease.
Municipal leases frequently involve special risks not normally associated with
general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the governmental issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations are deemed to be inapplicable because of the inclusion
in many leases or contracts or "non-appropriation" clauses which provide that
the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis.
Municipal leases represent a relatively new type of financing. In certain
instances the tax-exempt status of the obligations will not be subject to the
legal opinion of a nationally recognized "bond counsel," as is customarily
required in larger issues of Pennsylvania obligations. However, in all cases the
Pennsylvania Tax-Free Bond Fund will require that a municipal lease purchased by
the Fund be covered by a legal opinion (typically from the issuer's counsel) to
the effect that, as of the effective date of such lease, the lease is the valid
and binding obligation of the governmental issuer.
Certain municipal lease obligations may be deemed illiquid for the purpose of
the Pennsylvania Tax-Free Bond Fund's investment of up to 15% of the value of
its net assets in illiquid securities. In determining the liquidity of municipal
lease obligations, the Investment Advisor will consider a variety of factors,
including the following guidelines which
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have been adopted by the Board of Trustees: (1) the frequency of trades and
quotes for the obligation; (2) the number of dealers willing to purchase or sell
the obligation and the number of other potential buyers; (3) the willingness of
dealers to undertake to make a market in the security; (4) the nature of the
marketplace trades; (5) the general creditworthiness of the municipality and the
importance of the property covered by the lease to the municipality; and (6) the
likelihood that the marketability of the obligation will be maintained
throughout the time the obligation is held by the Fund.
SPECIAL RISKS AND CONSIDERATIONS
The Pennsylvania Tax-Free Bond Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940. Investment return
on a non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuation. In addition, a non-diversified
portfolio may be more susceptible to economic, political and regulatory
developments than a diversified investment portfolio with similar objectives
would be.
Because the Fund will normally invest 80% or more of its net assets in
Pennsylvania Municipal Obligations, it is more susceptible to factors affecting
Pennsylvania issuers than is a comparable municipal bond fund not concentrated
in the obligations of issuers located in a single state. Pennsylvania tax-exempt
issuers may be adversely affected by local political and economic conditions and
developments within Pennsylvania. Although the General Fund of the Commonwealth
(the principal operating fund of the Commonwealth) experienced deficits in
fiscal 1990 and 1991, tax increases and spending decreases helped return the
General Fund balance to a surplus at June 30, 1992 of $87.5 million and at June
30, 1993 of $698.9 million. The deficit in the Commonwealth's
unreserved/undesignated funds also has been eliminated, and there was a surplus
of $64.4 million at June 30, 1993. However, rising unemployment, a relatively
high proportion of persons 65 and older, and court ordered increases in
healthcare reimbursement rates continue to place increased pressures on the tax
resources of the Commonwealth and its municipalities. In addition, certain
litigation is pending against the Commonwealth that could adversely affect its
ability to pay debt service. See the Statement of Additional Information for
further discussion of investment considerations associated with Pennsylvania
Municipal Obligations.
General obligations of Pennsylvania are currently rated "AA-" by S&P and Fitch
and "A1" by Moody's. There can be no assurance that the economic conditions on
which these ratings are based will continue or that particular bond issues may
not be adversely affected by changes in economic, political or other conditions.
INVESTMENT RESTRICTIONS
The Funds are subject to a number of fundamental investment restrictions that
may be changed only by a vote of a majority of the outstanding Shares (as
defined in the Statement of Additional Information) of each Fund.
MONEY MARKET FUNDS
CASH MANAGEMENT FUND
The Cash Management Fund may not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Cash
Management Fund's total assets would be invested in such issuer, except that up
to 25% of the value of the Cash Management Fund's total assets may be invested
without regard to such 5% limitation. (Regulations prohibit investments in
excess of the 5% limitation in more than one issuer or for more than three
business days after purchase.)
2. Purchase any securities which would cause more than 25% of the value of the
Cash Management Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no
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limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, domestic bank certificates of
deposit or banker's acceptances, and repurchase agreements secured by bank
instruments or obligations of the U.S. Government or its agencies or
instrumentalities; (b) wholly-owned finance companies will be considered to be
in the industries of their parents if their activities are primarily related to
financing the activities of their parents; and (c) utilities will be divided
according to their services. For example, gas, gas transmission, electric and
gas, electric, and telephone will each be considered a separate industry.
CASH MANAGEMENT AND U.S. TREASURY
SECURITIES FUNDS
The Cash Management and U.S. Treasury Securities Funds may not:
1. Borrow money or issue senior securities, except that each Fund may borrow
from banks and enter into reverse repurchase agreements for temporary purposes
in amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets, except in connection
with any such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of such Fund's total assets at the time of
its borrowing. Neither Fund will purchase securities while its borrowings
(including reverse repurchase agreements) exceed 5% of the total assets of such
Fund.
2. Make loans, except that each Fund may purchase or hold debt instruments in
accordance with its investment objective and policies, may lend portfolio
securities in accordance with its investment objective and policies, and may
enter into repurchase agreements.
U.S. TREASURY SECURITIES FUND
The U.S. Treasury Securities Fund may not purchase securities other than
short-term obligations issued or guaranteed by the U.S. Treasury, and repurchase
agreements secured by U.S. Treasury obligations.
TAX-FREE FUND
The Tax-Free Fund may not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of its total assets
would be invested in such issuer (except that up to 25% of the value of the
Tax-Free Fund's total assets may be invested without regard to such 5%
limitation). For purposes of this limitation, a security is considered to be
issued by the government entity (or entities) whose assets and revenues back the
security; with respect to a private activity bond that is backed only by the
assets and revenues of a non-governmental user, a security is considered to be
issued by such non-governmental user.
2. Purchase any securities which would cause 25% or more of the Tax-Free
Fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry; provided that this limitation shall not apply to Municipal Obligations
or governmental guarantees of Municipal Obligations; and provided, further, that
for the purpose of this limitation only, private activity bonds that are backed
only by the assets and revenues of a non-governmental user shall not be deemed
to be Municipal Obligations.
3. Borrow money or issue senior securities, except that the Tax-Free Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Tax-Free Fund's total
assets at the time of its borrowing. The Tax-Free Fund will not purchase
securities while any borrowings are outstanding.
NON-MONEY MARKET FUNDS
The Equity Funds, the Bond Fund and the Intermediate Income, Short-Term Income
and Balanced Funds may not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the total assets
of such Fund would be invested in such issuer, or hold more than 10% of any
class of securities of the issuer or more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the
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total assets of each such Fund may be invested without regard to such
limitations. There is no limit to the percentage of assets that may be invested
in U.S. Treasury bills, notes, or other obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the value of the
total assets of such Fund at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
3. Borrow money or issue senior securities, except that such Funds may borrow
from banks or enter into reverse repurchase agreements for temporary purposes in
amounts up to 10% of the value of their respective total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the total assets of such Fund
at the time of its borrowing. Such Funds will not purchase securities while
their borrowings (including reverse repurchase agreements) exceed 5% of their
respective total assets.
4. Make loans, except that such Funds may purchase or hold debt instruments
and lend portfolio securities in accordance with their respective investment
objectives and policies, and may enter into repurchase agreements.
For the purposes of Investment Restriction 2 above, each of the Equity Funds
treats, as a matter of non-fundamental policy that may be changed without a vote
of shareholders, all supranational organizations as a single industry and each
foreign government (and all of its agencies) as a separate industry.
The Pennsylvania Tax-Free Bond Fund may not:
1. Purchase securities of any one issuer (other than obligations issued or
guaranteed by the U.S. Government, the Commonwealth of Pennsylvania, and their
agencies, authorities, instrumentalities or political subdivisions) if
immediately thereafter more than 5% of the value of the Fund's total assets
would be invested in the securities of any one issuer, except that up to 50% of
the value of the Fund's total assets may be invested without regard to this 5%
limitation, provided, however, that not more than 25% of the Fund's total assets
may be invested in securities of one issuer. For purposes of this limitation, a
security is considered to be issued by the governmental entity (or entities)
whose assets and revenues back the security, or with respect to a private
activity bond that is backed only by the assets and revenues of a
non-governmental user, a security is considered to be issued by such non-
governmental user. In accordance with regulations promulgated by the Securities
and Exchange Commission, the guarantor of a guaranteed security may be
considered to be an issuer in connection with such guarantee.
2. Purchase any securities which would cause more than 25% of the value of its
total assets at the time of purchase to be invested in municipal obligations
with similar characteristics (such as private activity bonds where the payment
of principal and interest is the ultimate responsibility of issuers in the same
industry, pollution control revenue bonds, housing finance agency bonds or
hospital bonds) or the securities of issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, other
governmental issuers of municipal bonds, and their respective agencies,
authorities, instrumentalities or political subdivisions.
3. Borrow money or issue senior securities, except from domestic banks for
temporary purposes and then in amounts not in excess of 10% of the value of its
total assets at the time of such borrowing (provided that the Fund may borrow
pursuant to reverse repurchase agreements in accordance with its investment
policies and in amounts not in excess of 10% of the value of its total assets at
the time of such borrowing); or mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value
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of the Fund's total assets at the time of such borrowing. The Fund will not
purchase securities while borrowings (including reverse repurchase agreements)
in excess of 5% of its total assets are outstanding.
4. Make loans, except that (i) the Fund may purchase or hold debt instruments
in accordance with its investment objective and policies, and may enter into
repurchase agreements with respect to portfolio securities, and (ii) the Fund
may lend portfolio securities against collateral consisting of cash or
securities which are consistent with the Fund's permitted investments, where the
value of the collateral is equal at all times to at least 100% of the value of
the securities loaned.
* * *
Certain additional investment restrictions, and information about the Fund's
investments, are in the Statement of Additional Information.
TAXES
FEDERAL INCOME TAXES
Each of the Funds of the Company is treated as a separate entity for federal
tax purposes and intend to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). Such qualification
generally relieves a Fund of liability for federal income taxes to the extent
the Fund's earnings are distributed in accordance with the Code.
The following discussion summarizes some of the important federal tax
considerations generally affecting the Fund and its Shareholders and is not
intended as a substitute for careful tax planning. Accordingly, investors in the
Fund should consult their tax advisors with specific reference to their own tax
situation. Shareholders are also advised to consult their tax advisors
concerning state and local taxes, which may differ from the federal income taxes
discussed.
MONEY MARKET FUNDS: For each of the Money Market Funds, qualification as a
regulated investment company under the Code requires, among other things, that
each Fund distribute to its Shareholders an amount equal to at least 90% of its
investment company taxable income and at least 90% of its tax-exempt income net
of certain deductions for each taxable year. In general, the investment company
taxable income of a Fund will be its taxable income, including interest, subject
to certain adjustments and excluding the excess of any net long-term capital
gain for the taxable year over the net short-term capital loss, if any, for such
year. The Company contemplates declaring as dividends 100% of the investment
company taxable income of each of the Money Market Funds (before deduction of
dividends paid). Such dividends will be taxable as ordinary income to the
respective Shareholders of the Cash Management and U.S. Treasury Securities
Funds who are not currently exempt from federal income taxes, whether such
dividends are received in cash or reinvested in additional shares. Federal
income taxes for distributions to individual retirement accounts and qualified
retirement plans are deferred under the Code. Because all of the net investment
income of the Cash Management and U.S. Treasury Securities Funds are expected to
be derived from earned interest, it is anticipated that no part of any
distribution will be eligible for the dividends received deduction for
corporations.
For the Tax-Free Fund, qualification as a regulated investment company under
the Code for a taxable year requires, among other things, that it distribute to
its Shareholders an amount equal to at least the sum of 90% of its
exempt-interest income, net of certain deductions, and 90% of its investment
company taxable income (if any) for such year. Certain dividends derived from
exempt-interest income (known as exempt-interest dividends) may be treated by
the Tax-Free Fund's Shareholders as items of interest excludable from their
federal gross income. (Shareholders who may be treated as a "substantial user"
or a "related person" to such user under the Code are advised to consult a tax
advisor with respect to whether exempt-interest dividends retain the exclusion.)
However, such dividends may be taxable to Shareholders under state or local law
as ordinary income, even though all or a portion of the distributions may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such taxes. A percentage of the interest on indebtedness
incurred by a Shareholder to purchase or carry Institutional Shares of the
Tax-Free Fund, equal to the percentage of the total non-capital gain dividends
distributed among the Shareholder's taxable year that is tax-exempt
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dividends, will not be deductible for federal income tax purposes. It should be
noted that, upon the sale or exchange of Institutional Shares of the Tax-Free
Fund, if the Shareholder has not held such Shares for more than six months, any
loss on the sale or exchange of those shares will be disallowed to the extent of
tax-exempt dividends received with respect to the Shares.
If the Tax-Free Fund should hold certain private activity bonds issued after
August 7, 1986, Shareholders must include, as an item of tax preference, the
portion of dividends paid by the Tax-Free Fund that is attributable to interest
on such bonds in their federal alternative minimum taxable income for purposes
of determining liability (if any) for the federal alternative minimum tax
applicable to individuals and the federal alternative minimum tax and the
environmental tax applicable to corporations. Corporations must also take all
exempt-interest dividends into account in determining certain adjustments for
federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed on the excess of the corporation's
modified federal alternative minimum taxable income over $2,000,000.
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
To the extent dividends paid to Shareholders of the Tax-Free Fund are derived
from taxable income (for example, from interest on certificates of deposit or
repurchase agreements) or from long-term or short-term capital gains, such
dividends will be subject to federal income tax.
The U.S. Treasury Securities Fund, the Cash Management Fund and the Tax-Free
Fund do not expect to realize any long-term capital gains and, therefore, do not
foresee paying any "capital gain dividends" as described in the Code.
Dividends declared by a Fund in October, November or December of any year
payable to Shareholders of record on a specified date in such months will be
deemed to have been received by Shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made to them each year.
THE EQUITY FUNDS, THE BOND FUND AND THE INTERMEDIATE INCOME, SHORT-TERM INCOME
AND BALANCED FUNDS: Qualification as a regulated investment company under the
Code for a taxable year requires, among other things, that each of these Funds
distribute to its Shareholders an amount equal to at least 90% of its investment
company taxable income and at least 90% of its tax-exempt income net of certain
deductions for each taxable year. In general, each such Fund's investment
company taxable income will be its taxable income, including dividends, interest
and short-term capital gains (the excess of net short-term capital gain over net
long-term capital loss), subject to certain adjustments and excluding the excess
of any net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. The policy of the Fund is to distribute as
dividends substantially all of its investment company taxable income each year.
With respect to the Equity Funds, the dividends received deduction for
corporations will apply to such ordinary income distributions to the extent of
the total qualifying dividends received by a Fund from domestic corporations for
the taxable year. Because substantially all of the net investment income of the
Bond, Intermediate Income, Short-Term Income and Balanced Funds are expected to
be derived from earned interest, it is anticipated that no part of any
distributions from such Funds will be eligible for the dividends received
deduction for corporations.
Distribution by each of the Equity Funds, the Bond Fund and the Intermediate
Income, Short-Term Income and Balanced Funds of the excess of net long-term
capital gain over net short-term capital loss is taxable to Shareholders as
long-term capital gain, regardless of how long the Shareholder has held the
Institutional Shares and whether such gains are received in cash or reinvested
in additional Institutional Shares. Such distributions are not eligible for the
dividends received deduction for corporations.
Dividends declared by a fund in October, November or December of any year
payable to Shareholders of record on a specified date in such months will be
deemed to have been received by Shareholders and paid by the Funds on December
31 of such year if such dividends are actually paid during January of the
following year.
Investors considering buying Institutional Shares on or just before the record
date of a dividend
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should be aware that the amount of the forthcoming dividend payment, although in
effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a Shareholder upon his or her
redemption, transfer or exchange of Institutional Shares of any of the Non-Money
Market Funds depending upon the tax basis and their price at the time of
redemption, transfer, or exchange. Generally, a Shareholder may include sales
charges incurred upon the purchase of Fund Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the Shareholder effects an
exchange of such Shares for Shares of another Fund within 90 days of the
purchase and is able to reduce the sales charges applicable to new Shares (by
virtue of the Company's exchange privilege), the amount equal to such reduction
may not be included in the tax basis of the Shareholder's exchanged Shares but
may be included (subject to the same limitation) in the tax basis of the new
Shares.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made each year.
THE PENNSYLVANIA TAX-FREE BOND FUND: Qualification as a regulated investment
company under the Code for a taxable year requires, among other things, that the
Pennsylvania Tax-Free Bond Fund distribute to its Shareholders an amount equal
to at least 90% of its tax-exempt income and at least 90% of its investment
company taxable income (if any) for each taxable year. In general, the
Pennsylvania Tax-Free Bond Fund's investment company taxable income will be its
taxable income, including dividends, interest and short-term capital gains (the
excess of net short-term capital gain over net long-term capital loss), subject
to certain adjustments and excluding the excess of any net long-term capital
gain for the taxable year over the net short-term capital loss, if any, for such
year. The policy of the Pennsylvania Tax-Free Bond Fund is to distribute as
dividends substantially all of its investment company taxable income each year.
If, at the close of each quarter of its taxable year, at least 50% of the value
of the Fund's total assets is invested in obligations exempt from federal income
tax, the Fund will be eligible to pay dividends that are excludable by
shareholders from gross income for federal income tax purposes ("exempt interest
dividends"), unless under the circumstances applicable to the particular
Shareholder the exclusion would be disallowed. (See Statement of Additional
Information -- "Taxes"). The total amount of exempt interest dividends paid by
the Fund to Shareholders with respect to any taxable year cannot exceed the
amount of federally tax-exempt interest received by the Fund during the year
less any expenses allocable to such interest. The Pennsylvania Tax-Free Bond
Fund, however, does not expect to realize significant long-term capital gains
and, therefore, does not foresee paying significant "capital gains dividends" as
described in the Code.
A percentage of the interest on indebtedness incurred or continued to purchase
or carry Institutional Shares of the Pennsylvania Tax-Free Bond Fund, equal to
the percentage of the total non-capital gain dividends distributed during the
Shareholder's taxable year that is exempt interest dividends, will not be
deductible for federal income tax purposes. It should be noted that, upon the
sale or exchange of Shares of the Pennsylvania Tax-Free Bond Fund, if the
Shareholder has not held such Institutional Shares for more than six months, any
loss on the sale or exchange of those Institutional Shares will be disallowed to
the extent of the tax-exempt dividends received with respect to the
Institutional Shares.
A taxable gain or loss may be realized by a Shareholder upon his or her
redemption, transfer or exchange of Institutional Shares of the Pennsylvania
Tax-Free Bond Fund depending upon the tax basis of such shares when purchased
and their price at the redemption, transfer, or exchange. Generally, a
Shareholder may include sales charges incurred upon the purchase of
Institutional Shares in his or her tax basis for such Shares for the purpose of
determining gain or loss on a redemption, transfer or exchange of such shares.
However, if the Shareholder effects an exchange of such shares for shares of
another Fund within 90 days of the purchase and is able to reduce the sales
charges applicable to new shares (by virtue of the Company's exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the Shareholder's exchanged Shares but may be included (subject to the
same limitation) in the tax basis of the new Shares.
If the Pennsylvania Tax-Free Bond Fund should hold certain private activity
bonds issued after August 7, 1986, Shareholders must include, as an item of tax
preference, the portion of dividends paid by
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the Fund that is attributable to interest on such bonds in their federal
alternative minimum taxable income for purposes of determining liability (if
any) for the 26-28% alternative minimum tax applicable to individuals and the
20% alternative minimum tax and the environment tax applicable to corporations.
Corporations must also take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum and
environmental tax purposes. The environmental tax applicable to corporations is
imposed at the rate of .12% on the excess of the corporation's modified federal
alternative minimum taxable income over $2,000,000. Shareholders receiving
Social Security benefits should note that all exempt-interest dividends will be
taken into account in determining the taxability of such benefits.
Dividends declared by the Pennsylvania Tax-Free Bond Fund in October, November
or December of any year payable to Shareholders of record on a specified date in
such months will be deemed to have been received by Shareholders and paid by the
Fund on December 31 of such year if such dividends are actually paid during
January of the following year.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made to them each year.
PENNSYLVANIA STATE TAX
Under current Pennsylvania law, shareholders of the Tax-Free, U.S. Treasury
Securities and Pennsylvania Tax-Free Bond Funds will not be subject to
Pennsylvania Personal Income Tax on distributions from the Funds attributable to
interest income from Pennsylvania Municipal Obligations or from obligations of
the United States, its territories and certain of its agencies and
instrumentalities ("Federal Obligations"). However, Pennsylvania Personal Income
Tax will apply to distributions from the Funds attributable to gain realized on
the disposition of any investment, including Pennsylvania Municipal Obligations
or Federal Obligations, or to interest income from investments other than
Pennsylvania Municipal Obligations or Federal Obligations. Shareholders also
will be subject to the Pennsylvania Personal Income tax on any gain they realize
on the disposition of shares in one of the Funds.
Distributions attributable to interest or gain from Pennsylvania Municipal
Obligations or Federal Obligations are not currently subject to the Philadelphia
School District Net Income Tax. However, it is anticipated that rules similar to
those described above for the Pennsylvania Personal Income Tax ultimately will
be applied, and a recently enacted Pennsylvania statute specifically authorized
local taxation of gains on Pennsylvania Municipal Obligations and Federal
Obligations. Accordingly, there can be no assurance that distributions made by
the Tax-Free, U.S. Treasury Securities and Pennsylvania Tax-Free Bond Funds that
are attributable to such gains will be exempt from the Philadelphia School
District Net Income Tax, except that gains attributable to any investment held
for more than six months will continue to be exempt. A shareholder's gain on the
disposition of a share in one of the Funds that he has held for more than six
months will not be subject to the Philadelphia School District Net Income Tax.
Shareholders of the Tax-Free, U.S. Treasury Securities and Pennsylvania
Tax-Free Bond Funds are not subject to any of the personal property taxes
currently in effect in Pennsylvania to the extent that a Fund is comprised of
Pennsylvania Municipal Obligations and Federal Obligations. The taxes referred
to include the county personal property tax imposed on residents of Pennsylvania
by the Act of June 17, 1913, P.L. 507, as amended, and the additional personal
property taxes imposed on Pittsburgh residents by the School District of
Pittsburgh under the Act of June 20, 1947, P.L. 733, as amended, and by the City
of Pittsburgh under Ordinance No. 599 of December 28, 1967.
PERFORMANCE INFORMATION
MONEY MARKET FUNDS: Seven-day yields are computed for each of the Cash
Management, Tax-Free and U.S. Treasury Securities Funds by determining the net
change in the value of a hypothetical pre-existing account in each such Fund
which has a balance of one Institutional Share at the beginning of the period,
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return, and multiplying the base period return
by 365/7. The net change in the value of an account in each such Fund includes
the value of additional Institutional Shares
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<PAGE> 105
purchased with dividends from the original Institutional Share and dividends
declared on the original Share and any such additional Institutional Shares, net
of all fees charged to all Shareholder accounts in proportion to the length of
the base period and such Fund's average account size, but does not include gains
and losses or unrealized appreciation and depreciation. In addition, these Funds
may use effective annualized yield quotations computed on a compounded basis by
adding 1 to the base period return (calculated as described above), raising that
sum to a power equal to 365/7, and subtracting 1 from the result.
The Tax-Free Fund may also present its "taxable equivalent yield" and "taxable
equivalent effective yield" with respect to its Institutional Shares which
reflect the amount of income subject to federal income taxation that a taxpayer
in a stated tax bracket would have to earn in order to obtain the same after-tax
income as that derived from the yield and effective yield, respectively, of the
Tax-Free Fund. The taxable equivalent yield and taxable equivalent effective
yield will be significantly higher than the yield and effective yield of the
Tax-Free Fund.
From time to time, performance information for the Funds showing their average
annual total return, aggregate total return and yield may be presented in
advertisements, sales literature and in reports to Shareholders. The Funds'
performance information may be quoted and compared to those of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, the yields of these Funds may be compared to the IBC/Donoghue's
Money Fund Average, which is an average compiled by IBC/Donoghue's MONEY FUND
REPORT of Holliston, MA 01746, a widely recognized independent publication that
monitors the performance of money market funds, to the average yields reported
by the Bank Rate Monitor from money market deposit accounts offered by the 50
leading banks and thrift institutions in the top six standard metropolitan
statistical areas, or to data prepared by Lipper Analytical Services, Inc., as
well as to yield data as reported in publications such as Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week,
American Banker, Fortune, Institutional Banker, Institutional Investor, Ibbotson
Associates, Inc., Morningstar, Inc., CDA/Wiesenberger, Pensions and Investments,
U.S.A. Today and local newspapers. In addition to yield information, general
information about these Funds that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to Shareholders. Reports to shareholders may contain performance information on
any fund of the Company.
Yields will fluctuate and any quotation of yield should not be considered as
representative of the future performance of any Fund. Since yields fluctuate,
yield data cannot necessarily be used to compare an investment in these Funds'
Shares with bank deposits, savings accounts, and similar investment alternatives
which often provide an agreed or guaranteed fixed yield for a stated period of
time. Shareholders should remember that performance and yield are generally
functions of kind and quality of the investments held in a portfolio, portfolio
maturity, operating expenses, and market conditions. Any fees charged by an
affiliate of the Investment Advisor or correspondents thereof with respect to
customer accounts in investing in shares of these Funds will not be included in
yield calculations; such fees, if charged, would reduce the actual yield from
that quoted.
NON-MONEY MARKET FUNDS: From time to time performance information with respect
to Institutional Shares for these Funds showing each Fund's average annual total
return, aggregate total return and yield may be presented in advertisements,
sales literature and in reports to Shareholders. Such performance figures are
based on historical earnings and are not intended to indicate future
performance. Average annual total return will be calculated on an annual basis
(with respect to the International Equity, Short-Term Income and Balanced Funds,
for certain periods since the establishment of such Fund), and will, unless
otherwise noted, reflect the imposition of the maximum sales charge. For the
information of Shareholders not subject to a sales charge, the Funds may also
publish average annual total returns which include no sales charge. Average
annual total return is measured by comparing the value of an investment in a
Fund at the beginning of the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions) and annualizing the result. Aggregate
total return is calculated similarly, however, the resulting difference is not
annualized. Yield will be computed by dividing such Fund's net investment income
per share earned during a recent 30-day period by such
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<PAGE> 106
Fund's per share maximum offering price (reduced by any undeclared earned income
expected to be paid shortly as a dividend) on the last day of the period and
annualizing the result.
Quotations of total return will reflect the maximum sales load charged by a
Fund, except that the Fund may also provide, in conjunction with such
quotations, additional quotations that do not reflect a sales charge when the
quotations are being provided to investors who are exempt from the sales charges
described in this Prospectus. Similarly, a Fund may provide yield quotations in
investor communications (other than advertisements) based on a share's net asset
value (rather than its maximum offering price) per share on the last day of the
period covered by the yield computation. Because these additional quotations
will not reflect the maximum sales charge payable by non-exempt investors, such
performance quotations will be higher than the performance quotations computed
in the manner described in the preceding paragraph.
The Pennsylvania Tax-Free Bond Fund may also quote its "taxable equivalent
yield" which demonstrates the level of taxable yield necessary to produce an
after-tax equivalent to the Fund's tax-free yield. It is calculated by
increasing the Fund's yield (calculated as above) by the amount necessary to
reflect the payment of federal and Pennsylvania income taxes at a stated tax
rate. The taxable equivalent yield will always be higher than the Fund's yield.
Investors may also judge the performance of a Fund, by comparing it to the
performance of other mutual funds with comparable investment objectives and
policies through various mutual fund or market indices such as those prepared by
Dow Jones & Co., Inc. and Standard & Poor's Ratings Group, Division of McGraw
Hill and to data prepared by Lipper Analytical Services, Inc. Comparisons may
also be made to indices or data published in Money Magazine, Forbes, Barron's,
The Wall Street Journal, The New York Times, Business Week, American Banker,
Fortune, Institutional Banker, Institutional Investor, Ibbotson Associates,
Inc., Morningstar, Inc., CDA/Wiesenberger, Pensions and Investments, U.S.A.
Today and local newspapers. In addition to yield information, general
information about these Funds that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to Shareholders. Reports to Shareholders may contain performance information on
any Fund of the Company.
Yield and total return are functions of the type and quality of instruments
held in the portfolio, operating expenses, and market conditions. Consequently,
current yields and total return will fluctuate and are not necessarily
representative of future results. Any fees charged by an affiliate of the
Investment Advisor or a correspondent thereof with respect to customer accounts
for investing in shares of the Fund will not be included in performance
calculations; such fees, if charged, would reduce the actual yield and total
return from that quoted.
MANAGEMENT OF THE COMPANY
TRUSTEES
Overall responsibility for management of the Company rests with its Board of
Trustees, who are elected by the Shareholders of the Company's Funds. The
Statement of Additional Information contains the names of and general background
information concerning each trustee.
INVESTMENT ADVISOR
Meridian Investment Company (the "Investment Advisor") is the investment
advisor of the Company. Located in Malvern, Pennsylvania, the Investment Advisor
is a subsidiary of Meridian Bancorp, Inc., a regional multi-bank holding company
with assets over $14 billion, providing a full array of financial and asset
management, commercial banking, and real estate services. As of November 1,
1994, the Investment Advisor managed and advised a total of $5.0 billion in a
variety of balanced, equity and fixed-income portfolios.
Subject to the general supervision of the Company's Board of Trustees and in
accordance with the investment objectives and restrictions of each Fund, the
Investment Advisor manages the Funds, makes decisions with respect to and places
orders for all purchases and sales of the Funds' investment securities, and
maintains the Funds' records relating to such purchases and sales.
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<PAGE> 107
The following individuals serve as portfolio managers for the Funds and are
primarily responsible for the day-to-day management of the portfolios:
Craig A. Moyer, CFA, is a Senior Vice President and Senior Fixed Income
Manager. Mr. Moyer has been with Meridian Investment Company (or a predecessor)
since 1977. Mr. Moyer began his investment career in 1974 and obtained his B.A.
from Pennsylvania State University. Mr. Moyer has been a part of the Fixed
Income Unit overseeing the Bond Funds since their inception. Mr. Moyer currently
manages the Intermediate Income Fund and the Balanced Fund.
Cathy L. Rahab is an Assistant Vice President and Portfolio Manager with
Meridian Investment Company. Ms. Rahab began her investment career in 1986 and
obtained her B.S. in Business Administration from Villanova University. Ms.
Rahab joined the Fixed Income Unit in July of 1994. Ms. Rahab currently manages
the Money Market Funds and the Short-Term Income Fund.
Christine M. Frampton is an Investment Officer and Fixed Income Portfolio
Manager with Meridian Investment Company since April 1990. Ms. Frampton began
her investment career with Merrill Lynch & Co. in 1987 and obtained her B.A.
from University of Delaware and M.B.A. from St. Joseph's University. Ms.
Frampton has been part of the Fixed Income Unit overseeing the Bond Funds since
September, 1992. Ms. Frampton currently manages the Pennsylvania Tax-Free Fund.
Joseph E. Stocke, CFA, is a Senior Vice President and Senior Equity Manager.
Mr. Stocke has been with Meridian Investment Company (or a predecessor) since
1983. Mr. Stocke began his investment career in 1982 and obtained his B.S. in
Economics attending The Wharton School, and University of Pennsylvania and
completed graduate courses at New York University. Mr. Stocke has been part of
the Equity Unit overseeing the Equity Fund and the Special Equity Fund since
their inception. Mr. Stocke currently manages the Balanced Fund.
Leslie M. Varrelman is a Vice President and Fixed Income Manager and has been
with Meridian Investment Company since January 1994. Previously Ms. Varrelman
was Vice President of CoreStates Investment Advisers where she managed the
commingled fixed income funds and managed the Limited Maturity Products area.
Ms. Varrelman obtained her B.S. in Business Administration from Juniata College
in 1981. Ms. Varrelman currently manages the Bond Fund.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Company, the Investment Advisor is entitled to
receive a fee from the Fund, computed daily and paid monthly, at an annual rate
equal to the lesser of (a) (i) .40% of the average daily net assets of each of
the Cash Management, Tax-Free and U.S. Treasury Securities Funds, (ii) .74% of
the average daily net assets of each of the Equity, Bond, Intermediate Income,
Pennsylvania Tax-Free Bond and Short-Term Income Funds, (iii) .75% of the
average daily net assets of the Balanced Fund, (iv) 1.00% of the average daily
net assets of the International Equity Fund and (v) 1.50% of the average daily
net assets of the Special Equity Fund, or (b) such fee as may from time to time
be agreed upon in writing by a Fund and the Investment Advisor in advance of the
period to which the fee relates. See "Expense Summary." The maximum investment
advisory fees payable by the Special Equity Fund, the Balanced Fund and the
International Equity Fund, respectively, are higher than the investment advisory
fees paid by most comparable mutual funds.
SUB-ADVISOR
Marvin & Palmer Associates, Inc., 1201 N Market Street, Suite 2300,
Wilmington, Delaware 19801-1165, is Sub-advisor for the International Equity
Fund under an agreement with the Advisor (the "Sub-advisory Agreement"). The
Sub-advisor is responsible for the investment and reinvestment of the
International Equity Fund's assets and the placement of brokerage transactions
in connection therewith. For its services under the Sub-advisory Agreement, the
Sub-advisor is paid a monthly fee by the Investment Advisor calculated on an
annual basis equal to .75% of the first $100 million of International Equity
Fund's average daily net assets, .70% of the second $100 million of
International Equity Fund's average daily net assets, .65% of the third $100
million of International Equity Fund's average daily net assets, and .60% of
International Equity Fund's average daily net assets in excess of $300 million.
The Sub-advisor, a privately held company, was founded in 1986 by David F.
Marvin and Stanley Palmer. The stock of the Sub-advisor is owned by Messrs.
Marvin and Palmer and twenty other
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<PAGE> 108
holders. The Sub-advisor is engaged in the management of global, non-United
States and emerging markets equity portfolios for institutional accounts. At
September 30, 1994, the Sub-advisor managed a total of $2.8 billion in
investments for 47 institutional investors.
The following five individuals will share the management of International
Equity Fund on behalf of the Sub-advisor:
David F. Marvin, CFA, is chairman of the Sub-advisor and founded the firm
together with Mr. Palmer in 1986. Before founding the Sub-advisor, Mr. Marvin
was Vice president in charge of DuPont Corporation's $10 billion
internally-managed pension fund. Prior to that Mr. Marvin was Associate
Portfolio Manager, and the Head Portfolio Manager, for Investors Diversified
Services' IDS Stock Fund. Mr. Marvin started in the investment business in 1965
as a security analyst for Chicago Title & Trust Company. He received his M.B.A.
from Northwestern University and his B.S. from the University of Illinois, and
is a Chartered Financial Analyst and a member of the Financial Analysts
Federation.
Stanley Palmer, CFA, is President of the Sub-advisor and co-founder of the
firm. Mr. Palmer was Equity Portfolio Manager for DuPont Corporation from 1978
through 1986, an analyst and portfolio manager at Investors Diversified Services
from 1971 through 1978, and an analyst at Harris Trust & Savings Bank from 1964
through 1971. He received his M.B.A. from the University of Iowa and his B.S.
from Gustavus Adolphus College, and is a Chartered Financial Analyst and a
member of the Financial Analysts Federation.
Terry B. Mason is a Vice President and Portfolio Manager of the Sub-advisor.
Before joining the Sub-advisor, Mr. Mason was employed for 14 years by DuPont
Corporation, the last five as international equity analyst and international
trader. He received his M.B.A. from Widener University and his B.A. from
Glassboro State College.
Jay F. Middleton is a portfolio manager for the Sub-advisor and joined the
firm in 1989. He received his B.A. from Wesleyan University.
Todd D. Marvin is a portfolio manager for the Sub-advisor and joined the firm
in 1991. Before joining the Sub-advisor, Mr. Marvin was employed by Oppenheimer
& Company as an analyst in investment banking. Mr. Marvin received his B.A. from
Wesleyan University.
ADMINISTRATOR AND DISTRIBUTOR
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI") provides the Company with administrative
services, including fund accounting, regulatory reporting, necessary office
space, equipment, personnel and facilities. SEI Financial Services Company (the
"Distributor"), a wholly-owned subsidiary of SEI, serves as distributor.
Effective May 1, 1995, the Administrator will receive a fee, which is
calculated daily and paid monthly, at a maximum annual rate of 0.17% of the
average daily net assets of each Fund. Until April 30, 1995, the current
administrator will receive administrative fees equal to .20% of the average
daily net assets of each Fund.
CUSTODIANS AND TRANSFER AGENT
Citibank, N.A. serves as custodian for each Fund other than the International
Equity Fund. The Bank of New York serves as custodian for the International
Equity Fund. The Administrator also serves as the Transfer Agent for the
Company. State Street Bank and Trust Company serves as Sub-Transfer Agent for
the Company pursuant to an agreement with the Administrator.
EXPENSES
The Investment Advisor and the Administrator each bear all expenses in
connection with the performance of their services as investment advisor and
administrator, respectively, other than the cost of securities (including
brokerage commissions) purchased for the Company. Each Fund of the Company will
bear expenses relating to its respective operations including the following:
taxes; interest; brokerage fees and commissions; fees and travel expenses of the
Trustees of the Company; Securities and Exchange Commission fees; state
securities qualification expenses; costs of preparing and printing prospectuses
for regulatory purposes and for distribution to current Shareholders; outside
auditing and legal expenses; advisory and administration fees; fees and
out-of-pocket expenses of the custodian and transfer agent; expenses incurred
for pricing securities owned by each respective Fund; insurance premiums; costs
of maintenance of the
38
<PAGE> 109
Company's existence; costs of Shareholders' reports and meetings; proxy
solicitation expenses; costs of Board of Trustees meetings and any extraordinary
expenses incurred in each Fund's operation. The holders of Institutional Shares
of a Fund will not bear the cost of any activity primarily intended to result in
the distribution of its Shares; such costs will be borne by the Distributor.
BANKING LAWS
Future changes in federal or state statutes and regulations relating to
permissible activities of banks or bank holding companies and their subsidiaries
and affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which the Investment Advisor may continue to perform investment
advisory services for the Company. See the Statement of Additional
Information--"Banking Laws" for further discussion.
GENERAL INFORMATION
DESCRIPTION OF THE COMPANY AND ITS SHARES
The Company was organized as a Massachusetts trust with transferrable Shares
on August 1, 1989. The Company consists of eleven portfolios, each having two
classes of shares, Institutional Shares and Retail Shares: the Cash Management
Fund; the Tax-Free Fund; the U.S. Treasury Securities Fund; the Equity Fund; the
International Equity Fund; the Special Equity Fund; the Bond Fund; the
Intermediate Income Fund; the Pennsylvania Tax-Free Bond Fund; the Short-Term
Income Fund and the Balanced Fund. Each Share represents an equal proportionate
interest in a Fund with other Shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
that Fund as are declared at the discretion of the Board of Trustees. Shares
have a par value of $.001 per Share and do not have preemptive or conversion
rights.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for any fractional shares held. Shareholders will
vote in the aggregate and not by class except as otherwise expressly required by
law. For example, Shareholders of the Funds will vote in the aggregate with
other shareholders of the Company with respect to the election of Trustees and
the ratification of the selection of independent accountants. Shareholders of a
Fund will vote as a Fund, however, and not in the aggregate with other
shareholders of the Company, for purposes of approval of that Fund's investment
advisory agreement. Voting rights are not cumulative and, accordingly, holders
of more than 50% of the aggregate Shares of the Company may elect all of the
Trustees.
As of November 1, 1994, Meridian Bancorp, Inc. indirectly possessed or shared
power to dispose or vote with respect to more than 25% of the outstanding shares
of the Company and therefore may be considered to be a controlling person of the
Company for purposes of the Act.
Annual meetings of Shareholders are not required by the Agreement and
Declaration of Trust, the Investment Company Act of 1940 or other authority
except, under certain circumstances, to elect Trustees, amend the Agreement and
Declaration of Trust, approve investment advisory and distribution agreements,
ratify the selection of accountants and to satisfy certain other requirements.
Shareholders owning not less than 10% of the outstanding shares of the Company
entitled to vote may cause the Board of Trustees to call a special meeting of
Shareholders. At such a meeting, a quorum of Shareholders (constituting a
majority of votes attributable to all outstanding Shares of the Company), by
majority vote, has the power to remove one or more Trustees. To the extent
required by law, the Company will assist in Shareholder communication in such
matters.
MULTIPLE CLASSES OF SHARES
In addition to Institutional Shares, the Company also offers Retail Shares of
the Funds, under an exemptive order granted by the Securities and Exchange
Commission. Retail Shares are offered to the general public through procedures
established by the Distributor to Customers satisfying the minimum purchase
requirements of $1,000. Retail Shares (other than those of the Money Market
Funds) are sold subject to a front-end sales load of up to 2.00% and bear a Rule
12b-1 fee of up to
39
<PAGE> 110
0.40%. All of the Retail Shares bear their respective Rule 12b-1 fee expenses
under a Distribution and Service Plan pertaining only to such Retail Shares that
has been adopted pursuant to Rule 12b-1 under the 1940 Act. A salesperson or
other person entitled to receive compensation for selling or servicing the
shares may receive different compensation with respect to one particular class
of shares over another in the same Fund. For further details regarding the
purchase of Retail Shares call the Company at (800) 344-2716.
The amount of dividends payable with respect to Institutional Shares will
exceed dividends on Retail Shares as a result of the 12b-1 fees applicable to
Retail Shares.
MISCELLANEOUS
Shareholders will receive unaudited mid-year reports and audited annual
reports describing the investment operations of all of the Company's Funds. The
Company may include information in its Annual Reports and Semi-Annual Reports to
Shareholders that (i) describes general economic trends, (ii) describes general
trends within the financial services industry or the mutual fund industry, (iii)
describes past or anticipated portfolio holdings for Funds within the Company or
(iv) describes investment management strategies for such Funds. Such information
is provided to inform Shareholders of the activities of a Fund for the most
recent fiscal year or half-year and to provide the views of the Advisor and/or
Company officers regarding expected trends and strategies.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to" a Fund means the consideration received by the Company
upon the issuance or sale of Shares in that Fund, together with all income,
earnings, profits, and proceeds derived from the investment thereof including
any proceeds from the sale, exchange, or liquidation of such investments, and
any funds or payments derived from any reinvestment of such proceeds, and any
general assets of the Company not readily identified as belonging to a
particular Fund that are allocated to that Fund by the Company's Board of
Trustees. The Board of Trustees may allocate such general assets in any manner
it deems fair and equitable. It is anticipated that the factor that will be used
by the Board of Trustees in making allocations of general assets to particular
Funds will be the relative net assets of the respective Funds at the time of
allocation. Assets belonging to a particular Fund are charged with the direct
liabilities and expenses in respect of that Fund, and with a share of the
general liabilities and expenses of the Company not readily identified as
belonging to a particular Fund that are allocated to that Fund in proportion to
the relative net asset values of the respective Funds at the time of allocation.
The allocations of general assets and general liabilities and expenses of the
Company to particular Funds will be determined in accordance with generally
accepted accounting principles. Determinations by the Board of Trustees of the
Company as to the timing of the allocation of general liabilities and expenses
and as to the timing and allocable portion of any general assets with respect to
a particular Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Company or a particular
Fund means the affirmative vote, at a meeting of Shareholders duly called, of
the lesser of (a) 67% or more of the votes of Shareholders of the Company or
such Fund present at a meeting at which the holders of more than 50% of the
votes attributable to Shareholders of record of the Company or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Company or such Fund.
Inquiries regarding the Fund may be directed in writing to the Company at 680
East Swedesford Road, Wayne, PA 19087-1658 or by calling toll-free (800)
344-2716.
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<PAGE> 111
Statement of Additional Information
February __, 1996
This Statement of Additional Information, which applies to Retail and
Institutional Shares of the Conestoga Cash Management Fund, the Conestoga
Tax-Free Fund, the Conestoga U.S. Treasury Securities Fund, the Conestoga
Equity Fund, the Conestoga International Equity Fund, the Conestoga Special
Equity Fund, Conestoga Bond (formerly the Income Fund) Fund, the Conestoga
Intermediate Income (formerly the Limited Maturity Fund) Fund, the Conestoga
Pennsylvania Tax-Free Bond Fund, the Conestoga Short-Term Income Fund, and the
Conestoga Balanced Fund (the "Funds") is meant to be read in conjunction with
the Prospectuses dated February 21, 1995 (as supplemented February __, 1996)
with respect to Retail and Institutional Shares of the Funds (collectively, the
"Prospectuses" and individually a "Prospectus"), and is incorporated by
reference in its entirety into the Prospectuses. Because this Statement of
Additional Information is not itself a prospectus, no investment in Retail or
Institutional Shares of any Fund should be made solely upon the information
contained herein. Copies of each Prospectus may be obtained by writing
Conestoga Family of Funds at 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658 or by telephoning (800) 344-2716.
CON-F-003-02
<PAGE> 112
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Additional Information on Portfolio Instruments . . . . . . . . . . . . . . . . . . . . . . 5
Special Risks and Considerations with respect to the Pennsylvania Tax-Free Bond Fund . . . . 22
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Valuation of the Money Market Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Calculation of Offering Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Matters Affecting Purchase and Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 31
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Investment Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Sub-advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Banking Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Fund Accountant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Distribution and Services Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Custodians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
<PAGE> 113
THE COMPANY
Conestoga Family of Funds (the "Company") is an open-end management
investment company. This Statement of Additional Information relates to Retail
and Institutional Shares in each of the Company's eleven separate investment
portfolios: three Money Market Funds: the Cash Management Fund; the U.S.
Treasury Securities Fund and the Tax-Free Fund, and the eight Non-Money Market
Funds: the Equity Fund; the International Equity Fund; the Special Equity Fund;
the Bond Fund (formerly the Income Fund); the Intermediate Income Fund
(formerly the Limited Maturity Fund); the Pennsylvania Tax-Free Bond Fund; the
Short-Term Income Fund and the Balanced Fund. Each of the Funds with the
exception of the Pennsylvania Tax-Free Bond Fund, is a diversified investment
portfolio. Retail and Institutional Shares of each Fund are described in the
applicable Prospectus. No investment in shares of a Fund should be made
without first reading the applicable Prospectus. Much of the information
contained in this Statement of Additional Information expands on subjects
discussed in the Prospectuses. Capitalized terms not otherwise defined herein
are defined in the Prospectuses.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
PORTFOLIO TRANSACTIONS
Subject to the general control of the Company's Board of Trustees, the
Company's investment advisor, Meridian Investment Company (the "Investment
Advisor"), is responsible for, makes decisions with respect to and places
orders for all purchases and sales of portfolio securities for the Funds.
Marvin & Palmer Associates, Inc. (the "Sub-advisor"), subject to the
supervision of both the Board of Trustees and the Investment Advisor, will
assist the Investment Advisor in providing a continuous investment program for
the International Equity Fund, including investment research and management
with respect to all securities and other investments (including cash
equivalents) of the Fund and shall determine from time to time which securities
and other investments will be purchased, retained or sold for the Fund. The
Sub-advisor does not provide sub-advisory services for any other Fund.
The Investment Advisor (and/or Sub-advisor with respect to the
International Equity Fund) places all orders for purchases and sales of
portfolio securities for the Funds either directly with the issuer or with
dealers. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers may include the spread between the bid
and asked prices. Transactions on U.S. stock exchanges involve the payment
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<PAGE> 114
of negotiated brokerage commissions, while transactions in foreign securities
generally involve the payment of fixed brokerage commissions, which are
generally higher than those in the United States. Transactions in the
over-the-counter market are generally principal transactions with dealers and
the costs of such transactions involve dealer spreads rather than brokerage
commissions. The Company, where possible, will deal directly with dealers who
make a market in the securities involved except in those circumstances where
better price and execution are available elsewhere. Debt securities purchased
and sold by the Funds are generally traded in the over-the-counter market on a
net basis (i.e., without commission) through dealers, or otherwise involve
transactions directly with the issuer of an instrument. The Funds may
participate if and when practicable, in bidding for the purchase of portfolio
securities directly from an issuer in order to take advantage of the lower
purchase price available to members of a bidding group. A Fund will engage in
this practice, however, only when the Investment Advisor (and/or Sub-advisor
with respect to the International Equity Fund) believes such practice to be in
the Fund's interests.
In making portfolio investments, the Investment Advisor (and/or
Sub-advisor with respect to the International Equity Fund) seeks to obtain the
best net price and the most favorable execution of orders. The Investment
Advisor (and/or Sub-advisor with respect to the International Equity Fund) may
purchase and sell portfolio securities to and from brokers and dealers who
provide brokerage and research services (within the meaning of Section 28(e) of
the Securities Exchange Act of 1934) to or for the benefit of the Funds and/or
other accounts over which the Investment Advisor (or Sub-advisor, if
applicable) or any of their affiliates exercise investment discretion. To the
extent that the execution and price offered by more than one dealer are
comparable, the Investment Advisor may, in its discretion, effect transactions
in portfolio securities with dealers who provide the Investment Advisor with
research advice or other services. The Sub-advisor is authorized to pay a
broker or dealer who provides brokerage and research services a commission for
executing a portfolio transaction for the International Equity Fund which is in
excess of the amount of commission another broker or dealer would have charged
for effecting that transaction if the Sub-advisor determines in good faith that
such commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of either
that particular transaction or the Sub-advisor's overall responsibilities to
the International Equity Fund and to the Company.
Supplemental research information so received is in addition to, and
not in lieu of, services required to be performed by the Sub-advisor and does
not reduce the advisory fees payable to the Investment Advisor by the
International Equity Fund. The
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Trustees will periodically review the commissions paid by the International
Equity Fund to consider whether the commissions paid over representative
periods of time appear to be reasonable in relation to the benefits inuring to
the Fund. It is possible that certain of the supplemental research or other
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely,
the International Equity Fund may be the primary beneficiary of the research or
services received as a result of portfolio transactions effected for such other
account or investment company.
The Company is required to identify any securities of its "regular
brokers or dealers" which the Company has acquired during its most recent
fiscal year. As of October 31, 1995 the Bond Fund held debt securities of:
Bear Stearns Co., Inc. in the amount of $1,638,000, Prudential Securities, Inc.
in the amount of $2,419,000 and PaineWebber in the amount of $1,267,000; the
Intermediate Income Fund held debt securities of: Bear Stearns Co., Inc. in the
amount of $709,000 and PaineWebber in the amount of $892,000; the Short-Term
Income Fund held debt securities of Smith Barney in the amount of $599,000 and
the Balanced Fund held debt securities of Bear Stearns Co., Inc. in the amount
of $175,000.
Investment decisions for the Funds are made independently from those
for other customers who may be advised by the Investment Advisor (and/or
Sub-advisor with respect to the International Equity Fund). Such other
customers may invest in the same securities as the Funds. When purchases or
sales of the same security are made on the same day on behalf of such other
customers, transactions are averaged as to price, and available investments
allocated as to amount, in a manner which the Investment Advisor (and/or
Sub-advisor with respect to the International Equity Fund) believes to be
equitable to each customer, including the Funds. In some instances, this
investment procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained for the Funds. To the extent
permitted by law, the Investment Advisor (and/or Sub-advisor with respect to
the International Equity Fund) may aggregate the securities to be sold or
purchased for the Funds with those to be sold or purchased for such other
customers in order to obtain best execution. The Funds will not execute
portfolio transactions through, acquire portfolio securities issued by, make
savings or time deposits in or enter into repurchase agreements with the
Investment Advisor, the Sub-advisor, SEI Financial Management Corporation or
any affiliated person -- as such term is defined in the Investment Company Act
of 1940 (the "Act") of any of them, except to the extent permitted by the Act.
For the fiscal year ended October 31, 1993 the Equity Fund was the only
portfolio to pay brokerage commissions, and it paid $52,330 in brokerage
commissions,
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all of which were subject to the Investment Advisor's internal allocation
procedure which takes into account research services provided in selecting
broker-dealers through which transactions are executed. For the fiscal year
ended October 31, 1994, the Equity Fund, Special Equity Fund, Limited Maturity
Fund, Income Fund and Tax-Free Fund were the only portfolios to pay brokerage
commissions, and such Funds paid $57,817, $27,351, $59.00, $231.00 and $204.00
respectively, in brokerage commissions, all of which were subject to the
Investment Advisor's internal allocation procedure which takes into account
research services provided in selecting broker-dealers through which
transactions are executed. For the fiscal year ended October 31, 1995 (and the
period from commencement of operations (May 15, 1995 with respect to the
International Equity and Short-Term Bond Funds and June 27, 1995 with respect
to the Balanced Fund) to October 31, 1995 with respect to the International
Equity Short-Term Bond and Balanced Funds), the Equity Fund, Bond Fund,
Intermediate Income Fund, Special Equity Fund, International Equity Fund,
Short-Term Income Fund and Balanced Fund were the only portfolios to pay
brokerage commissions, and such Funds paid $724,061, $11,886, $7,631, $153,016,
$51,844, $863 and $16,642, respectively, in brokerage commissions all of which
were subject to the Investment Advisor's internal allocation procedure which
takes into account research services provided in selecting broker-dealers
through which transactions are executed.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing
the lesser of a Fund's purchases or sales of portfolio securities for the year
by the monthly average value of the portfolio securities. The calculation
excludes all securities, including options, whose maturities at the time of
acquisition were one year or less. Because the Money Market Funds invest only
in short-term instruments, their portfolio turnover is expected to be zero for
regulatory reporting purposes. Although it is difficult to predict portfolio
turnover, it is presently estimated that the annual turnover rates for each of
the International Equity, Special Equity and Short-Term Income Funds will
generally not exceed 300%. The annual portfolio turnover rate for each of the
equity and fixed income portions of the Balanced Fund will also generally not
exceed 300%. For the fiscal year ended October 31, 1994, the portfolio
turnover rate of each of the Equity, Special Equity, Bond, Intermediate Income
and Pennsylvania Tax-Free Bond Funds was 35%, 39%, 231%, 170% and 37%,
respectively. For the fiscal year ended October 31, 1995, the portfolio
turnover rate of each of the Equity, Special Equity, Bond, Intermediate Income
and Pennsylvania Tax-Free Bond Funds was 119%, 129%, 352%, 260% and 15%,
respectively. The variation in portfolio turnover rates over the past two years
with respect to the Equity, Special Equity, Bond and Intermediate Income Funds
is due to the conversion of certain collective trust funds. Additionally, the
variation in portfolio turnover rates over the past two years with respect to
the Equity and Special
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<PAGE> 117
Equity Funds also is due to compliance with the "Short-short" test for
qualification as a regulated investment company (as described on page B-34),
and with respect to the Intermediate Income Fund is due to market conditions.
The portfolio turnover rate for the International Equity, Short-Term Income and
Balanced Funds for the period from commencement of operations (May 15, 1995 for
the International Equity and Short-Term Income Funds and June 27, 1995 for the
Balanced Fund) through October 31, 1995 was 23%, 40% and 65%, respectively.
Portfolio turnover rates may vary greatly from year to year as well as within a
particular year. Portfolio turnover will not be a limiting factor in making
investment decisions.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objective and
policies of each Fund as set forth in the Prospectus.
BANKER'S ACCEPTANCES AND CERTIFICATES OF DEPOSIT. All of the Funds of
the Company except the U.S. Treasury Securities Fund may invest in banker's
acceptances, certificates of deposit, and demand and time deposits. Banker's
acceptances are negotiable drafts or bills of exchange typically drawn by an
importer or exporter to pay for specific merchandise, which are "accepted" by a
bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Banker's acceptances invested in by the
International Equity Fund will be those guaranteed by domestic and foreign
banks having, at the time of investment, capital, surplus, and undivided
profits in excess of $100,000,000 (as of the date of their most recently
published financial statements). Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank or savings and
loan association for a definite period of time and earning a specified return.
Certificates of deposit and time deposits will be those of domestic and foreign
banks and savings and loan associations, if (a) at the time of investment the
depository institution has capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of its most recently published financial
statements), or (b) the principal amount of the instrument is insured in full
by the Federal Deposit Insurance Corporation. The International Equity Fund
may also invest in Eurodollar Certificates of Deposit, which are U.S. dollar
denominated certificates of deposit issued by offices of foreign and domestic
banks located outside the United States; Yankee Certificates of Deposit, which
are certificates of deposit issued by a U.S. branch of a foreign bank
denominated in U.S. dollars and held in the United States; Eurodollar Time
Deposits, which are U.S. dollar denominated deposits in a foreign branch of a
U.S. bank or a foreign bank; and Canadian Time Deposits, which are basically
the same as Eurodollar Time Deposits except they are issued by Canadian offices
of major Canadian banks.
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COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Except as noted below with respect to variable
amount master demand notes, issues of commercial paper normally have maturities
of less than nine months and fixed rates of return.
The Equity, International Equity, Special Equity, Bond, Intermediate
Income, Short-Term Income and Balanced Funds may purchase commercial paper
consisting of issues rated, at the time of purchase within one of the two
highest categories by a nationally recognized statistical rating organization
(a "NRSRO") (e.g. "A-2" or better by Standard & Poor's Ratings Group, Division
of McGraw Hill ("S&P" or "Standard & Poor") or "Prime-2" or better by Moody's
Investors Service, Inc. ("Moody's")) or, if not rated, found by the Investment
Advisor (and/or Sub-advisor with respect to the International Equity Fund)
under guidelines approved by the Company's Board of Trustees to be of
comparable quality to instruments that are rated high quality by a NRSRO that
is neither controlling, controlled by, or under common control with the issuer
of, or any issuer, guarantor, or provider of credit support for, the
instruments. The Cash Management and Tax-Free Funds may invest in commercial
paper which is rated "A-I" or better by S&P or "Prime-I" by Moody's, or if not
rated, determined to be of comparable quality by the Investment Advisor
pursuant to guidelines approved by the Board of Trustees. The Pennsylvania
Tax-Free Bond Fund may purchase commercial paper rated (at the time of
purchase) "A-1" by S&P, "Prime-1" by Moody's, "Duff 1" by D&P or "F-1+" by
Fitch's or, when deemed advisable by the Investment Advisor, "high quality"
issues rated "A-2" by S&P, "Prime 2" by Moody's, "Duff 2" by D&P or "F-2" by
Fitch's. For a description of the rating symbols of S&P, Fitch's and Moody's
used in this paragraph, see Appendix "A".
The Cash Management, Equity, International Equity, Special Equity,
Bond, Intermediate Income, Short-Term Income and Balanced Funds may also invest
in Canadian Commercial Paper, which is U.S. dollar-denominated commercial paper
issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and in Europaper which is U.S. dollar-denominated commercial paper
of a foreign issuer.
VARIABLE AMOUNT DEMAND NOTES. Variable amount master demand notes, in
which the Cash Management, Equity, International Equity, Special Equity, Bond,
Intermediate Income, Pennsylvania Tax-Free Bond, Short-Term Income and Balanced
Funds may invest, are unsecured demand notes that permit the indebtedness
thereunder to vary and provide for periodic adjustments in the interest rate
according to the terms of the instrument. They are also referred to as
variable rate demand notes. Because these notes are direct lending
arrangements between a Fund and the issuer, they are not normally traded.
Although there may be no secondary market in the notes, the Fund may demand
payment of
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principal and accrued interest at any time or during specified periods not
exceeding one year, depending upon the instrument involved, and may resell the
notes at any time to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of a variable amount
master demand note if the issuer defaulted on its payment obligations or during
periods when such Fund is not entitled to exercise its demand rights, and the
Fund could, for this or other reasons, suffer a loss to the extent of the
default. While the notes are not typically rated by credit rating agencies,
issuers of variable amount master demand notes must satisfy the same criteria
as set forth above for commercial paper. The Investment Advisor (and/or
Sub-advisor with respect to the International Equity Fund) will consider the
earning power, cash flow, and other liquidity ratios of the issuers of such
notes and will continuously monitor their financial status and ability to meet
payment on demand. Where necessary to ensure that a note is of "high quality,"
a Fund will require that the issuer's obligation to pay the principal of the
note be backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend. In determining dollar-weighted average portfolio maturity,
a variable amount master demand note will be deemed to have a maturity equal to
the period of time remaining until the principal amount can be recovered from
the issuer through demand.
VARIABLE AND FLOATING RATE NOTES. Each Fund (except the International
Equity Fund) may acquire variable and floating rate notes, subject to its
investment objective, policies and restrictions. A variable rate note is one
whose terms provide for the readjustment of its interest rate on set dates and
which, upon such readjustment, can reasonably be expected to have a market
value that approximates its par value. A floating rate note is one whose terms
provide for the readjustment of its interest rate whenever a specified interest
rate changes and which, at any time, can reasonably be expected to have a
market value that approximates its par value. Such notes are frequently not
rated by an NRSRO; however, unrated variable and floating rate notes purchased
by a Fund will be determined by the Investment Advisor under guidelines
approved by the Company's Board of Trustees to be of comparable quality, at the
time of purchase, to rated instruments eligible for purchase under a Fund's
investment policies. In making such determinations, the Investment Advisor
will consider the earning power, cash flow and other liquidity ratios of the
issuers of such notes (such issuers include financial, merchandising, bank
holding and other companies) and will continuously monitor their financial
condition. Although there may be no active secondary market with respect to a
particular variable or floating rate note purchased by a Fund, it may resell
the note at any time to a third party. The absence of an active secondary
market, however, could make it difficult for a Fund to dispose of a variable or
floating rate note in the event the issuer of the note defaulted on its payment
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obligations and the Fund could, as a result or for other reasons, suffer a loss
to the extent of the default. Variable or floating rate notes may be secured
by bank letters of credit.
Variable or floating rate notes purchased by the Cash Management,
Tax-Free and U.S. Treasury Securities Funds may have maturities of more than 13
months, as follows:
1. A note that is issued or guaranteed by the United States
Government or any agency thereof which has a variable rate of interest
readjusted no less frequently than 13 months will be deemed by a Fund to have a
maturity equal to the period remaining until the next readjustment of the
interest rate.
2. A variable rate note, the principal amount of which is scheduled
on the face of the instrument to be paid in 13 months or less, will be deemed
by a Fund to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
3. A variable rate note that is subject to a demand feature will be
deemed by a Fund to have a maturity equal to the longer of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand.
4. A floating rate note that is subject to a demand feature will be
deemed by a Fund to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
As used above, a note is "subject to a demand feature" where a Fund is
entitled to receive the principal amount of the note either at any time on no
more than 30 days' notice or at specified intervals not exceeding 13 months and
upon no more than 30 days' notice.
LENDING PORTFOLIO SECURITIES. In order to generate additional income,
the Equity, International Equity, Special Equity, Bond, Intermediate Income,
Short-Term Income and Balanced Funds may, from time to time, lend their
respective portfolio securities to broker-dealers, banks, or institutional
borrowers of securities. There is no limit on the amount of securities which a
Fund may lend, except that the International Equity Fund may lend portfolio
securities up to one-third of the value of its total assets. A Fund must
receive at least 100% collateral in the form of cash or U.S. Government
securities. This collateral will be valued daily by the Investment Advisor
(and/or Sub-advisor with respect to the International Equity Fund). Should the
market value of the loaned securities increase, the borrower will be required
to furnish additional collateral to the applicable Fund. During the time
portfolio securities are on
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loan, the borrower will pay a Fund any dividends or interest received on such
securities. Loans are subject to termination by a Fund or the borrower at any
time. While a Fund does not have the right to vote securities that are on
loan, it intends to terminate the loan and regain the right to vote if that is
considered important with respect to the investment. A Fund will enter into
loan agreements only with broker-dealers, banks, or other institutions that the
Investment Advisor (and/or Sub-advisor with respect to the International Equity
Fund) has determined are creditworthy pursuant to guidelines approved by the
Company's Board of Trustees.
FOREIGN INVESTMENT. All of the Funds except the U.S. Treasury
Securities and Pennsylvania Tax-Free Bond Funds may, subject to their
respective investment objectives and policies, invest in certain obligations or
securities of foreign issuers. Investments in securities issued by foreign
branches of U.S. banks, foreign banks, or other foreign issuers, including
American Depositary Receipts ("ADRs"), European Depositary Receipts and
securities purchased on foreign securities exchanges, may subject the Funds to
investment risks that differ in some respects from those related to investment
in obligations of U.S. domestic issuers or in U.S. securities markets. Such
risks include future adverse political and economic developments, possible
seizure, nationalization, or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source, and the adoption of other foreign
governmental restrictions.
Additional risks include currency exchange risks, less publicly
available information, the risk that companies may not be subject to the
accounting, auditing and financial reporting standards and requirements of U.S.
companies, the risk that foreign securities markets may have less volume and
therefore many securities traded in these markets may be less liquid and their
prices more volatile than U.S. securities, and the risk that custodian and
brokerage costs may be higher. Foreign issuers of securities or obligations
are often subject to accounting treatment and engage in business practices
different from those respecting domestic issuers of similar securities or
obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
Fixed commissions on foreign securities exchanges are generally higher
than negotiated commissions on U.S. exchanges, although the Funds endeavor to
achieve the most favorable net results on their portfolio transactions.
Foreign markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. Such delays in
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settlement could result in temporary periods when a portion of the assets of a
Fund is uninvested and no return is earned thereon. The inability of a Fund to
make intended security purchases due to settlement problems could cause the
Fund to miss attractive investment opportunities. Losses to a Fund due to
subsequent declines in the value of portfolio securities, or losses arising out
of the Fund's inability to fulfill a contact to sell such securities, could
result in potential liability to the Fund.
Individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
In many instances, foreign debt securities may provide higher yields
than securities of domestic issuers which have similar maturities and quality.
Under certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to a Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of
any foreign currency against the U.S. dollar will result in a corresponding
change in the U.S. dollar value of a Fund's securities denominated in that
currency. Such changes will also affect a Fund's income and distributions to
shareholders. In addition, although a Fund will receive income on foreign
securities in such currencies the Fund will be required to compute and
distribute its income in U.S. dollars. Therefore, if the exchange rate for any
such currency declines materially after a Fund's income has been accrued and
translated into U.S. dollars, the Fund could be required to liquidate portfolio
securities to make required distributions. Similarly, if an exchange rate
declines between the time a Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the amount of such currency required to be converted
into U.S. dollars in order to pay such expenses in U.S. dollars will be
greater.
The International Equity Fund may invest in debt securities
denominated in the ECU, which is a "basket" consisting of specified amounts of
the currencies of certain of the twelve member states of the European
Community. The specific amounts of currencies comprising the ECU may be
adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. Such adjustments
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may adversely affect holders of ECU-denominated obligations or the
marketability of such securities. European governments and supranationals, in
particular, issue ECU-denominated obligations.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The International
Equity Fund may enter into forward foreign currency exchange contracts.
The Fund will comply with applicable Securities and Exchange
Commission announcements requiring it to segregate assets to cover the
International Equity Fund's commitments with respect to such contracts. At the
present time, these announcements generally require a fund with a long position
in a forward foreign currency contract to establish with its custodian a
segregated account containing cash or liquid high grade debt securities equal
to the purchase price of the contract, and require a fund with a short position
in a forward foreign currency contract to establish with its custodian a
segregated account containing cash or liquid high grade debt securities that,
when added to any margin deposit, equal the market value of the currency
underlying the forward contract. These requirements will not apply where the
position has been "covered" by entering into an offsetting position. The Fund
generally will not enter into a forward contract with a term longer than one
year.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for the Fund to purchase additional currency
on the spot market (and bear the expense of such purchase) if the market value
of the security is less than the amount of foreign currency the Fund is
obligated to deliver when a decision is made to sell the security and make
delivery of the foreign currency in settlement of a forward contract.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as described
below) to the extent that there has been movement in forward currency contract
prices. If the Fund engages in an offsetting transaction, it may subsequently
enter into a new forward currency contract to sell the foreign currency.
Should forward prices decline during the period between the Fund's entering
into a forward currency contract for the sale of foreign currency and the date
it enters into an offsetting contract for the purchase of the foreign currency,
the Fund would realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Fund would suffer a loss to the extent the
price of the currency it has agreed to purchase
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exceeds the price of the currency it has agreed to sell. Although such
contracts tend to minimize the risk of loss due to a decline in the value of
the hedged currency, they also tend to limit any potential gain which might
result should the value of such currency increase. The Fund will have to
convert its holdings of foreign currencies into U.S. dollars from time to time.
Foreign exchange dealers realize a profit based on the difference, or "spread"
between the prices at which they are buying and selling various currencies.
FOREIGN CURRENCY OPTIONS. The International Equity Fund may buy and
sell foreign currency options. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency at the
exercise price at a specified date or during the option period. A call option
gives its owner the right, but not the obligation, to buy the currency, while a
put option gives its owner the right, but not the obligation, to sell the
currency. The option seller (writer) is obligated to fulfill the terms of the
option sold if it is exercised. However, either seller or buyer may close its
position during the option period in the secondary market for such options at
any time prior to expiration.
A call rises in value if the underlying currency appreciates.
Conversely, a put rises in value if the underlying currency depreciates. While
purchasing a foreign currency option can protect the Fund against an adverse
movement in the value of a foreign currency, it does not limit the gain which
might result from a favorable movement in the value of such currency. For
example, if the Fund were holding securities denominated in an appreciating
foreign currency and had purchased a foreign currency put to hedge against a
decline in the value of the currency, it would not have to exercise its put.
Similarly, if the Fund has entered into a contract to purchase a security
denominated in a foreign currency and had purchased a foreign currency call to
hedge against a rise in the value of the currency but instead the currency had
depreciated in value between the date of purchase and the settlement date, the
Fund would not have to exercise its call but could acquire in the spot market
the amount of foreign currency needed for settlement.
FOREIGN CURRENCY FUTURES TRANSACTIONS. As part of its financial
futures transactions, the International Equity Fund may use foreign currency
futures contracts and options on such futures contracts. Through the purchase
or sale of such contracts, the Fund may be able to achieve many of the same
objectives as through forward foreign currency exchange contracts more
effectively and possibly at a lower cost.
Unlike forward foreign currency exchange contracts, foreign currency
futures contracts and options on foreign currency futures contracts are
standardized as to amount and delivery
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period and may be traded on boards of trade and commodities exchanges or
directly with a dealer which makes a market in such contracts and options. It
is anticipated that such contracts may provide greater liquidity and lower cost
than forward foreign currency exchange contracts.
REGULATORY RESTRICTIONS. When purchasing a futures contract or
writing a put option or entering into a forward currency exchange purchase, the
International Equity Fund may be required to maintain in a segregated account
cash or liquid high-grade securities equal to the value of such contracts.
ZERO COUPON OBLIGATIONS. As discussed in the Prospectus, certain of
the Funds may invest in zero coupon obligations, provided that immediately
after any purchase, not more than 5% of the value of the net assets of the
respective Fund is invested in such obligations.
Although this type of security pays no interest to holders prior to
maturity, federal income tax regulations require each Fund to recognize as
interest income a portion of the bond's discount each year. This income must
then be distributed to shareholders along with other income earned by that
Fund. To the extent that any shareholders in a Fund elect to receive their
dividends in cash rather than reinvest such dividends in additional Fund
shares, cash to make these distributions will have to be provided from either
the assets of the particular Fund or other sources such as proceeds of sales of
Fund shares and/or sales of portfolio securities. In such cases, such Fund
will not be able to purchase additional income producing securities with the
cash used to make such distributions and its current income may ultimately be
reduced as a result.
REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectus, each
of the Funds may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with such Fund's investment restrictions.
Pursuant to a reverse repurchase agreement, a Fund would sell portfolio
securities to a financial institution such as a bank or broker-dealer, and
agree to repurchase the securities at a mutually agreed-upon date and price.
Each Fund intends to enter into reverse repurchase agreements only to avoid
selling securities during unfavorable market conditions to meet redemptions.
At the time a Fund enters into a reverse repurchase agreement, it will place in
a segregated custodial account assets such as U.S. Government securities or
other liquid, high grade debt obligations consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently monitor the account to ensure that such
equivalent value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by a Fund may decline below the
price at which a
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Fund is obligated to repurchase such securities. Reverse repurchase agreements
are considered to be borrowings by a Fund under the Investment Company Act of
1940.
ASSET-BACKED SECURITIES. The Cash Management Fund, Bond Fund and the
Intermediate Income, Short-Term Income and Balanced Funds may invest in
asset-backed securities, including mortgage-backed securities representing an
undivided ownership interest in a pool of mortgages, such as certificates of
the Government National Mortgage Association ("GNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). These certificates are in most cases
pass-through instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the certificate,
net of certain fees. The average life of a mortgage-backed security varies
with the underlying mortgage instruments, which have maximum maturities of 40
years. The average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
prepayments, mortgage refinancings or foreclosure. Mortgage prepayment rates
are affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Due to the GNMA guarantee, foreclosures
impose no risk to principal investments.
The Cash Management Fund, Bond Fund and the Intermediate Income and
Balanced Funds may also invest in non-mortgage backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. Such securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities may also be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Non-mortgage backed
securities are not issued or guaranteed by the U.S. Government or its agencies
or instrumentalities; however, the payment of principal and interest on such
obligations may be guaranteed up to certain amounts and for a certain time
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities.
The purchase of non-mortgage backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to
motor vehicle installment purchase obligations perfect their interests in the
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respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the large number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on those securities. In addition, various state and federal
laws give the motor vehicle owner the right to assert against the holder of the
owner's obligation certain defenses such owner would have against the seller of
the motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike
most other asset-backed securities, credit card receivables are unsecured
obligations of the cardholder.
The development of non-mortgage backed securities is at an early stage
compared to mortgage backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for mortgage backed
securities issued by certain private organizations and non-mortgage backed
securities is not as well developed as that for mortgage backed securities
guaranteed by government agencies or instrumentalities. The Investment Advisor
intends to limit its purchases of mortgage backed securities issued by certain
private organizations and non-mortgage backed securities to securities that are
readily marketable at the time of purchase.
MUNICIPAL OBLIGATIONS. The Tax-Free Fund may invest in Municipal
Obligations which include debt obligations issued by governmental entities to
obtain funds for various public purposes, such as the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to other
public institutions and facilities. Private activity bonds that
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are issued by or on behalf of public authorities to finance various
privately-operated facilities are included within the term Municipal
Obligations if the interest paid thereon is exempt from regular federal income
tax and not treated as a specific tax preference item for individuals or
corporations for purposes of the federal alternative minimum tax. Opinions
relating to the validity of Municipal Obligations and to the exemption of
interest thereon from federal income tax are rendered by bond counsel to the
respective issuing authorities at the time of issuance. Neither the Tax-Free
Fund nor the Investment Advisor will review the proceedings relating to the
issuance of Municipal Obligations or the basis for such opinions. As used in
this Statement of Additional Information, the term "private activity bonds"
also includes industrial development revenue bonds issued pursuant to the
Internal Revenue Code of 1954, as amended.
As described in the Prospectus, the two principal classifications of
Municipal Obligations which may be held by the Tax-Free Fund are "general
obligation" and "revenue" issues. The Tax-Free Fund may also acquire "moral
obligation" issues, which are normally issued by special purpose authorities.
There are, of course, variations in the quality of Municipal Obligations both
within a particular classification and between classifications, and the yields
on Municipal Obligations depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of Moody's
and S&P represent their opinions as to the quality of Municipal Obligations.
It should be emphasized, however, that ratings are general and are not absolute
standards of quality, and Municipal Obligations with the same maturity,
interest rate and rating may have different yields, while Municipal Obligations
of the same maturity and interest rate with different ratings may have the same
yield. Subsequent to purchase by the Tax-Free Fund, an issue of Municipal
Obligations may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Tax-Free Fund. The Investment
Advisor will consider such an event in determining whether the Tax-Free Fund
should continue to hold the obligation.
An issuer's obligations under its Municipal Obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by Congress or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon the enforcement of such obligations or upon the ability of municipalities
to levy taxes. The power or ability of an issuer to meet its obligations for
the payment of interest on and principal of its Municipal Obligations may be
materially adversely affected by litigation or other conditions.
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Among other types of Municipal Obligations, the Tax-Free Fund may
purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper,
Construction Loan Notes and other forms of short-term loans. Such instruments
are issued with a short-term maturity in anticipation of the receipt of tax
funds, the proceeds of bond placements or other revenues. In addition, the
Tax-Free Fund may invest in other types of tax-exempt instruments such as
municipal bonds and private activity bonds, provided they have remaining
maturities of 13 months or less at the time of purchase.
The payment of principal and interest on most securities purchased by
the Tax-Free Fund will depend upon the ability of the issuers to meet their
obligations. The District of Columbia, each state, each of their political
subdivisions, agencies, instrumentalities and authorities and each multi-state
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Prospectus. The
non-governmental user of facilities financed by private activity bonds is also
considered to be an "issuer."
WHEN-ISSUED SECURITIES. Each Fund may purchase debt securities on a
"when-issued" or delayed delivery basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). When a Fund agrees to purchase
securities on a "when-issued" basis, the custodian will set aside cash or high
grade liquid portfolio securities equal to the amount of the commitment in a
segregated account. Normally, the custodian will set aside portfolio
securities to satisfy the purchase commitment, and in such a case a Fund may be
required subsequently to place additional assets in the segregated account in
order to ensure that the value of the account remains equal to the amount of
the Fund's commitment. It may be expected that a Fund's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. In addition, because a
Fund will set aside cash or liquid portfolio securities to satisfy its purchase
commitments in the manner described above, the Fund's liquidity and the ability
of the Investment Advisor (and/or Sub-advisor with respect to the International
Equity Fund) to manage it might be affected in the event its commitments to
purchase "when-issued" securities ever exceeded 25% of the value of its assets.
When a Fund engages in "when-issued" transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in a
Fund incurring a loss or missing an opportunity to obtain a price considered to
be advantageous. Each Fund reserves the right to sell these securities before
the settlement date if it is deemed advisable.
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OPTIONS TRADING. As described in the Prospectuses, the Equity,
International Equity, Special Equity and Balanced Funds may purchase put and
call options listed on a national securities exchange and issued by the Options
Clearing Corporation in an amount not exceeding 5% of its net assets. Such
options may relate to particular securities, foreign currencies, or to various
interest rate or stock indices.
Options trading is a highly specialized activity which entails greater
than ordinary investment risks. Regardless of how much the market price of the
underlying security or index increases or decreases, the option buyer's risk is
limited to the amount of the original investment for the purchase of the
option. However, options may be more volatile than the underlying instruments,
and therefore, on a percentage basis, an investment in options may be subject
to greater fluctuation than an investment in the underlying instruments
themselves. A listed call option for a particular security gives the purchaser
of the option the right to buy from a clearing corporation, and a writer has
the obligation to sell to the clearing corporation, the underlying security or
foreign currency at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price or exchange rate of
the security or foreign currency. The premium paid to the writer is in
consideration for undertaking the obligations under the option contract. A
listed put option gives the purchaser the right to sell to a clearing
corporation the underlying security or foreign currency at the stated exercise
price at any time prior to the expiration date of the option, regardless of the
market price or exchange rate of the security or foreign currency. In contrast
to an option on a particular security, an option on an interest rate or stock
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
The Equity, International Equity, Special Equity and Balanced Funds
will write call options only if they are "covered." The International Equity
Fund will also write covered index call options. In the case of a call option
on a security, the option is "covered" if a Fund owns the security underlying
the call or has an absolute and immediate right to acquire that security
without additional cash consideration (or, if additional cash consideration is
required, cash or cash equivalents in such amount as are held in a segregated
account by its custodian) upon conversion or exchange of other securities held
by it. For a call option on an index, the option is covered if a Fund
maintains with its custodian cash or cash equivalents equal to the contract
value. A call option is also covered if a Fund holds a call on the same
security or index as the call written
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where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written, or (ii) greater than the exercise price of
the call written provided the difference is maintained by the Fund in cash or
cash equivalents in a segregated account with its custodian.
When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. When a Fund writes an option, an amount
equal to the net premium (the premium less the commission) received by the Fund
is included in the liability section of such Fund's statement of assets and
liabilities as a deferred credit. The amount of this asset or deferred credit
will be subsequently marked-to-market to reflect the current value of the
option purchased or written. The current value of the traded option is the
last sale price or, in the absence of a sale, the average of the closing bid
and asked prices. If an option purchased by a Fund expires unexercised the
Fund realizes a loss equal to the premium paid. If a Fund enters into a
closing sale transaction on an option purchased by it, the Fund will realize a
gain if the premium received by such Fund on the closing transaction is more
than the premium paid to purchase the option, or a loss if it is less. If an
option written by a Fund expires on the stipulated expiration date or if the
Fund enters into a closing purchase transaction, it will realize a gain (or
loss if the cost of a closing purchase transaction exceeds the net premium
received when the option is sold) and the deferred credit related to such
option will be eliminated. If an option written by a Fund is exercised, the
proceeds of the sale will be increased by the net premium originally received
and the Fund will realize a gain or loss.
As noted previously, there are several risks associated with
transactions in options on securities, currencies and indexes. For example,
there are significant differences between the securities and options markets
that could result in an imperfect correlation between these markets, causing a
given transaction not to achieve its objectives. A decision as to whether,
when and how to use options involves the exercise of skill and judgment, and
even a well-conceived transaction may be unsuccessful to some degree because of
market behavior or unexpected events.
ILLIQUID SECURITIES. The SEC has adopted Rule 144A which allows for a
broader institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A in effect permits
resales of certain securities to qualified institutional buyers. Investments
in Rule 144A securities could have the effect of increasing the level of
illiquidity of a Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. Rule 144A
securities, and certain privately-placed commercial paper, will not be deemed
to be illiquid
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securities if the Investment Advisor (and/or Sub-advisor with respect to the
International Equity Fund) has determined, in accordance with guidelines
established by the Board of Trustees, that an adequate trading market exists
for such securities. Rule 144A securities will, however, be deemed to be
"restricted securities" for purpose of the Funds' investment policies and
restrictions.
PENNSYLVANIA MUNICIPAL SECURITIES. The Pennsylvania Tax-Free Bond
Fund may invest in Pennsylvania Municipal Securities which include debt
obligations issued by governmental entities to obtain funds for various public
purposes, such as the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating expenses
and the extension of loans to other public institutions and facilities.
Private activity bonds that are issued by or on behalf of public authorities to
finance various privately-operated facilities are included within the term
Pennsylvania Municipal Securities if the interest paid thereon is exempt from
regular federal income tax and is not treated as a specific tax preference item
for individuals or corporations for purposes of the federal alternative minimum
tax. Opinions relating to the validity of and to the exemption of interest
thereon from federal income tax are rendered by bond counsel to the respective
issuing authorities at the time of issuance. Neither the Fund nor the
Investment Advisor will review the proceedings relating to the issuance of
Pennsylvania Municipal Securities or the basis for such opinions. As used in
this Statement of Additional Information, the term "private activity bonds"
also includes industrial development revenue bonds issued pursuant to the
Internal Revenue Code of 1986, as amended.
As described in the Prospectus, the two principal classifications of
Pennsylvania Municipal Securities which may be held by the Pennsylvania
Tax-Free Bond Fund are "general obligation" and "revenue" bonds. The Fund may
also acquire "moral obligation" bonds, which are normally issued by special
purpose authorities. There are, of course, variations in the quality of
Pennsylvania Municipal Securities both within a particular classification and
between classifications, and the yields on Pennsylvania Municipal Securities
depend upon a variety of factors, including general money market conditions,
the financial condition of the issuer, general conditions of the municipal bond
market, the size of a particular offering, the maturity of the obligation and
the rating of the issue. The ratings of Moody's, S&P, D&P and Fitch's
represent their opinions as to the quality of the Pennsylvania Municipal
Securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality, and Pennsylvania Municipal Securities with
the same maturity, interest rate and rating may have different yields, while
Pennsylvania Municipal Securities of the same maturity and interest rate with
different ratings may
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have the same yield. Subsequent to purchase by the Fund, an issue of
Pennsylvania Municipal Securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Fund. The
Investment Advisor will consider such an event in determining whether the Fund
should continue to hold the obligation.
An issuer's obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon the enforcement of such
obligations or upon the ability of municipalities to levy taxes. The power or
ability of an issuer to meet its obligations for the payment of interest on,
and principal of, its Pennsylvania Municipal Securities may be materially
adversely affected by litigation or other conditions.
Among other types of Pennsylvania Municipal Securities, the
Pennsylvania Tax-Free Bond Fund may purchase short-term General Obligation
Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation
Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and other forms of
short-term loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues.
The payment of principal and interest on most securities purchased by
the Pennsylvania Tax-Free Bond Fund will depend upon the ability of the issuers
to meet their obligations. The Commonwealth of Pennsylvania and each of its
political subdivisions, agencies, instrumentalities and authorities is a
separate "issuer" as that term is used in this Statement of Additional
Information and the Fund's Prospectus. The non-governmental user of facilities
financed by private activity bonds is also considered to be an "issuer."
STAND-BY COMMITMENTS. The Pennsylvania Tax-Free Bond Fund may acquire
stand-by commitments with respect to the Pennsylvania Municipal Securities held
by it. Under a stand-by commitment, a dealer or bank agrees to purchase from
the Fund, at the Fund's option, specified municipal obligations at their
amortized cost value to the Fund plus accrued interest, if any. Stand-by
commitments may be sold, transferred or assigned by the Fund only with the
underlying instrument.
The Pennsylvania Tax-Free Bond Fund expects that stand-by commitments
will generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Fund may pay for a
stand-by commitment either separately in cash or by paying a higher price for
portfolio
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securities which are acquired subject to the commitment (thus reducing the
yield to maturity otherwise available for the same securities). Where the Fund
paid any consideration directly or indirectly for a stand-by commitment, its
cost would be reflected as unrealized depreciation for the period during which
the commitment was held by the Fund.
The Pennsylvania Tax-Free Bond Fund intends to enter into stand-by
commitments only with dealers, banks and broker-dealers which, in the
Investment Advisor's opinion, present minimal credit risks. The Fund's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying municipal obligations that are subject
to the commitment. In evaluating the creditworthiness of the issuer of a
stand-by commitment, the Investment Advisor will review periodically the
issuer's assets, liabilities, contingent claims and other relevant financial
information.
The Pennsylvania Tax-Free Bond Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. Stand-by commitments acquired by the
Fund will be valued at zero in determining net asset value.
SPECIAL RISKS AND CONSIDERATIONS WITH RESPECT TO THE PENNSYLVANIA TAX-FREE BOND
FUND
The concentration of investments in Pennsylvania Municipal Securities
by the Pennsylvania Tax-Free Bond Fund raises special investment
considerations. In particular, changes in the economic condition and
governmental policies of the Commonwealth of Pennsylvania and its
municipalities could adversely affect the value of the Fund and its portfolio
securities. This section briefly describes current economic trends in
Pennsylvania.
Pennsylvania has historically been dependent on heavy industry
although recent declines in the coal, steel and railroad industries have led to
diversification of the Commonwealth's economy. Recent sources of economic
growth in Pennsylvania are in the service sector, including trade, medical and
health services, education and financial institutions. Agriculture continues
to be an important component of the Commonwealth's economic structure, with
nearly one-third of the Commonwealth's total land area devoted to cropland,
pasture and farm woodlands.
Since 1986, Pennsylvania's average annual unemployment rate has been
slightly below the national average. The average unemployment rate from 1981
through 1991 was 5.4% in the Commonwealth as compared with 5.5% in the United
States as a whole.
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The Commonwealth utilizes the fund method of accounting and over 120
funds have been established for purposes of recording receipts and
disbursements of the Commonwealth, of which the General Fund is the largest.
Most of the Commonwealth's operating and administrative expenses are payable
from the General Fund. The major tax sources for the General Fund are the
sales tax, the personal income tax and the corporate net income tax. Although
the General Fund experienced deficits in fiscal 1990 and 1991, tax increases
and spending decreases have resulted in surpluses the last three years; as of
June 30, 1994, the General Fund had a surplus of $892.9 million.
The constitution of the Commonwealth provides that operating budget
appropriations of the Commonwealth may not exceed the estimated revenues and
available surplus in the fiscal year for which funds are appropriated. Annual
budgets are enacted for the General Fund (the principal operating fund of the
Commonwealth) and for certain special revenue funds which together represent
the majority of expenditures of the Commonwealth.
Current constitutional provisions permit the Commonwealth to issue the
following types of debt: (i) electorate approved debt, (ii) debt for capital
projects subject to an aggregate debt limit of 1.75 times the annual average
tax revenues of the preceding five fiscal years, (iii) tax anticipation notes
payable in the fiscal year of issuance and (iv) debt to suppress insurrection
or rehabilitate areas affected by disaster. Certain state-created agencies
issue debt supported by assets of, or revenues derived from, the various
projects financed, and the debt of such agencies is not an obligation of the
Commonwealth, although some of the agencies are indirectly dependent on
Commonwealth appropriations.
Certain litigation is pending against the Commonwealth that could
adversely affect the ability of the Commonwealth to pay debt service on its
obligations including suits relating to the following matters: (a) the
American Civil Liberties Union ("ACLU") has filed suit in federal court
demanding additional funding for child welfare services; the Commonwealth
settled a similar suit in the Commonwealth Court of Pennsylvania and is seeking
the dismissal of the federal suit, inter alia, because of that settlement.
After its earlier denial was reversed by the Third Circuit Court of Appeals,
the district court has granted class certification to the ACLU, and the parties
are proceeding with discovery (no available estimates of potential liability);
(b) in 1987, the Supreme Court of Pennsylvania held the statutory scheme for
county funding of the judicial system to be in conflict with the constitution
of the Commonwealth, but stayed judgment pending enactment by the legislature
of funding consistent with the opinion, and the legislature has yet to consider
legislation implementing the judgment; in 1992, a new action in mandamus was
filed seeking to compel the Commonwealth
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to comply with the original decision; (c) 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 stage (no available estimate of
potential liability); and (d) Envirotest/Synterra Partners ("Envirotest") has
filed suit against the Commonwealth asserting that it sustained damages in
excess of $350 million, as a result of investments it made in reliance on a
contract to conduct emissions testing before the emissions testing program was
suspended. Envirotest has entered into a "standstill" agreement with the
Commonwealth pursuant to which the partners will attempt to resolve
Envirotest's claims (no available estimates of potential liability).
Local government units in the Commonwealth of Pennsylvania (which
include, among other things, counties, cities, boroughs, towns, townships,
school districts and other municipally created units such as industrial
development authorities and municipality authorities, including water and sewer
authorities) are permitted to issue debt for capital projects: (i) in any
amount so long as the debt has been approved by the voters of the local
government unit; or (ii) without electoral approval if the aggregate
outstanding principal amount of debt of the local government unit is not in
excess of 100% of its borrowing base (in the case of a school district of the
first class), 300% of its borrowing base (in the case of a county) or 250% of
its borrowing base (in the case of all other local government units); or (iii)
without electoral approval and without regard to the limit described in (ii) in
any amount in the case of certain subsidized debt and self-liquidating debt
(defined to be debt with no claim on taxing power, secured solely by revenues
from a specific source which have been projected to be sufficient to pay debt
service on the related debt). Lease rental debt may also be issued, in which
case the total debt limits described in section (ii) (taking into account all
existing lease rental debt in addition to all other debt) are increased. The
borrowing base for a local government unit is the average of total revenues for
the three fiscal years preceding the borrowing. The risk of investing in debt
issued by any particular local government unit depends, in the case of general
obligation bonds secured by tax revenues, on the credit-worthiness of that
issuer or, in the case of revenue bonds, on the revenue producing ability of
the project being financed, and not directly on the credit-worthiness of the
Commonwealth of Pennsylvania as a whole.
The City of Philadelphia (the "City") has experienced severe financial
difficulties which for a time impaired its access to public credit markets.
The City experienced a series of General Fund deficits for Fiscal Years 1988
through 1992. The City has
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no legal authority to issue deficit reduction bonds on its own behalf, but
state legislation was enacted to create an Intergovernmental Cooperation
Authority (the "Authority") to provide fiscal oversight for Pennsylvania cities
(primarily Philadelphia) suffering recurring financial difficulties. The
Authority is broadly empowered to assist cities in avoiding defaults and
eliminating deficits by encouraging the adoption of sound budgetary practices
and issuing bonds. In order for the Authority to issue bonds on behalf of the
City, the City and the Authority entered into an intergovernmental cooperative
agreement providing the Authority with certain oversight powers with respect to
the fiscal affairs of the City. Philadelphia is currently operating under a
five year plan approved by the Authority on April 17, 1995 with technical
modifications officially incorporated on July 18, 1995. The audited balance
of the city's General Fund as of June 30, 1994 was $15.4 million and
preliminary unaudited financial statements as of June 30, 1995 project a
surplus of approximately $59.6 million.
The Authority's power to issue further bonds to finance a capital
project or deficit expired on December 31, 1994. The Authority may continue to
issue debt to finance a cash flow deficit until December 31, 1996, and its
ability to refund existing debt is unrestricted.
The foregoing information as to certain Pennsylvania risk factors
constitutes only a brief summary, does not purport to be a complete description
of Pennsylvania risk factors and is principally drawn from official statements
relating to securities offerings of the Commonwealth of Pennsylvania that have
come to the Fund's attention and were available as of the date of this
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The following investment restrictions, in addition to those set forth
in the Prospectus, are fundamental and may not be changed without the
affirmative vote of the holders of a "majority of the outstanding shares" of
the Fund (as defined in each Prospectus under "General Information - -
Miscellaneous").
None of the Funds may:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, provided that the Funds may invest
in securities secured by real estate or interests therein or issued by
companies or investment trusts which invest in real estate or interests
therein.
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3. Purchase or sell commodities or commodity contracts, or invest
in oil, gas or mineral exploration or development programs.
4. Sell securities short or purchase any securities on margin, except
that the Funds may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of investments (portfolio shares with respect
to the Pennsylvania Tax-Free Bond Fund).
None of the Cash Management, Tax-Free, U.S. Treasury Securities,
Equity, International Equity, Special Equity, Bond, Intermediate Income,
Short-Term Income or Balanced Funds may:
1. Act as an underwriter of securities, except insofar as the
Funds may be deemed to be underwriters under the Securities Act of 1933 in
selling its securities.
The Cash Management, Tax-Free, U.S. Treasury Securities, Equity, Bond
and Intermediate Income Funds may not:
1. Enter into repurchase agreements with maturities in excess of
seven days if such investment, together with other instruments in such Fund
which are not readily marketable, exceeds 10% of such Fund's total assets.
The Cash Management, Tax-Free and U.S. Treasury Securities Funds may
not:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets.
The Bond and Intermediate Income Fund may not:
1. Enter into repurchase agreements with maturities in excess of
seven days if such investment, together with other instruments in the
Intermediate Income Fund and the Bond Fund, respectively, which are not readily
marketable, exceeds 10% of the total assets of the Intermediate Income Fund or
the Bond Fund respectively.
2. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets, and except that the Intermediate Income Fund and the
Bond Fund may invest in collateralized mortgage obligations issued by issuers
which may be deemed to be an investment company under the Investment Company
Act of 1940, provided that immediately after any purchase not more than 5% of
the value of the total assets of such Fund would be invested in such issuer and
not more than 10%
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of the value of the total assets of such Fund would be invested in all such
issuers.
The Cash Management Fund may not:
1. Write or sell puts, calls, straddles, spreads or combinations
thereof except that the Cash Management Fund may acquire puts with respect to
obligations in its portfolio and sell those puts in conjunction with a sale of
those obligations.
The Pennsylvania Tax-Free Bond Fund may not:
1. Invest more than 10% of the value of its net assets in
restricted securities.
2. Write or sell puts, calls, straddles, spreads, or combinations
thereof except that the Fund may acquire stand-by commitments with respect to
its Pennsylvania Municipal Securities.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as the Fund might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Fund's investment objective, policies and limitation may be deemed to be
underwriting.
The Tax-Free Fund also has a non-fundamental investment policy that it
will not make loans, except that it may enter into repurchase agreements.
* * *
In order to permit the sale of shares of the Funds in certain states,
the Funds may make commitments more restrictive than the investment policies
and restrictions above. Should a Fund determine that any such commitment is no
longer in its best interests, it will revoke the commitment by terminating
sales of its Shares in the state involved.
If a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of such restriction.
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VALUATION
The net asset value per share of each class of shares in a particular
Fund is calculated by dividing the total value of all portfolio securities and
other assets belonging to the Fund that are attributable to the class, less the
value of any liabilities charged to such Fund that are attributable to the
class, by the total number of shares outstanding in the class. The net asset
value per share for each Fund and for each class of shares within a Fund is
calculated separately. Assets belonging to a particular Fund consist of the
consideration received upon the issuance or sale of shares, irrespective of
class, together with all income, earnings, profits and proceeds derived from
the investment thereof, including any proceeds from the sale, exchange or
liquidation of such investments, any funds or payments derived from any
reinvestment of such proceeds, and a portion of any general assets of the
Company not belonging to a particular portfolio. Assets belonging to a
particular Fund are charged with the direct liabilities of that Fund and with a
share of the general liabilities of the Company allocated on a daily basis in
proportion to the relative net assets of the Company's other investment
portfolios. The liabilities that are charged to a Fund are borne by each share
of the Fund, except for payments that are borne solely by Retail Shares
pursuant to the Distribution and Services Plan applicable to such shares as
described in the prospectus for such Retail Shares, and transfer agency
expenses which may vary between Institutional Shares and Retail Shares.
Subject to the provisions of the Agreement and Declaration of Trust,
determinations by the Board of Trustees as to the direct and allocable
expenses, and the allocable portion of any general assets, with respect to a
particular Fund or share class are conclusive.
VALUATION OF THE MONEY MARKET FUNDS
As stated in the Prospectuses, computing their net asset value of
shares for purposes of sales and redemptions, these Funds use the amortized
cost method of valuation. Under this method, such Funds value each of their
portfolio securities at cost on the date of purchase and thereafter assume a
constant proportionate accretion of any discount or amortization of any premium
until maturity of the security. As a result, the value of a portfolio security
for purposes of determining net asset value normally does not change in
response to fluctuating interest rates. While the amortized cost method seems
to provide certainty in portfolio valuation, it may result in valuations for
such Funds' securities which are higher or lower than the market value of such
securities.
In connection with their use of amortized cost valuation, each such
Fund limits the dollar-weighted average maturity of its
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portfolio to not more than 90 days and does not purchase any instrument with a
remaining maturity of more than 13 months with certain exceptions. The
Company's Board of Trustees has also established procedures, pursuant to rules
promulgated by the Securities and Exchange Commission, that are intended to
stabilize the net asset value per share of each such Fund for purposes of sales
and redemptions at $1.00. Such procedures include the determination at such
intervals as the Board deems appropriate, of the extent, if any, to which each
such Fund's net asset value per share calculated by using available market
quotations deviates from $1.00 per share. In the event such deviation exceeds
1/2 of 1% with respect to any of the Funds, the Board will promptly consider
what action, if any, should be initiated. If the Board believes that the
amount of any deviation from the $1.00 amortized cost price per share of a Fund
may result in material dilution or other unfair results to investors or
existing shareholders, it will take such steps as it considers appropriate to
eliminate or reduce to the extent reasonably practicable any such dilution or
unfair results. These steps may include selling portfolio instruments prior to
maturity; shortening the Fund's average portfolio maturity; withholding or
reducing dividends; redeeming shares in kind; or utilizing a net asset value
per share determined by using available market quotations.
VALUATION OF THE NON-MONEY MARKET FUNDS
Equity securities are valued at the last reported sales prices on the
day of valuation if such prices are readily available, otherwise at the last
quoted bid prices on that day. Debt securities with remaining maturities in
excess of sixty days are valued at the last quoted bid prices on the day of
valuation. Debt securities with remaining maturities of sixty days or less are
valued at amortized cost. Other Securities for which quotations are not
readily available are valued at their fair market value under procedures
established by, and under the supervision of, the Company's Board of Trustees.
With respect to the International Equity Fund, investments which are
primarily traded on a domestic exchange (including securities traded through
the National Market System) are valued at the last sale price on that exchange
or, if there is no recent sale, the last current bid price; portfolio
securities which are primarily traded on foreign securities exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, except that when an event subsequent to the time where
value was so established is likely to have changed such value, then the fair
value of those securities will be determined by consideration of other factors
by or under the direction of the Board of Trustees. Securities trading in
over-the-counter markets in European and Pacific Basin countries is
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normally completed well before 4:00 p.m., Eastern time. In addition, European
and Pacific Basin securities trading may not take place on all Business Days.
Furthermore, trading takes place in Japanese markets on certain Saturdays and
in various foreign markets on days which are not considered to be Business
Days. The calculation of the net asset value of a Fund investing in foreign
securities may not take place contemporaneously with the determination of the
prices of portfolio securities used in such calculation. Events affecting the
values of portfolio securities that occur between the time their prices are
determined and 4:00 p.m., Eastern time, and at other times may not be reflected
in the calculation of net asset value of a Fund. A security which is listed or
traded on more than one exchange shall be valued at the quotation on the
exchange determined to be the primary market for such security; investments in
foreign debt securities having a maturity of 60 days or less shall be valued
based upon the amortized cost method; all other foreign securities are valued
at the last current bid quotation if market quotations are available, or at
fair value as determined in accordance with policies established by the Board
of Trustees. For valuation purposes, quotations of foreign securities in
foreign currency shall be converted to U.S. dollars equivalent at the
prevailing market rate on the day of conversion.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Equity, International Equity, Special Equity,
Bond, Intermediate Income, Pennsylvania Tax-Free Bond Fund, Short-Term Income
and Balanced Funds are the existence of restrictions upon the sale of the
security by the Fund, the absence of a market for the security, the extent of
any discount in acquiring the security, the estimated time during which the
security will not be freely marketable, the expenses of registering or
otherwise qualifying the security for public sale, underwriting commissions if
underwriting would be required to effect a sale, the current yields on
comparable securities for debt obligations traded independently of any equity
equivalent, changes in the financial condition and prospects of the issuer, and
any other factors affecting fair market value. In making valuations, opinions
of counsel may be relied upon as to whether or not securities are restricted
securities and as to the legal requirements for public sale.
The Company may use one or more pricing services to value certain
portfolio securities where the prices provided are believed to reflect the fair
market values of such securities. A pricing service would normally consider
such factors as yield, risk, quality, maturity, type of issue, trading
characteristics, special circumstances and other factors it deems relevant in
determining valuations for normal institutionalized trading units of debt
securities and would not rely exclusively on quoted prices. The methods used
by the pricing services and the valuations so established will be reviewed from
time to time by
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the Investment Advisor (and/or Sub-advisor with respect to the International
Equity Fund) under the general supervision of the Company's Board of Trustees.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
CALCULATION OF OFFERING PRICE
Retail Shares of the Non-Money Market Funds are sold with a maximum
sales charge of 2%.
An illustration of the computation of the offering price per share of
Retail Shares of such Funds, using the value of such Funds' net assets and
number of outstanding securities at the close of business on October 31, 1995,
and the maximum 2.0% sales charge is as follows:
<TABLE>
<CAPTION>
Penn- Interna-
Intermediate Special sylvania tional Short-
Income Bond Equity Equity Tax-Free Equity Balanced Term Income
Fund Fund Fund Fund Bond Fund Fund Fund Fund
------------ -------- ------ ------- --------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets . . . . . . . $1,229,481 $1,373,305 $6,590,598 $733,982 $819,607 $8,805 $69,340 $11,356
Outstanding
Securities . . . . . . 114,722 130,046 385,955 64,279 80,106 758 6,176 1,131
Net Asset Value
Per Share . . . . . . $10.72 $10.56 $17.08 $11.42 $10.23 $10.99 $10.39 $10.04
Sales charge (2% of the
offering price) . . . $0.22 $0.22 $0.35 $0.23 $0.21 $0.22 $0.21 $0.20
Offering to Public . . . $10.94 $10.78 $17.43 $11.65 $10.44 $11.21 $10.60 $10.24
</TABLE>
Institutional Shares of each Fund are sold without a sales load.
No sales load is charged on the reinvestment of dividends or distributions, or
in connection with certain share exchanges with respect to Retail Shares as
described in the Prospectus describing Retail Shares under "Purchasing Shares
- -- Exchange Privilege." With regard to other circumstances wherein the sales
load may be waived or reduced, see the Prospectus describing Retail Shares
under "Purchasing Shares -- Sales Charge Waivers; Letters of Intent; Concurrent
Purchases; and Rights of Accumulation."
MATTERS AFFECTING PURCHASE AND REDEMPTION
Retail and Institutional Shares in each of the Funds are sold on a
continuous basis by the Distributor, and the Distributor has agreed to use
appropriate efforts to solicit all
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purchase orders. Institutional Shares may be purchased through procedures
established by the Distributor in connection with the requirements of qualified
accounts maintained by or on behalf of certain persons by the Investment
Advisor, its affiliates or their correspondents. Individuals may not purchase
Institutional Shares directly. Retail Shares may be purchased through
financial institutions and industry professionals (such as insurance companies,
investment counselors, accountants and estate planning associations but not
including banks and savings and loan associations), broker-dealers, and the
Distributor's affiliates and subsidiaries.
The Company may suspend the right of redemption or postpone the date
of payment for shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Securities and Exchange
Commission has by order permitted such suspension, or (d) an emergency exists
as determined by the Securities and Exchange Commission.
The Company may redeem shares involuntarily if redemption appears
appropriate in light of the Company's responsibilities under the Act.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, the
Company may make payment wholly or partly in securities or other property.
Such redemptions will only be made in "readily marketable" securities. In such
an event, a Shareholder would incur transaction costs in selling the securities
or other property. Each Fund may commit that it will pay all redemption
requests by a Shareholder of record in cash, limited in amount with respect to
each Shareholder during any ninety-day period to the lesser of $250,000 or 1%
of the net asset value of the Fund at the beginning of such period.
ADDITIONAL INFORMATION CONCERNING TAXES
GENERAL
The following summarizes certain additional federal tax considerations
generally affecting the Funds and their Shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of a Fund or its Shareholders, and the discussion here and in the
Prospectuses is not intended as a substitute for careful tax planning. This
discussion is based on federal tax laws and regulations which are in effect on
the date of this Statement of Additional Information. Such laws and
regulations
B-32
<PAGE> 145
may be changed by legislative or administrative action. Potential investors
should consult their tax advisors with specific reference to their own tax
situation.
Each Fund of the Company is treated as a separate corporate entity
under the Internal Revenue Code of 1986, as amended (the "Code"), and intends
to qualify as a regulated investment company. By following this policy, each
Fund expects to eliminate or reduce to a nominal amount the federal income
taxes to which it is subject. If for any taxable year a Fund does not qualify
for the special federal tax treatment afforded regulated investment companies,
all of the Fund's taxable income would be subject to tax at regular corporate
rates (without any deduction for distributions to shareholders). In such
event, the Fund's dividend distributions to Shareholders (including, in the
case of the Tax Free Fund and the Pennsylvania Tax-Free Bond Fund, amounts
derived from interest on Municipal Obligations) would be taxable as ordinary
income, to the extent of the current and accumulated earnings and profits of
the particular Fund, and would be eligible for the dividends received deduction
in the case of corporate Shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that each Fund distribute to its Shareholders an
amount equal to at least the sum of 90% of its investment company taxable
income and 90% of its tax-exempt interest income (if any), net of certain
deductions for a taxable year. In addition, each Fund must satisfy certain
requirements with respect to the source of its income for a taxable year. At
least 90% of the gross income of each Fund must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, and other income
(including, but not limited to, gains from options, futures, or forward
contracts) derived with respect to a Fund's business of investing in such
stock, securities or currencies. The Treasury Department may by regulation
exclude from qualifying income foreign currency gains that are not directly
related to a Fund's principal business of investing in stock or securities, or
options and futures with respect to stock or securities. Any income derived by
a Fund from a partnership or trust is treated for this purpose as derived with
respect to the Fund's business of investing in stock, securities or currencies
only to the extent that such income is attributable to items of income which
would have been qualifying income if realized by the Fund in the same manner as
by the partnership or trust.
A Fund will not be treated as a regulated investment company under the
Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months: (1) stock and securities (as
defined in section 2(a)(36)
B-33
<PAGE> 146
of the Investment Company Act of 1940); (2) options, futures and forward
contracts (other than those on foreign currencies); and (3) foreign currencies
(and options, futures and forward contracts on foreign currencies) that are not
directly related to a Fund's principal business of investing in stock and
securities (and options and futures with respect to stocks and securities) (the
"Short-short" test). Interest (including original issue discount and accrued
market discount) received by a Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived
from the sale or other disposition of such security within the meaning of this
requirement. However, income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. With respect to covered call options, if the
call is exercised by the holder, the premium and the price received on exercise
constitute the proceeds of sale, and the difference between the proceeds and
the cost of the securities subject to the call is capital gain or loss.
Premiums from expired call options written by a Fund and net gains from closing
purchase transactions are treated as short-term capital gains for federal
income tax purposes, and losses on closing purchase transactions are short-term
capital losses.
Any distribution of the excess of net long-term capital gain over net
short-term capital loss is taxable to a Shareholder as long-term capital gain,
regardless of how long the Shareholder has held the distributing Fund's Shares
and whether such distribution is received in cash or additional Fund Shares.
The Fund will designate such distributions as capital gain dividends in a
written notice mailed to Shareholders within 60 days after the close of the
Fund's taxable year. Shareholders should note that, upon the sale or exchange
of Fund Shares, if the Shareholder has not held such Shares for more than six
months, any loss on the sale or exchange of those Shares will be treated as
long-term capital loss to the extent of the capital gain dividends received
with respect to the Shares.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable
and the phase-out of personal exemptions, the maximum effective marginal rate
of tax for some taxpayers may be higher. An individual's long-term capital
gains are taxable at a maximum nominal rate of 28%. For corporations,
long-term capital gains and ordinary income are both taxable at a maximum
nominal rate of 35% (or at a maximum effective marginal rate of 39% in the case
of corporations having taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated, investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net
B-34
<PAGE> 147
income (excess of capital gains over capital losses). Each Fund intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year
to avoid liability for this excise tax.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
Shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure to properly include on their return payments of taxable
interest or dividends, or who have failed to certify to the Fund either that
they are not subject to back-up withholding when required to do so or that they
are "exempt recipients."
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
With respect to the Equity, International Equity, Special Equity,
Bond, Intermediate Income and Balanced Funds, some investments may be subject
to special rules which govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules include
the following: (1) the acquisition of, or becoming the obligor under, a bond
or other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (2) the accruing of certain trade receivables
and payables; and (3) the entering into or acquisition of any forward contract,
futures contract, option or similar financial instrument. The disposition of a
currency other than the U.S. dollar by a U.S. taxpayer is also treated as a
transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and non-equity options are
generally not subject to the special currency rules if they are or would be
treated as sold for their fair market value at year-end under the
mark-to-market rules (described below), unless an election is made to have such
currency rules apply. With respect to transactions covered by the special
rules, foreign currency gain or loss is calculated separately from any gain or
loss on the underlying transaction and is normally taxable as ordinary gain or
loss. A taxpayer may elect to treat as capital gain or loss foreign currency
gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. The Treasury Department has issued
regulations under which certain transactions subject to the special currency
rules that are part of a "section 988 hedging transaction" are not subject to
the mark-to-market or loss deferral rules under the Code. It is
B-35
<PAGE> 148
anticipated that some of the non-U.S. dollar denominated investments and
foreign currency contracts that the Fund may make or may enter into will be
subject to the special currency rules described above. Gain or loss
attributable to the foreign currency component of transactions engaged in by a
Fund which are not subject to the special currency rules (such as foreign
equity investments other than certain preferred stocks) will be treated as
capital gain or loss and will not be segregated from the gain or loss on the
underlying transaction.
Generally, futures contracts held by a Fund at the close of the Fund's
taxable year will be treated for Federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and 60% of
such gain or loss will be treated as long-term capital gain or loss without
regard to the length of time the Fund holds the futures contract ("the 40%-60%
rule"). The amount of any capital gain or loss actually realized by a Fund in
a subsequent sale or other disposition of those futures contacts will be
adjusted to reflect any capital gain or loss taken into account by the Fund in
a prior year as a result of the constructive sale of the contacts. With respect
to futures contracts to sell, which will be regarded as parts of a "mixed
straddle" because their values fluctuate inversely to the values of specific
securities held by the Fund, losses as to such contracts to sell will be
subject to certain loss deferral rules which limited the amount of loss
currently deductible on either part of the straddle to the amount thereof which
exceeds the unrecognized gain (if any) with respect to the other part of the
straddle, and to certain wash sales regulations. Under short sales rules,
which will also be applicable, the holding period of the securities forming
part of the straddle will (if they have not been held for the long-term holding
period) be deemed not to begin prior to termination of the straddle. With
respect to certain futures contracts, deductions for interest and carrying
charges will not be allowed. Notwithstanding the rules described above, with
respect to futures contracts to sell which are properly identified as such, a
Fund may make an election which will exempt (in whole or in part) those
identified futures contracts from being treated for Federal income tax purposes
as sold on the last business day of the Fund's taxable year, but gains and
losses will be subject to such short sales, wash sales, loss deferral rules and
the requirement to capitalize interest and carrying charges. Under temporary
regulations, a Fund would be allowed (in lieu of the foregoing) to elect either
(1) to offset gains or losses from positions which are part of a mixed straddle
by separately identifying each mixed straddle to which such treatment applies,
or (2) to establish a mixed straddle account for which gains and losses would
be recognized and offset on a periodic basis during the taxable year. Under
either election, the 40%-60% rule will
B-36
<PAGE> 149
apply to the net gain or loss attributable to the futures contracts, but in the
case of a mixed straddle account election, no more than 50% of any net gain may
be treated as long-term and no more than 40% of any net loss may be treated as
short-term. Options on futures contracts generally receive federal tax
treatment similar to that described above.
Under the Short-short test described above, less than 30% of a
company's gross income must be derived from certain investments held for less
than three months. With respect to futures contracts and other financial
instruments subject to the mark-to-market rules, the Internal Revenue Service
(the "Service") has ruled in private letter rulings issued to other regulated
investment companies that a gain realized from such a futures contract or
financial instrument will be treated as being derived from a security held for
three months or more (regardless of the actual period for which the contract or
instrument is held) if the gain arises as a result of a constructive sale under
the mark-to-market rules, and will be treated as being derived from a security
held for less than three months only if the contract or instrument is
terminated (or transferred) during the taxable year (other than reason of
mark-to-market) and less than three months have elapsed between the date the
contract or instrument is acquired and the termination date. Although private
letter rulings are binding on the service only with respect to the taxpayers to
which they are issued, management believes the service would take the same
position with respect to the Funds. In determining whether the 30% test is met
for a taxable year, increases and decreases in the value of each Fund's futures
contracts and other investments that qualify as part of a "designated hedge,"
as defined in the Code, may be netted.
Certain foreign currency contracts entered into by a Fund may be
subject to the "mark-to-market" process, but gain or loss will be treated as
100% ordinary income or loss. To receive such federal income tax treatment, a
foreign currency contract must meet the following conditions: (1) the contract
must require delivery of a foreign currency of a type in which regulated
futures contracts are traded or upon which the settlement value of the
contracts depends; (2) the contract must be entered into at arm's length at a
price determined by reference to the price in the interbank market; and (3) the
contract must be traded in the interbank market. The Treasury Department has
broad authority to issue regulations under the provisions respecting foreign
currency contracts. As of that date of this Statement of Additional
Information, the Treasury has not issued any such regulations. Foreign
currency contracts entered into by the Fund may result in the creation of one
or more straddles for federal income tax purposes, in which case certain loss
deferral, short sales, and wash sales rules and the requirement to capitalize
interest and carrying charges may apply.
B-37
<PAGE> 150
SPECIAL CONSIDERATIONS PERTAINING TO THE TAX-FREE AND PENNSYLVANIA TAX-FREE
BOND FUNDS
The policy of the Tax-Free Fund is to pay to its Shareholders each
year as exempt-interest dividends substantially all the Fund's Municipal
Securities interest income net of certain deductions and the policy of the
Pennsylvania Tax-Free Bond Fund is to pay to its Shareholders each year as
exempt-interest dividends substantially all the Fund's Pennsylvania Municipal
Securities interest income net of certain deductions. Exempt-interest
dividends generally may be treated by the Shareholders as items of interest
excludable from their gross income under Section 103(a) of the Code. An
exempt-interest dividend is any dividend or part thereof (other than a capital
gain dividend) paid by the Tax-Free and Pennsylvania Tax-Free Bond Funds and
designated as an exempt-interest dividend in a written notice mailed to
Shareholders no later than 60 days after the close of each Fund's taxable year.
However, the aggregate amount of dividends so designated by such Funds cannot
exceed the excess of the amount of interest exempt from tax under Section 103
of the Code received by either Fund during the taxable year over any amounts
disallowed as deductions under Sections 265 and 171(a)(2) of the Code.
Moreover, with respect to the Pennsylvania Tax-Free Bond Fund, while such
dividends and interest are exempt from regular federal income tax, they may be
subject to the federal alternative minimum tax (currently imposed at the rate
of 26-28% in the case of non-corporate taxpayers and at the rate of 20% in the
case of corporate taxpayers), in two circumstances. First, exempt interest
dividends derived from certain "private activity" bonds issued after August 7,
1986, generally will constitute an item of tax preference for both corporate
and non-corporate taxpayers. The Pennsylvania Tax-Free Bond Fund intends, when
possible, to avoid investing in such "private activity" bonds. Second, exempt
interest dividends derived from all bonds, regardless of the date of issue,
must be taken into account by corporate taxpayers in determining certain
adjustments for the federal alternative minimum tax and the environmental tax.
Receipt of exempt interest dividends may result in collateral federal income
tax consequences to certain other taxpayers, including financial institutions,
property and casualty insurance companies, individual recipients of Social
Security or Railroad Retirement benefits, and foreign corporations engaged in
trade or business in the United States. Prospective investors should consult
their own tax advisors as to such consequences.
The percentage of the total dividends paid for any taxable year which
qualifies as exempt-interest dividends will be the same for all Shareholders
receiving dividends from either the
B-38
<PAGE> 151
Tax-Free or Pennsylvania Tax-Free Bond Funds during such year, regardless of
the period for which the Shares were held. In order for each such Fund to pay
exempt-interest dividends for any taxable year, at the close of each quarter of
its taxable year at least 50% of the aggregate value of their respective assets
must consist of exempt-interest obligations.
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of either of the Tax-Free and Pennsylvania Tax-Free Bond Funds
generally is not deductible for federal income tax purposes.
Shareholders who may be treated as a "substantial user" or a "related
person" to such user with respect to facilities financed through any "private
activity" obligations held by the Funds are advised to consult their tax
advisors with respect to whether exempt-interest dividends would retain the
exclusion under Section 103(a). A "substantial user" is defined under U.S.
Treasury Regulations to include a non-exempt person who regularly uses a part
of such facilities in his trade or business and whose gross revenues derived
with respect to the facilities financed by the issuance of bonds are more than
5% of the total revenues derived by all users of such facilities, who occupies
more than 5% of the usable area of such facilities or for whom such facilities
or a part thereof were specifically constructed, reconstructed or acquired. A
"related person" includes certain related natural persons, affiliated
corporations, partners and partnerships and S corporations and their
shareholders.
The Tax-Free and Pennsylvania Tax-Free Bond Funds will distribute
substantially all of their investment company taxable income, if any, for each
taxable year. In general, each such Fund's investment company taxable income
will be its taxable income subject to certain adjustments and excluding the
excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. Each such Fund will be taxed
on any undistributed investment company taxable income. To the extent such
income is distributed by either Fund (whether in cash or additional Shares), it
will be taxable to shareholders as ordinary income. It is not expected that
any such distributions will be eligible for the dividends received deduction
for corporations.
TAXABLE EQUIVALENT YIELD TABLE
TAX EXEMPT VERSUS TAXABLE SECURITIES
The tables below show the effect of the tax status of bonds on
the taxable equivalent yield received by their holders under the regular
Federal income tax and the Pennsylvania personal income tax laws in existence
for tax year 1996. They give the approximate yield a taxable security must
earn at
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<PAGE> 152
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding 4%, 4.5%, 5%, 5.5%, 6%, 6.5% and 7.0%.
<TABLE>
<CAPTION>
1995 Federal TAX EXEMPT YIELD
Taxable Approximate ------------------------------------------------------------
Income Bracket Combined 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
---------------- Federal & PA ---- ---- ---- ---- ---- ---- ----
Joint Return Single Return Marginal Tax Rate Taxable Equivalent Yield
---------------- ----------------- ----------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 40,100 0 - 24,000 17.380% 4.841% 5.447% 6.052% 6.657% 7.262% 7.867% 8.473%
40,101 - 96,900 24,001 - 58,150 30.016% 5.716% 6.430% 7.144% 7.859% 8.573% 9.288% 10.002%
96,901 - 147,700 58,151- 121,300 32.932% 5.964% 6.710% 7.455% 8.201% 8.946% 9.692% 10.437%
147,701 - 263,750 121,301 - 263,750 37.792% 6.430% 7.234% 8.038% 8.841% 9.645% 10.449% 11.253%
OVER 263,750 OVER 263,750 41.291% 6.813% 7.665% 8.517% 9.368% 10.220% 11.072% 11.923%
</TABLE>
Equivalent yields are based on a fixed $1,000 investment with all taxes
deducted from income. The 4 mill county intangible personal property tax,
which is applicable in most counties, is not considered in these tables. The
4.96% Philadelphia school district investment income tax is also not considered
in these tables. While it is expected that the Pennsylvania Tax-Free Bond Fund
will invest primarily in obligations exempt from taxes, other income received
by the Fund may be taxable. Yields shown are for illustration purposes only
and are not meant to represent the Fund's actual yield.
NOTE:
The income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions (including the
deduction for state and local income taxes). If the standard deduction is
taken for Federal income tax purposes, the taxable equivalent yield required to
equal a specified tax-exempt yield is at least as great as that shown in the
tables. It should also be noted that the interest earned on certain "private
activity bonds" issued after August 7, 1986, while exempt from the regular
Federal income tax, is treated as a tax preference item which could subject the
recipient to the Federal alternative minimum tax. It is assumed in these
tables that the investor is not subject to the Federal alternative minimum tax.
Where applicable, investors should consider that the benefit of certain
itemized deductions and the benefit of personal exemptions are limited in the
case of higher income individuals. For 1996, taxpayers with adjusted gross
income in excess of approximately a $117,950 threshold amount are subject to an
overall limitation on certain itemized deductions, requiring a reduction equal
to the lesser of (i) 3% of adjusted gross income in excess of the $117,950
threshold or (ii) 80% of the amount of such itemized deductions otherwise
allowable. The benefit of each personal exemption is phased out at the rate of
two percentage points for each $2,500 (or fraction thereof) of adjusted gross
income in the
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<PAGE> 153
exemption phase-out zone. For single taxpayers the range of adjusted gross
income in the exemption phase-out zone is estimated to be from $117,950 to
$240,451 and for married taxpayers filing a joint return, the range is
estimated to be from $176,950 to $299,451. The Federal tax brackets, the
threshold amount at which itemized deductions are subject to reduction, and the
range over which personal exemptions are phased out will be further adjusted
for inflation for each year after 1996.
MANAGEMENT OF THE COMPANY
TRUSTEES
The Company will be managed by the Trustees in accordance with the
laws of the Commonwealth of Massachusetts governing trusts with transferrable
shares. There are currently five Trustees, three of whom are not "interested
persons" of the Company within the meaning of that term under the Investment
Company Act of 1940. The Board of Trustees, in turn, elects the officers of
the Company to supervise actively its day-to-day operations.
The Trustees of the Company, their addresses, their ages and their
principal occupations during the past five years, are as follows:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH THE COMPANY DURING PAST 5 YEARS
- ---------------- --- ---------------- -----------------------
<S> <C> <C> <C>
Thomas J. Taylor 56 Chairman and Consultant; Trustee, Community
1015 Darby Drive Trustee Heritage Fund
Yardley, PA 19067
*Dominic S. Genuardi, Sr. 72 Trustee Retired; Chief Executive
805 East Germantown Pike Officer, Genuardi Supermarkets,
Norristown, PA 19401 Inc. until October 1990.
*Steven I. Gross 49 Trustee Managing Partner, Gross &
2655 Philmont Avenue Company (certified public
Huntingdon Valley, PA 19006 accountants).
Robert C. Kingston 67 Trustee Consultant; Member of the
1603 River Farm Drive Special Operations Policy
Alexandria, VA 22308 Group of the Secretary of Defense; Director,
Vinnell Corporation; Founder, Military
Professional Resources, Inc.
Dale E. Smith 65 Trustee Retired; President
230 West Washington Square Farm Journal, Inc. until
Philadelphia, PA 19106 November 1995
</TABLE>
- ---------------------------
B-41
<PAGE> 154
* May be deemed to be an "interested person" of the Company as defined
in the Investment Company Act of 1940.
The Trustees of the Company receive fees and expenses for each
meeting of the Board of Trustees they attend. Each Trustee is entitled to
compensation at the rate of $4,000 per year, plus $1,500 for each meeting
attended in person and $250.00 for each meeting held by conference telephone,
plus all out-of-pocket expenses incurred as a trustee. The Chairman of the
Board of Trustees is entitled to additional compensation at the rate of $2,500
per year. For the fiscal year ended October 31, 1995, the Company paid total
compensation of $64,949 to persons serving as Trustees.
The Audit Committee of the Board of Trustees is comprised of Messrs.
Gross and Taylor and is chaired by Mr. Gross. Each member of the Audit
Committee receives a fee of $1,500 for each meeting of the Committee attended
in person, except that no fee shall be paid for meetings that are held in
conjunction with meetings of the Board of Trustees.
The following table provides information concerning the compensation
of each of the Company's Trustees for services rendered during the Company's
last fiscal year ended October 31, 1995:
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
AGGREGATE BENEFITS ACCRUED COMPENSATION
COMPENSATION AS PART OF FROM COMPANY
NAME OF PERSON FROM COMPANY COMPANY EXPENSES AND FUND COMPLEX
-------------- ------------ ---------------- ------------------
<S> <C> <C> <C>
Dominic S. Genuardi, Sr. . . . . . . . . $10,000 None Not Applicable(1)
Steven I. Gross . . . . . . . . . . . . . $13,000 None Not Applicable(1)
Robert C. Kingston . . . . . . . . . . . $10,000 None Not Applicable(1)
Dale E. Smith . . . . . . . . . . . . . . $10,000 None Not Applicable(1)
Thomas J. Taylor . . . . . . . . . . . . $13,000 None Not Applicable(1)
</TABLE>
- --------------------------
(1) The Company is not part of a fund complex.
OFFICERS
The officers of the Company, their ages and their principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS Age WITH THE COMPANY DURING PAST 5 YEARS
- ---------------- --- ---------------- --------------------
<S> <C> <C> <C>
David G. Lee 43 President and Senior Vice President of the
Chief Executive Administrator and the Distributor
Officer since 1993. Vice President of
</TABLE>
B-42
<PAGE> 155
<TABLE>
<S> <C> <C> <C>
the Administrator and the Distributor since 1991. President of
Sierra Trust Funds prior to 1991.
Sandra K. Orlow 42 Vice President Vice President and Assistant
and Assistant Secretary of the Administrator
Secretary and Distributor since 1983.
Robert B. Carroll 35 Vice President Vice President, Assistant
and Assistant Secretary of SEI, the
Secretary Administrator and Distributor,
since 1994. United States Securities and Exchange Commission,
Division of Investment Management, 1990-1994. Associate,
McGuire, Woods, Battle and Boothe (law firm) before 1990.
Kathryn L. Stanton 37 Vice President Vice President, Assistant Secretary
and Assistant of SEI, the Administrator and
Secretary Distributor, since 1994. Associate,
Morgan, Lewis & Bockius (law firm) 1989-1994.
Kevin P. Robins 34 Vice President Senior Vice President, General
and Assistant Counsel and Secretary of SEI, the
Secretary Administrator and Distributor since
1994. Vice President of SEI, the Administrator and Distributor
1992-1994. Associate, Morgan, Lewis & Bockius (law firm),
1988-1992.
Joseph Lydon 36 Vice President Director of Business
and Assistant Administration of Fund Resources
Secretary for SEI since April 1995; prior
thereto, Vice President - Dreman Value Management, LP and
President - Dreman Financial Services, Inc.
Todd Cipperman 29 Vice President Vice President, Legal Department -
and Assistant SEI since 1995. Associate, Dewey
Secretary Ballantine (law firm), 1994-1995.
Associate, Winston & Strawn (law firm), 1991-1994.
Stephen G. Meyer 30 Controller Vice President and Controller -
and Chief Fund Resources, a division of SEI.
Accounting Director - Internal Audit and Risk
and Financial Management - SEI, 1992 to March 1995.
Officer Coopers & Lybrand, Senior Associate, 1990 to 1992.
Henry S. Hilles, Jr. 56 Secretary Partner in the law firm of Drinker Biddle & Reath, Philadelphia,
Pennsylvania.
Christine Trecroci 25 Assistant From March, 1994 to present,
Secretary employee of SEI Corporation.
</TABLE>
B-43
<PAGE> 156
<TABLE>
<S> <C> <C> <C>
Michael T. Zelinsky 37 Assistant Blue Sky Supervisor; Legal
Secretary Department - SEI, since October
1995. Legal Assistant, Clark, Ladner, Fortenbaugh & Young (law
firm), 1994-1995. Legal Assistant, Seward & Kissel (law firm),
1993-1994.
</TABLE>
Each officer other than Mr. Hilles may be reached at 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658. Mr. Hilles may be reached at
1345 Chestnut Street, Philadelphia, Pennsylvania 19107-3496. The officers of
the Company receive no compensation directly from the Company for performing
the duties of their offices. Each officer other than Mr. Hilles is an employee
of SEI Corporation.
As of December 6, 1995, the trustees and officers as a group owned
34.31% and 16.00% of the outstanding Retail Shares of the Company's Cash
Management and Pennsylvania Tax-Free Bond Funds, respectively. As of the same
date, the trustees and officers of the Company collectively owned less than 1%
of the outstanding Retail and Institutional Shares of each of the Company's
other investment portfolios.
INVESTMENT ADVISOR
Meridian Investment Company serves as the Company's Investment
Advisor. Its principal offices are located at 55 Valley Stream Parkway,
Malvern, Pennsylvania 19355. The Investment Advisor is a subsidiary of
Meridian Bancorp, Inc. The Investment Advisor has been engaged in providing
investment management and advice to trusts and other customers since February
1985, but prior to the Company's commencement of operations had not previously
served as an investment advisor to a registered management investment company.
The Investment Advisor manages each of the Company's portfolios and is
responsible for all purchases and sales of each Fund's portfolio securities.
For the advisory services provided and expenses assumed by it, the Investment
Advisor is entitled to receive a fee, computed daily and payable monthly, based
on each Fund's average net assets at an annual rate equal to the lesser of (i)
.40% for each of the Cash Management, Tax-Free and U.S. Treasury Securities
Funds; .74% for each of the Equity, Bond, Intermediate Income and Pennsylvania
Tax-Free Bond Funds; 1.50% for the Special Equity Fund; .75% for the Balanced
Fund; .74% for the Short-Term Income Fund; and 1.00% for the International
Equity Fund, or (ii) such fee as may from time to time be agreed upon in
writing by a Fund and the Investment Advisor in advance of the period to which
the fee relates. In addition, the Investment Advisor has agreed that if, in
any fiscal year, the expenses borne by any Fund exceed the applicable expense
limitations imposed by the securities regulations of any state in which Shares
of such
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Fund are registered or qualified for sale to the public, the Investment Adviser
will reimburse such Fund for any excess up to the amount of its fee under the
Investment Advisory Agreement, provided, however, that notwithstanding the
foregoing, the Investment Adviser shall reimburse the Funds for such excess
expenses regardless of the amount of the fees paid to it during such fiscal
year to the extent that the securities regulations of any state having
jurisdiction over the Company so require. Unless otherwise required by law,
such reimbursement would be accrued and paid on the same basis that the
advisory fee is accrued and paid by each Fund. To the Company's knowledge, of
the expense limitations in effect on the date of this Statement of Additional
Information, none is more restrictive than two and one-half percent (2-1/2%) of
the first $30 million of a Fund's average net assets, two percent (2%) of the
next $70 million of the average net assets and one and one-half percent
(1-1/2%) of the remaining average net assets determined at least monthly.
For the services provided and expenses assumed by the Investment
Advisor, the Company paid the Investment Advisor, net of voluntary fee
reductions for the fiscal years ended October 31, 1993, October 31, 1994 and
October 31, 1995, advisory fees of $406,337, $321,336 and $396,730,
respectively, with respect to the Cash Management Fund; $63,747, $64,860 and
$101,789, respectively, with respect to the Tax-Free Fund; $855,490, $794,672
and $1,001,613, respectively, with respect to the U.S. Treasury Securities
Fund; $208,264, $349,644 and $1,503,062, respectively, with respect to the
Equity Fund; $52,947, $64,219 and $340,406, with respect to the Bond Fund; and
$54,314, $55,664 and $186,351, respectively, with respect to the Intermediate
Income Fund. Net of voluntary fee reductions, the Company paid no advisory
fees to the Investment Advisor with respect to services provided and expenses
assumed by it on behalf of the Pennsylvania Tax-Free Bond Fund for the fiscal
years ended October 31, 1993, October 31, 1994 and October 31, 1995. Net of
voluntary fee reductions, the Company paid the Investment Advisor, for the
period from March 15, 1994 (commencement of operations) to October 31, 1994 and
for the fiscal year ended October 31, 1995 advisory fees of $0 and $0,
respectively, with respect to the Special Equity Fund.
Net of voluntary fee reductions, the Company paid the Investment
Advisor, for the period from commencement of operations (May 15, 1995 for the
International Equity and Short-Term Income Funds and June 27, 1995 for the
Balanced Fund) to October 31, 1995, advisory fees of $51,367, $52,531 and
$59,629, with respect to the International Equity, Short-Term Income and
Balanced Funds, respectively.
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For the fiscal years ended October 31, 1993, October 31, 1994 and
October 31, 1995, the Investment Advisor voluntarily reduced its fees in the
amount of: $243,803, $243,475 and $396,801, respectively, with respect to the
Cash Management Fund; $148,744, $151,339 and $157,594, respectively, with
respect to the Tax-Free Fund; $513,293, $476,803 and $455,645, respectively,
with respect to the U.S. Treasury Securities Fund; $72,302, $7,814 and $0,
respectively, with respect to the Equity Fund; $104,028, $125,789 and $409,293,
respectively, with respect to the Bond Fund; and $106,637, $109,045 and
$365,144, respectively, with respect to the Intermediate Income Fund. For the
fiscal years ended October 31, 1993, October 31, 1994 and October 31, 1995, the
Investment Advisor voluntarily reduced its fees in the amount of $41,232,
$56,761 and $39,045, respectively, with respect to the Pennsylvania Tax-Free
Bond Fund. For the period from March 15, 1994 (commencement of operations) to
October 31, 1994 and for the fiscal year ended October 31, 1995 the Investment
Advisor voluntarily reduced its fees in the amount of $87,643 and $465,879,
respectively, with respect to the Special Equity Fund.
For the period from commencement of operations (May 15, 1995 for the
International Equity and Short-Term Income Funds and June 27, 1995 for the
Balanced Fund) to October 31, 1995, the Investment Advisor voluntarily reduced
its fees in the amount of $0, $82,113 and $29,815 with respect to the
International Equity, Short-Term Income and Balanced Funds, respectively.
SUB-ADVISOR
Marvin & Palmer Associates, Inc., 1201 N. Market Street, Suite 2300,
Wilmington, Delaware 19801-1165, serves as the Sub-advisor with respect to the
International Equity Fund under an agreement with the Investment Advisor (the
"Sub-advisory Agreement"). The Sub-advisor, a privately-held company, was
founded in 1986 by David F. Marvin and Stanley Palmer. The Sub-advisor is
engaged in the management of Non-U.S. global (including emerging markets)
equity portfolios for institutional accounts.
Pursuant to the Sub-advisory Agreement, the Sub-advisor will assist
the Investment Advisor in providing a continuous investment program for the
International Equity Fund, including investment research and management with
the respect to all securities and investments and cash equivalents of such
Fund. The Sub-advisor will also prepare, subject to the Investment Advisor's
approval, lists of foreign countries for investment by the International Equity
Fund and determine from time to time what securities and other investments will
be purchased, retained or sold for the Fund and shall determine what portion of
the Fund's assets will be held in different currencies. The Sub-advisor shall
place orders for the purchase and sale of portfolio securities and will solicit
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broker-dealers to execute transactions in accordance with the Fund's policies
and restrictions regarding brokerage allocations. Under the Sub-advisory
Agreement, the Sub-advisor is required, among other things, to furnish to the
Investment Advisor and the Board of Trustees such periodic and special reports
as they may request and attend regular business and investment related meetings
with the Investment Advisor and Board of Trustees if requested to do so. The
Sub-advisor will provide the Investment Advisor with foreign broker research, a
quarterly review of international economic and investment developments and
occasional analyses on international investment issues.
For the services provided by the Sub-advisor pursuant to the
Sub-advisory Agreement, the Investment Advisor will pay to the Sub-advisor a
fee, payable monthly, at the annual rates of seventy-five one-hundredths of one
percent (0.75%) of the average of the first $100,000,000 of the daily net
assets of the International Equity Fund, seventy one-hundredths of one percent
(0.70%) of the average of the next $100,000,000 of such assets, sixty-five
one-hundredths of one percent (0.65%) of the average of the next $100,000,000
of such assets, and sixty one-hundredths of one percent (0.60%) of the average
of such assets in excess of $300,000,000.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company engaged continuously in the issuance of
its shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Fund Shares. Such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment advisor or custodian to such an investment company, or
from purchasing shares of such a company for and upon the order of customers.
The Investment Advisor is subject to such banking laws and regulations.
Future changes in legal requirements relating to the permissible
activities of banks and their affiliates, as well as further interpretations of
present requirements, could prevent the Investment Advisor from continuing to
perform investment advisory services for the Company. If the Investment
Advisor were prohibited from continuing to perform such services, it is
expected that the Company's Board of Trustees would recommend that the Company
enter into a new agreement with another qualified firm. Any new advisory
agreement would be subject to shareholder approval.
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ADMINISTRATOR
Effective May 1, 1995, SEI Financial Management Corporation, a
wholly-owned subsidiary of SEI Corporation ("SEI"), serves as administrator
(the "Administrator") to the Company. The Administrator assists in supervising
all operations of each Fund, except those performed by the Investment Advisor
under the Investment Advisory Agreement, by the Sub-advisor under the
Sub-advisory Agreement, by SEI Financial Services Company under the
Distribution Agreement and by Citibank, N.A. or the Bank of New York under
their respective Custodian Agreements.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities for the Company. The Administrator prepares annual
and semi-annual reports to the Securities and Exchange Commission, prepares
Federal and state tax returns, prepares filings with state securities
commissions, and generally assists in all aspects of the Company's operations
other than those discussed above. Under the Administration Agreement, the
Administrator also provides fund accounting and related accounting services.
The Administrator may delegate its responsibilities under the Administration
Agreement with the Company's written approval.
The Administrator is entitled to receive compensation for services
rendered to the Funds at an annual rate of .17% of the average daily net assets
of each portfolio, which is calculated daily and paid monthly. All subsequent
portfolios will be subject to a minimum annual fee of $60,000 (domestic
portfolios) and $80,000 (international portfolios). An additional minimum fee
of $15,000 for each class of shares in excess of two classes will be imposed on
all current and future portfolios.
For the period May 1, 1995 to October 31, 1995, the Company paid the
Administrator, net of voluntary fee reductions, administration fees of:
$177,675, $54,072, $294,903, $207,510, $142,251, $111,565, $5,506 and $33,209
with respect to the Cash Management, Tax-Free, U.S. Treasury Securities,
Equity, Bond, Intermediate Income, Pennsylvania Tax-Free Bond and Special
Equity Funds, respectively. For the same period, the Administrator voluntarily
reduced its fees in the amount of $0, $0, $34,332, $97,490, $7,609, $0, $0 and
$12,619 with respect to the Cash Management, Tax-Free, U.S. Treasury
Securities, Equity, Bond, Intermediate Income, Pennsylvania Tax-Free Bond and
Special Equity Funds, respectively.
For the period from commencement of operations (May 15, 1995 for the
International Equity and Short-Term Income Funds and June 27, 1995 for the
Balanced Fund) to October 31, 1995, the Company paid the Administrator, net of
voluntary fee reductions, administration fees of $8,732, $30,932 and $19,470
with respect to the International Equity, Short-Term Income and Balanced Funds,
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respectively. For the same periods, the administrator voluntarily reduced its
fees in the amount of $0, $0 and $804 with respect to the International Equity,
Short-Term Income and Balanced Funds, respectively.
Prior to May 1, 1995, The Winsbury Company ("Winsbury") served as
administrator to the Company. For the fiscal years ended October 31, 1993,
October 31, 1994 and the period November 1, 1994 to April 30, 1995, the Company
paid Winsbury, net of voluntary fee reductions, administration fees of:
$325,070, $282,405 and $187,882, respectively, with respect to the Cash
Management Fund; $72,625, $24,865 and $31,152 respectively, with respect to the
Tax-Free Fund; and $684,392, $635,737 and $340,997 respectively, with respect
to the U.S. Treasury Securities Fund. For the same periods, Winsbury
voluntarily reduced its fees in the amount of $0, $0 and $0 respectively, with
respect to the Cash Management Fund; $33,620, $83,234 and $34,788 respectively,
with respect to the Tax-Free Fund; and $0, $0 and $282 respectively with
respect to the U.S. Treasury Securities Fund.
For the fiscal years ended October 31, 1993, October 31, 1994 and the
period November 1, 1994 to April 30, 1995 the Company paid Winsbury, net of
voluntary fee reductions, administration fees of: $68,252, $96,416 and $47,405
respectively, with respect to the Equity Fund; $17,277, $25,688 and $20,541
respectively, with respect to the Bond Fund; and $17,578, $22,266 and $12,956
respectively, with respect to the Intermediate Income Fund. For the same
periods, Winsbury voluntarily reduced its fees in the amount of: $7,577, $0
and $0 respectively, with respect to the Equity Fund; $25,149, $25,666 and
$5,774 respectively, with respect to the Bond Fund; and $25,922, $22,250 and
$4,823 respectively, with respect to the Intermediate Income Fund.
For the period September 21, 1992 (commencement of operations) to
October 31, 1992, the fiscal years ended October 31, 1993, October 31, 1994 and
the period November 1, 1994 to April 30, 1995 the Company paid Winsbury, net of
voluntary fee reductions, administration fees of $________, $________,
$________ and $3,015, respectively, with respect to the Pennsylvania Tax-Free
Bond Fund. For the same periods, Winsbury voluntarily reduced its fees in the
amount of $252, $11,114, $15,341 and $3,037 respectively, with respect to the
Pennsylvania Tax-Free Bond Fund.
For the period March 15, 1994 (commencement of operations) to October
31, 1994 and the period November 1, 1994 to April 30, 1995 the Company paid
Winsbury, net of voluntary fee reductions, administration fees of $0 and $4,808
with respect to the Special Equity Fund. For the same periods, Winsbury
voluntarily reduced its fees in the amount of $11,686 and $5,302 with respect
to the Special Equity Fund.
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FUND ACCOUNTANT
As discussed above, the Administrator provides fund accounting and
related accounting services to the Company. Prior to May 1, 1995, BISYS Fund
Services Ohio, Inc. ("BISYS"), an affiliate of Winsbury served as fund
accountant to the Company pursuant to an accounting agreement.
For fiscal years ended October 31, 1992, October 31, 1993, October 31,
1994 and the period November 1, 1994 through April 30, 1995 the Company paid
BISYS, exclusive of out-of-pocket expenses, fund accounting fees of: $41,666,
$49,441, $42,684 and $29,326 respectively with respect to the Cash Management
Fund; $24,584, $41,126, $41,355 and $20,741 respectively, with respect to the
Tax-Free Fund; $114,889, $103,193, $95,522 and $51,405 respectively, with
respect to the U.S. Treasury Securities Fund; $18,937, $34,954, $34,957 and
$18,329 respectively, with respect to the Equity Fund; $16,788, $38,671,
$39,076 and $21,043 respectively, with respect to the Bond Fund; and $15,526,
$36,894, $37,837 and $20,032 respectively with respect to the Intermediate
Income Fund. For the period September 21, 1992 (commencement of operations) to
October 31, 1992, the fiscal years ended October 31, 1993, October 31, 1994 and
the period November 1, 1994 through April 30, 1995 the Company paid BISYS,
exclusive of out-of-pocket expenses, fund accounting fees of $2,240, $23,140,
$25,435 and $18,288 respectively, with respect to the Pennsylvania Tax-Free
Bond Fund.
For the period March 15, 1994 (commencement of operations) to October
31, 1994 and the period November 1, 1994 through April 30, 1995 the Company
paid BISYS, exclusive of out-of-pocket expenses, fund accounting fees of
$20,759 and $16,775, respectively with respect to the Special Equity Fund.
TRANSFER AGENT
SEI Financial Management Corporation also serves as Fund Transfer
Agent pursuant to the Transfer Agent and Service Agreement. The Transfer Agent
has agreed to perform certain services including the following: (i) to issue
and redeem shares of the Company; (ii) to address and mail all communications
by the Company to its Shareholders, including reports to shareholders, dividend
and distribution notices, proxy materials for meetings of shareholders and
prospectuses; (iii) to maintain shareholder accounts; and (iv) to make periodic
reports to the Company's Board of Trustees concerning the Company's operations.
The Company shall pay the Transfer Agent an annual fee equal to .02% of the
total assets of the Fund, plus an annual fee of $25 per shareholder account and
all out-of-pocket expenses.
For the period May 1, 1995 to October 31, 1995, the Company paid the
Transfer Agent, exclusive of out of pocket expenses, fees
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of: $30,413, $10,697, $53,019, $49,703, $24,337, $18,124, $888 and $7,479 with
respect to the Cash Management, Tax-Free, U.S. Treasury Securities, Equity,
Bond, Intermediate Income, Pennsylvania Tax-Free Bond and Special Equity Funds,
respectively.
For the period from commencement of operations (May 15, 1995 for the
International Equity and Short-Term Income Funds and June 27, 1995 for the
Balanced Fund) to October 31, 1995, the Company paid the Transfer Agent,
exclusive of out-of-pocket expenses, fees of: $595, $5,034 and $3,503 with
respect to the International Equity, Short-Term Income and Balanced Funds,
respectively.
Prior to May 1, 1995 BISYS served as transfer agent pursuant to a
Transfer Agent and Shareholder Service Agreement. For fiscal years ended
October 31, 1993, October 31, 1994 and the period November 1, 1994 through
April 30, 1995 the Company paid BISYS, exclusive of out-of-pocket expenses,
fees of: $14,453, $22,343 and $12,912 respectively, with respect to the Cash
Management Fund; $12,056, $20,557 and $12,139 respectively, with respect to the
Tax-Free Fund; $15,656, $22,575 and $10,079 respectively with respect to the
U.S. Treasury Securities Fund; $29,678, $55,781 and $35,939 respectively, with
respect to the Equity Fund; $16,426, $32,247 and $18,820 respectively, with
respect to the Bond Fund; and $21,844, $30,876 and $18,088 respectively, with
respect to the Intermediate Income Fund. For the fiscal years ended October
31, 1993, October 31, 1994 and the period November 1, 1994 through April 30,
1995, the Company paid BISYS, exclusive of out-of-pocket expenses, fees of
$10,081, $7,531 and $9,997 respectively, with respect to the Pennsylvania
Tax-Free Bond Fund.
For the period March 15, 1994 (commencement of operations) to October
31, 1994 and the period November 1, 1994 through April 30, 1995 the Company
paid BISYS, exclusive of out-of-pocket expenses, fees of $13,233 and $17,723
with respect to the Special Equity Fund.
The Company's agreement with BISYS required the Company to pay it a
reasonable fee in connection with the termination of its services as transfer
agent, which occurred on April 30, 1995.
DISTRIBUTOR
SEI Financial Services Company, a wholly-owned subsidiary of SEI,
serves as distributor (the "Distributor") to the Funds pursuant to the
Distribution Agreement.
For the period May 1, 1995 to October 31, 1995, the Distributor
received front-end sales charges in connection with
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Retail Share purchases of the Equity Fund, Special Equity Fund, Bond Fund,
Intermediate Income Fund, and Pennsylvania Tax-Free Bond Fund in the amounts of
$3,546, $1,330, $917, $839 and $854, respectively. Of these amounts, the
Distributor retained $337, $150, $102, $98 and $90, respectively, and the
Investment Advisor and its affiliates retained $3,207, $1,180, $816, $741 and
$764, respectively.
For the period from commencement of operations (May 15, 1995 for the
International Equity Fund, May 17, 1995 for the Short-Term Income Fund and June
29, 1995 for the Balanced Fund) to October 31, 1995, the Distributor received
front-end sales charges in connection with Retail Share purchases of the
International Equity Fund, Short-Term Income Fund and Balanced Fund in the
amounts of $123, $22 and $831, respectively. Of these amounts, the Distributor
retained $11, $18 and $86, respectively, and the Investment Advisor and its
affiliates retained $112, $4 and $745, respectively.
Prior to May 1, 1995, Winsbury served as distributor to the Company.
For the fiscal years ended October 31, 1993 and October 31, 1994 and the period
November 1, 1994 through April 30, 1995 Winsbury received front-end sales
charges in connection with Share purchases as follows: Equity Fund --
$________, $________ and $________, respectively; Bond Fund -- $________,
$________ and $-_______, respectively; Intermediate Income Fund -- $________,
$________ and $________, respectively; and Pennsylvania Tax-Free Bond Fund --
$_______, $________ and $________, respectively. Of these amounts, Winsbury
retained $________, $________ and $________, respectively, and the Investment
Advisor and its affiliates retained $________, $________ and $________,
respectively, with respect to the Equity Fund; Winsbury retained $________,
$________ and $________, respectively, and the Investment Advisor and its
affiliates retained $________, $________ and $________, respectively, with
respect to the Bond Fund; Winsbury retained $________, $________ and $________,
respectively and the Investment Advisor and its affiliates retained $________,
$________ and $________, respectively, with respect to the Intermediate Income
Fund; and Winsbury retained $_________, $________ and $________, respectively,
and the Investment Advisor and its affiliates retained $________, $________ and
$________, respectively, with respect to the Pennsylvania Tax-Free Bond Fund;
For the period March 15, 1994 (commencement of operations) to October
31, 1994 and the period November 1, 1994 through April 30, 1995 Winsbury
received $________ and $________ in front-end sales charges in connection with
Share purchases with respect to the Special Equity Fund. Of these amounts,
Winsbury retained $________ and $________, respectively, and the Investment
Advisor and its affiliates retained $________ and $________, respectively.
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DISTRIBUTION AND SERVICES PLAN
Under the Funds' Distribution and Services Plan (the "Distribution
Plan"), each Fund will pay a monthly distribution fee (also referred to as a
12b-1 fee) to the Distributor as compensation for its services in connection
with the Distribution Plan at an annual rate not to exceed .40% of the average
daily net assets of the Retail Shares of such Fund.
Payments of the fee by any Money Market Fund under the Distribution
Plan will be reduced to the extent necessary to ensure that the amount of such
fee and any other operating expenses that are accrued on any day with respect
to such Fund will not exceed the gross income accrued with respect to such Fund
on that day.
The Distribution Plan became operational with respect to the Retail
Shares of the Cash Management, Tax-Free, U.S. Treasury Securities, Equity,
Bond, Intermediate Income, Pennsylvania Tax-Free Bond and Special Equity Funds
on February 21, 1995. Additionally, Retail Shares of the International Equity,
Short-Term Income and Balanced Funds were first offered on May 15, 1995, May
17, 1995 and June 29, 1995, respectively. For the period from February 21,
1995 through April 30, 1995, pursuant to the Distribution Plan for Retail
Shares, the Cash Management Fund paid Winsbury Fees of $________, of which
$________, $________, $________ and $________ were retained by Winsbury, the
Investment Advisor, affiliates of Winsbury and affiliates of the Investment
Advisor, respectively; the Tax-Free Fund paid Winsbury Fees of $________, of
which $________, $________, $________ and $________ were retained by Winsbury,
the Investment Advisor, affiliates of Winsbury and affiliates of the investment
Advisor, respectively; the U.S. Treasury Securities Fund paid Winsbury
$________, of which $________, $________, $_______ and $_________ were retained
by Winsbury, the Investment Advisor, affiliates of Winsbury and affiliates of
the Investment Advisor, respectively; the Equity Fund paid Winsbury Fees of
$________, of which $________, $________, $________ and $________ were retained
by Winsbury, the Investment Advisor, affiliates of Winsbury and affiliates of
the Investment Advisor, respectively; the Bond Fund paid Winsbury Fees of
$________, of which $________, $________, $________ and $________ were retained
by Winsbury, the Investment Advisor, affiliates of Winsbury and affiliates of
the Investment Advisor, respectively; the Intermediate Income Fund paid
Winsbury Fees of $________, of which $________, $________, $________ and
$________, were retained by Winsbury, the Investment Advisor, affiliates of
Winsbury and affiliates of the Investment Advisor, respectively; the
Pennsylvania Tax-Free Bond Fund paid Winsbury Fees of $________, of which
$________, $________, $________ and $________ were retained by Winsbury, the
Investment Advisor, affiliates of Winsbury and affiliates of the Investment
Advisor, respectively; the Special Equity Fund paid Winsbury Fees of $________,
of which $________,
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$________, $________ and $________ were retained by Winsbury, the Investment
Advisor, affiliates of Winsbury and affiliates of the Investment Advisor,
respectively. For the period from May 1, 1995 or commencement of operations
through October 31, 1995, pursuant to the Distribution Plan for Retail Shares,
the Cash Management Fund paid the Distributor fees of $_________, of which
$________, $________, $________ and $________ were retained by the Distributor,
the Investment Advisor, affiliates of the Distributor and affiliates of the
Investment Advisor, respectively; the Tax-Free Fund paid the Distributor fees
of $_________, of which $________, $________, $________ and $________ were
retained by the Distributor, the Investment Advisor, affiliates of the
Distributor and affiliates of the Investment Advisor, respectively; the U.S.
Treasury Securities Fund paid the Distributor $________, of which $________,
$________, $________ and $________ were retained by the Distributor, the
Investment Advisor, affiliates of the Distributor and affiliates of the
Investment Advisor, respectively; the Equity Fund paid the Distributor fees of
$________, of which $________, $________, $________ and $________ were retained
by the Distributor, the Investment Advisor, affiliates of the Distributor and
affiliates of the Investment Advisor, respectively; the Bond Fund paid the
Distributor fees of $________, of which $________, $________, $________ and
$________ were retained by the Distributor, the Investment Advisor, affiliates
of the Distributor and affiliates of the Investment Advisor, respectively; the
Intermediate Income Fund paid the Distributor fees of $________, of which
$________, $________, $________ and $________ were retained by the Distributor,
the Investment Advisor, affiliates of the Distributor and affiliates of the
Investment Advisor, respectively; the Pennsylvania Tax-Free Bond Fund paid the
Distributor fees of $________, of which $________, $________, $________ and
$________ were retained by the Distributor, the Investment Advisor, affiliates
of the Distributor and affiliates of the Investment Advisor, respectively; the
Special Equity Fund paid the Distributor fees of $________, of which $________,
$________, $________ and $________ were retained by the Distributor, the
Investment Advisor, affiliates of the Distributor and affiliates of the
Investment Advisor, respectively; the International Equity Fund paid the
Distributor fees of $________, of which $________, $________, $________ and
$________ were retained by the Distributor, the Investment Advisor, affiliates
of the Distributor and affiliates of the Investment Advisor, respectively; the
Short-Term Income Fund paid the Distributor fees of $________, of which
$________, $________, $________ and $________ were retained by the Distributor,
the Investment Advisor, affiliates of the Distributor and affiliates of the
Investment Advisor, respectively; and the Balanced Fund paid the Distributor
fees of $________, of which $________, $________, $________ and $________ were
retained by the Distributor, the Investment Advisor, affiliates of the
Distributor and affiliates of the Investment Advisor, respectively. Of the
aggregate amount so paid to the Distributor during these time periods, none was
attributable to media advertisements and other
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promotional activities, prospectuses (to other than current shareholders) and
other investor materials, payments to broker-dealers, or telemarking
activities. For the same time periods the Distributor and various broker
dealers waived $______, $______, $______, $______, $______, $______, $______
and $______ respectively, for the Cash Management, Tax-Free, U.S. Treasury
Securities, Equity, Bond, Intermediate Income, Pennsylvania Tax-Free Bond,
Special Equity, International Equity, Short-Term Income and Balanced Funds.
CUSTODIANS
Until on or about March 7, 1996 cash and securities owned by each
Fund, except the International Equity Fund, are held by Citibank, N.A.
("Citibank") as custodian. Citibank serves as custodian to such Funds pursuant
to the Custodian Agreement under which Citibank has agreed to: (i) maintain a
separate account or accounts in the name of each such Fund; (ii) make receipts
and disbursements as authorized by the Administrator on behalf of each such
Fund; (iii) collect and receive all income and other payments and distributions
on account of each such Fund's portfolio securities; and (iv) make periodic
reports to the Company's Board of Trustees concerning the Company's property
held in custody. Citibank may at its own expense, appoint sub-custodians on
behalf of the Company.
Effective on or about March 7, 1996, CoreStates Bank, N.A.
("CoreStates") serves as custodian to each of the Funds, except the
International Equity Fund. CoreStates serves as custodian to such Funds
pursuant to the Custodian Agreement under which CoreStates has agreed to: (i)
maintain a separate custodial account in the name of the Company to hold the
securities of the Company, (ii) credit for the account of the Company all
proceeds received and payable on assets maintained under the Custodian
Agreement, (iii) debit the account of the Company for cost of acquiring
securities received for the Company, (iv) endorse and collect all checks,
drafts or other orders for the payment of money received by CoreStates for the
account of or from the Company, and (v) perform other related services.
CoreStates may appoint sub-custodians on behalf of the Company.
Cash and securities owned by the International Equity Fund are held by
The Bank of New York ("BONY") as custodian. BONY serves as custodian to the
International Equity Fund pursuant to the Custodian Agreement under which BONY
has agreed to: (i) maintain a separate account in the name of this Fund; (ii)
make receipts and disbursements as authorized on behalf of this Fund; (iii)
collect and receive all income and other payments and distributions on account
of this International Equity Fund's securities; and (iv) make periodic reports
to the Company's Board of Trustees concerning
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the Company's property held in custody. BONY may at its own expense, appoint
foreign sub-custodians on behalf of the Company.
COUNSEL
Drinker Biddle & Reath (of which Mr. Hilles, Secretary of the Company,
is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania 19107 are
counsel to the Company and will pass upon certain legal matters in connection
with the Shares offered hereby.
FINANCIAL STATEMENTS
The financial statements and related notes of the Company dated
October 31, 1995, which are incorporated by reference to the Company's October
31, 1995 Annual Report to Shareholders filed with the Securities and Exchange
Commission on December 27, 1995, have been audited by Coopers & Lybrand
L.L.P., independent accountants, whose report thereon appears elsewhere
therein, and have been incorporated herein in reliance upon the report of said
firm of accountants given their authority as experts in auditing and
accounting. Coopers & Lybrand L.L.P. has offices at 2400 Eleven Penn Center,
Philadelphia, Pennsylvania 19103.
PERFORMANCE INFORMATION
GENERAL
From time to time, a Fund may include general comparative information,
such as statistical data regarding inflation, securities indices or the
features or performance of alternative investments, in advertisements, sales
literature and reports to shareholders. A Fund may also include calculations,
such as hypothetical compounding examples or tax-free compounding examples,
which describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any Fund. In addition, a Fund may include
charts comparing various tax-free yields versus taxable yield equivalents at
different income levels.
From time to time, the yield and total return of the Fund may be
quoted in advertisements, shareholder reports or other communications to
shareholders.
As explained in the prospectuses, the Company offers Institutional
Shares and Retail Shares of the Funds. Institutional Shares are sold through
procedures established by the Distributor to bank trust departments purchasing
Institutional Shares on behalf of the fiduciary, advisory, agency, custody or
other similar accounts maintained by, or on behalf of, their customers. Retail
shares are offered to the general public through procedures
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established by the Distributor to Customers satisfying the minimum purchase
requirement of $1,000. The Retail Shares and Institutional Shares may have
different sales charges and other expenses, which may affect performance.
Investors may call (800) 344-2716 to obtain more information concerning Retail
and Institutional Shares. Investors may also obtain information concerning
Retail and Institutional Shares from their sales representative or any other
person, such as a broker-dealer or bank who offers Shares in the Funds.
YIELDS OF THE CASH MANAGEMENT, TAX-FREE, U.S. TREASURY SECURITIES AND
PENNSYLVANIA TAX-FREE BOND FUNDS
As summarized in the Prospectuses under the heading "Yield
Information," the yield of each of the Money Market Funds for a seven-day
period (the "base period") will be computed separately for each class by
determining the net change in value (calculated as set forth below) of a
hypothetical account having a balance of one share at the beginning of the
period, dividing the net change in account value by the value of the account at
the beginning of the base period to obtain the base period return, and
multiplying the base period return by 365/7 with the resulting yield figure
carried to the nearest hundredth of one percent. Net changes in value of a
hypothetical account will include the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares, but will not include realized gains or
losses or unrealized appreciation or depreciation on portfolio investments.
Yield may also be calculated on a compound basis (the "effective yield") which
assumes that net income is reinvested in Fund Shares at the same rate as net
income is earned for the base period.
The Tax-Free and Pennsylvania Tax-Free Bond Funds may also advertise a
"taxable equivalent yield" and a "taxable equivalent effective yield." Taxable
equivalent yield will be computed by dividing that portion of each of the
Tax-Free and Pennsylvania Tax-Free Fund's yield which is tax-exempt by one
minus a stated income tax rate and adding the product to the portion, if any,
of the yield of a Fund that is not tax-exempt. The taxable equivalent
effective yield for Funds is computed by dividing that portion of the effective
yield of the each Fund which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of the effective yield of
each Fund that is not tax-exempt.
The yield and effective yield of each of the Money Market Funds and
the taxable equivalent yield and the taxable equivalent effective yield of the
Tax-Free and Pennsylvania Tax-Free Bond Funds will vary in response to
fluctuations in interest rates and in the expenses of each Fund. For
comparative purposes the current and effective
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yields should be compared to current and effective yields offered by competing
financial institutions for the same base period and calculated by the methods
described above.
For the seven-day period ended October 31, 1995, the yield of Retail
and Institutional Shares of the Cash Management Fund was 5.03% and 5.28%,
respectively, and the compounded effective yield was 5.16% and 5.42%,
respectively; the yield of Retail and Institutional Shares of the Tax-Free Fund
was 3.31% and 3.36%, respectively, the compounded effective yield was 3.36% and
3.41%, respectively, the taxable - equivalent yield was 5.48% and 5.56%,
respectively, and the taxable - equivalent effective yield was 5.56% and 5.64%,
respectively, assuming a federal marginal income tax rate of 39.6%; and the
yield of Retail and Institutional Shares of the U.S. Treasury Securities Fund
was 5.03% and 5.18%, respectively, and the compounded effective yield was 5.16%
and 5.31%, respectively. For the thirty-day period ended October 31, 1995, the
taxable-equivalent effective yield of the Retail and Institutional Shares of
the Pennsylvania Tax-Free Bond Fund was 7.14% and 7.28%, respectively,
assuming a federal marginal income tax rate of 39.6%. During these periods,
investment advisory and/or administration fees were voluntarily reduced;
without these voluntary reductions, all of the yields would have been lower
than those quoted above.
THE NON-MONEY MARKET FUNDS
YIELD CALCULATIONS. The yield for Retail and Institutional Shares of
each of the Non-Money Market Funds is calculated separately by dividing the net
investment income per share (as described below) earned by a class during a
30-day (or one month) period by the maximum offering price per share (including
the maximum sales load of 2.0% for Retail Shares) on the last day of the period
and annualizing the result on a semi-annual basis by adding one to the
quotient, raising the sum to the power of six, subtracting one from the result
and then doubling the difference. A Fund's net investment income per share
earned during the period with respect to a particular class is based on the
average daily number of shares outstanding in the class during the period
entitled to receive dividends and includes dividends and interest earned during
the period attributable to that class minus expenses accrued for the period
attributable to that class, net of reimbursements. This calculation can be
expressed as follows:
a-b 6
Yield = 2 [(------ + 1) -1]
cd
Where: a = dividends and interest earned during the period.
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b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = maximum offering price per share on the last day of
the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in that Fund. Interest earned on any
debt obligations held by a Fund is calculated by computing the yield to
maturity of each obligation held by that Fund based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and
dividing the result by 360 and multiplying the quotient by the market value of
the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held by that Fund. For purposes of this calculation, it is
assumed that each month contains 30 days. The maturity of an obligation with a
call provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared
as a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
Based on the foregoing calculations, for the one-month period ended
October 31, 1995, the yield of the Retail and Institutional Shares of the
Equity Fund was 1.08% and 1.35%, respectively, the yield of the Retail and
Institutional Shares of the Special Equity Fund was 0.87% and 0.88%,
respectively; the yield of the Retail and Institutional Shares of the Bond Fund
was 5.57% and 5.95%, respectively; the yield of the Retail and Institutional
Shares of the Intermediate Income Fund was 5.21% and 5.57%, respectively; and
the yield of the Retail and Institutional Shares of the Pennsylvania Tax-Free
Bond Fund was 4.31% and 4.40%, respectively; the
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yield of the Retail and Institutional Shares of the Short-Term Income Fund was
4.93% and 5.24% and the yield of the Retail and Institutional Shares of the
Balanced Fund was 3.54% and 3.86%, respectively. During these periods,
investment advisory and/or administration fees were voluntarily reduced;
without these voluntary reductions, all of the yields would have been lower
than those quoted above.
TOTAL RETURN CALCULATIONS. The Funds compute their average annual
total returns separately for Retail and Institutional Shares by determining the
average annual compounded rates of return during specified periods that equate
the initial amount invested in a particular share class to the ending
redeemable value of such investment in the class. This is done by dividing the
ending redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
Average Annual ERV 1/n
Total Return = [(----) - 1]
P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
The Funds compute their aggregate total returns separately for Retail
and Institutional Shares by determining the aggregate compounded rates of
return during specified periods that likewise equate the initial amount
invested in a particular share class to the ending redeemable value of such
investment in the class. The formula for calculating aggregate total return is
as follows:
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Aggregate ERV
Total Return = [(----) - 1]
P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations. In addition, a Fund's
average annual total return and aggregate total return quotations reflect the
deduction of the maximum sales charge in connection with the purchase of Retail
Shares of the non-money market funds. The non-money market funds may also
advertise total return data without reflecting sales charges in accordance with
the rules of the Securities and Exchange Commission. Quotations that do not
reflect such sales charges will, of course, be higher than quotations which do
reflect the sales charge.
Since performance will fluctuate, performance data for the Funds
should not be used to compare an investment in the Funds' shares with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance is generally a function of the
kind and quality of the instruments held in a portfolio, portfolio maturity,
operating expenses and market conditions.
Based on the foregoing calculations, the average annual total return
for the one and five year periods ended October 31, 1995 and for the period
from November 27, 1989 (commencement of operations) to October 31, 1995 for
Retail Shares of the Cash Management Fund was 5.25%, 4.28% and 4.89%,
respectively; for Retail Shares of the U.S. Treasury Securities Fund was 5.16%,
4.06% and 4.68%; and for Retail Shares of the Tax-Free Fund was 3.39%, 2.97%
and 3.40%. The aggregate total return for Retail Shares of the Cash Management
Fund for the same periods was 5.25%, 26.55% and 32.69%, respectively; for
Retail Shares of the U.S. Treasury Securities Fund was 5.16%, 25.14% and
31.12%, respectively; and for Retail Shares of the Tax-Free Fund was 3.39%,
18.23% and 21.94%, respectively. The average annual total return for the one
and five year periods ended October 31, 1995 and for the period from February
28, 1990 (commencement of operations) to October 31, 1995 for Retail Shares of
the Equity Fund was
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19.47%, 18.05% and 13.80%, respectively; for Retail Shares of the Bond Fund was
11.55%, 8.25% and 8.10%, respectively; and for Retail Shares of the
Intermediate Income Fund was 7.69%, 7.04% and 7.31%, respectively. The
aggregate total return for Retail Shares of the Equity Fund for the same
periods was 19.47%, 65.71% and 108.25%, respectively; for Retail Shares of the
Bond Fund was 11.55%, 38.66% and 55.47%, respectively; and for Retail Shares of
the Intermediate Income Fund was 7.69%, 37.65% and 49.26%, respectively. The
average annual total return and the aggregate total return for the one year
period ended October 31, 1995 and for the period from September 21, 1992
(commencement of operations) to October 31, 1995 for Retail Shares of the
Pennsylvania Tax-Free Bond Fund was 10.00% and 10.00%; 4.81% and 15.74%. The
average annual total return and the aggregate total return for the one year
period ended October 31, 1995 and for the period from March 15, 1994
(commencement of operations) to October 31, 1995 for Retail Shares of the
Special Equity Fund was 21.97% and 21.97%; and 8.97% and 15.03%. The average
annual total return and the aggregate total return for the period from the
commencement of operations (May 15, 1995 with respect to the International
Equity Fund, June 29, 1995 with respect to the Balanced Fund and May 17, 1995
with respect to the Short-Term Income Fund) to October 31, 1995 for Retail
Shares of the International Equity, Short-Term Income and Balanced Funds was
17.48% and 7.75%; 1.23% and 0.56%; and 9.72% and 3.20%. During these periods,
investment advisory and/or administration fees were voluntarily reduced;
without such voluntary fee reductions, the total returns would have been lower
than those stated.
Institutional Shares were first offered on February 21, 1995
("Offering Date"). Prior to the Offering Date all shares were classified as
Retail Shares. The average annual total return and the aggregate total return
for Institutional Shares of the Cash Management, U.S. Treasury Securities,
Tax-Free, Equity, Bond, Intermediate Income, Pennsylvania Tax-Free Bond and
Special Equity Funds for the period from the Offering Date to October 31, 1995
was 4.92% and 32.92%; 4.69% and 31.26%; 3.41% and 21.98%; 14.21% and 112.52%;
8.48% and 58.68%; 7.69% and 52.27%; 5.48% and 18.06% and 10.30% and 17.33%.
The average annual total return and the aggregate total return for
Institutional Shares of the International Equity Fund, Balanced Fund and
Short-Term Income Fund for the period from commencement of operations (May 15,
1995 with respect to the International Equity Fund, June 27, 1995 with respect
to the Balanced Fund and May 15, 1995 with respect to the Short-Term Income
Fund) to October 31, 1995 was 23.10% and 10.10%; 14.71% and 4.89%; and 6.31%
and 2.87%. During these periods, investment advisory and/or administration
fees were voluntarily reduced, without such voluntary fee reductions the total
returns would have been lower than those stated.
Additionally, the following average annual total returns and aggregate
total returns for the periods prior to the Offering Date
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were calculated using a combination of Institutional Share and Retail Share
data.
The average annual total return for the one and five year periods
ended October 31, 1995 for Institutional Shares of the Cash Management Fund was
5.43% and 4.32%, respectively; for Institutional Shares of the U.S. Treasury
Securities Fund was 5.27% and 4.09%, respectively; for Institutional Shares of
the Tax-Free Fund was 3.43% and 2.98%, respectively; for Institutional Shares
of the Equity Fund was 22.00% and 18.53%, respectively; for Institutional
Shares of the Bond Fund was 13.87% and 8.68%, respectively; and for
Institutional Shares of the Intermediate Income Fund was 9.92% and 7.49%,
respectively. For the one year period ended October 31, 1995, the average
annual total return for Institutional Shares of the Pennsylvania Tax-Free Bond
Fund and Special Equity Fund was 12.30% and 24.44%, respectively.
The aggregate total return for the one and five year periods ended
October 31, 1995 for Institutional Shares of the Cash Management Fund was 5.43%
and 32.92%, respectively; for Institutional Shares of the U.S. Treasury
Securities Fund was 5.27% and 31.26%, respectively; for Institutional Shares of
the Tax-Free Fund was 3.43% and 21.98%, respectively; for Institutional Shares
of the Equity Fund was 22.00% and 112.52%, respectively; for Institutional
Shares of the Bond Fund was 13.87% and 58.73%, respectively; and for
Institutional Shares of the Intermediate Income Fund was 9.92% and 52.27%,
respectively. For the one year period ended October 31, 1995 the aggregate
total return for Institutional Shares of the Pennsylvania Tax-Free Bond Fund
and Special Equity Fund was 18.06% and 17.33%, respectively.
MISCELLANEOUS
The Company is a trust of the type commonly known as a "business
trust" and is governed by the laws of the Commonwealth of Massachusetts.
Shareholders of such a trust may, under certain circumstances, be held
personally liable (as if they were partners) for the obligations of the trust.
The Agreement and Declaration of Trust of the Company provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Company and that every note, bond, contract, order or other
undertaking made by the Company shall contain a provision to the effect that
the shareholders are not personally liable thereunder. The Agreement and
Declaration of Trust provides for indemnification out of the trust property of
any shareholder held personally liable solely by reason of his being or having
been a shareholder and not because of his acts or omissions or some other
reason. The Agreement and Declaration of Trust also provides that the Company
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Company and satisfy any judgment
thereon. Thus, the risk of a shareholder's
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incurring financial loss beyond its investment on account of shareholder
liability is limited to circumstances in which the Company itself would be
unable to meet its obligations.
The Company's Agreement and Declaration of Trust provides further that
no trustee, officer or agent of the Company shall be personally liable for or
on account of any contract, debt, tort, claim, damage, judgment or decree
arising out of or connected with the administration or preservation of the
trust estate or the conduct of any business of the Company, nor shall any
trustee or officer be personally liable to any person for any action or failure
to act except by reason of his or her own bad faith, willful misfeasance, gross
negligence in the performance of his or her duties or by reason of reckless
disregard of his or her obligations and duties as trustee or officer. It also
provides that all persons having any claim against the trustees, officers or
the Company shall look solely to the trust property for payment. With the
exceptions stated, the Agreement and Declaration of Trust provides that each
trustee and officer is entitled to be indemnified against all liabilities and
expenses reasonably incurred by him or her in connection with the defense or
disposition of any proceeding in which he or she may be involved or with which
he or she may be threatened by reason of his or her being or having been a
trustee or officer. Employees of the Company are similarly entitled to
indemnification unless such person would not be entitled to indemnification had
he or she been a trustee or officer.
CERTAIN RECORD HOLDERS. As of December 6, 1995, the name, address and
percentage ownership of each investor that held of record or beneficially 5% or
more of the outstanding Retail Shares of the Cash Management Fund were as
follows: Dale E. Smith and Florence Smith, JTTEN, 8 Toft Woods Way, Media, PA
19063, 34.31%. As of December 6, 1995, the name, address and percentage
ownership of each investor that held of record or beneficially 5% or more of
the outstanding Retail Shares of the U.S. Treasury Securities Fund were as
follows: Plymouth Meeting Friends School, Germantown & Butler Pike, Plymouth
Meeting, PA, 33.40%; Meridian Trust Company custodian for John G. Fish rollover
IRA, 1009 Homeland Dr., Lancaster, PA 17601, 10.20%; Meridian Trust Company
custodian for Joyce A. Waldman rollover IRA, 640 American Ave., E309, King of
Prussia, PA 19406-4013, 5.61% and Karen J. Urban, 57 E. Ridge Street, Coaldale,
PA 18218, 5.57%. As of December 6, 1995, the name, address and percentage
ownership of each investor that held of record or beneficially 5% or more of
the outstanding Retail Shares of the Tax-Free Fund were as follows: Philip H.
Brown II and Margaret O. Brown JTWROS, 101 Grandview Rd., Springfield, PA
19064, 28.04%; Marietta E. Williams, RD 2, Box 141, Elverson, PA 19520,
22.59%; and Gregory J. Blazic and Lellus L. Blazic , JTTEN, P.O. Box 603,
Country Club Rd., Valley Forge, PA 19482-0603, 11.04%. As of December 6, 1995,
the name, address and percentage ownership of each investor that held of record
or
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beneficially 5% or more of the outstanding Retail Shares of the Equity Fund
were as follows: National Financial Services Corp for the Benefit of our
Customers, One World Financial Center, 200 Liberty St., 4th Floor, New York, NY
10281, 34.85%. As of December 6, 1995, the name, address and percentage
ownership of each investor that held of record or beneficially 5% or more of
the outstanding Retail Shares of the Bond Fund were as follows: National
Financial Services Corp for the Benefit of our Customers, One World Financial
Center, 200 Liberty St., 4th Floor, New York, NY 10281, 32.50%; Meridian Trust
Company, custodian for Shiras E. Holmes rollover IRA, 8761 Barkhurst Dr.,
Pittsburgh, PA 15237, 7.55%. As of December 6, 1995, the name, address and
percentage ownership of each investor that held of record or beneficially 5% or
more of the outstanding Retail Shares of the Intermediate Income Fund were as
follows: National Financial Services Corp, One World Financial Center, 200
Liberty St., 4th Floor, New York, NY 10281, 30.29%; Elissa A. Graner-Hoffman,
219 South Leh St., Allentown, PA 18104, 6.08%; and Meridian Trust Company,
custodian for John G. Fish rollover IRA, 1009 Homeland Dr., Lancaster, PA
17601, 9.24%. As of December 6, 1995, the name, address and percentage
ownership of each investor that held of record or beneficially 5% or more of
the outstanding Retail Shares of the Pennsylvania Tax-Free Bond Fund were as
follows: National Financial Services Corp for the Benefit of our Customers,
One World Financial Center, 200 Liberty St., 4th Floor, New York, NY 10281,
21.34%; George W. Grosz and Dorothy M. Grosz JTWROS, 533 S. Waterloo Rd.,
Devon, PA 19333, 5.75%; Lee B. Kirts and Celine Kirts, JTWROS, 451
Knightsbridge Lane, Hatfield, PA 19440, 5.35%; Wayne R. Huey, 73 Crestline Rd.,
Strafford, PA 19087, 5.04%; and Dale E. Smith and Florence Smith, JTTEN, 8 Toft
Woods Way, Media, PA 19063, 16.00%. As of December 6, 1995, the name, address
and percentage ownership of each investor that held of record or beneficially
5% or more of the outstanding Retail Shares of the Special Equity Fund were as
follows: National Financial Services Corp for the Benefit of our Customers,
One World Financial Center, 200 Liberty St., 4th Floor, New York, NY 10281,
29.29%; Meridian Trust Company, custodian for Richard H. Babb rollover IRA, 613
Cherokee St., Emmaus, PA 18049, 5.14% and State Street Bank & Trust Company,
custodian for Bernard J. Daney rollover IRA, 121 Ponds Lane, Wilmington, DE,
7.23%.
As of December 6, 1995, the name, address and percentage ownership of
each investor that held of record or beneficially 5% or more of the outstanding
Retail Shares of the Short-Term Income Fund were as follows: Jenny E.
Yuninger, 12 Ocola Dr., Paradise, PA 17562, 97.36%. As of December 6, 1995,
the name, address and percentage ownership of each investor that held of record
or beneficially 5% or more of the outstanding Retail Shares of the Balanced
Fund were as follows: Meridian Asset Management Co., custodian for Darlene H.
Lathrop rollover IRA, 2403 Smith Lane, Wilmington, DE 19810, 8.55%; State
Street Bank & Trust Company, custodian for Roberta M. Merenda rollover IRA, 2
Cedar Hill
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Court, Voorhees, NJ 08043, 12.31%; State Street Bank & Trust Company, custodian
for Robert J. Merenda rollover IRA, 2 Cedar Hill Court, Voorhees, NJ 08043,
24.51%; and State Street Bank & Trust Company, custodian for Richard Detwiler
rollover IRA, 22 S. Kenhorst Blvd., Shillington, PA 19807, 54.10%. As of
December 6, 1995, the name, address and percentage ownership of each investor
that held of record or beneficially 5% or more of the outstanding Retail Shares
of the International Equity Fund were as follows: National Financial Services
Corp. for the Benefit of our Customers, One World Financial Center, 200
Liberty St., 4th Floor, New York, NY 10281, 51.48%; Colette B. Price and Kim D.
Price, JTTEN, 2408 Welsh Rd., Mohnton, PA 19540, 7.98%; Meridian Trust Company,
custodian for Christopher D. Hogan rollover IRA, 711 Pass Road, Golfport, MS
39501, 11.07%; Dawn T. Hogan, 1750 Peachtree Lane, Norristown, PA 19403,
10.86%; and Meridian Trust Company, custodian for Bridget A. Vargo rollover
IRA, 224 E. King Street, Apt. 108, Lancaster, PA 17602, 8.43%.
As of December 6, 1995, the name, address and percentage ownership of
each investor that held of record or beneficially 5% or more of the outstanding
Institutional Shares of the Cash Management Fund were as follows: MAM & Co.,
c/o Mark Medura MHO 330, P.O. Box 16006, Mail Code BB0425, Reading, PA
19612-6006, 99.96%. As of December 6, 1995, the name, address and percentage
ownership of each investor that held of record or beneficially 5% or more of
the outstanding Institutional Shares of the U.S. Treasury Securities Fund were
as follows: MAM & Co., c/o Mark Medura MHO 330, P.O. Box 16006, Mail Code
BB0425, Reading, PA 19612-6006, 64.60%; and The Bank of New York, One Wall
Street, 5th Floor, New York, NY 10286, 35.40%. As of December 6, 1995, the
name, address and percentage ownership of each investor that held of record or
beneficially 5% or more of the outstanding Institutional Shares of the Tax-Free
Fund were as follows: MAM & Co., c/o Mark Medura MHO 330, P.O. Box 16006, Mail
Code BB0425, Reading, PA 19612-6006, 100%. As of December 6, 1995, the name,
address and percentage ownership of each investor that held of record or
beneficially 5% or more of the outstanding Institutional Shares of the Equity
Fund were as follows: MAM & Co., c/o Kim Kutzer, P.O. Box 16004, Mail Code
BB0405, Reading, PA 19612-6004, 99.93%. As of December 6, 1995, the name,
address and percentage ownership of each investor that held of record or
beneficially 5% or more of the outstanding Institutional Shares of the Bond
Fund were as
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follows: MAM & Co., c/o Kim Kutzer, P.O. Box 16004, Mail Code BB0405, Reading,
PA 19612-6004, 95.19%. As of December 6, 1995, the name, address and
percentage ownership of each investor that held of record or beneficially 5% or
more of the outstanding Institutional Shares of the Intermediate Income Fund
were as follows: MAM & Co., c/o Kim Kutzer, P.O. Box 16004, Mail Code BB0405,
Reading, PA 19612-6004, 96.24%. As of December 6, 1995, the name, address and
percentage ownership of each investor that held of record or beneficially 5% or
more of the outstanding Institutional Shares of the Pennsylvania Tax-Free Bond
Fund were as follows: MAM & Co., c/o Kim Kutzer, P.O. Box 16004, Mail Code
BB0405, Reading, PA 19612-6004, 100%. As of December 6, 1995, the name,
address and percentage ownership of each investor that held of record or
beneficially 5% or more of the outstanding Institutional Shares of the Special
Equity Fund were as follows: MAM & Co., c/o Kim Kutzer, P.O. Box 16006, Mail
Code BB0405, Reading, PA 19612-6006, 99.84%. As of December 6, 1995, the name,
address and percentage ownership of each investor that held of record or
beneficially 5% or more of the outstanding Institutional Shares of the
Short-Term Income Fund were as follows: MAM & Co., c/o Kim Kutzer, P.O. Box
16004, Mail Code BB0405, Reading, PA 19612-6004, 99.96%. As of December 6,
1995, the name, address and percentage ownership of each investor the held of
record or beneficially 5% or more of the outstanding Institutional Shares of
the Balanced Fund were as follows: MAM & Co., c/o Kim Kutzer, P.O. Box 16004,
Mail Code BB0405, Reading, PA 19612-6004, 52.69%; and MAM & Co., c/o Kim
Kutzer, P.O. Box 16006, Mail Code BB0405, Reading, PA 19612-6006, 47.25%. As
of December 6, 1995, the name, address and percentage ownership of each
investor that held of record or beneficially 5% or more of the outstanding
Institutional Shares of the International Equity Fund were as follows: MAM &
Co., c/o Kim Kutzer, P.O. Box 16004, Mail Code BB0405, Reading, PA 19612-6004,
94.18%.
B-67
<PAGE> 180
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely
payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings
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trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
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"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as the "F-1+" and "F-1"
categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by
a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which is issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of
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<PAGE> 183
likelihood that principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for
timely repayment.
"A1" - Obligations are supported by a strong capacity for
timely repayment.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic or financial
conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which
are currently in default.
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<PAGE> 184
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The
"BB" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and
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<PAGE> 185
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
"CCC" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest return
is indexed to equities, commodities, or currencies; certain swaps and options;
and interest only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are
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<PAGE> 186
generally known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating
category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
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<PAGE> 187
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when
due. Debt rated "B" possesses the risk that obligations will not be met when
due. Debt rated "CCC" is well below investment grade and has considerable
uncertainty as to timely payment of principal, interest or preferred dividends.
Debt rated "DD" is a defaulted debt obligation, and the rating "DP" represents
preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major
categories.
The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because
bonds rated in the "AAA" and "AA" categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to
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<PAGE> 188
adverse changes in economic conditions and circumstances than bonds with higher
ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major
rating categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of
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<PAGE> 189
principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased
investment risk than for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
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<PAGE> 190
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a plus (+)
designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the ratings by Moody's
Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be less
well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection
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<PAGE> 191
commonly regarded as required of an investment security and not distinctly or
predominantly speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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<PAGE> 192
REGISTRATION STATEMENT
OF
CONESTOGA FAMILY OF FUNDS
ON
FORM N-1A
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) (a) Included in Part A: Financial Highlights for the
Registrant's: Cash Management Fund, Tax-Free Fund,
and U.S. Treasury Securities Fund for the period
November 27, 1989 (commencement of operations) through
October 31, 1990, for the fiscal years ended October
31, 1991 through October 31, 1995; Equity Fund, Bond
Fund (formerly Income Fund), and Intermediate Income
Fund (formerly Limited Maturity Fund) for the period
February 28, 1990 (commencement of operations) to
October 31, 1990, for the fiscal years ended October
31, 1991 through October 31, 1995; Pennsylvania
Tax-Free Bond Fund for the period September 21, 1992
(commencement of operations) through October 31, 1992,
for the fiscal years ended October 31, 1993 through
October 31, 1995; Special Equity Fund for the period
March 15, 1994 (commencement of operations) to October
31, 1994 and for the fiscal year ended October 31,
1995; International Equity Fund for the period May 15,
1995 (commencement of operations) to October 31, 1995;
Short-Term Income Fund for the periods May 15 and May
17, 1995 (commencement of operations of Institutional
and Retail Shares, respectively) to October 31, 1995;
and Balanced Fund for the periods June 27 and June 29,
1995 (commencement of operations of Institutional and
Retail Shares, respectively) to October 31, 1995.
(b) Included in Part B: Audited financial statements,
related notes thereto and
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<PAGE> 193
the Auditor's report included in the Registrant's
October 31, 1995 Annual Report to Shareholders as
filed with the Commission are incorporated herein by
reference.
All required financial statements are incorporated by
reference in Part B hereof. All other financial statements
and schedules are inapplicable.
(b) Exhibits:
(1) (a) Agreement and Declaration of Trust (the "Declaration
of Trust") dated as of August 1, 1989.
(b) Amendment No. 1 to the Declaration of Trust as
approved September 19, 1989.
(2) Code of Regulations.
(3) None.
(4) None.
(5) (a) Investment Advisory Agreement between the Company and
Meridian Investment Company dated November 27, 1989.
(b) Amendment No. 1 to Investment Advisory Agreement
between the Company and Meridian Investment Company
dated August 1, 1992.
(c) Amendment No. 2 to Investment Advisory Agreement
between the Company and Meridian Investment Company
dated March 15, 1994.
(d) Amendment No. 3 to Investment Advisory Agreement
between the Company and Meridian Investment Company.
(e) Investment Advisory Agreement between the Company and
Meridian Investment Company.
(f) Sub-Advisory Agreement between Meridian Investment
Company and Marvin & Palmer Associates, Inc.
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<PAGE> 194
(6) Distribution Agreement between the Company and SEI
Financial Services Company.
(7) None.
(8) (a) Custodian Agreement between The Company and CITIBANK,
N.A.
(b) Custodian Agreement between the Company and The Bank
of New York.
(c) Form of Custody Agreement between the Company and
CoreStates Bank, N.A.
(9) (a) Administration Agreement between the Company and SEI
Financial Management Corporation.
(b) Transfer Agency and Service Agreement between the
Company and SEI Financial Management Corporation.
(c) Sub-Transfer Agency Agreement between SEI Financial
Management Corporation and State Street Bank and Trust
Company.
(10) Opinion of counsel.(1)
(11) (a) Consent of Drinker Biddle & Reath.
(b) Consent of Coopers & Lybrand, L.L.P.
(12) Audited financial statements, related notes thereto and the
Auditor's report included in the Annual Report to
Shareholders for Registrant's fiscal year ended October 31,
1995.
(13) Purchase Agreement between the Company and SEI Financial
Services Company.
(14) None.
(15) Distribution and Services Plan and Servicing Agreement for
Distribution Assistance and Shareholder Administrative
Support Services and Servicing Agreement for Shareholder
Administrative Support Services.
- --------------------
(1.) Filed pursuant to Rule 24f-2 as part of Registrant's Rule 24f-2 Notice.
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<PAGE> 195
(16)(a) Schedule for Computation of Performance Quotations for
Special Equity Fund.
(b) Schedule for Computation of Performance Quotations for
International Equity, Short-Term Income and Balanced Funds.
(17) Financial Data Schedules.
(18) Rule 18f-3 Plan.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of December 12, 1995 the number of record holders of each class of
securities of the Registrant was as follows:
<TABLE>
<CAPTION>
NUMBER OF
RECORD
TITLE OF CLASS HOLDERS
- -------------- -------
Units of Beneficial
Interest
<S> <C>
Class A-1 (U.S. Treasury Securities Fund) . . . . . . . . . . 147
Class A-2 (U.S. Treasury Securities Fund) . . . . . . . . . . 8
Class B-1 (Cash Management Fund) . . . . . . . . . . . . . . 302
Class B-2 (Cash Management Fund) . . . . . . . . . . . . . . 13
Class C-1 (Tax-Free Fund) . . . . . . . . . . . . . . . . . 58
Class C-2 (Tax-Free Fund) . . . . . . . . . . . . . . . . . 5
Class D-1 (Intermediate Income Fund) . . . . . . . . . . . . 168
Class D-2 (Intermediate Income Fund) . . . . . . . . . . . . 33
Class E-1 (Bond Fund) . . . . . . . . . . . . . . . . . 280
Class E-2 (Bond Fund) . . . . . . . . . . . . . . . . . 34
Class F-1 (Equity Fund) . . . . . . . . . . . . . . . . . 799
Class F-2 (Equity Fund) . . . . . . . . . . . . . . . . . 39
Class I-1 (Pennsylvania Tax-Free Bond Fund) . . . . . . . . . 63
Class I-2 (Pennsylvania Tax-Free Bond Fund) . . . . . . . . . 6
Class J-1 (Special Equity Fund) . . . . . . . . . . . . . . . 209
Class J-2 (Special Equity Fund) . . . . . . . . . . . . . . . 11
Class K-1 (International Equity Fund) . . . . . . . . . . . . 18
Class K-2 (International Equity Fund) . . . . . . . . . . . . 11
Class L-1 (Short-Term Income Fund) . . . . . . . . . . . . . 8
Class L-2 (Short-Term Income Fund) . . . . . . . . . . . . . 9
Class M-1 (Balanced Fund) . . . . . . . . . . . . . . . . . 12
Class M-2 (Balanced Fund) . . . . . . . . . . . . . . . . . 11
</TABLE>
C-4
<PAGE> 196
ITEM 27. INDEMNIFICATION
Indemnification of the Registrant's sub-adviser is provided for in Section
10 of the sub-advisory agreement included herewith as Exhibit 5(f).
Indemnification of SEI Financial Services Company as the Registrant's
distributor is provided for in Article 6 of the form of distribution agreement
included herewith as Exhibit 6.
All other responses to this item are incorporated herein by reference to
the Company's Registration Statement filed on August 9, 1989.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
MERIDIAN INVESTMENT COMPANY
<TABLE>
<CAPTION>
POSITION WITH
MERIDIAN OTHER
INVESTMENT BUSINESS TYPE OF
COMPANY NAME CONNECTION(S) BUSINESS
- ------------- ---- ------------- --------
<S> <C> <C> <C>
Director George J. Baxter Director, Asset
Meridian Asset Management
Management, Inc.
Trust Company
Meridian Trust
Company, P.O. Box
2000, Valley Forge,
PA 19482
Director, Trust Company
Delaware Trust
Capital
Management, Inc.
Delaware Trust Company Banking
900 Market Street
Wilmington, DE 19801
Senior Vice President Brokerage
Chicago Corporation
16 South Main Street
Yardley, PA 19067
Director DeLight E. Breidegam, President
Jr. East Penn Battery
Manufacturing Co., Manufacturing
Inc.
Lyon Station, PA
19536
</TABLE>
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<PAGE> 197
<TABLE>
<CAPTION>
Position With
Meridian Other
Investment Business Type of
Company Name Connection(s) Business
- ------------- ---- ------------- --------
<S> <C> <C> <C>
Director
Meridian Bancorp, Bank
Inc. Holding Co.
Meridian Bank Bank
35 North Sixth Street
Reading, PA 19603
Director
Meridian Asset Asset
Management, Inc. Management
Meridian Trust Trust
Company Company
P.O. Box 2000
Valley Forge, PA
19482
Director
Spotts, Stevens & Engineering
McCoy
345 N. Wyomissing
Blvd.
Reading, PA 19610
President and Philip H. Brown, II Director
Director Meridian Securities, Broker-Dealer
Inc.
35 North Sixth St.
Reading, PA 19603
Director Walter J. Laird, Jr. Senior Vice President Broker-Dealer
Dean Witter Reynolds,
Inc.
P.O. Box 749
Wilmington, DE 19899
Director Investment
Wentz Corporation Management
707 Foulk Rd.
Suite 102
Wilmington, DE
19803-3700
Director Investment
Sinkler Corporation Management
707 Foulk Rd.
Suite 102
Wilmington, DE 19803-3700
Director Banking
Delaware Trust
Company
900 Market Street
Wilmington, DE 19801
</TABLE>
C-6
<PAGE> 198
<TABLE>
<CAPTION>
Position With
Meridian Other
Investment Business Type of
Company Name Connection(s) Business
- ------------- ---- ------------- --------
<S> <C> <C> <C>
Director Trust Company
Delaware Trust
Capital Management
900 Market Street
Wilmington, DE 19801
Director Asset
Meridian Asset Management
Management
P.O. Box 2000
Valley Forge, PA 19482
Director Nancy Pearlstine 182 Oaks Road Homemaker
Conger, C.F.P. Millington, NJ 07946
Director
Meridian Asset Asset
Management, Inc. Management
Meridian Trust Trust
Company Company
P.O. Box 2000
Valley Forge, PA
19482
Director Sidney D. Kline, Jr. Attorney and
Principal
Stevens and Lee Law
607 Washington Street
Reading, PA 19601
Director
Meridian Bancorp, Bank Holding
Inc. Co.
Meridian Bank Bank
35 North Sixth Street
Reading, PA 19603
Director
Meridian Asset Asset
Management, Inc. Management
Meridian Trust Trust
Company Company
P.O. Box 2000
Valley Forge, PA 19482
Director
Meridian Title Title
Insurance Company Insurance
101 N. 6th Street
Reading, PA 19603
</TABLE>
C-7
<PAGE> 199
<TABLE>
<CAPTION>
Position With
Meridian Other
Investment Business Type of
Company Name Connection(s) Business
- ------------- ---- ------------- --------
<S> <C> <C> <C>
Director
American Title Title
Insurance Company Insurance
1101 Brickell Avenue
Miami, FL 33131
Director
Horrigan American, Equipment
Inc. Leasing
Flying Hills
Corporate Center
Reading, PA 19607
Director
Reading Eagle Company Newspaper
345 Penn Street
Reading, PA 19601
Director
FCP, Inc. Manufacturer
Flying Hills Building
Reading, PA 19607 Material
Director
The Bachman Company Snack Food
50 N. 4th Street
Reading, PA 19601
Director Blaine T. Phillips Partner Law Firm
Potter Anderson &
Corroon
350 Delaware Trust
Building
P.O. Box 951
Wilmington, DE 19899
Director Banking
Delaware Trust
Company
900 Market Street
Wilmington, DE 19801
Director Trust Company
Delaware Trust
Capital Management
900 Market Street
Wilmington, DE 19801
Director Trust Company
Meridian Trust Company
P.O. Box 2000
Valley Forge, PA 19482
Director Asset
Meridian Asset Management
</TABLE>
C-8
<PAGE> 200
<TABLE>
<CAPTION>
Position With
Meridian Other
Investment Business Type of
Company Name Connection(s) Business
- ------------- ---- ------------- --------
<S> <C> <C> <C>
Management
P.O. Box 2000
Valley Forge, PA
19482
Director George Strawbridge, Jr. Owner Thoroughbred
Augustine Stables Racing and
3801 Kennett Pike Breeding
Suite 100-B
Wilmington, DE 19807
Director Foods
Campbell Soup Company
Campbell Place
Camden, NJ 08101
Partner Venture
Philadelphia Ventures Capital
200 S. Broad Street
Philadelphia, PA 19102
Co-owner Survey
GAR, Inc. Company
3801 Kennett Pike
Suite 100-B
Wilmington, DE 19807
Co-owner Survey
Keystone Aerial Company
Surveys
P.O. Box 21059
Philadelphia, PA 19114
Director National
Niagra Frontier Hockey
Hockey Corporation League
140 Main Street
Buffalo, NY 14202
Director Banking
Delaware Trust
Company
900 Market Street
Wilmington, DE 19801
Director Trust Company
Delaware Trust
Capital Management
900 Market Street
Wilmington, DE 19801
Director Bank Holding
Meridian Bancorp, Company Inc.
Meridian Bank
35 North Sixth Street
Reading, PA 19603
</TABLE>
C-9
<PAGE> 201
<TABLE>
<CAPTION>
Position With
Meridian Other
Investment Business Type of
Company Name Connection(s) Business
- ------------- ---- ------------- --------
<S> <C> <C>
Senior Craig A. Moyer None
Investment
Manager
Senior Joseph E. Stocke None
Investment
Manager
Assistant Cathy L. Rahab None
Vice
President
Vice Leslie M. Varrelman None
President
Investment Christine M. Frampton None
Officer
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) SEI Financial Services Company acts as distributor for the Registrant.
SEI Financial Services Company also acts as distributor for: SEI Daily Income
Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI
Institutional Managed Trust, SEI International Trust, Stepstone Funds, The
Compass Capital Group, FFB Lexicon Funds, The Advisors' Inner Circle Fund, The
Pillar Funds, CUFund, STI Classic Funds, CoreFunds, Inc., First American Funds,
Inc., First American Investment Funds, Inc., The Arbor Fund, 1784 Funds,
Marquis Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., ARK
Funds, Inventor Funds, Inc., The Achievement Funds Trust, Insurance Investment
Products Trust, Bishop Street Funds and CrestFunds, Inc.
SEI Financial Services Company provides numerous financial services to
investment managers, pension plan sponsors, and bank trust departments. These
services include portfolio evaluation, performance measurement, and consulting
services and automated execution, clearing and settlement of securities
transactions.
(b) Directors, officers and partners of SEI Financial Services Company,
are as follows:
C-10
<PAGE> 202
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES WITH SEI POSITIONS AND
NAME AND PRINCIPAL FINANCIAL SERVICES OFFICES WITH
BUSINESS ADDRESSES* COMPANY THE REGISTRANT
- ------------------ ------------------ --------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman
& Chief Executive
Officer
Henry H. Greer Director, President
& Chief Operating
Officer
Carmen V. Romeo Director, Executive Vice
President & Treasurer
Gilbert L. Beebower Executive Vice President
Richard B. Lieb Executive Vice President
Charles A. Marsh Executive Vice President
Capital Resources Division
Leo J. Dolan, Jr. Senior Vice President
Carl A. Guarino Senior Vice President
Jerome Hickey Senior Vice President
David G. Lee Senior Vice President President and
Chief Executive
Officer
William Madden Senior Vice President
A. Keith McDowell Senior Vice President
Dennis J. McGonigle Senior Vice President
Hartland J. McKeown Senior Vice President
James V. Morris Senior Vice President
Steven Onofrio Senior Vice President
Kevin P. Robins Senior Vice President, Vice President
General Counsel and and Assistant
Secretary Secretary
Robert Wagner Senior Vice President
Patrick K. Walsh Senior Vice President
Kenneth Zimmer Senior Vice President
Robert Crudup Managing Director
Vic Galef Managing Director
Kim Kirk Managing Director
</TABLE>
C-11
<PAGE> 203
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES WITH SEI POSITIONS AND
NAME AND PRINCIPAL FINANCIAL SERVICES OFFICES WITH
BUSINESS ADDRESSES* COMPANY THE REGISTRANT
- ------------------ ------------------ --------------
<S> <C> <C>
John Krzeminski Managing Director
Carolyn McLaurin Managing Director
Barbara Moore Managing Director
Donald Pepin Managing Director
Mark Samuels Managing Director
Wayne M. Withrow Managing Director
Mick Duncan Team Leader
Robert Ludwig Team Leader
Vicki Malloy Team Leader
Robert Aller Vice President
Steve Bendinelli Vice President
Chris Brookmyer Vice President and
Controller
Gordon W. Carpenter Vice President
Robert B. Carroll Vice President Vice President and
and Assistant Assistant
Secretary Secretary
Todd Cipperman Vice President and Vice President
Assistant Secretary and Assistant
Secretary
Ed Daly Vice President
Jeff Drennen Vice President
Lucinda Duncalfe Vice President
Kathy Heilig Vice President
Lawrence D. Hutchison Vice President
Michael Kantor Vice President
Samuel King Vice President
Donald H. Korytowski Vice President
Robert S. Ludwig Vice President
Jack May Vice President
</TABLE>
C-12
<PAGE> 204
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES WITH SEI POSITIONS AND
NAME AND PRINCIPAL FINANCIAL SERVICES OFFICES WITH
BUSINESS ADDRESSES* COMPANY THE REGISTRANT
- ------------------ ------------------ --------------
<S> <C> <C>
Sandra K. Orlow Vice President and Vice President and
Assistant Secretary Assistant
Secretary
Larry Pokora Vice President
Kim Rainey Vice President
Paul Sachs Vice President
Steve Smith Vice President
Kathryn L. Stanton Vice President and Vice President and
Assistant Secretary Assistant
Secretary
Daniel Spaventa Vice President
William Zawaski Vice President
James Dougherty Director of Brokerage
Services
</TABLE>
(c) Inapplicable.
- ------------------------
* The business address of each director or officer is 680 E. Swedesford Road,
Wayne, Pennsylvania 19087
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and the rules promulgated thereunder are as follows:
(1) Conestoga Family of Funds
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
(Registrant)
(2) Meridian Investment Company
55 Valley Stream Parkway
Malvern, Pennsylvania 19355
(records relating to its function as investment adviser)
(3) SEI Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087-1658
(records relating to its function as administrator and transfer
agent)
C-13
<PAGE> 205
(4) SEI Financial Services Company
680 East Swedesford Rd.
Wayne, PA 19087
(records relating to its function as distributor)
(5) Marvin & Palmer Associates, Inc.
1201 N. Market Street, Suite 2300
Wilmington, Delaware 19801-1165
(records relating to its function as sub-adviser for
Registrant's International Equity Fund)
(6) Citibank, N.A.
111 Wall Street
New York, New York 10005
(records relating to its function as custodian for each Fund of
the Registrant except for the International Equity Fund)
(7) CoreStates Bank, N.A.
510 Walnut Street, Mail Stop FC 1-9-7-2
Philadelphia, Pennsylvania 19106
(records relating to its function as custodian for
each Fund of the Registrant except the International Equity
Fund, effective March 7, 1996)
(8) The Bank of New York
48 Wall Street
New York, New York
(records relating to its function as custodian for the
International Equity Fund)
(9) State Street Bank and Trust Company
The BFDS Building
2 Heritage Drive
Quincy, Massachusetts 02171
(records relating to its function as sub-transfer agent)
(7) Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
(Registrant's Agreement and Declaration of Trust, Code of
Regulations and Minute Books)
ITEM 31. MANAGEMENT SERVICES
None.
C-14
<PAGE> 206
ITEM 32. UNDERTAKINGS
None.
C-15
<PAGE> 207
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Wayne, Pennsylvania on
the 29th day of December, 1995.
CONESTOGA FAMILY OF FUNDS
s/ David G. Lee
---------------
David G. Lee
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to Registrant's Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
s/ David G. Lee President
- --------------- (Principal Executive
David G. Lee Officer) December 29, 1995
s/ Stephen G. Meyer Controller
- ------------------- and Chief
Stephen G. Meyer Financial Officer December 29, 1995
</TABLE>
This Post-Effective Amendment has also been signed below by David G. Lee,
Attorney-In-Fact, on behalf of the following Trustees on the date indicated:
Dominic S. Genuardi
Steven I. Gross
Robert C. Kingston
Dale E. Smith
Thomas J. Taylor
<TABLE>
<S> <C>
s/ David G. Lee December 29, 1995
- ---------------
David G. Lee
Attorney-In-Fact
</TABLE>
<PAGE> 208
CONESTOGA FAMILY OF FUNDS
POWER OF ATTORNEY
I hereby appoint David G. Lee or Carmen V. Romeo or Kevin P.
Robins attorney for me and in my name and on my behalf to sign any Registration
Statement or Amendment thereto of CONESTOGA FAMILY OF FUNDS to be filed with
the Securities and Exchange Commission under the Securities Act of 1933, and
generally to do and perform all things necessary to be done in that connection.
I have signed this Power of Attorney on March 27, 1995.
s/Domenic S. Genuardi, Sr.
--------------------------
Domenic S. Genuardi, Sr.
<PAGE> 209
CONESTOGA FAMILY OF FUNDS
POWER OF ATTORNEY
I hereby appoint David G. Lee or Carmen V. Romeo or Kevin P.
Robins attorney for me and in my name and on my behalf to sign any Registration
Statement or Amendment thereto of CONESTOGA FAMILY OF FUNDS to be filed with
the Securities and Exchange Commission under the Securities Act of 1933, and
generally to do and perform all things necessary to be done in that connection.
I have signed this Power of Attorney on March 22, 1995.
s/Steven I. Gross
------------------
Steven I. Gross
<PAGE> 210
CONESTOGA FAMILY OF FUNDS
POWER OF ATTORNEY
I hereby appoint David G. Lee or Carmen V. Romeo or Kevin P.
Robins attorney for me and in my name and on my behalf to sign any Registration
Statement or Amendment thereto of CONESTOGA FAMILY OF FUNDS to be filed with
the Securities and Exchange Commission under the Securities Act of 1933, and
generally to do and perform all things necessary to be done in that connection.
I have signed this Power of Attorney on March 25, 1995.
s/Robert C. Kingston
--------------------
Robert C. Kingston
<PAGE> 211
CONESTOGA FAMILY OF FUNDS
POWER OF ATTORNEY
I hereby appoint David G. Lee or Carmen V. Romeo or Kevin P.
Robins attorney for me and in my name and on my behalf to sign any Registration
Statement or Amendment thereto of CONESTOGA FAMILY OF FUNDS to be filed with
the Securities and Exchange Commission under the Securities Act of 1933, and
generally to do and perform all things necessary to be done in that connection.
I have signed this Power of Attorney on March 27, 1995.
s/Dale E. Smith
------------------
Dale E. Smith
<PAGE> 212
CONESTOGA FAMILY OF FUNDS
POWER OF ATTORNEY
I hereby appoint David G. Lee or Carmen V. Romeo or Kevin P.
Robins attorney for me and in my name and on my behalf to sign any Registration
Statement or Amendment thereto of CONESTOGA FAMILY OF FUNDS to be filed with
the Securities and Exchange Commission under the Securities Act of 1933, and
generally to do and perform all things necessary to be done in that connection.
I have signed this Power of Attorney on March 27, 1995.
s/Thomas J. Taylor
------------------
Thomas J. Taylor
<PAGE> 213
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C>
1(a) Agreement and Declaration of Trust
(the "Declaration of Trust") dated
as of August 1, 1989.
1(b) Amendment No. 1 to Declaration of
Trust as approved September 19, 1989.
2 Code of Regulations.
5(a) Investment Advisory Agreement between
the Company and Meridian Investment
Company dated November 27, 1989.
5(b) Amendment No. 1 to Investment Advisory
Agreement between the Company and
Meridian Investment Company dated
August 1, 1992.
5(c) Amendment No. 2 to Investment Advisory
Agreement between the Company and
Meridian Investment Company dated
March 15, 1994.
5(d) Amendment No. 3 to Investment
Advisory Agreement between the
Company and Meridian Investment
Company.
5(e) Investment Advisory Agreement
between the Company and Meridian
Investment Company.
5(f) Sub-Investment Advisory Agreement
between Meridian Investment Company
and Marvin & Palmer Associates, Inc.
6 Distribution Agreement between the
Company and SEI Financial Services Company.
8(a) Custodian Agreement between the
Company and CITIBANK, N.A.
8(b) Custodian Agreement between the
Company and The Bank of New York.
8(c) Form of Custody Agreement between
the Company and CoreStates Bank, N.A.
</TABLE>
<PAGE> 214
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C>
9(a) Administration Agreement between
the Company and SEI Financial
Management Corporation.
9(b) Transfer Agency and Service Agreement
between the Company and SEI Financial
Management Corporation.
9(c) Sub-Transfer Agency Agreement between
SEI Financial Management Corporation
and State Street Bank and Trust
Company.
11(a) Consent of Drinker Biddle & Reath.
11(b) Consent of Coopers & Lybrand, L.L.P.
12 Audited financial statements, related
notes thereto and the Auditor's report
included in the Annual Report to
Shareholders for
Registrant's fiscal year ended
October 31, 1995.
13 Purchase Agreement between the Company
and SEI Financial Services Company.
15 Distribution and Services Plan and
Servicing Agreement for Distribution
Assistance and Shareholder
Administrative Support Services and
Servicing Agreement for Shareholder
Administrative Support Services.
16(a) Schedule for Computation of Performance
Quotations for Special Equity Fund.
16(b) Schedule for Computation of Performance
Quotations for International Equity,
Short-Term Income and Balanced Funds.
17 Financial Data Schedules.
18 Rule 18f-3 Plan.
</TABLE>
<PAGE> 1
EXHIBIT (1)(a)
AGREEMENT AND DECLARATION OF TRUST
OF
CONESTOGA FAMILY OF FUNDS
This AGREEMENT AND DECLARATION OF TRUST, made at Boston,
Massachusetts this 1st day of August, 1989 by and between the Settlor named
below and the Trustee whose signature is set forth below (the "Initial
Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, Bryan G. Tyson, an individual residing in Natick,
Massachusetts (the "Settlor"), proposes to deliver to the Initial Trustee the
sum of one hundred dollars ($100.00) lawful money of the United States of
America in trust hereunder and to authorize the Initial Trustee and all other
Persons acting as Trustees hereunder to employ such funds, and any other funds
coming into their hands or the hands of their successor or successors as such
Trustees, to carry on the business of an investment company, and as such of
buying, selling, investing in or otherwise dealing in and with stocks, bonds,
debentures, warrants, options, futures contracts and other securities and
interests therein, or calls or puts with respect to any of the same, or such
other and further investment media and other property as the Trustees may deem
advisable, which are not prohibited by law or the terms of this Declaration of
Trust; and
WHEREAS, the Initial Trustee is willing to accept such sum,
together with any and all additions thereto and the income or increments
thereof, upon the terms, conditions and trusts hereinafter set forth; and
WHEREAS, it is proposed that the assets held by the Trustees
may be divided into separate funds or portfolios, each with its own separate
investment assets, investment objective, policies and purposes, and that the
beneficial interest in each such fund or portfolio be divided into transferable
shares of beneficial interest, with one or more separate classes of shares for
each fund or portfolio, all in accordance with the provisions hereinafter set
forth; and
WHEREAS, it is desired that the trust established hereby (the
"Trust") be managed and operated as a trust with transferable shares under the
laws of Massachusetts, of the type commonly known as and referred to as a
Massachusetts trust with transferable Shares, in accordance with the provisions
hereinafter set forth;
<PAGE> 2
NOW, THEREFORE, the Initial Trustee, for himself and his
successors as Trustees, hereby declares, and agrees with the Settlor, for
himself and for all Persons who shall hereafter become holders of shares of
beneficial interest of the Trust that the Trustees will hold the sum delivered
to them upon the execution hereof, and all other and further cash, securities
and other property of every type and description which they may in any way
acquire in their capacity as such Trustees, together with the income therefrom
and the proceeds thereof, IN TRUST NEVERTHELESS, to manage and dispose of the
same for the benefit of the holders from time to time of the shares of
beneficial interest of the several classes being issued and to be issued
hereunder and in the manner and subject to the provisions hereof, to wit:
I.
NAME
This trust shall be known as CONESTOGA FAMILY OF FUNDS
(hereinafter called the "Trust"), and the Trustees shall conduct the business
of the Trust under that name or any other name as they shall from time to time
determine.
II.
DEFINITIONS
2.1 Definition of Certain Terms. As used in this
Declaration of Trust, the terms set forth below shall have the following
meanings:
A. The "Act" refers to the Investment Company
Act of 1940, as now or hereafter amended, to the rules and regulations adopted
from time to time thereunder and to any order or orders thereunder which may
from time to time be applicable to the Trust.
B. The terms "affiliated person," "assignment"
and "interested person" shall have the respective meanings set forth in the
Act. The term "vote of a majority of outstanding Shares" shall mean the "vote
of a majority of the outstanding voting securities" as defined in the Section
2(a)(42) of the Act.
C. The "Regulations" shall refer to the Code of
Regulations of the Trust as adopted and amended from time to time.
D. The "Declaration of Trust" shall mean this
Declaration of Trust as amended or restated from time to time.
-2-
<PAGE> 3
E. "Person" shall mean a natural person, a
corporation, a partnership, an association, a joint-stock company, a trust, a
fund or any organized group of persons whether incorporated or not.
F. "Shares" means the equal proportionate
transferable units of interest of each class into which the beneficial interest
in the Trust may be classified or reclassified from time to time by the
Trustees acting under this Declaration of Trust, or in the absence of such
action, means the equal proportionate transferable units of interest into which
the entire beneficial interest in the Trust shall be divided from time to time,
and includes fractions of Shares as well as whole Shares.
G. "Shareholder" means a record owner of Shares
in the Trust.
H. The "Trustees" refers to the individual
trustees of the Trust named herein or elected in accordance with Article VI
hereof in their capacity as trustees hereunder and not as individuals and to
their successor or successors while serving in office as a trustee of the
Trust, and includes a single trustee.
I. "Trust Property" means any and all assets and
property, real or personal, tangible or intangible, which is owned or held by
or for the account of the Trust or the Trustees.
III.
PURPOSE OF TRUST; AGENT FOR SERVICE
The Trust is a Massachusetts trust with transferable Shares of
the type described in Chapter 182 Section I of the General Laws of the
Commonwealth of Massachusetts formed for the purpose of acting as a management
investment company under the Act; provided, however, that the Trust may
exercise all powers which are ordinarily exercised by or permissible for
Massachusetts trusts with transferable Shares.
The Agent of the Trust for Service of Process within the
Commonwealth of Massachusetts shall be: CT Corporation System, Two Oliver
Street, Boston, Massachusetts 02109.
-3-
<PAGE> 4
IV.
OWNERSHIP OF ASSETS OF THE TRUST
The assets of the Trust shall be held separate and apart from
any assets now or hereafter held in any capacity, other than as Trustees
hereunder, by the Trustees, including without limitation any successor
Trustees. Legal title to all the assets of the Trust shall be vested in the
Trustees as joint tenants except that the Trustees shall have power to cause
legal title to any assets of the Trust to be held by or in the name of one or
more of the Trustees, or in the name of the Trust, or in the name of any other
person as nominee, on such terms as the Trustees may reasonably determine. The
right, title and interest of the Trustees in the assets of the Trust shall vest
automatically in each person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee, such Trustee shall automatically
cease to have any right, title or interest in any of the assets of the Trust,
and the right, title and interest of such Trustee in the assets of the Trust
shall vest automatically in the remaining Trustees. Such vesting and cessation
of title shall be effective regardless of whether conveyancing documents
(pursuant to Section 6.6 hereof or otherwise) have been executed and delivered.
Except to the extent otherwise required by Article V hereof, no Shareholder
shall be deemed to have severable ownership in any individual asset of the
Trust or any right of partition or possession thereof, or shall be called upon
to assume any loss of the Trust or suffer an assessment of any kind by virtue
of his ownership of Shares, but each Shareholder shall have a proportionate
undivided beneficial interest in the assets belonging to a particular class or
classes of Shares to the extent provided in Article V. The ownership of the
Trust Property of every description and the right to conduct any business
hereinbefore described shall be vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the
Trust nor can they be called upon to assume any losses of the Trust or suffer
an assessment of any kind by virtue of their ownership of Shares. The Shares
shall be personal property giving only the rights specifically set forth in
this Declaration of Trust. Shares shall not entitle any holder thereof to
preference, preemptive, appraisal, conversion or exchange rights, except as the
Trustees may determine pursuant to Article V hereof.
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V.
SHAREHOLDERS; BENEFICIAL INTEREST IN THE TRUST;
PURCHASE AND REDEMPTION OF SHARES
5.1 Shares in the Trust.
A. The beneficial interest in the Trust shall at
all times be divided into an unlimited number of full and fractional
transferable Shares with a par value of $.001 per share. All Shares shall be
of one class, provided that subject to this Declaration of Trust and the
requirements of applicable law, the Trustees shall have the power to classify
or reclassify any unissued Shares into any number of additional classes of
Shares by setting or changing in any one or more respects, from time to time
before the issuance thereof, their designations, preferences, conversion or
other rights, voting powers, restrictions, limitations, qualifications or terms
or conditions of redemption, and provided further that the investment
objectives, policies and restrictions governing the management and operations
of the Trust, including the management of assets belonging to any class of
Shares, may from time to time be changed or supplemented by the Trustees,
subject to the requirements of the Act. The power of the Trustees to classify
or reclassify Shares shall include, without limitation, the power to classify
or reclassify any class of Shares into one or more series of such class. A
copy of each action of the Trustees by which Shares are classified or
reclassified pursuant to this subsection 5.1(A), executed by a majority of the
Trustees (or by an officer of the Trust pursuant to a vote of a majority of the
Trustees), shall be kept at the office of the Trust where it may be inspected
by any Shareholder, and one copy of each such instrument shall be filed with
the Secretary of The Commonwealth of Massachusetts, as well as with any other
governmental office where such filing may from time to time be required by the
laws of Massachusetts. All references to Shares in this Declaration of Trust
which are not accompanied by a reference to any particular class of Shares
shall be deemed to apply to all outstanding Shares of any and all classes. All
references in this Declaration of Trust to any class of Shares shall include
and refer to the Shares of any series thereof.
Upon the issuance of the first Share of a second class of
Shares classified or reclassified by the Trustees pursuant to this Section 5.1,
all Shares theretofore issued and outstanding shall automatically represent
Shares of a separate class having the preferences, conversion and other rights,
voting powers, restrictions, limitations, qualifications and terms and
conditions of redemption provided for in this Declaration of Trust with respect
to any class of Shares. The Trustees may from time to time divide or combine
the outstanding Shares of the Trust, or of any class or classes with the same
alphabetical
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designation, into a greater or lesser number without thereby changing the
proportionate beneficial interest of the Shares in the Trust as so divided or
combined or in the assets belonging to such class or classes, as the case may
be.
At any time that there are no Shares outstanding of a
particular class previously established and designated, the Trustees may
abolish that class and the establishment and designation thereof.
B. Subject always to the power of the Trustees
to classify and reclassify any unissued Shares pursuant to subsection A of this
Section 5.1, Shares of the Trust shall (unless the Trustees otherwise determine
with respect to a class of Shares at the time of establishing and designating
the same) have the following designations, preferences, conversion and other
rights, voting powers, restrictions, limitations, qualifications and terms and
conditions of redemption:
(1) Designations. The Board of Trustees
shall give each class of Shares an alphabetical designation ("A," "B," "C,"
etc.), and may give any class of Shares such supplementary designations as the
Board may deem appropriate. More than one class of Shares may have the same
alphabetical designation.
(2) Assets Belonging to Classes With
Same Alphabetical Designation. All consideration received by the Trust for the
issue and sale of Shares of any class shall be commingled, invested and
reinvested together with the consideration received by the Trust for the issue
and sale of Shares of such other class or classes, if any, that have the same
alphabetical designation, along with all income, earnings, profits and proceeds
derived from the investment thereof, including any proceeds derived from the
sale, exchange or liquidation of such investments, any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may
be, and any general assets of the Trust not belonging to a particular class
which the Trustees may, in their sole discretion, allocate to such classes
having the same alphabetical designation, and shall irrevocably belong to the
classes with respect to which such assets, payments or funds were received or
allocated for all purposes,, subject only to the rights of creditors, and shall
be so handled upon the books of account of the Trust. For purposes of this
Declaration of Trust, such assets and the income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any reinvestment of such
proceeds in whatever form, are referred to as "assets belonging to" such
classes. Each Share of the classes having the same alphabetical designation
shall share equally with each other Share of such classes in the assets
belonging to such classes.
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Shareholders of any class of Shares shall have no right, title or interest in
or to the assets belonging to any class of Shares with a different alphabetical
designation.
(3) Liabilities Belonging to Classes
With Same Alphabetical Designation. The assets belonging to classes of Shares
with the same alphabetical designation shall be charged with the direct
liabilities in respect of such classes and shall also be charged with such
classes' proportionate share of the general liabilities of the Trust as
determined by comparing the assets belonging to such classes with the aggregate
assets of the Trust, provided, that the Board of Trustees may, in their
discretion, direct that any one or more general liabilities of the Trust be
allocated to the respective classes on a different basis. The liabilities so
charged to such classes are herein referred to as "liabilities belonging to"
such classes, and each Share of such classes shall be charged equally with each
other Share of a class having the same alphabetical designation with the
liabilities belonging to such classes, except that:
(a) A class of Shares with respect
to which agreements are entered into by or on behalf of the Trust pursuant to
which institutions agree to provide services with respect to beneficial owners
of Shares of that class but not with respect to beneficial owners of Shares of
other classes with the same alphabetical designation shall bear the expenses
and liabilities relating to such agreements, as well as any other expenses
directly attributable to such class of Shares which the Trustees determine
should be borne solely by such class; and
(b) A class of Shares shall not be
required to bear the expenses and liabilities relating to any agreement
described in clause (a) above pursuant to which an institution agrees to
provide services with respect to beneficial owners of Shares of other classes
with the same alphabetical designation but not to beneficial owners of Shares
of that class, or any other expenses directly attributable to one or more other
classes of Shares which the Trustees determine should be borne solely by such
other class or classes.
(4) Dividends and Distributions. Shares
of classes having the same alphabetical designation shall be entitled to such
dividends and distributions, in Shares or in cash or both, as may be declared
from time to time by the Trustees, acting in their sole discretion, with
respect to such classes, provided that such dividends and distributions shall
be paid only out of the lawfully available "assets belonging to" such classes
as such term is defined in subsection B(2) of this Section 5.1.
(5) Liquidating Distributions. In the
event of the termination of the Trust and the winding up of its
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affairs, the Shareholders of classes having the same alphabetical designation
shall be entitled to receive out of the assets of the Trust available for
distribution to Shareholders, but other than general assets not belonging to
any particular class of Shares, the assets belonging to such classes and the
assets so distributable to the Shareholders of such classes shall, subject to
the allocation of certain liabilities to a particular class as set forth in
subsection B(3) of this Section 5.1, be distributed among such shareholders in
proportion to the number of Shares of such classes held by them and recorded in
their name on the books of the Trust. In the event that there are any general
assets not belonging to any particular class of Shares and available for
distribution, the Shareholders of classes having the same alphabetical
designation shall be entitled to receive a portion of such general assets
determined by comparing the assets belonging to such classes with the aggregate
assets of the Trust; and the assets so distributable to the Shareholders of
such classes shall, subject to the allocation of certain liabilities to a
particular class as set forth in subsection B(3) of this Section 5.1, be
distributed among such Shareholders in proportion to the number of Shares of
such classes held by them and recorded in their name on the books of the Trust.
(6) Voting. The holder of each Share
shall be entitled to one vote for each full Share, and a proportionate
fractional vote for each fractional Share, irrespective of the class, then
recorded in his name on the books of the Trust, to the extent provided in
Article VIII hereof.
(7) Preemptive Rights. Shareholders
shall have no preemptive or other rights to subscribe to any additional Shares
or other securities issued by the Trust.
(8) Conversion Rights. The Trustees
shall have the authority to provide from time to time that the holders of
Shares of any class shall have the right to convert or exchange said Shares for
or into Shares of one or more other classes in accordance with such
requirements and procedures as may be established from time to time by the
Trustees.
(9) Redemption of Shares. To the extent
of the assets of the Trust legally available for such redemptions, a
Shareholder of the Trust shall have the right to require the Trust to redeem
his full and fractional Shares of any class out of assets belonging to the
classes with the same alphabetical designation as such class at a redemption
price equal to the net asset value per Share next determined after receipt of a
request to redeem in proper form as determined by the Trustees, subject to the
right of the Trustees to suspend the right of redemption of Shares or postpone
the date of payment of such redemption price in accordance with the provisions
of applicable law. The Trustees shall establish such rules and procedures as
they deem
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appropriate for the redemption of Shares, provided that all redemptions shall
be in accordance with the Act. without limiting the generality of the
foregoing, the Trust shall, to the extent permitted by applicable law, have the
right at any time to redeem the Shares owned by any holder thereof: (a) in
connection with the termination of any class of Shares as provided hereunder;
(b) if the value of such Shares in the account or accounts maintained by the
Trust or its transfer agent for any class or classes of Shares is less than the
value determined from time to time by the Trustees as the minimum required for
an account or accounts of such class or classes, provided that the Trust shall
provide a Shareholder with written notice at least fifteen (15) days prior to
effecting a redemption of Shares as a result of not satisfying such
requirement; (c) to reimburse the Trust for any loss it has sustained by reason
of the failure of such Shareholder to make full payment for Shares purchased by
such Shareholder; (d) to collect any charge relating to a transaction effected
for the benefit of such Shareholder which is applicable to Shares as provided
in the prospectus relating to such Shares; or (e) if the net income with
respect to any particular class of Shares should be negative or it should
otherwise be appropriate to carry out the Trust's responsibilities under the
Act, in each case subject to such further terms and conditions as the Trustees
may from time to time establish. The redemption price of Shares in the Trust
shall, except as otherwise provided in this subsection, be the net asset value
thereof as determined by the Trustees from time to time in accordance with the
provisions of applicable law, less such redemption fee or other charge, if any,
as may be fixed by the Trustees. When the net income of any class with respect
to which the Trustees have, in their discretion, established a policy of
maintaining a constant net asset value per Share is negative or whenever deemed
appropriate by the Trustees in order to carry out the Trust's responsibilities
under the Act, the Trust may, without payment of compensation but in
consideration of the interests of the Trust and the holders of Shares of such
class in maintaining a constant net asset value per Share of such class, redeem
pro rata from each holder of record on such day, such number of full and
fractional Shares of such class as may be necessary to reduce the aggregate
number of outstanding Shares in order to permit the net asset value thereof to
remain constant. Payment of the redemption price, if any, shall be made in
cash by the Trust at such time and in such manner as may be determined from
time to time by the Trustees unless, in the opinion of the Trustees, which
shall be conclusive, conditions exist which make payment wholly in cash unwise
or undesirable; in such event the Trust may make payment in the assets
belonging or allocable to the classes of Shares having the same alphabetical
designation as the class of the Shares redemption of which is being sought, the
value of which shall be determined as provided herein.
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(10) Termination of Classes. Without the
vote of the Shares of any class then outstanding (unless otherwise required by
applicable law), the Trustees may:
(a) Sell and convey the assets
belonging to any class or classes of Shares having the same alphabetical
designation to another trust or corporation that is a management investment
company (as defined in the Act) and is organized under the laws of any state of
the United States for consideration which may include the assumption of all
outstanding obligations, taxes and other liabilities, accrued or contingent,
belonging to such class(es) and which may include securities issued by such
trust or corporation. Following such sale and conveyance, and after making
provision for the payment of any liabilities belonging to such class(es) that
are not assumed by the purchaser of the assets belonging to such class(es), the
Trust may, at the Trustees' option, redeem all outstanding Shares of such
class(es) at net asset value as determined by the Trustees in accordance with
the provisions of applicable law, less such redemption fee or other charge, if
any, as may be fixed by the Trustees. Notwithstanding any other provision of
this Declaration of Trust to the contrary, the redemption price may be paid in
cash or by distribution of the securities or other consideration received by
the Trust for the assets belonging to such class(es) upon such conditions as
the Trustees deem, in their sole discretion, to be appropriate consistent with
applicable law and this Declaration of Trust;
(b) Sell and convert the assets
belonging to any class or classes of Shares having the same alphabetical
designation into cash and, after making provision for the payment of all
obligations, taxes and other liabilities, accrued or contingent, belonging to
such class(es), the Trust may, at the Trustees, option, (i) redeem all
outstanding Shares of such class(es) at net asset value as determined by the
Trustees in accordance with the provisions of applicable law, less such
redemption fee or other charge, if any, as may be fixed by the Trustees upon
such conditions as the Trustees deem, in their sole discretion, to be
appropriate consistent with applicable law and this Declaration of Trust; or
(ii) combine the assets belonging to such class(es) following such sale and
conversion with the assets belonging to any one or more other class(es) of
Shares having a different alphabetical designation pursuant to and in
accordance with subsection (c) of this Section 5.1(B)(10);
(c) Combine the assets belonging to
any class or classes of Shares having the same alphabetical designation with
the assets belonging to any one or more other classes of Shares having a
different alphabetical designation if the Trustees reasonably determine that
such combination will not have a material adverse effect on the Shareholders of
any class
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participating in such combination. In connection with any such combination of
assets the Shares of any class then outstanding may, if so determined by the
Trustees, be converted into Shares of any other class or classes of Shares
participating in such combination, or may be redeemed, at the option of the
Trustees, at net asset value as determined by the Trustees in accordance with
the provisions of applicable law, less such redemption fee or other charge, or
conversion cost, if any, as may be fixed by the Trustees upon such conditions
as the Trustees deem, in their sole discretion, to be appropriate consistent
with applicable law and this Declaration of Trust. Notwithstanding any other
provision of this Declaration of Trust to the contrary, any redemption price,
or part thereof, paid pursuant to this subsection may be paid in Shares of any
other class or classes participating in such combination; or
(d) Otherwise terminate and wind up
the affairs of any class or classes of Shares having the same alphabetical
designation in accordance with this Declaration of Trust and applicable law.
In connection with such termination of a class or classes of Shares having the
same alphabetical designation and the winding up of the affairs of such
class(es), all of the powers of the Trustees under this Declaration of Trust
shall continue until the affairs of such class(es) shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust relating
to such class(es), to collect assets belonging to such class(es), to sell,
convey, assign, exchange, transfer or otherwise dispose of all or any part of
the remaining assets belonging to such class(es) to one or more persons at
public or private sale for consideration that may consist in whole or in part
of cash, securities or other property of any kind, to discharge or pay the
liabilities belonging to such class(es), and to do all other acts appropriate
to liquidate the business of such class(es), provided that the holders of
Shares of any class shall not be entitled in any liquidation to receive any
distribution upon the assets belonging to any other class that has a different
alphabetical designation.
If no Shares of a class then remain outstanding, or after the
excess of the assets belonging to any class(es) of Shares over the liabilities
belonging to such class(es) has been distributed among the Shareholders of such
class(es) as provided in this Declaration of Trust, the Trustees may authorize
the termination of such class(es) of Shares.
5.2 Purchase of Shares. The Trustees may accept
investments in the Trust from such persons for such consideration, including
cash or property, and on such other terms as they may from time to time
authorize and the Trustees may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with, the
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assumption of liabilities) and businesses. The Trustees may in their
discretion reject any order for the purchase of Shares.
5.3 Net Asset Value Per Share. The net asset value per
Share of any class of Shares shall be computed at such time or times as the
Trustees may specify pursuant to the Act. Assets shall be valued and net asset
value per Share shall be determined by such person or persons as the Trustees
may appoint under the supervision of the Trustees in such manner as the
Trustees may determine not inconsistent with the Act.
5.3 Ownership of Shares. The ownership of Shares shall
be recorded on the record books of the Trust. The Trustees may make such rules
and regulations as they consider appropriate for the issuance of Share
certificates, the transfer of Shares and similar matters. Certificates
certifying the ownership of Shares may be issued as the Trustees may determine
from time to time, provided that the Trustees shall have the power to call
outstanding Share certificates and to replace them with book entries. The
record books of the Trust shall be conclusive as to the identity of holders of
Shares and as to the number of Shares held by each Shareholder.
VI.
THE TRUSTEES
6.1 Management of the Trust. The affairs of the Trust
shall be managed by the Trustees and they shall have all powers necessary or
desirable to carry out such responsibility, including without limitation the
appointment of and delegation of responsibility to such officers, employees,
agents, and contractors as they may select.
6.2 Number and Term of Office. The number of Trustees
shall be determined from time to time by the Trustees themselves, but shall not
be more than ten. Subject to the provisions of this section relating to
resignation or removal, the Trustees shall have the power to set and alter the
terms of office of the Trustees, and they may at any time lengthen or shorten
their own terms or make their terms of unlimited duration, provided that the
term of office of any incumbent Trustee shall continue until terminated as
provided in the concluding sentence of this Section 6.2 or, if not so
terminated until the election of such Trustee's successor in office has become
effective in accordance with this section. A Trustee shall qualify by
accepting in writing his election or appointment and agreeing to be bound by
the provisions of this Declaration of Trust. Except as otherwise provided
herein in the case of vacancies, Trustees (other than the Initial Trustee
provided in Section 6.3 hereof) shall be elected by the Shareholders at such
time or times as the Trustees
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shall determine that such election is required under Section 16(a) of the Act
or is otherwise advisable. Notwithstanding the foregoing, (a) any Trustee may
resign as a Trustee by written instrument signed by him and delivered to the
other Trustees at the principal business office of the Trust (without need for
prior or subsequent accounting), which shall take effect upon such delivery or
upon such later date as is specified therein; (b) any Trustee may be removed at
any time with or without cause by written instrument, signed by a least
two-thirds of the number of Trustees in office prior to such removal,
specifying the date when such removal shall become effective; (c) any Trustee
who has become incapacitated by illness or injury may be removed by written
instrument signed by a majority of the other Trustees; and (d) the term of a
Trustee shall terminate at his death, resignation, removal or adjudicated
incompetency.
6.3 Initial Trustee. The initial Trustee shall be Thomas
E. Weesner, who, by his execution hereof, has agreed to be bound by the
provisions of this Declaration of Trust. The initial Trustee shall have the
power to appoint additional Trustees prior to any public meeting.
6.4 Quorum. At all meetings of the Trustees, a majority
of the Trustees shall constitute a quorum for the transaction of business and
the action of a majority of the Trustees present at any meeting at which a
quorum is present shall be the action of the Trustees unless the concurrence of
a greater proportion is required for such action by law, the Regulations or
this Declaration of Trust. If a quorum shall not be present at any meeting of
Trustees, the Trustees present thereat may by a majority vote adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present. Meetings may be held by means of a
conference telephone circuit or similar communications equipment by means of
which all persons participating may hear each other. The Trustees may also act
without a meeting, unless provided otherwise in this Declaration of Trust or
required by law, by written consent of a majority of the Trustees. As used
herein, a "majority of the Trustees" shall mean a majority of the Trustees in
office at the time in question or if there shall be only one (1) Trustee in
office then such term shall mean such Trustee.
The Trustees may appoint committees of Trustees and delegate
powers to them as provided in the Regulations. Any committee of the Trustees,
including an executive committee, if any, may act with or without a meeting. A
quorum for all meetings of any such committee shall be a majority of the
members thereof. Unless provided otherwise in this Declaration of Trust, any
action of any such committee may be taken at a meeting by vote of a majority of
the members present (a quorum being
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present) or without a meeting by unanimous written consent of the members.
6.5 Vacancies. In case a vacancy shall exist by reason of
an increase in number, or for any other reason, the remaining Trustee or
Trustees may fill such vacancy by appointing such other person as he or they in
their discretion shall select. An appointment of a Trustee may be made in
anticipation of a vacancy to occur at a later date by reason of retirement or
resignation of a Trustee or an increase in the number of Trustees; provided,
that such appointment will not become effective prior to such retirement or
resignation or such increase in the number of Trustees. Whenever a vacancy in
the number of Trustees shall occur, until such vacancy is filled as provided in
this Section 6.5, the Trustee or Trustees then in office, regardless of number,
shall have all the powers granted to the Trustees, and shall discharge all the
duties imposed on the Trustees, by this Declaration of Trust. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy. Such
appointment shall be evidenced by a written instrument signed by a majority of
the then Trustees but the appointment shall not take effect until the
individual so named shall have qualified by accepting in writing the
appointment and agreeing to be bound by the terms of this Declaration of Trust.
A vacancy may also be filled by the Shareholders in an election held at an
annual or special meeting. As soon as any Trustee so appointed or elected
shall have qualified, the Trust estate shall vest in the new Trustee or
Trustees, together with the continuing Trustees, without any further act or
conveyance.
6.6 Effect of Death, Resignation, etc. of Trustee. The
death, resignation, removal, or incapacity of the Trustees, or any one of them,
shall not operate to annul the Trust or to revoke any existing agency created
pursuant to the terms of this Declaration of Trust. Upon the resignation or
removal of a Trustee, or his otherwise ceasing to be a Trustee, he shall
execute and deliver such documents as the remaining Trustees shall require for
the purpose of conveying to the Trust or the remaining Trustees any Trust
Property held in the name of the resigning or removed Trustee. Upon the
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence. The failure to request or deliver such
documents shall not affect the operation of the provisions of Article IV
hereof.
6.7 Powers. The Trustees in all instances shall act as
principals and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or
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desirable in connection with the management of the Trust. The Trustees shall
not be bound or limited by present or future laws or customs in regard to Trust
investments, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
accomplish the purpose of this Trust. Without limiting the foregoing, and
subject to any applicable limitation in this Declaration of Trust or the
Regulations, the Trustees shall have power and authority:
A. To conduct, operate and carry on, either
directly or through one or more wholly-owned subsidiaries, the business of an
investment company or any other lawful business activity which the Trustees, in
their sole and absolute discretion, consider to be (1) incidental to the
business of the Trust or any class of Shares as an investment company, (2)
conducive to or expedient for the benefit or protection of the Trust or the
Shareholders of any class of Shares, or (3) calculated in any other manner to
promote the interests of the Trust or the Shareholders of any class of Shares.
B. To adopt Regulations not inconsistent with
this Declaration of Trust providing for the conduct of the affairs of the Trust
and to amend and repeal them to the extent that they do not reserve that right
solely to the Shareholders.
C. To issue, sell, repurchase, redeem, retire,
cancel, acquire, hold, resell, reissue, dispose of, transfer, and otherwise
deal in Shares of the Trust; and to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares, any funds or other assets of
the Trust, whether constituting capital or surplus or otherwise, to the full
extent now or hereafter permitted by applicable law; and to divide or combine
Shares without thereby changing the proportionate beneficial interest in the
Trust.
D. To issue, acquire, hold, resell, convey,
write options on, and otherwise deal in securities, debt instruments and other
instruments and rights of a financial character and to apply to any acquisition
of securities any property of the Trust whether from capital or surplus or
otherwise.
E. To invest and reinvest cash, and to hold cash
uninvested.
F. To borrow money, issue guarantees of
indebtedness or contractual obligations of others, to sell, exchange, lend,
pledge, mortgage, hypothecate, write options on and lease any or all of the
Trust Property.
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G. To act as a distributor of Shares and as
underwriter of, or broker or dealer in, securities or other property.
H. To vote or give assent, or exercise any
rights of ownership, with respect to stock or other securities or property; and
to execute and deliver proxies or powers of attorney to such Person or Persons
as the Trustees shall deem proper, granting to such Person or Persons such
power and discretion with relation to securities or property as the Trustees
shall deem proper.
I. To exercise powers and rights of subscription
or otherwise which in any manner arise out of ownership of securities.
J. To hold any security or property in a form
not indicating any trust, whether in bearer, unregistered or other negotiable
form, or in the name of the Trustees or of the Trust or in the name of a
custodian, sub-custodian or other depositary or a nominee or nominees or
otherwise.
K. To consent to or participate in any plan for
the reorganization, consolidation or merger of any corporation or issuer, any
security of which is or was held in the Trust; and consent to any contract,
lease, mortgage, purchase or sale of property by such corporation or issuer;
and to pay calls or subscriptions with respect to any security held in the
Trust.
L. To join with other security holders in acting
through a committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such power and
authority with relation to any security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to
pay, such portion of the expenses and compensation of such committee,
depositary or trustee as the Trustees shall deem proper.
M. To enter into joint ventures, general or
limited partnerships and any other combinations or associations.
N. To enter into contracts of any kind and
description.
O. To collect all property due to the Trust, to
pay all claims, including taxes, against the assets belonging to the Trust, to
prosecute, defend, compromise, arbitrate, or otherwise adjust claims in favor
of or against the Trust or any matter in controversy including, but not limited
to, claims for taxes, to foreclose any security interest securing any
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obligations by virtue of which any property is owed to the Trust, and to enter
into releases, agreements and other instruments.
P. To retain and employ any Person or Persons to
serve on behalf of the Trust as investment adviser, administrator, transfer
agent, custodian, underwriter, distributor or in such other capacities as they
consider desirable and to delegate such power and authority as they consider
desirable to any such Person or Persons.
Q. To indemnify any person with whom the Trust
has dealings.
R. To purchase and pay for entirely out of Trust
Property such insurance as they may deem necessary or appropriate for the
conduct of the business, including without limitation, insurance policies
insuring the Trust Property and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers or managers,
principal underwriters, or independent contractors of the Trust individually
against all claims and liabilities of every nature arising by reason of
holding, being or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such person as Shareholder,
Trustee, officer, employee, agent, investment adviser or manager, principal
underwriter, or independent contractor, including any action taken or omitted
that may be determined to constitute negligence, whether or not the Trust would
have the power to indemnify such Person against such liability.
S. To engage in and to prosecute, defend,
compromise, abandon, or adjust, by arbitration or otherwise, any actions,
suits, proceedings, disputes, claims, and demands relating to the Trust or the
Trust Property, and, out of the Trust Property, to pay or to satisfy any debts,
claims or expenses incurred in connection therewith, including those of
litigation, and such power shall include without limitation the power of the
Trustees or any appropriate committee thereof, in the exercise of their or its
good faith business judgment, consenting to dismiss any action, suit,
proceeding, dispute, claims, or demand, derivative or otherwise, brought by any
person, including a Shareholder in such Shareholder's own name or in the name
of the Trust, whether or not the Trust or any of the Trustees may be named
individually therein or the subject matter arises by reason of business for or
on behalf of the Trust.
T. To establish pension, profit sharing, Share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust.
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U. To determine and change the fiscal year of
the Trust and the method by which its accounts shall be kept.
V. To establish in their absolute discretion in
accordance with the provisions of applicable law the basis or method for
determining the value of the assets belonging to any class or classes of
Shares, the value of the liabilities belonging to any class or classes of
Shares, the allocation of any assets or liabilities to any class or classes of
Shares, the net asset value of any class of Shares, the times at which Shares
of any class shall be deemed to be outstanding or no longer outstanding and the
net asset value of each Share of any class for purposes of sales, redemptions,
repurchases of Shares or otherwise.
W. To determine in accordance with generally
accepted accounting principles and practices what constitutes net profits or
net earnings, and to determine what accounting periods shall be used by the
Trust for any purpose, whether annual or any other period, including daily; to
set apart out of the assets belonging to any class or classes of Shares such
reserves of funds for such purposes as it shall determine and to abolish the
same; to declare and pay any dividends and distributions to any class of Shares
in cash, securities or other property from any assets legally available
therefor, at such intervals (which may be as frequently as daily) or on such
other periodic basis, as it shall determine; to declare such dividends or
distributions by means of a formula or other method of determination, at
meetings held less frequently than the frequency of the effectiveness of such
declaration; to establish payment dates for dividends or any other
distributions on any basis, including dates occurring less frequently than the
effectiveness of declarations thereof; and to provide for the payment of
declared dividends on a date earlier or later than the specified payment date
in the case of Shareholders redeeming their entire ownership of Shares of any
class.
X. To engage in any other lawful act or activity
in which a Massachusetts trust with transferable Shares or a corporation
organized under the Massachusetts Business Corporation Law may engage.
No one dealing with the Trustees shall be under any obligation
to make any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or
upon their order.
6.8 Trustees and Representatives as Shareholders. Any
Trustee, representative or other agent of the Trust may acquire, own and
dispose of Shares of the Trust to the same extent as if he were not a Trustee,
representative or agent; and the Trust may issue and sell or cause to be issued
and sold Shares of the Trust
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to, and may buy such Shares from, any person with which such Trustee,
representative or agent is affiliated subject only to the general limitations
herein contained as to the sale and purchase of such Shares; all subject to any
restrictions which may be contained in the Regulations.
6.9 Expenses; Trustee Reimbursement. The Trustees shall
have the power to incur an to pay (or shall be reimbursed) from the Trust
Property all expenses and disbursements of the Trust, including, without
limitation, interest expense, compensation payable to Trustees and
representatives of the Trust, taxes, fees and commissions of every kind
incurred in connection with the affairs of the Trust, expenses of issue,
repurchase and redemption of Shares, expenses of registering and qualifying the
Trust and its Shares under Federal and State securities laws and regulations,
charges of custodians, transfer agents, investment advisers, administrators and
registrars, expenses in obtaining securities prices for valuation purposes,
expenses of preparing and printing and distributing prospectuses, auditing and
legal expenses, expenses of reports to Shareholders, expenses of meetings of
Shareholders and proxy solicitations therefor, insurance expense, association
membership dues and such non-recurring items as may arise, including costs and
expenses of litigation to which the Trust is a party, and for all losses and
liabilities by them incurred in administering the Trust, provided that
expenses, disbursements, losses and liabilities incurred in connection with
classes of Shares having the same alphabetical designation or in connection
with the management of the assets belonging to such classes shall be payable
solely out of the assets belonging to such classes, and provided further that
the Trustees shall have a lien on the Trust Property prior to any rights or
interests of the Shareholders thereto for the payment of any expenses,
disbursements, losses and liabilities of the Trust.
6.10 Power to Carry Out Trust's Purposes; Presumptions.
The Trustees shall have power to carry out any and all acts consistent with the
Trust's purposes through branches and offices both within and without the
Commonwealth of Massachusetts, in any and all states of the United States of
America, in the District of Columbia, and in any and all commonwealths,
territories, dependencies, possessions, agencies or instrumentalities of the
United States of America and of foreign governments, and to do all such other
things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Declaration, the presumption shall be in
favor of a grant of power to the Trustees. The enumeration of any specific
power herein shall not be construed as limiting the aforesaid power. The
Trustees shall
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not be required to obtain any court order to deal with the Trust Property.
6.11 Determinations by Trustees. Any determination made
in good faith and, so far as accounting matters are involved in accordance with
generally accepted accounting principles, by or pursuant to the direction of
the Trustees as to the amount and value of assets, obligations or liabilities
of the Trust or any class of Shares, as to the amount of net income of the
Trust or any class of Shares from dividends and interest for any period or
amounts at any time legally available for the payment of dividends, as to the
amount of any reserves or charges set up and the propriety thereof, as to the
time of or purpose for creating reserves or as to the use, alteration or
cancellation of any reserves or charges (whether or not any obligation or
liability for which such reserves or charges shall have been created shall have
been paid or discharged or shall be then or thereafter required to be paid or
discharged), as to the value of any security owned by the Trust or any class of
Shares, as to the allocation of any assets or liabilities to a class or classes
of Shares, as to the times at which Shares of any class shall be deemed to be
outstanding or no longer outstanding, or as to any other matters relating to
the issuance, sale, redemption or other acquisition or disposition of
securities or Shares, and any reasonable determination made in good faith by
the Trustees as to whether any transaction constitutes a purchase of securities
on "margin," a sale of securities "short," or any underwriting of the sale of,
or a participation in any underwriting or selling group in connection with the
public distribution of, any securities, shall be final and conclusive, and
shall be binding upon the Trust and all Shareholders, past, present and future,
and Shares are issued and sold on the condition and understanding, evidenced by
the purchase of Shares or acceptance of Share certificates, that any and all
such determinations shall be binding as aforesaid.
6.12 Service in other Capacities. Any Trustee,
representative, employee or agent of the Trust, including any investment
adviser, transfer agent, administrator, distributor, custodian or underwriter
for the Trust, may serve in any other capacity on his or its own behalf or on
behalf of others, and may engage in other business activities in addition to
his or its services on behalf of the Trust, provided that such other activities
do not materially interfere with the performance of his or its duties for or on
behalf of the Trust.
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VII.
AGREEMENTS WITH INVESTMENT ADVISER,
PRINCIPAL UNDERWRITER, ADMINISTRATOR,
TRANSFER AGENT, CUSTODIAN AND OTHERS
7.1 Investment Adviser. The Trustees may, on such terms
and conditions as they may in their discretion determine, enter into a written
investment advisory agreement or agreements with any Person or Persons
providing for portfolio management, investment advisory, statistical and
research facilities and other services pertaining to the assets belonging to
one or more classes of Shares. Notwithstanding any other provision hereof, the
Trustees may authorize such an investment adviser (subject to such general or
specific instructions as the Trustees may adopt) to effect purchases, sales or
exchanges of portfolio securities of such class(es) on behalf of the Trustees
and to determine the net asset value and net income of such class(es) or may
authorize any representative or Trustee to effect such purchases, sales or
exchanges pursuant to the recommendations of such investment adviser (all
without further action by the Trustees). Any such purchases, sales and
exchanges so affected shall be deemed to have been authorized by all of the
Trustees.
7.2 Administrator. The Trustees may, on such terms and
conditions as they may in their discretion determine, enter into one or more
agreements with any Person or Persons providing for administrative services to
one or more classes of Shares, including assistance in supervising the affairs
of such class(es) and performance of administrative, clerical and other
services considered desirable by the Trustees.
7.3 Principal Underwriter. The Trustees may, on such
terms and conditions as they may in their discretion determine, enter into one
or more distribution agreements with any Person or Persons providing for sale
of Shares of one or more classes at a price at least equal to the net asset
value per Share of such class(es) and providing for sale of the Shares of such
class(es) pursuant to arrangements by which the Trust may either agree to sell
the Shares of such class(es) to the other party to the agreement or appoint
such other party its sales agent for such Shares. Such agreement(s) may also
provide for the repurchase of Shares of such class(es) by such other party as
principal or as agent of the Trust, and may authorize the other party to enter
into agreements with others for the purpose of the distribution or repurchase
of Shares of such class(es).
7.4 Transfer Agent. The Trustees may, on such terms and
conditions as they may in their discretion determine, enter into one or more
agreements with any Person or Persons providing for transfer agency and other
services to Shareholders of any class.
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7.5 Custodian. The Trustees may, on such terms and
conditions as they may in their discretion determine, enter into one or more
agreements with any Person or Persons providing for the custody and safekeeping
of the property of the Trust or any class of Shares.
7.6 Service and Distribution Plans. The Trustees may, on
such terms and conditions as they may in their discretion determine, adopt one
or more plans pursuant to which Persons may be compensated directly or
indirectly by the Trust for Shareholder servicing, administration or
distribution with respect to one or more classes of Shares, including without
limitation plans subject to Rule 12b-1 under the Act, and the Trustees may
enter into agreements pursuant to such plans.
7.7 Parties to Agreements. The same Person may be
employed in multiple capacities under Sections 7.1 through 7.6 of this Article
VII and may receive compensation in as many capacities as such Person serves.
The Trustees may enter into any agreement of the character described in this
Article VII, or any other agreement necessary or appropriate to the conduct of
the business of the Trust or any class of Shares, with any Person, including
any Person in which any Trustee, representative, employee or Shareholder of the
Trust may be interested, and no such agreement shall be invalidated or rendered
voidable by reason of the existence of any such relationship, nor shall any
Person holding such relationship be liable by reason of such relationship for
any loss or expense to the Trust under or by reason of said agreement or
accountable for any profit realized directly or indirectly therefrom.
VIII.
SHAREHOLDERS' VOTING POWERS AND MEETINGS
8.1 Voting Powers. The Shareholders shall have power to
vote (a) for the election of Trustees as provided in Section 6.2 hereof, (b) to
the same extent as the shareholders of a Massachusetts business corporation
when considering whether a court action, proceeding or claim should or should
not be brought or maintained derivatively or as a class action on behalf of the
Trust or the Shareholders, (c) with respect to any of the matters and to the
extent provided in Article x hereof, (d) with respect to such additional
matters relating to the Trust as may be required by law, by this Declaration of
Trust, by the Regulations of the Trust, by any requirement applicable to or
agreement of the Trust, or as the Trustees may consider desirable. Every
Shareholder of record shall have the right to one vote for every whole Share
(other than Shares held in the treasury of the Trust) standing in his name on
the books of the Trust, and to a proportional fractional vote for any
fractional Share, as to any
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matter on which the Shareholder is entitled to vote. There shall be no
cumulative voting. Shares may be voted in person or by proxy. Until Shares
are issued, the Trustees may exercise all rights of Shareholders and may take
any action required or permitted to be taken by Shareholders by law, this
Declaration of Trust or the Regulations.
8.2 Meetings. Meetings of Shareholders may be called by
the Trustees as provided in the Regulations and shall be called by the Trustees
upon the written request of Shareholders owning at least ten percent (10%) of
the outstanding shares entitled to vote.
8.3 Quorum and Required Vote. The presence, in person or
by proxy, of Shareholders entitled to cast at least a majority of the votes
which all Shareholders are entitled to cast on the particular matter shall
constitute a quorum for the purpose of considering such matter. Action may be
taken on all matters for which a quorum exists, irrespective of the absence of
a quorum on other matters. If a meeting cannot be organized with respect to a
particular matter because a quorum for that matter has not attended, those
present and entitled to vote on such matter may adjourn the meeting to such
reasonable time and place as they may determine.
On any matter submitted to a vote of Shareholders, Shares with
different alphabetical class designations that are then issued and outstanding
and entitled to vote shall be voted in the aggregate and not by class except:
(1) as otherwise required by applicable law or permitted by the Board of
Trustees of the Trust, or (2) when the matter, as conclusively determined by
the Trustees, affects only the interests of the Shareholders of a class or
classes with a particular alphabetical designation (in which case only
Shareholders of the affected class or classes shall be entitled to vote
thereon).
Each share of classes having the same alphabetical designation
shall vote together in the aggregate and not by class on all matters submitted
to a vote of the Shareholders of such classes, except that:
(1) on any matter that pertains to the
agreements or expenses and liabilities described in subsection B(3)(a) of
Section 5.1 hereof (or to any plan or other document adopted by the Trust
relating to said agreements, expenses or liabilities) and is submitted to a
vote of Shareholders of the Trust, only the particular class of Shares
specified therein shall be entitled to vote, except that: (i) if said matter
affects Shares in the Trust other than such class of Shares, such other
affected Shares in the Trust shall also be entitled to vote, and in such case
the particular class of Shares so specified shall be voted in the aggregate
together with such
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other affected Shares and not by class except where otherwise required by law
or permitted by the Board of Trustees of the Trust; and (ii) if said matter
does not affect the particular class of Shares specified therein, said class of
Shares shall not be entitled to vote (except where required by law or permitted
by the Board of Trustees) even though the matter is submitted to a vote of the
holders of Shares in the Trust other than Shares of such class; and
(2) on any matter that pertains to the
agreements or expenses and liabilities described in subsection B(3)(b) of
Section 5.1 hereof (or any plan or other document adopted by the Trust relating
to said agreements, expenses or liabilities) and is submitted to a vote of
Shareholders of the Trust, the particular class of Shares specified therein
shall not be entitled to vote, except where otherwise required by law or
permitted by the Board of Trustees of the Trust, and except that if said matter
affects such class of Shares, such class of Shares shall be entitled to vote,
and in such case shall be voted in the aggregate together with all other Shares
in the Trust voting on the matter and not by class except where otherwise
required by law or permitted by the Board of Trustees.
Subject to any applicable requirements of law or of this
Declaration of Trust or the Regulations: (a) the acts, at any duly organized
meeting, of the Shareholders present, in person or by proxy, entitled to cast
at least a majority of the votes which all Shareholders present are entitled to
cast on the particular matter shall be the acts of the Shareholders with
respect to that matter; and (b) in the election of Trustees, a plurality of the
Shares voting shall elect a Trustee.
8.4 Shareholder Action by Written Consent. Any action
which may be taken by Shareholders may be taken without a meeting if not less
than a majority of the Shares entitled to vote on the matter consent to the
action in writing and the written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
8.5 Code of Regulations. The Regulations may include
further provisions not inconsistent with this Declaration of Trust for meetings
of Shareholders, votes, record dates, notices of meetings and related matters.
IX.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
9.1 Liabilities of Classes. Liabilities belonging to
classes of Shares with the same alphabetical designation,
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including, without limitation, expenses, fees, charges, taxes, and liabilities
incurred or arising in connection with such classes, or in connection with the
management thereof, shall be paid only from the assets belonging to such
classes.
9.2 Limitation of Trustee Liability. Every act or thing
done or omitted, and every power exercised or obligation incurred by the
Trustees or any of them in the administration of this Trust or in connection
with any affairs, property or concerns of the Trust, whether ostensibly in
their own names or in their Trust capacity, shall be done, omitted, exercised
or incurred by them as Trustees and not as individuals. Every person
contracting or dealing with the Trustees or having any debt, claim or judgment
against them or any of them shall look only to the funds and property of the
Trust for payment or satisfaction. No Trustee or Trustees of the Trust shall
ever be personally liable for or on account of any contract, debt, tort, claim,
damage, judgment or decree arising out of or connected with the administration
or preservation of the Trust Property or the conduct of any of the affairs of
the Trust. Every note, bond, contract, order or other undertaking issued by
the Trust or the Trustees relating to the Trust, and stationery used by the
Trust shall include the notice set forth in Section 9.5 of this Article IX (but
the omission thereof shall not be construed as a waiver of the foregoing
provision, and shall not render the Trustees personally liable).
It is the intention of this Section 9.2 that no Trustee shall
be subject to any personal liability whatsoever to any person for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except that
nothing in this Declaration of Trust shall protect any Trustee from any
liability to the Trust or its Shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of his duties, or by reason of reckless disregard of his
obligations and duties as Trustee; and that all persons shall look solely to
the Trust Property belonging to a class of Shares for satisfaction of claims of
any nature arising in connection with the affairs of such class of the Trust.
9.3 Indemnification of Trustees, Representatives and
Employees. The Trust shall indemnify each of its Trustees against all
liabilities and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees) reasonably incurred
by him in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which he may be involved or
with which he may be threatened, while as a Trustee or thereafter, by reason of
his being or having been such a Trustee except with respect to any matter as to
which he shall
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have been adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties, provided that as to any matter
disposed of by a compromise payment by such person, pursuant to a consent
decree or otherwise, no indemnification either for said payment or for any
other expenses shall be provided unless the Trust shall have received a written
opinion from independent legal counsel approved by the Trustees to the effect
that if either the matter of willful misfeasance, gross negligence or reckless
disregard of duty, or the matter of bad faith had been adjudicated, it would in
the opinion of such counsel have been adjudicated in favor of such person. The
rights accruing to any person under these provisions shall not exclude any
other right to which he may be lawfully entitled, provided that no person may
satisfy any right of indemnity or reimbursement hereunder except out of the
property of the Trust. The Trustees may make advance payments in connection
with the indemnification under this Section 9.3, provided that the indemnified
person shall have given a written undertaking to reimburse the Trust in the
event it is subsequently determined that he is not entitled to such
indemnification.
The Trustees shall indemnify representatives and employees of
the Trust to the same extent that Trustees are entitled to indemnification
pursuant to this Section 9.3.
9.4 Reliance on Experts, etc. Each Trustee and
representative of the Trust shall, in the performance of his duties, be fully
and completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or other
records of the Trust, upon an opinion of counsel satisfactory to the Trust, or
upon reports made to the Trust by any of its representatives or employees or by
the investment adviser, the principal underwriter, selected dealers,
accountants, appraisers or other experts or consultants selected with
reasonable care by the Trustees or representatives of the Trust, regardless of
whether such counsel or expert may also be a Trustee.
9.5 Limitation of Shareholder Liability. Shareholders
shall not be subject to any personal liability in connection with the assets of
the Trust for the acts or obligations of the Trust. The Trustees shall have no
power to bind any Shareholder personally or to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription to
any Shares or otherwise. Every obligation, contract, instrument, certificate
for Shares or any other security of any class of the Trust or undertaking, and
every other act whatsoever executed in connection with the Trust or any class
of Shares shall be conclusively presumed to have been executed or done by the
executors thereof only in their
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capacities as Trustees under the Declaration of Trust or in their capacity as
officers, employees or agents of the Trust and not individually. Every note,
bond, contract, order or other undertaking issued by or on behalf of the Trust
or the Trustees relating to the Trust or any class of Shares, and the
stationery used by the Trust, shall include a recitation limiting the
obligation represented thereby to the Trust and its assets (but the omission of
such a recitation shall not operate to bind any Shareholder), as follows:
"The names 'Conestoga Family of Funds' and 'Trustees
of Conestoga Family of Funds' refer respectively to
the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to
time under a Declaration of Trust dated August 1,
1989 which is hereby referred to and a copy of which
is on file at the office of the State Secretary of
The Commonwealth of Massachusetts and at the
principal office of the Trust. The obligations of
'Conestoga Family of Funds' entered into in the name
or on behalf thereof by any of the Trustees,
representatives or agents are made not individually,
but in such capacities, and are not binding upon any
of the Trustees, Shareholders or representatives of
the Trust personally, but bind only the Trust
Property, and all persons dealing with any class of
shares of the Trust must look solely to the Trust
Property belonging to such class for the enforcement
of any claims against the Trust."
The rights accruing to a Shareholder under this Section 9.5
shall not exclude any other right to which such Shareholder may be lawfully
entitled, nor shall anything herein contained restrict the right of the Trust
to indemnify or reimburse a Shareholder in any appropriate situation even
though not specifically provided for herein, provided that a Shareholder of any
class of Shares shall be indemnified only from assets belonging to the classes
of Shares with the same alphabetical designation.
9.6 Indemnification of Shareholders. In case any
Shareholder or former Shareholder shall be held to be personally liable solely
by reason of his being or having been a Shareholder and not because of his acts
or omissions or for some other reason, the Shareholder or former Shareholder
(or his heirs, executors, administrators or other legal representatives or, in
the case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets belonging to the classes of
Shares with the same alphabetical designation as that of the Shares owned by
such Shareholder to be held
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harmless from and indemnified against all loss and expense arising from such
liability. The Trust shall, upon request by the Shareholder, assume the
defense of any claim made against any Shareholder for any act or obligations of
the Trust and satisfy any judgment thereon from such assets.
X.
MISCELLANEOUS
10.1 Trust Not a Partnership. It is hereby expressly
declared that a Massachusetts trust with transferable Shares and not a
partnership, joint venture, corporation, joint stock company or any form of
legal relationship other than a trust is created hereby. Nothing herein shall
be construed to make the Shareholders, either by themselves or with the
Trustees, partners or members of a joint stock association. No Trustee
hereunder shall have any power to bind personally either a representative of
the Trust or any Shareholder. All persons extending credit to, contracting
with or having any claim against the Trust or the Trustees shall look only to
the assets of the Trust for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, whether past, present or future,
shall be personally liable therefor.
10.2 No Bond or Surety. The Trustees shall not be
required to give any bond as such, nor any surety if a bond is required.
10.3 Duration of Trust. This Trust shall continue without
limitation of time, provided that the Trust or any class of Shares may be
terminated at any time in accordance with the provisions of this Declaration of
Trust and applicable law.
10.4 Merger, Consolidation and Sale of Assets. The Trust
may merge into or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all of
the Trust Property, including its good will, upon such terms and conditions and
for such consideration when and as authorized by vote or written consent of the
Trustees and approved by the affirmative vote of the holders of not less than a
majority of the Shares outstanding and entitled to vote, voting in the
aggregate and not by class except to the extent that applicable law may require
voting by class, or by an instrument or instruments in writing without a
meeting consented to by the holders of not less than a majority of such Shares,
voting in the aggregate and not by class except to the extent that applicable
law may require voting by class.
10.5 Incorporation. With the approval of the holders of a
majority of the outstanding Shares, voting in the aggregate
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and not by class except to the extent that applicable law may require voting by
class, the Trustees may cause to be organized, or assist in organizing, a
corporation or corporations under the law of any jurisdiction, to carry on any
affairs in which the Trust shall directly or indirectly have any interest, and
to transfer the Trust Property to any such Person in exchange for any Shares or
securities thereof or otherwise, and to lend money, to subscribe for the Shares
or securities of, and enter into any contracts with any such Person in which
the Trust holds or is about to acquire securities or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
successor thereto and any such Person if and to the extent permitted by law.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships associations or the organizations and
selling, conveying or transferring a portion of the Trust Property to such
Person(s).
10.6 Filing of Copies, References, Headings. The original
instrument of this Declaration of Trust and of each amendment hereto shall be
filed with the State Secretary of the Commonwealth of Massachusetts as provided
by law and copies thereof shall be kept at the office of the Trust where they
may be inspected by any Shareholder. Each amendment so filed shall be
accompanied by a certificate signed and acknowledged by a Trustee or by the
Secretary or any Assistant Secretary of the Trust stating that such action was
duly taken in the manner provided herein, and unless such amendment or such
certificate sets forth some later time for the effectiveness of such amendment,
such amendment shall be effective upon its filing. A restated Declaration
Trust, integrating into a single instrument all of the provisions of the
Declaration of Trust that are then in effect and operative, may be executed
from time to time by a majority of the Trustees and shall, upon filing with the
State Secretary of the Commonwealth of Massachusetts, be conclusive evidence of
all amendments contained therein and may thereafter be referred to in lieu of
the initial Declaration of Trust and the various amendments thereto. Anyone
dealing with the Trust may rely on a certificate by a representative of the
Trust as to whether or not any such amendment hereto may have been made and as
to any matters in connection with the Trust hereunder, with the same effect as
if it were the original, and may rely on a copy certified by a representative
of the Trust to be a copy of this instrument or of any amendment thereto.
Headings are placed herein for convenience of reference only and, in the case
of any conflict, the text of this instrument, rather than the headings, shall
control. This instrument may be executed in any number of counterparts each of
which shall be deemed an original. All signatures to this instrument need not
appear on the same page.
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10.7 Applicable Law. The Trust set forth in this
instrument is a trust made in the Commonwealth of Massachusetts and is to be
governed by and construed and administered according the laws of said
Commonwealth.
10.8 Provisions in Conflict With Law or Regulations.
A. No provision of this Declaration of Trust
shall be effective to:
(1) Require a waiver of compliance with
any provision of the Securities Act of 1933, as amended, or the Act, or of any
valid rule, regulation or order of the Securities and Exchange Commission
thereunder; or
(2) Protect or purport to protect any
Trustee or officer of the Trust against any liability to the Trust or its
Shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
B. The provisions of this Declaration of Trust
are severable, and if the Trustees shall determine with the advice of counsel
that any of such provisions is in conflict with the Act, the regulated
investment company provisions of the Internal Revenue Code, Chapter 182 of the
General Laws of the Commonwealth of Massachusetts or with any other applicable
law or regulation, then in such event the conflicting provision shall be deemed
never to have constituted a part of this Declaration of Trust, provided that
such determination shall not affect any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.
C. If any provision of this Declaration of Trust
shall be held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration of Trust in any jurisdiction.
10.9 Amendment of Declaration of Trust.
A. This Declaration of Trust may be amended upon
a resolution to that effect being adopted by the Trustees and approved by the
affirmative vote of the holders of not less than a majority of the outstanding
Shares, voting in the aggregate and not by class except to the extent that
applicable law may require voting by class.
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<PAGE> 31
B. Notwithstanding any other provision hereof,
until such time as a Registration Statement under the Securities Act of 1933,
as amended, covering the first public offering of securities of the Trust shall
have become effective, this Declaration of Trust may be terminated or amended
in any respect by the affirmative vote of a majority of the Trustees.
C. The Trustees may amend this Declaration of
Trust without a vote of Shareholders to change the name of the Trust or to cure
any error or ambiguity or if they deem it necessary to conform this Declaration
of Trust to the requirements of applicable state or federal laws or
regulations, including without limitation the requirements of the regulated
investment company provisions of the Internal Revenue Code, but the Trustees
shall not be liable for failing so to do.
D. Notwithstanding any other provision hereof,
this Declaration of Trust may not be amended in any manner whatsoever that
would impair the exemption from personal liability of the Trustees and
Shareholders of the Trust or that would permit an assessment upon any
Shareholder.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement and Declaration of Trust in the capacities indicated, this 1st day of
August, 1989.
s/ Bryan G. Tyson
----------------------------------
Bryan G. Tyson, Settlor
s/ Thomas E. Weesner
----------------------------------
Thomas E. Weesner,
Initial Trustee
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<PAGE> 32
M A S S A C H U S E T T S
Suffolk, ss.:
On this 1st day of August, 1989, personally appeared before me
Bryan G. Tyson and Thomas E. Weesner, each known to me and known to me to be
the individuals described in and who executed the foregoing Agreement and
Declaration of Trust, and each acknowledged the said Agreement and Declaration
of Trust to be his free act and deed.
s/ Mary Jankun
----------------------------------
Notary Public
[NOTARIAL SEAL] My Commission Expires 9/7/95
------------------
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<PAGE> 1
EXHIBIT (1)(b)
SECRETARY'S CERTIFICATE
The undersigned, as Secretary for Conestoga Family of Funds (the
"Company"), hereby certifies that the following is a true and genuine copy of
the Company's Classification of Shares adopted at the meeting of the Board of
Trustees held on September 19, 1989:
Classification of Shares.
RESOLVED, that pursuant to Article V of the Company's
Agreement and Declaration of Trust an unlimited number of authorized,
unissued and unclassified shares of beneficial interest of the Company
be, and hereby are, classified into each of six separate classes of
shares which shall be designated, respectively, Class A-1, Class B-1,
Class C-1, Class D-1, Class E-1 and Class F-1; and
FURTHER RESOLVED, that (a) Class A-1 shares of beneficial
interest shall represent interests in the U.S. Treasury Securities
Fund, (b) Class B-1 shares of beneficial interest shall represent
interests in the Cash Management Fund, (c) Class C-1 shares of
beneficial interest shall represent interests in the Tax-Free Fund,
(d) Class D-1 shares of beneficial interest shall represent interests
in the Limited Maturity Fund, (e) Class E-1 shares of beneficial
interest shall represent interests in the Bond Fund, and (f) Class F-1
shares of beneficial interest shall represent interests in the Equity
Fund; and
FURTHER RESOLVED, that each share of Class A-1, Class B-1,
Class C-1, Class D-1, Class E-1 and Class F-1 shall have all of the
preferences, conversion and other rights, voting powers, restrictions,
limitations, qualifications and terms and conditions of redemption
that are set forth in the Agreement and Declaration of Trust of
Conestoga Family of Funds with respect to its shares of beneficial
interest; and
FURTHER RESOLVED, that the officers of the Company be, and
each of them hereby is, authorized and empowered to execute, seal and
deliver any and all documents, instruments, papers and writings,
including but not limited to any instrument to be filed with the State
Secretary of the Commonwealth of Massachusetts or the Boston City
Clerk,
<PAGE> 2
and to do any and all other acts, in the name of the Company and on
its behalf, as may be necessary or desirable in connection with or in
furtherance of the foregoing resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand as Secretary of the
Company this 28th day of September, 1989.
s/ Cynthia Lee Lindsey
-------------------------------
Cynthia Lee Lindsey
Secretary
<PAGE> 1
EXHIBIT (2)
CODE OF REGULATIONS
OF
CONESTOGA FAMILY OF FUNDS
ARTICLE I
TRUSTEES
1.1 NUMBER AND TERM OF OFFICE. The number of Trustees shall
be such number, not more than ten (10), as may be fixed from time to time by
the Trustee(s). Each Trustee shall hold office until the next meeting of the
Shareholders following his election or appointment as a Trustee at which
trustees are elected and until his successor shall have been elected and
qualified.
1.2 PLACE OF MEETINGS; TELEPHONE MEETINGS. Meetings of the
Trustees, regular or special, shall be held at the principal office of the
Trust or at such other place as the Trustees may from time to time determine.
The Trustees or any committee thereof may participate in a meeting of the
Trustees or of such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting may hear each other at the same time and participation by such means
shall constitute presence in person at the meeting except for the purpose of
voting on any investment advisory agreement or distribution plan of the Trust.
1.3 REGULAR MEETINGS. Regular meetings of the Trustees may
be held without notice at such time and at the
<PAGE> 2
principal office of the Trust or at such other place as the Trustees may from
time to time determine.
1.4 SPECIAL MEETINGS. Special meetings of the Trustees may
be called by the President on one day's notice to each Trustee; special
meetings of the Trustees shall be called by the President or Secretary in like
manner and on like notice on the written request of two Trustees.
1.5 COMMITTEES. The Trustees may by resolution passed by a
majority of the Trustees appoint from among its members an executive committee
and other committees composed of two or more Trustees, and may delegate to such
committees, in the intervals between meetings of the Trustees, any or all of
the powers of the Trustees in the management of the business and affairs of the
Trust, except the power to issue Shares in the Trust or to recommend to
Shareholders any action requiring Shareholder approval.
1.6 CHAIRMAN OF THE BOARD. The Trustees may at any time
appoint one of their number as Chairman of the Board, who shall serve at the
pleasure of the Trustees and shall perform and execute such duties as the
Trustees may from time to time provide but who shall not by reason of
performing or executing these duties be deemed an officer or employee of the
Trust.
1.7 COMPENSATION. Any Trustee, whether or not a salaried
officer, employee, or agent of the Trust, may be compensated for his services
as a Trustee or as a member of a committee, or as Chairman of the Board of
Trustees or Chairman of
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<PAGE> 3
a committee, by fixed periodic payments or by fees for attendance at meetings
or by both, and in addition may be reimbursed for transportation and other
expenses, all in such manner and amounts as the Trustees may from time to time
determine.
ARTICLE II
SHAREHOLDERS
2.1 MEETINGS. Meetings of the Shareholders of the Trust may
be called by the Trustees and shall be called by the Trustees whenever required
by law or upon the written request of the holders of at least ten percent (10%)
of the outstanding Shares entitled to vote.
2.2 NOTICE. Written notice, stating the place, day and hour
of each meeting of the Shareholders and the general nature of the business to
be transacted shall be given by, or at the direction of, the person calling the
meeting to each Shareholder of record entitled to vote at the meeting at least
ten days prior to the day named for the meeting, unless in a particular case a
longer period of notice is required by law.
2.3 SHAREHOLDERS' LIST. The officer or agent having charge
of the transfer books for Shares of the Trust shall make, at least five days
before each meeting of the Shareholders, a complete list of the Shareholders
entitled to vote at the meeting, arranged in alphabetical order with the
address of and the number of Shares held by each such Shareholder. The list
shall be kept on file at the office of the Trust and shall be
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<PAGE> 4
subject to inspection by any Shareholder at any time during usual business
hours and shall also be produced and kept open at the time and place of each
meeting of Shareholders and shall be subject to inspection by any Shareholder
during each meeting of Shareholders.
2.4 RECORD DATE. The Trustees may fix a time (during which
they may close the Share transfer books of the Trust) not more than ninety (90)
days prior to the date of any meeting of the Shareholders, or the date fixed
for the payment of any dividend, or the date of the allotment of rights or the
date when any change or conversion or exchange of Shares shall go into effect,
as a record date for the determination of the Shareholders entitled to notice
of, or to vote at, any such meeting, or entitled to receive payment of any such
dividend, or to receive any such allotment of rights, or to exercise such
rights, as the case may be. In such case, only such Shareholders as shall be
Shareholders of record at the close of business on the date so fixed shall be
entitled to notice of, or to vote at, such meeting or to receive payment of
such dividend, or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any Shares on the
books of the Trust after any record date fixed, as aforesaid.
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<PAGE> 5
ARTICLE III
NOTICES
3.1 FORM. Notices to the Trustees shall be oral or by
telephone or telegram or in writing delivered personally or mailed to the
Trustees at their addresses appearing on the books of the Trust. Notices to
the Shareholders shall be in writing and delivered personally or mailed to the
Shareholders at their addresses appearing on the books of the Trust. Oral
notice shall be deemed to be given when given directly to the person required
to be notified and notice by mail shall be deemed to be given when deposited in
the United States mail or with a telegraph office for transmission. Notice to
the Trustees need not state the purpose of a regular or special meeting of the
Trustees or committee.
3.2 WAIVER. Whenever any notice of the time, place or
purpose of any meeting of the Shareholders, the Trustees or a committee is
required to be given under the provisions of Massachusetts law or under the
provisions of the Declaration of Trust or these Regulations, a waiver thereof
in writing, signed by the person or persons entitled to such notice and filed
with the records of the meeting, whether before or after the holding thereof,
or actual attendance at the meeting of the Shareholders in person or by proxy,
or at the meeting of the Trustees or the committee in person, shall be deemed
equivalent to the giving of such notice to such persons.
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<PAGE> 6
ARTICLE IV
OFFICERS
4.1 NUMBER. The officers of the Trust shall be chosen by the
Trustees and shall include a President, who shall be a Trustee, a Secretary and
a Treasurer. The Board of Trustees may from time to time elect or appoint one
or more Vice Presidents, Assistant Secretaries and Assistant Treasurers.
4.2 OTHER OFFICERS. The Trustees from time to time may
appoint such other officers and agents as they shall deem advisable, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as the Trustees may from time to time prescribe. The Trustees may
delegate to one or more officers or agents the power to appoint any such
subordinate officers or agents and to prescribe the respective rights, terms of
office, authorities and duties.
4.3 ELECTION AND TENURE. The officers of the Trust shall be
chosen by the Trustees. Two or more offices may be held by the same person but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law, the Declaration of Trust or
these Regulations to be executed, acknowledged or verified by two or more
officers. Any officer or agent may be removed by the Trustees. An officer of
the Trust may resign by filing a written resignation with the President or with
the Trustees or with the Secretary. Any vacancy occurring in any office of the
Trust by
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<PAGE> 7
death, resignation, removal or otherwise may be filled by the Trustees.
4.4 COMPENSATION. The salaries or other compensation of all
officers and agents of the Trust shall be fixed by the Trustees, except that
the Trustees may delegate to any committee the power to fix the salary or other
compensation of any officer of the Trust.
4.5 PRESIDENT. The President shall be the chief executive
officer of the Trust; he shall preside at all meetings of the Trustees and of
the Shareholders unless a Chairman has been designated; he shall be, ex
officio, a member of all standing committees; and he shall see that all orders
and resolutions of the Trustees are carried into effect. He, or such person as
he may designate, shall sign, execute and acknowledge, in the name of the
Trust, deeds, mortgages, bonds, contracts and other instruments authorized by
the Trustees, except in the case where the signing and execution thereof shall
be delegated by the Trustees to some other officer or agent of the Trust. The
President shall also be the chief administrative officer of the Trust and shall
perform such other duties and shall have such other powers as the Trustees may
from time to time prescribe.
4.6 VICE PRESIDENTS. The Vice Presidents, in the order of
their seniority, shall, in the absence or disability of the President, perform
the duties and exercise the powers of the President, and shall perform such
other duties as the Trustees may from time to time prescribe.
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<PAGE> 8
4.7 SECRETARY. The Secretary shall attend all meetings of
the Trustees and of the Shareholders and shall record all the proceedings
thereof and shall perform like duties for any committee when required. He
shall give, or cause to be given, notice of meetings of the Trustees and of the
Shareholders, and shall perform such other duties as may be prescribed by the
Trustees or the President, under whose supervision he shall be. He shall keep
in safe custody the seal of the Trust and, when authorized by the Trustees,
affix and attest the same to any instrument requiring it, provided that, in
lieu of affixing the seal of the Trust to any document, it shall be sufficient
to meet the requirements of any law, rule or regulation relating to a seal to
affix the word "(SEAL)" adjacent to the signature of the authorized officer of
the Trust. The Trustees may give general authority to any other officer to
affix the seal of the Trust and to attest the affixing by his signature.
4.8 ASSISTANT SECRETARIES. The Assistant Secretaries, in
order of their seniority, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties as the Trustees may from time to time prescribe.
4.9 TREASURER. The Treasurer shall be the chief financial
officer of the Trust. He shall be responsible for the maintenance of its
accounting records and shall render to the Trustees when the Trustees so
require an account of all the
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<PAGE> 9
Trust's financial transactions and a report of the financial condition of the
Trust.
4.10 ASSISTANT TREASURERS. The Assistant Treasurers, in the
order of their seniority, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties as the Trustees may from time to time prescribe.
ARTICLE V
INVESTMENT RESTRICTIONS
The Trustees may from time to time adopt such restrictions
upon the investment of the assets of the Trust, or amendments thereto, as they
may consider necessary or desirable, provided that any such restriction or
amendment shall be approved by a majority of the outstanding Shares of the
Trust entitled to vote thereon if required by the Investment Company Act of
1940, as amended.
ARTICLE VI
GENERAL PROVISIONS
6.1 INSPECTION OF BOOKS. The Trustees may from time to time
determine whether and to what extent, and at what times and places, and under
what conditions and regulations the accounts and books of the Trust or any of
them shall be open to inspection by the Shareholders; and no Shareholder shall
have any right to inspect any account or book or document of the Trust
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<PAGE> 10
except as conferred by law or authorized by the Trustees or by resolution of
the Shareholders.
6.2 REPORTS. The Trust shall transmit to the Shareholders
and/or file with federal and state regulatory agencies such reports of its
operations as the Trustees shall consider necessary or desirable or as may be
required by law.
6.3 BONDING OF OFFICERS AND EMPLOYEES. All officers and
employees of the Trust shall be bonded to such extent, and in such manner, as
may be required by law.
6.4 TRANSFER OF SHARES. Share certificates shall not be
issued. Transfer of Shares shall be made on the books of the Trust at the
direction of the person named on the Trust's books, or by his attorney lawfully
constituted in writing, upon a proper request for redemption or transfer, to
the Trust's transfer agent, with such evidence of the authenticity of such
transfer, authorization and other matters as the Trust or its agents may
reasonably require, and subject to such other reasonable conditions and
requirements as may be required by the Trust or its agents; or if the Trustees
shall by resolution so provide, transfer of Shares may be made in any other
manner provided by law.
ARTICLE VII
AMENDMENTS
This Code of Regulations may be altered or repealed by the
Trustees at any regular or special meeting of the Trustees.
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<PAGE> 1
EXHIBIT (5)(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of November 27, 1989 between CONESTOGA FAMILY OF
FUNDS, a Massachusetts trust with transferrable shares (herein called the
"Company"), and Meridian Investment Company (herein called the "Investment
Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended ("1940 Act"); and
WHEREAS, the Company desires to retain the Investment Adviser to
furnish investment advisory and administrative services to certain investment
portfolios of the Company (the "Funds") and the Investment Adviser represents
that it is willing and possesses legal authority to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Company hereby appoints the Investment
Adviser to act as investment adviser to the Funds identified on Schedule A
hereto for the period and on the terms set forth in this Agreement. The
Investment Adviser accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided. Additional Funds may be
added to those covered by this Agreement from time to time by the parties
executing a new Schedule A which shall become effective upon its execution and
shall supersede any Schedule A having an earlier date.
2. DELIVERY OF DOCUMENTS. The Company has furnished the
Investment Adviser with copies properly certified or authenticated of each of
the following:
(a) the Company's Agreement and Declaration of Trust, as
executed on August 1, 1989 and as filed with the Secretary of State of the
Commonwealth of Massachusetts on August 2, 1989, and all amendments thereto or
restatements thereof (such document, as presently in effect and as it shall
from time to time be amended or restated, is herein called the "Declaration of
Trust");
(b) the Company's Code of Regulations and any amendments
thereto;
(c) resolutions of the Company's Board of Trustees
authorizing the appointment of the Investment Adviser and approving this
Agreement;
<PAGE> 2
(d) the Company's Notification of Registration on Form
N-8A under the 1940 Act as filed with the Securities and Exchange Commission on
August 9, 1989 and any amendments thereto;
(e) the Company's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended ("1933 Act") (File No. 33-30431)
and under the 1940 Act as filed with the Securities and Exchange Commission and
all amendments thereto; and
(f) the Funds' most recent prospectuses and Statement of
Additional Information (such prospectuses and Statement of Additional
Information, as presently in effect, and all amendments and supplements thereto
are herein collectively called the "Prospectus").
The Company will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing.
3. MANAGEMENT. Subject to the supervision of the Company's Board
of Trustees, the Investment Adviser will provide a continuous investment
program for each Fund, including investment research and management with
respect to all securities and investments and cash equivalents in said Funds.
The Investment Adviser will determine from time to time what securities and
other investments will be purchased, retained or sold by the Company with
respect to each Fund. The Investment Adviser will provide the services under
this Agreement in accordance with each Fund's investment objective, policies,
and restrictions as stated in the Prospectus and resolutions of the Company's
Board of Trustees. The Investment Adviser further agrees that it:
(a) will use the same skill and care in providing such
services as it uses in providing services to other accounts for which it has
investment responsibilities;
(b) will conform with all applicable Rules and
Regulations of the Securities and Exchange Commission and in addition will
conduct its activities under this Agreement in accordance with any applicable
regulations of any governmental authority pertaining to the investment advisory
activities of the Investment Adviser;
(c) will not make loans to any person to purchase or
carry units of beneficial interest in the Company or make interest-bearing
loans to the Company;
(d) will place orders pursuant to its investment
determinations for the Company either directly with the issuer or with any
broker or dealer. In placing orders with brokers and dealers, the Investment
Adviser will attempt to obtain prompt
-2-
<PAGE> 3
execution of orders in an effective manner at the most favorable price.
Consistent with this obligation, when the execution and price offered by two or
more brokers or dealers are comparable, the Investment Adviser may, in its
discretion, purchase and sell portfolio securities to and from brokers and
dealers who provide the Investment Adviser with research advice and other
services. In no instance will portfolio securities be purchased from or sold to
The Winsbury Company, Meridian Investment Company, or any affiliated person of
either the Company, The Winsbury Company, or Meridian Investment Company;
(e) will maintain all books and records with respect to
the Company's securities transactions and will furnish the Company's Board of
Trustees such periodic and special reports as the Board may request;
(f) will treat confidentially and as proprietary
information of the Company all records and other information relative to the
Company and prior, present, or potential interestholders, and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where the Investment Adviser may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Company; and
(g) will maintain its policy and practice of conducting
its fiduciary functions independently. In making investment recommendations
for the Company, the Investment Adviser's personnel will not inquire or take
into consideration whether the issuers of securities proposed for purchase or
sale for the Company's account are customers of the Investment Adviser or of
its parent or its subsidiaries or affiliates. In dealing with such customers,
the Investment Adviser and its parent, subsidiaries, and affiliates will not
inquire or take into consideration whether securities of those customers are
held by the Company.
4. SERVICES NOT EXCLUSIVE. The investment management services
furnished by the Investment Adviser hereunder are not to be deemed exclusive,
and the Investment Adviser shall be free to furnish similar services to others
so long as its services under this Agreement are not impaired thereby.
5. BOOKS AND RECORDS. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Investment Adviser hereby agrees that all
records which it maintains for the Company are the property of the Company and
further agrees to surrender promptly to the Company any of such records upon
the Company's
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<PAGE> 4
request. The Investment Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
6. EXPENSES. During the term of this Agreement, the Investment
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Company.
7. COMPENSATION. For the services provided and the expenses
assumed pursuant to this Agreement, each of the Funds will pay the Investment
Adviser and the Investment Adviser will accept as full compensation therefor a
fee equal to the lesser of (i) the fee computed daily and paid monthly at the
applicable annual rate set forth on Schedule A hereto, or (ii) such fee as may
from time to time be agreed upon in writing by the Company and the Investment
Adviser in advance of the period to which the fee relates. Each Fund's
obligation to pay the above-described fee to the Investment Adviser will begin
as of the date of the initial public sale of shares in that Fund.
If in any fiscal year the aggregate expenses of any of the Funds (as
defined under the securities regulations of any state having jurisdiction over
the Company) exceed the expense limitations of any such state, the Investment
Adviser will reimburse such Fund for a portion of such excess expenses equal to
such excess times the ratio of the fees otherwise payable by such Fund to the
Investment Adviser hereunder to the sum of the aggregate fees otherwise payable
by the Fund to the Investment Adviser hereunder and to The Winsbury Company
under the Administration Agreement between The Winsbury Company and the
Company. The obligation of the Investment Adviser to reimburse the Funds
hereunder is limited in any fiscal year to the amount of its fee hereunder for
such fiscal year, provided, however, that notwithstanding the foregoing, the
Investment Adviser shall reimburse the Funds for such proportion of such excess
expenses regardless of the amount of fees paid to it during such fiscal year to
the extent that the securities regulations of any state having jurisdiction
over the Company so require. Such expense reimbursement, if any, will be
estimated daily and reconciled and paid on a monthly basis.
The fee attributable to each Fund shall be the several (and not joint
or joint and several) obligation of each such Fund.
8. LIMITATION OF LIABILITY. The Investment Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for
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<PAGE> 5
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under
this Agreement.
9. DURATION AND TERMINATION. This Agreement will become
effective as to each Fund as of the date first written above, provided that it
shall have been approved by vote of a majority of the outstanding voting
securities of such Fund in accordance with the requirements under the 1940 Act,
and, unless sooner terminated as provided herein, shall continue in effect for
two years after such effective date. Thereafter, if not terminated, this
Agreement shall continue in effect as to each Fund for successive yearly
periods, provided that such continuance is specifically approved at least
annually (a) by the vote of a majority of those members of the Company's Board
of Trustees who are not parties to this Agreement or interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the vote of a majority of the Company's
Board of Trustees or by the vote of a majority of the outstanding voting
securities of such Fund. Notwithstanding the foregoing, this Agreement may be
terminated as to a particular Fund at any time on 60 days' written notice,
without the payment of any penalty, by the Company (by vote of the Company's
Board of Trustees or by vote of a majority of the-outstanding voting securities
of such Fund) or by the Investment Adviser. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the
terms "majority of the outstanding voting securities," "interested persons" and
"assignment" shall have the meaning given to such terms by the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement
may be changed, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, discharge
or termination is sought.
11. MISCELLANEOUS. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the State of Ohio.
The names "Conestoga Family of Funds" and "Trustees of
Conestoga Family of Funds" refer respectively to the Trust created and the
Trustees, as trustees but not individually or personally, acting from time to
time under a Declaration of Trust
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<PAGE> 6
dated August 1, 1989 which is hereby referred to and a copy of which is on file
at the office of the State Secretary of The Commonwealth of Massachusetts and
at the principal office of the Trust. The obligations of "Conestoga Family of
Funds" entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities,
and are not binding upon any of the Trustees, Shareholders or representatives
of the Trust personally, but bind only the Trust Property, and all persons
dealing with any class of shares of the Trust must look solely to the Trust
Property belonging to such class for the enforcement of any claims against the
Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized officers designated below as of the day
and year first above written.
CONESTOGA FAMILY OF FUNDS
Seal By:s/ J. David Huber
------------------------
Title: President
---------------------
MERIDIAN INVESTMENT COMPANY
Seal By:s/ Philip H. Brown, II
------------------------
Title: President
----------------------
-6-
<PAGE> 7
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN CONESTOGA FAMILY OF FUNDS AND
MERIDIAN INVESTMENT COMPANY
DATED NOVEMBER 27, 1989
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION*
- ------------ -------------
<S> <C>
US. Treasury Securities Fund .40%
Cash Management Fund .40%
Tax-Free Fund .40%
Limited Maturity Fund .74%
Fixed Income Fund .74%
Equity Fund .74%
</TABLE>
CONESTOGA FAMILY OF FUNDS
By:s/ J. David Huber
------------------------
Title: President
---------------------
Date: November 27, 1989
----------------------
MERIDIAN INVESTMENT COMPANY
By:s/ Philip H. Brown II
------------------------
Title: President
---------------------
Date: November 27, 1989
---------------------
- ---------------------------
* All fees are stated as an annual rate based upon the particular Fund's
average daily net assets and are computed daily and payable monthly.
-7-
<PAGE> 1
EXHIBIT (5)(b)
CONESTOGA FAMILY OF FUNDS
INVESTMENT ADVISORY AGREEMENT
AMENDMENT NO. 1
August 1, 1992
Meridian Investment Company
55 Valley Stream Parkway
Malvern, Pennsylvania 19355
Gentlemen:
This is to confirm that the undersigned, Conestoga Family of
Funds, a Massachusetts trust with transferrable shares (the "Company") and
Meridian Investment Company (the "Investment Adviser") have agreed that the
Investment Advisory Agreement between the Company and the Investment Adviser
dated November 27, 1989 (the "Agreement"), is herewith amended to provide that
the Investment Adviser shall furnish investment advisory and administrative
services to the Pennsylvania Tax-Free Bond Fund on the terms and conditions
contained in the Agreement.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place indicated
below, whereupon it shall become a binding agreement between us on the date
first written above.
Very truly yours,
CONESTOGA FAMILY OF FUNDS
(SEAL) By:s/ J. David Huber
-----------------------
Title: Chairman
--------------------
Accepted and Agreed to:
MERIDIAN INVESTMENT COMPANY
By:s/ Philip H. Brown II
------------------------
Title: President
---------------------
<PAGE> 2
AMENDMENT TO
SCHEDULE A
TO THE INVESTMENT ADVISORY AGREEMENT
BETWEEN CONESTOGA FAMILY OF FUNDS AND
MERIDIAN INVESTMENT COMPANY
DATED NOVEMBER 27, 1989
<TABLE>
<CAPTION>
Name of Fund Compensation*
- ------------ ------------
<S> <C>
U.S. Treasury Securities Fund .40%
Cash Management Fund .40%
Tax-Free Fund .40%
Limited Maturity Fund .74%
Fixed Income Fund .74%
Equity Fund .74%
Pennsylvania Tax-Free Bond Fund .74%
</TABLE>
CONESTOGA FAMILY OF FUNDS
By:s/ J. David Huber
------------------------
Title: Chairman
---------------------
Date: 8/1/92
----------------------
MERIDIAN INVESTMENT COMPANY
By:s/ Philip H. Brown II
------------------------
Title: President
---------------------
Date: 9/18/92
----------------------
- --------------------------
* All fees are stated as an annual rate based upon the particular Fund's
average daily net assets and are computed daily and payable monthly.
<PAGE> 1
EXHIBIT (5)(c)
CONESTOGA FAMILY OF FUNDS
INVESTMENT ADVISORY AGREEMENT
AMENDMENT NO. 2
March 15, 1994
Meridian Investment Company
55 Valley Stream Parkway
Malvern, Pennsylvania 19355
Gentlemen:
This is to confirm that the undersigned, Conestoga Family of
Funds, a Massachusetts trust with transferrable shares (the "Company") and
Meridian Investment Company (the "Investment Adviser") have agreed that the
Investment Advisory Agreement between the Company and the Investment Adviser
dated November 27, 1989 (the "Agreement"), is herewith amended to provide that
the Investment Adviser shall furnish investment advisory and administrative
services to the Special Equity Fund on the terms and conditions contained in
the Agreement.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place indicated
below, whereupon it shall become a binding agreement between us on the date
first written above.
Very truly yours,
CONESTOGA FAMILY OF FUNDS
(SEAL) By: s/ Walter B. Grimm
-------------------------
Title: Vice President
----------------------
Accepted and Agreed to:
MERIDIAN INVESTMENT COMPANY
By: s/ Philip H. Brown II
-------------------------
Title: President
----------------------
<PAGE> 2
AMENDMENT TO
SCHEDULE A
TO THE INVESTMENT ADVISORY AGREEMENT
BETWEEN CONESTOGA FAMILY OF FUNDS AND
MERIDIAN INVESTMENT COMPANY
DATED NOVEMBER 27, 1989
<TABLE>
<CAPTION>
Name of Fund Compensation*
- ------------ ------------
<S> <C>
U.S. Treasury Securities Fund .40%
Cash Management Fund .40%
Tax-Free Fund .40%
Limited Maturity Fund .74%
Income Fund .74%
Equity Fund .74%
Pennsylvania Tax-Free Bond Fund .74%
Special Equity Fund 1.50%
</TABLE>
CONESTOGA FAMILY OF FUNDS
By: s/ Walter B. Grimm
---------------------------
Title: Vice President
------------------------
Date: March 15, 1994
MERIDIAN INVESTMENT COMPANY
By: s/ Philip H. Brown II
---------------------------
Title: President
------------------------
Date: March 15, 1994
- ---------------------------------
* All fees are stated as an annual rate based upon the particular Fund's
average daily net assets and are computed daily and payable monthly.
<PAGE> 1
EXHIBIT 5(d)
CONESTOGA FAMILY OF FUNDS
INVESTMENT ADVISORY AGREEMENT
AMENDMENT NO. 3
May 1, 1995
Meridian Investment Company
55 Valley Stream Parkway
Malvern, Pennsylvania 19355
Gentlemen:
This is to confirm that the undersigned, Conestoga Family of
Funds, a Massachusetts trust with transferrable shares (the "Company"), and
Meridian Investment Company, (the "Investment Adviser") have agreed that the
Investment Advisory Agreement between the Company and the Investment Adviser
dated November 27, 1989 (the "Agreement") is herewith amended to provide that
the Investment Adviser shall furnish investment advisory and administrative
services to the Short-Term Income Fund and Balanced Fund on the terms and
conditions contained in the Agreement.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place indicated
below, whereupon it shall become a binding agreement between us on the date
first written above.
Very truly yours,
CONESTOGA FAMILY OF FUNDS
(SEAL) By: s/
-------------------------
Title: Vice President
----------------------
Accepted and Agreed to:
MERIDIAN INVESTMENT COMPANY
By: s/ Philip H. Brown II
-------------------------
Title: President
----------------------
<PAGE> 2
AMENDMENT TO
SCHEDULE A
TO THE INVESTMENT ADVISORY AGREEMENT
BETWEEN CONESTOGA FAMILY OF FUNDS AND
MERIDIAN INVESTMENT COMPANY
DATED NOVEMBER 27, 1989
<TABLE>
<CAPTION>
Name of Fund Compensation*
- ------------ ------------
<S> <C>
U.S. Treasury Securities Fund .40%
Cash Management Fund .40%
Tax-Free Fund .40%
Intermediate Income Fund .74%
Bond Fund .74%
Equity Fund .74%
Pennsylvania Tax-Free Bond Fund .74%
Special Equity Fund 1.50%
Short-Term Income Fund .74%
Balanced Fund .75%
</TABLE>
CONESTOGA FAMILY OF FUNDS
By: s/
---------------------------
Title: Vice President
------------------------
Date: May 1, 1995
MERIDIAN INVESTMENT COMPANY
By: s/ Philip H. Brown II
---------------------------
Title: President
------------------------
Date: May 1, 1995
- ---------------------------------
* All fees are stated as an annual rate based upon the particular Fund's
average daily net assets and are computed daily and payable monthly.
<PAGE> 1
EXHIBIT (5)(e)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of May 1, 1995 between CONESTOGA FAMILY OF FUNDS, a
Massachusetts trust with transferrable shares (the "Company"), and Meridian
Investment Company (the "Investment Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended ("1940 Act"); and
WHEREAS, the Company desires to retain the Investment Adviser to
furnish investment advisory services to the International Equity Fund and such
other investment portfolios of the Company as the Company and the Investment
Adviser may agree upon from time to time (each, a "Fund" and collectively, the
"Funds") and the Investment Adviser represents that it is willing and possesses
legal authority to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Company hereby appoints the Investment
Adviser to act as investment adviser to the Fund or Funds identified on
Schedule A hereto for the period and on the terms set forth in this Agreement.
The Investment Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided. Additional
Funds may be added to this Agreement from time to time by the parties executing
a new Schedule A which shall become effective upon its execution and shall
supersede any Schedule A having an earlier date.
2. DELIVERY OF DOCUMENTS. The Company has furnished the
Investment Adviser with copies properly certified or authenticated of each of
the following:
(a) the Company's Agreement and Declaration of Trust, as
executed on August 1, 1989 and as filed with the Secretary of State of the
Commonwealth of Massachusetts on August 2, 1989, and all amendments thereto or
restatements thereof;
(b) the Company's Code of Regulations and any amendments
thereto;
(c) resolutions of the Company's Board of Trustees
authorizing the appointment of the Investment Adviser and approving this
Agreement;
<PAGE> 2
(d) the Company's Notification of Registration on Form
N-8A under the 1940 Act as filed with the Securities and Exchange Commission on
August 9, 1989 and any amendments thereto;
(e) the Company's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended ("1933 Act") (File No. 33-30431)
and under the 1940 Act as filed with the Securities and Exchange Commission and
all amendments thereto; and
(f) the most recent prospectus and Statement of
Additional Information of each Fund (such prospectuses and Statement of
Additional Information, as presently in effect, and all amendments and
supplements thereto are herein collectively called the "Prospectus").
The Company will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing.
3. MANAGEMENT. Subject to the supervision of the Company's Board
of Trustees, the Investment Adviser will provide a continuous investment
program for each Fund, including investment research and management with
respect to all securities and investments and cash equivalents in said Funds.
The Investment Adviser will determine from time to time what securities and
other investments will be purchased, retained or sold by the Company with
respect to each Fund. The Investment Adviser will provide the services under
this Agreement in accordance with each Fund's investment objective, policies,
and restrictions as stated in the Prospectus and resolutions of the Company's
Board of Trustees. The Investment Adviser further agrees that it:
(a) will use the same skill and care in providing such
services as it uses in providing services to other accounts for which it has
investment responsibilities;
(b) will conform with all applicable Rules and
Regulations of the Securities and Exchange Commission and in addition will
conduct its activities under this Agreement in accordance with any applicable
regulations of any governmental authority pertaining to the investment advisory
activities of the Investment Adviser;
(c) will not make loans to any person to purchase or
carry units of beneficial interest in the Company or make interest-bearing
loans to the Company;
(d) will place orders pursuant to its investment
determinations for the Company either directly with the issuer or with any
broker or dealer. In placing orders with brokers and dealers, the Investment
Adviser will attempt to obtain prompt
-2-
<PAGE> 3
execution of orders in an effective manner at the most favorable price.
Consistent with this obligation, when the execution and price offered by two or
more brokers or dealers are comparable, the Investment Adviser may, in its
discretion, purchase and sell portfolio securities to and from brokers and
dealers who provide the Investment Adviser with research advice and other
services; In no instance will portfolio securities be purchased from or sold to
The Winsbury Company, Meridian Investment Company, or any affiliated person of
either the Company, The Winsbury Company, or Meridian Investment Company;
(e) will maintain all books and records with respect to
the Company's securities transactions and will furnish the Company's Board of
Trustees such periodic and special reports as the Board may request;
(f) will treat confidentially and as proprietary
information of the Company all records and other information relative to the
Company and prior, present, or potential interestholders, and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where the Investment Adviser may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Company; and
(g) will maintain its policy and practice of conducting
its fiduciary functions independently. In making investment recommendations
for the Company, the Investment Adviser's personnel will not inquire or take
into consideration whether the issuers of securities proposed for purchase or
sale for the Company's account are customers of the Investment Adviser or of
its parent or its subsidiaries or affiliates. In dealing with such customers,
the Investment Adviser and its parent, subsidiaries, and affiliates will not
inquire or take into consideration whether securities of those customers are
held by the Company.
4. ASSISTANCE. The Investment Adviser may employ or contract
with other persons to assist it in the performance of this Agreement (herein, a
"Sub-Adviser"); provided, however, that the retention of any Sub-Adviser shall
be approved as may be required by the 1940 Act. A Sub-Adviser may perform
under the supervision of the Investment Adviser any or all services described
under Section 3. Sub-Advisers may include other investment advisory or
management firms and officers or employees who are employed by both the
Investment Adviser and the Company. The fees or other compensation of any
Sub-Adviser shall be paid
-3-
<PAGE> 4
by the Investment Adviser and no obligation may be incurred on the Company's
behalf to any such person.
In the event that the Investment Adviser appoints a Sub-Adviser, the
Investment Adviser will review, monitor, and report to the Company's Board of
Trustees on the performance and investment procedures of any such Sub-Adviser;
assist and consult with any Sub-Adviser in connection with the Fund's
continuous investment program; and approve lists of foreign countries which may
be recommended by any Sub-Adviser for investment by the Fund.
5. SERVICES NOT EXCLUSIVE. The investment management services
furnished by the Investment Adviser hereunder are not to be deemed exclusive,
and the Investment Adviser shall be free to furnish similar services to others
so long as its services under this Agreement are not impaired thereby.
6. BOOKS AND RECORDS. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Investment Adviser hereby agrees that all
records which it maintains for the Company are the property of the Company and
further agrees to surrender promptly to the Company any of such records upon
the Company's request. The Investment Adviser further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the 1940 Act.
7. EXPENSES. During the term of this Agreement, the Investment
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Company.
8. COMPENSATION. For the services provided and the expenses
assumed pursuant to this Agreement, each Fund will pay the Investment Adviser
and the Investment Adviser will accept as full compensation therefor a fee
equal to the lesser of (i) the fee computed daily and paid monthly at the
applicable annual rate set forth on Schedule A hereto, or (ii) such fee as may
from time to time be agreed upon in writing by the Company and the Investment
Adviser in advance of the period to which the fee relates. Each Fund's
obligation to pay the above-described fee to the Investment Adviser will begin
as of the date of the initial public sale of shares in that Fund.
If in any fiscal year the aggregate expenses of any Fund (as defined
under the securities regulations of any state having jurisdiction over the
Company) exceed the expense limitations of any such state, the Investment
Adviser will reimburse such Fund for a portion of such excess expenses equal to
such excess times the ratio of the fees otherwise payable by such Fund to the
Investment Adviser hereunder to the sum of the aggregate fees
-4-
<PAGE> 5
otherwise payable by the Fund to the Investment Adviser hereunder and to The
Winsbury Company under the Administration Agreement between The Winsbury
Company and the Company. The obligation of the Investment Adviser to reimburse
the Funds hereunder is limited in any fiscal year to the amount of its fee
hereunder for such fiscal year, provided, however, that notwithstanding the
foregoing, the Investment Adviser shall reimburse the Funds for such proportion
of such excess expenses regardless of the amount of fees paid to it during such
fiscal year to the extent that the securities regulations of any state having
jurisdiction over the Company so require. Such expense reimbursement, if any,
will be estimated daily and reconciled and paid on a monthly basis.
The fee attributable to each Fund shall be the several (and not joint
or joint and several) obligation of each such Fund.
9. LIMITATION OF LIABILITY. The Investment Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
any Fund in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
10. DURATION AND TERMINATION. This Agreement will become
effective as to a Fund as of the date first written above, provided that it
shall have been approved by vote of a majority of the outstanding voting
securities of such Fund in accordance with the requirements under the 1940 Act,
and, unless sooner terminated as provided herein, shall continue in effect for
two years after such effective date. Thereafter, if not terminated, this
Agreement shall continue in effect as to each Fund for successive yearly
periods, provided that such continuance is specifically approved at least
annually (a) by the vote of a majority of those members of the Company's Board
of Trustees who are not parties to this Agreement or interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the vote of a majority of the Company's
Board of Trustees or by the vote of a majority of the outstanding voting
securities of such Fund. Notwithstanding the foregoing, this Agreement may be
terminated as to a particular Fund at any time on 60 days' written notice,
without the payment of any penalty, by the Company (by vote of the Company's
Board of Trustees or by vote of a majority of the-outstanding voting securities
of such Fund) or by the investment Adviser. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the
terms "majority of the outstanding voting securities," "interested persons" and
"assignment" shall have the meaning given to such terms by the 1940 Act.)
-5-
<PAGE> 6
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement
may be changed, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, discharge
or-termination is sought.
12. MISCELLANEOUS. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the State of Ohio.
The names "Conestoga Family of Funds" and "Trustees of
Conestoga Family of Funds" refer respectively to the Trust created and the
Trustees, as trustees but not individually or personally, acting from time to
time under a Declaration of Trust dated August 1, 1989 which is hereby referred
to and a copy of which is on file at the office of the State Secretary of The
Commonwealth of Massachusetts and at the principal office of the Trust. The
obligations of "Conestoga Family of Funds" entered into in the name or on
behalf thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders or representatives of the Trust personally, but bind
only the Trust Property, and all persons dealing with any class of shares of
the Trust must look solely to the Trust Property belonging to such class for
the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized officers designated below as of the day
and year first above written.
CONESTOGA FAMILY OF FUNDS
Seal By:s/
------------------------
Title: Vice President
---------------------
MERIDIAN INVESTMENT COMPANY
Seal By:s/ Philip H. Brown II
------------------------
Title: President
---------------------
-6-
<PAGE> 7
Schedule A
to the
Investment Advisory Agreement
between Conestoga Family of Funds and
Meridian Investment Company
dated November 27, 1989
<TABLE>
<CAPTION>
Name of Fund Compensation*
- ------------ -------------
<S> <C>
International Equity Fund 1.00%
</TABLE>
CONESTOGA FAMILY OF FUNDS
By:s/
------------------------
Title: Vice President
---------------------
Date: May 1, 1995
MERIDIAN INVESTMENT COMPANY
By:s/ Philip H. Brown II
------------------------
Title: President
---------------------
Date: May 1, 1995
- ---------------------------
* All fees are stated as an annual rate based upon the Fund's average
daily net assets and are computed daily and payable monthly.
-7-
<PAGE> 1
EXHIBIT (5)(f)
1/9/95
SUB-INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of February 23 , 1995 between Meridian Investment
Company ("Adviser") and Marvin & Palmer Associates, Inc. (the "Sub-Adviser").
WHEREAS, Conestoga Family of Funds (the "Company") is registered as an
open-end diversified, management investment company under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Adviser desires to retain the Sub-Adviser to furnish
investment advisory services to the Company's International Equity Fund (the
"Fund") and the Sub-Adviser represents that it is willing and possesses legal
authority to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Advisor hereby appoints the Sub-Advisor to
act as Sub-adviser to the Fund for the period and on the terms set forth in
this Agreement. The Sub-Adviser accepts such appointment and agrees to furnish
the services herein set forth for the compensation herein provided.
2. DELIVERY OF DOCUMENTS. The Adviser has furnished the
Sub-Adviser with copies properly certified or authenticated of each of the
following:
(a) the Company's Agreement and Declaration of Trust, as
executed on August 1, 1989 and as filed with the Secretary of State of the
Commonwealth of Massachusetts on August 2, 1989, and all amendments thereto or
restatements thereof;
(b) the Company's Code of Regulations and any amendments
thereto;
(c) resolutions of the Company's Board of Trustees
authorizing the appointment of the Sub-Adviser, approving this Agreement, and
establishing the investment objective, policies and restrictions of the Fund;
(d) the Company's Notification of Registration on Form
N-8A under the 1940 Act as filed with the Securities and Exchange Commission on
August 9, 1989 and any amendments thereto;
<PAGE> 2
(e) the amendments to the Company's Registration
Statement on Form N-1A under the Securities Act of 1933, as amended ("1933
Act"), (File No. 33-30431) and under the 1940 Act relating to the Fund as filed
with the Securities and Exchange Commission and all amendments thereto; and
(f) the Fund's most recent prospectuses and Statement of
Additional Information (such prospectuses and Statement of Additional
Information, as presently in effect, and all amendments and supplements thereto
are herein collectively called the "Prospectus").
The Adviser will furnish the Sub-Adviser from time to time with copies
of all amendments of or supplements to the foregoing.
3. DUTIES OF SUB-ADVISER. Subject to the supervision of the
Company's Board of Trustees, the Sub-Adviser will assist the Adviser in
providing a continuous investment program for the Fund, including investment
research and management with respect to all securities and investments and cash
equivalents of the Fund. The Sub-Adviser will provide the services under this
Agreement in accordance with the Fund's investment objective, policies, and
restrictions as stated in the Prospectus and resolutions of the Company's Board
of Trustees.
Without limiting the generality of the foregoing, Sub-Adviser further
agrees that it will:
(a) prepare, subject to the Adviser's approval, lists of
foreign countries for investment by the Fund and determine from time to time
what securities and other investments will be purchased, retained or sold for
the Fund, including, with the assistance of the Adviser, the Fund's investments
in futures and forward currency contracts;
(b) manage in consultation with the Adviser the Fund's
temporary investments in securities;
(c) manage the Fund's overall cash position, and
determine from time to time what portion of the Fund's assets will be held in
different currencies;
(d) provide the Adviser with foreign broker research, a
quarterly review of international economic and investment developments, and
occasional analyses on international investment issues;
(e) attend regular business and investment-related
meetings with the Company's Board of Trustees and the Adviser if requested to
do so by the Company and/or the Adviser; and
-2-
<PAGE> 3
(f) maintain books and records with respect to the
securities transactions for the Fund, furnish to the Adviser and the Company's
Board of Trustees such periodic and special reports as they may request with
respect to the Fund, and provide in advance to the Adviser all reports to the
Company's Board of Trustees for examination and review within a reasonable time
prior to the Company's Board meetings.
4. COVENANTS BY SUB-ADVISER. Sub-Adviser agrees with respect to
the services provided to the Fund that it:
(a) will use the same skill and care in providing such
services as it uses in providing services to other accounts for which it has
investment responsibilities, and will conform with all applicable Rules and
Regulations of the Securities and Exchange Commission ("SEC Regulations") and
in addition will conduct its activities under this Agreement in accordance with
any applicable regulations of any governmental authority pertaining to the
investment advisory activities of the Sub-Adviser;
(b) will telecopy trade information to the Adviser on the
first business day following the day of the trade and cause broker
confirmations to be sent directly to the Adviser; and
(c) will treat confidentially and as proprietary
information of the Company all records and other information relative to the
Fund and prior, present or potential shareholders, and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder (except after prior notification to and
approval in writing by the Company, which approval may not be withheld where
Sub-Adviser would be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Company).
5. SERVICES NOT EXCLUSIVE.
(a) The services furnished by Sub-Adviser hereunder are
deemed not to be exclusive, and nothing in this Agreement shall (i) prevent
Sub-Adviser or any affiliated person (as defined in the 1940 Act) of
Sub-Adviser from acting as investment adviser or manager for any other person
or persons, including other management investment companies with investment
objectives and policies the same as or similar to those of the Fund or (ii)
limit or restrict Sub-Adviser or any such affiliated person from buying,
selling or trading any securities or other investments (including any
securities or other investments which the Fund is eligible to buy) for its or
their own accounts or for the accounts of others for whom it or they may be
acting; provided, however, that Sub-Adviser agrees that it will not undertake
any
-3-
<PAGE> 4
activities which, in its reasonable judgment, will adversely affect the
performance of its obligations to the Fund under this Agreement.
(b) Nothing contained herein, however, shall prohibit
Sub-Adviser from advertising or soliciting the public generally with respect to
other products or services, regardless of whether such advertisement or
solicitation may include prior, present or potential shareholders of the
Company.
6. PORTFOLIO TRANSACTIONS. Investment decisions for the Fund
shall be made by Sub-Adviser independently from those for any other investment
companies and accounts advised or managed by Sub-Adviser. The Fund and such
investment companies and accounts may, however, invest in the same securities.
When a purchase or sale of the same security is made at substantially the same
time on behalf of the Fund and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated
as to amount, in a manner which Sub-Adviser believes to be equitable to the
Fund and such other investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or sold by the Fund. To the extent
permitted by law, Sub-Adviser may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for other investment
companies or accounts in order to obtain best execution.
Sub-Adviser shall place orders for the purchase and sale of
portfolio securities and will solicit broker-dealers to execute transactions in
accordance with the Fund's policies and restrictions regarding brokerage
allocations. Sub-Adviser shall place orders pursuant to its investment
determination for the Fund either directly with the issuer or with any broker
or dealer selected by Sub-Adviser. In executing portfolio transactions and
selecting brokers or dealers, Sub-Adviser shall use its reasonable best efforts
to seek the most favorable execution of orders, after taking into account all
factors Sub-Adviser deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission,
if any, both for the specific transaction and on a continuing basis.
Consistent with this obligation, Sub-Adviser may, to the extent permitted by
law, purchase and sell portfolio securities to and from brokers and dealers who
provide brokerage and research services (within the meaning of Section 28(e) of
the Securities Exchange Act of 1934) to or for the benefit of the Fund and/or
other accounts over which Sub-Adviser or any of its affiliates exercises
investment discretion. Sub-Adviser is authorized to pay to a broker or dealer
who provides such brokerage and research services a commission for executing a
portfolio transaction for the Fund which is in excess of the
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<PAGE> 5
amount of commission another broker or dealer would have charged for effecting
that transaction if Sub-Adviser determines in good faith that such commission
was reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or Sub-Adviser's overall responsibilities to the Fund and to the
Company. In no instance will portfolio securities be purchased from or sold to
Sub-Adviser, or the Fund's principal underwriter, or any affiliated person
thereof except as permitted by SEC Regulations.
7. BOOKS AND RECORDS. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, Sub-Adviser acknowledges that all records which
it maintains for the Company are the property of the Company and agrees to
surrender promptly to the Company any of such records upon the Company's
request, provided, that Sub-Adviser may retain copies thereof at its own
expense. Sub-Adviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
8. EXPENSES. During the term of this Agreement, Sub-Adviser will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased for the Fund.
9. COMPENSATION. For the services provided by the Sub-Adviser
pursuant to this Agreement, the Adviser will pay to the Sub-Adviser a fee,
payable monthly, at the annual rates of seventy-five one-hundredths of one
percent (0.75%) of the average of the first $100,000,000 of the daily net
assets of the Fund, seventy one-hundredths of one percent (0.70%) of the
average of the next $100,000,000 of such assets, sixty-five one-hundredths of
one percent (0.65%) of the average of the next $100,000,000 of such assets, and
sixty one-hundredths of one percent (0.60%) of the average of such assets in
excess of $300,000,000. If this Agreement shall become effective subsequent to
the first day of a month, or shall terminate before the last day of a month,
the Sub-Adviser's compensation for such fraction of the month shall be
determined by applying the foregoing percentages to the average daily net asset
value of the Fund during such fraction of a month and in the proportion that
such fraction of a month bears to the entire month.
10. LIMITATION OF LIABILITY. The Sub-Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Fund or the Adviser in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance,
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<PAGE> 6
bad faith or gross negligence on the part of the Sub-Adviser in the performance
of its duties or from reckless disregard by it of its obligations and duties
under this Agreement.
The Sub-Adviser agrees to indemnify the Adviser with respect to any
loss, liability, judgment, cost or penalty which the Fund or the Adviser may
directly or indirectly suffer or incur in any way arising out of or in
connection with any material breach of this Agreement by the Sub-Adviser. The
Adviser agrees to indemnify the Sub-Adviser with respect to any loss,
liability, judgment, cost or penalty which the Sub-Adviser may directly or
indirectly suffer or incur in any way arising out of the performance of its
duties under this Agreement as provided in the following paragraph.
The Sub-Adviser shall give the Adviser the benefit of its best
judgment and effort in rendering services hereunder, but the Sub-Adviser shall
not be liable for any act or omission or for any loss sustained by the Adviser
in connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties, under this Agreement. The Sub-Adviser shall be
entitled to full indemnification from the Adviser for any loss, liability,
judgment, cost or penalty arising from (a) any act by any person or entity
(including the Adviser) for which the Sub-Adviser was not involved directly in
either the act itself or the decision making process leading up to such act,
(b) any act by the Sub-Adviser taken upon the written instructions of the
Adviser or (c) the performance of the Sub-Adviser's duties under this
Agreement; provided, however, the Sub-Adviser shall not be entitled to
indemnity under clause (c) of this sentence for any loss, liability, judgment,
cost or penalty resulting from willful misfeasance, bad faith or negligence in
the performance of its duties, or by reason of its reckless disregard of its
obligations and duties, under this Agreement.
11. DURATION AND TERMINATION. This Agreement will become
effective as to the Fund as of the date first written above, provided that it
shall have been approved by vote of a majority of the outstanding voting
securities of the Fund in accordance with the requirements under the 1940 Act,
and, unless sooner terminated as provided herein, shall continue in effect for
two years after such effective date. Thereafter, if not terminated, this
Agreement shall continue in effect for successive yearly periods, provided that
such continuance is specifically approved at least annually (a) by the vote of
a majority of those members of the Company's Board of Trustees who are not
parties to this Agreement, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the vote of a majority of the Company's
Board of Trustees or by the vote of a majority of the
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<PAGE> 7
outstanding voting securities of the Fund. Notwithstanding the foregoing, this
Agreement may be terminated at any time on 60 days' written notice, without the
payment of any penalty, by the Company (by vote of the Company's Board of
Trustees or by vote of a majority of the outstanding voting securities of the
Fund), by the Adviser, or by the Sub-Adviser. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the
terms "majority of the outstanding voting securities," "interested persons" and
"assignment" shall have the meaning given to such terms by the 1940 Act.)
12. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement
may be changed, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, discharge
or termination is sought. No amendment of this Agreement shall be effective
with respect to the Fund until approved by the vote of a majority of the
outstanding voting securities of the Fund.
13. MISCELLANEOUS. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized officers designated below as of the day
and year first above written.
MERIDIAN INVESTMENT COMPANY
By:s/ Philip H. Brown II
------------------------
Title: President
---------------------
MARVIN & PALMER ASSOCIATES, INC.
By:s/ David F. Marvin
-------------------------
Title: Chairman
----------------------
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<PAGE> 1
EXHIBIT (6)
DISTRIBUTION AGREEMENT
CONESTOGA FAMILY OF FUNDS
THIS AGREEMENT is made as of this 1st day of May, 1995, between
Conestoga Family of Funds (the "Trust"), a Massachusetts business trust and SEI
Financial Services Company (the "Distributor"), a Pennsylvania corporation.
WHEREAS, the Trust is registered as an investment company with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended ("1940 Act"), and its Shares are registered with the SEC under
the Securities Act of 1933, as amended ("1933 Act"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Trust and Distributor hereby agree as follows:
ARTICLE 1. Sale of Shares. The Trust grants to the Distributor the
exclusive right to sell Shares of the Trust at the offering price per Share in
accordance with the current prospectus, as agent and on behalf of the Trust,
during the term of this Agreement and subject to the registration requirements
of the 1933 Act, the rules and regulations of the SEC and the laws governing
the sale of securities in the various states ("Blue Sky Laws").
ARTICLE 2. Solicitation of Sales. In consideration of these rights
granted to the Distributor, the Distributor agrees to use all reasonable
efforts, consistent with its other business, in connection with the
distribution of Shares of the Trust and to maintain appropriate facilities to
receive purchase, redemption, and exchange orders for Shares; provided,
however, that the Distributor shall not be prevented from entering into like
arrangements with other issuers. The provisions of this paragraph do not
obligate the Distributor to register as a broker or dealer under the Blue Sky
Laws of any jurisdiction when it determines it would be uneconomical for it to
do so or to maintain its registration in any jurisdiction in which it is now
registered nor obligate the Distributor to sell any particular number of
Shares. The Distributor shall act as distributor of the Shares in compliance
with all applicable laws, rules and regulations, including, without limitation,
all rules and regulations made or adopted pursuant to the 1940 Act, by the
Securities and Exchange Commission or any securities association registered
under the Securities Exchange Act of 1934, as amended.
ARTICLE 3. Authorized Representations. The Distributor is not
authorized by the Trust to give any information or to make any representations
other than those contained in the current registration statements and
prospectuses of the Trust filed with the SEC or contained in Shareholder
reports or other material that may be prepared by or on behalf of the Trust for
the Distributor's use. The Distributor may prepare and distribute sales
literature and other material as it may deem appropriate, provided that such
literature and materials have been approved by the Trust prior to their use.
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<PAGE> 2
ARTICLE 4. Registration of Shares. The Trust agrees that it will
take all action necessary to register Shares under the federal and state
securities laws so that there will be available for sale the number of Shares
the Distributor may reasonably be expected to sell and to pay all fees
associated with said registration. The Trust shall make available to the
Distributor such number of copies of its currently effective prospectus and
statement of additional information as the Distributor may reasonably request.
The Trust shall furnish to the Distributor copies of all information, financial
statements and other papers which the Distributor may reasonably request for
use in connection with the distribution of Shares of the Trust.
ARTICLE 5. Compensation.
(a) The Distributor does not receive compensation or reimbursement
for services performed and expenses assumed in the distribution of
Institutional Shares of the Trust.
(b) For the services performed and the expenses assumed under this
Agreement as to Retail Shares of the Trust or any other class of Shares
subsequently created by the Trust:
(1) the Distributor will be compensated as set forth
in any applicable Distribution and Services Plan adopted in
accordance with Rule 12b-1 under the Investment Company Act of
1940, as such Plans may be amended from time to time, and
subject to any further limitations on such fees as the Board
of Trustees of the Trust may impose;
(2) the Distributor will receive all contingent
deferred sales charges applied on redemptions of shares of
any class that are subject to a conditional deferred sales
on the terms and subject to such waivers as are described
in the Trust's Registration Statement and current
prospectuses, as amended from time to time, or as otherwise
required pursuant to applicable law; and
(3) the Distributor will receive all front-end sales
charges, if any, on purchases of any class of shares of each
Portfolio sold subject to such charges as described in the
Trust's Registration Statement and current prospectuses, as
amended from time to time. The Distributor, or brokers,
dealers and other financial institutions and intermediaries
that have entered into sub-distribution agreements with the
Distributor, may collect the gross proceeds derived from the
sale of such shares, remit the net asset value thereof to the
Trust upon receipt of the proceeds and retain the applicable
sales charge.
(c) The Distributor may reallow any or all of the distribution or
service fees, contingent deferred sales charges and front-end sales
charges to such brokers, dealers and other financial institutions and
intermediaries as the Distributor may from time to time determine.
2
<PAGE> 3
ARTICLE 6. Indemnification of Distributor. The Trust agrees to
indemnify and hold harmless the Distributor and each of its directors and
officers and each person, if any, who controls the Distributor within the
meaning of Section 15 of the 1933 Act against any loss, liability, claim,
damages or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damages, or expense and reasonable counsel
fees and disbursements incurred in connection therewith), arising by reason of
any person acquiring any Shares, based upon the ground that the registration
statement, prospectus, Shareholder reports or other information filed or made
public by the Trust (as from time to time amended) included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements made not misleading. However, the
Trust does not agree to indemnify the Distributor or hold it harmless to the
extent that the statements or omission was made in reliance upon, and in
conformity with, information furnished to the Trust by or on behalf of the
Distributor.
In no case (i) is the indemnity of the Trust to be deemed to protect
the Distributor against any liability to the Trust or its Shareholders to which
the Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Trust to be liable to the Distributor under the
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
other person shall have notified the Trust in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon the
Distributor or such other person (or after the Distributor or the person shall
have received notice of service on any designated agent). However, failure to
notify the Trust of any claim shall not relieve the Trust from any liability
which it may have to the Distributor or any person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph.
The Trust shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Trust elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Trust and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Trust
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Trust does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of
any counsel retained by the indemnified defendants.
The Trust agrees to notify the Distributor promptly of the
commencement of any litigation or proceedings against it or any of its officers
or Trustees in connection with the issuance or sale of any of its Shares.
ARTICLE 7. Indemnification of Trust. The Distributor covenants and
agrees that it will indemnify and hold harmless the Trust and each of its
Trustees and officers and each person, if
3
<PAGE> 4
any, who controls the Trust within the meaning of Section 15 of the Act,
against any loss, liability, damages, claim or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
damages, claim or expense and reasonable counsel fees incurred in connection
therewith) based upon the 1933 Act or any other statute or common law and
arising by reason of any person acquiring any Shares, and alleging a wrongful
act of the Distributor or any of its employees or alleging that the
registration statement, prospectus, Shareholder reports or other information
filed or made public by the Trust (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact
required to be stated or necessary in order to make the statements not
misleading, insofar as the statement or omission was made in reliance upon and
in conformity with information furnished to the Trust by or on behalf of the
Distributor.
In no case (i) is the indemnity of the Distributor in favor of the
Trust or any other person indemnified to be deemed to protect the Trust or any
other person against any liability to which the Trust or such other person
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Distributor to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Trust or any person
indemnified unless the Trust or person, as the case may be, shall have notified
the Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Trust or upon any person (or after
the Trust or such person shall have received notice of service on any
designated agent). However, failure to notify the Distributor of any claim
shall not relieve the Distributor from any liability which it may have to the
Trust or any person against whom the action is brought otherwise than on
account of its indemnity agreement contained in this paragraph.
The Distributor shall be entitled to participate, at its own expense,
in the defense or, if it so elects, to assume the defense of any suit brought
to enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and
satisfactory to the indemnified defendants whose approval shall not be
unreasonably withheld. In the event that the Distributor elects to assume the
defense of any suit and retain counsel, the defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them. If the
Distributor does not elect to assume the defense of any suit, it will reimburse
the indemnified defendants in the suit for the reasonable fees and expenses of
any counsel retained by them.
The Distributor agrees to notify the Trust promptly of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any of the Trusts' Shares.
ARTICLE 8. Effective Date. This Agreement shall be effective upon
its execution, and unless terminated as provided, shall continue in force for
one year from the effective date and thereafter from year to year, provided
that such annual continuance is approved by (i) either the vote of a majority
of the Trustees of the Trust, or the vote of a majority of the outstanding
voting securities of the Trust, and (ii) the vote of a majority of those
Trustees of the Trust who are not
4
<PAGE> 5
parties to this Agreement or the Trust's Distribution Plan or interested
persons of any such party ("Qualified Trustees"), cast in person at a meeting
called for the purpose of voting on the approval. This Agreement shall
automatically terminate in the event of its assignment. As used in this
paragraph the terms "vote of a majority of the outstanding voting securities",
"assignment" and "interested person" shall have the respective meanings
specified in the 1940 Act. In addition, this Agreement may at any time be
terminated without penalty by SFS, by a vote of a majority of Qualified
Trustees or by vote of a majority of the outstanding voting securities of the
Trust upon not less than sixty days prior written notice to the other party.
ARTICLE 9. Notices. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party
giving notice: if to the Trust, to Thomas J. Taylor, 1015 Darby Drive,
Yardley, PA 19067, with a copy to Meridian Investment Company, 55 Valley Stream
Parkway, Malvern, PA 19355, Attention, President and if to the Distributor, 680
East Swedesford Road, Wayne, Pennsylvania 19087.
ARTICLE 10. Limitation of Liability. The names "Conestoga Family of
Funds" and "Trustees of Conestoga Family of Funds" refer respectively to the
Trust created and the Trustees, as trustees but not individually or personally,
acting from time to time under a Declaration of Trust dated August 1, 1989
which is hereby referred to and a copy of which is on file at the office of the
State Secretary of the Commonwealth of Massachusetts and at the principal
office of the Trust. The obligations of "Conestoga Family of Funds" entered
into in the name or on behalf thereof by any of the Trustees, represenatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, Shareholders, represenatives of the Trust personally,
but bind only the Trust Property, and all persons dealing with any class of
shares of the Trust must look solely to the Trust Property belonging to such
class for the enforcement of any claims against the Trust.
ARTICLE 11. Governing Law. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts and the
applicable provisions of the 1940 Act. To the extent that the applicable laws
of the Commonwealth of Massachusetts, or any of the provisions herein, conflict
with the applicable provisions of the 1940 Act, the latter shall control.
ARTICLE 12. Multiple Originals. This Agreement may be executed in
two or more counterparts, each of which when so executed shall be deemed to be
an original, but such counterparts shall together constitute but one and the
same instrument.
IN WITNESS, the Trust and Distributor have each duly executed this
Agreement, as of the day and year above written.
CONESTOGA FAMILY OF FUNDS SEI FINANCIAL SERVICES COMPANY
By: [SIG] By: [SIG]
----------------- -----------------
Vice President
Attest: [SIG] Attest: [SIG]
--------------- ----------------
5
<PAGE> 1
EXHIBIT (8)(a)
U.S. INVESTMENT COMPANY
CUSTODIAL SERVICES AGREEMENT
CUSTODIAL SERVICES AGREEMENT dated as of April 1, 1995 among CITIBANK,
N.A., a national banking association having an office at 111 Wall Street, New
York, New York 10005 and acting through such office in New York (the "Bank"),
CITICORP, a corporation organized under the laws of the State of Delaware,
having an office at Citicorp Center, 153 East 53rd Street, New York, New York
10043 and Conestoga Family of Funds, a Trust organized under the laws of the
state of Massachusetts having an office at 1900 East Dublin-Granville Road,
Columbus, Ohio 43229 (the "Fund").
WITNESSETH:
THAT WHEREAS, the Fund represents that it is a management investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act");
WHEREAS, the Fund further represents that it is duly organized and in
good standing under the laws of its state of organization and the consummation
of transactions contemplated hereby or directed by it hereunder will not
violate any applicable laws, regulations or orders;
WHEREAS, the Fund represents that it is authorized to (a) open and
maintain one or more custody accounts (the "Custody Account") with the Bank to
hold certain property ("Property"), including but not limited to stocks, bonds
or other securities ("Securities"), cash and other property owned or held by
the Fund, (b) to enter into this Agreement and (c) direct all actions and
transactions contemplated hereunder; and
WHEREAS, on June 12, 1992, the Securities and Exchange Commission
issued an order (the "Exemptive Order") which, among other things, exempts
certain indirect subsidiaries of Citicorp (the "Exempt Subsidiaries") from the
shareholders' equity requirements of Rule 17f-5 promulgated under the
Investment Company Act;
NOW, THEREFORE, in consideration of the premises and of the agreements
hereinafter set forth, the parties hereby agree as follows:
1. APPOINTMENT AND ACCEPTANCE
The Fund hereby appoints the Bank as custodian of the Property and as
its agent hereunder, and the Bank agrees to act as such upon the terms and
conditions hereinafter provided.
<PAGE> 2
2. DELIVERY; SAFEKEEPING
The Fund has heretofore delivered, and will deliver or cause to be
delivered, Property to the Bank, which Property the Bank agrees to keep safely
as custodian for the Fund. The Bank shall not surrender possession of Property
except upon properly authorized Instructions (as hereinafter defined) of the
Fund or as may be required by due process of applicable law.
3. IDENTIFICATION AND SEGREGATION OF ASSETS
With respect to Property in the Custody Account:
(A) Except as otherwise provided in this Agreement, the Bank will
separately identify on its books as belonging to the relevant portfolio of the
Fund and, to the extent practicable, segregate all Property held pursuant to
this Agreement by the Bank or any other entity authorized to hold Property in
accordance with Section 6 or 7 hereof
(B) The Bank shall supply to the Fund from time to time as
mutually agreed upon a written statement with respect to all of the Property in
the Custody Account. In the event that the Fund does not inform the Bank in
writing of any exceptions or objections within thirty (30) days after receipt
of such statement, the Fund shall be deemed to have approved such statement.
4. STANDARD OF CARE
(A) The Bank shall exercise the due care expected of a
professional custodian for hire with respect to the safekeeping, handling,
servicing and disposition of the Property in its possession or control and
shall assume the burden of proving that it exercised such care in the event of
any loss of such property.
(B) The Bank shall be responsible for the acts or omissions of any
Exempt Subsidiary acting as a foreign subcustodian pursuant to the Exemptive
Order or any subsequent exemptive order issued by the Securities and Exchange
Commission to the same extent as if the act or omission of such Exempt
Subsidiary were that of the Bank.
(C) Except as otherwise provided above, the Bank shall use
reasonable care in selecting, and shall be responsible only for the proper
selection of, any foreign subcustodian or foreign depository.
(D) The Bank's delegation of duties to an Exempt Subsidiary shall
not relieve the Bank of any responsibility to the Fund for any loss due to such
delegation, except such losses or damages which may result from (i) political
risk, including, but not
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<PAGE> 3
limited to losses resulting from exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed hostilities
and (ii) other risk of loss for which neither the Bank nor any foreign
subcustodian would be liable under Rule 17f-5 promulgated under the Investment
Company Act.
(E) In the event the Fund enters into triparty repurchase
agreements pursuant to which collateral therefor is to be held by a custodian
other than the Bank and the Fund instructs the Bank to deliver Property to such
custodian, the Bank shall be under no duty to determine whether such custodian
satisfies the requirements of Section 17(f) of the Investment Company Act or
the Rules promulgated thereunder. Citibank shall have no further duties or
obligations under this Agreement with respect to such Property.
(F) The Bank is not under any duty to supervise the investments of
the Fund, or to advise or make any recommendation to the Fund with respect to
the purchase or sale of any of the Securities or the investment of any cash.
The Fund shall have the sole and exclusive responsibility for investment of
Property held hereunder.
5. PERFORMANCE BY THE BANK
(A) General. The Bank's performance of its duties hereunder and
the day-to-day operations of the Custody Account shall be in accordance with
written service standards furnished to the Fund by the Bank from time to time.
(B) Receipt, Delivery and Disposal of Securities. The Bank shall,
or shall instruct any other entity authorized to hold Property in accordance
with Section 6 or 7 hereof to, receive or deliver Securities and credit or
debit the Fund's account, in accordance with properly authorized Instructions
from the Fund. The Bank or such entity shall also receive in custody all stock
dividends, rights and similar securities issued in connection with Securities
held hereunder, shall surrender for payment, in a timely manner, all items
maturing or called for redemption and shall take such other action as the Fund
may direct in properly authorized Instructions.
(C) Registration. Securities held hereunder may be registered in
the name of the Bank, any entity authorized to hold Property in accordance with
Section 6 or 7 hereof, or a nominee of the Bank or any such authorized entity,
and the Fund shall be informed upon request of all such registrations.
Securities in registered form will be transferred upon request of the Fund into
such names or registrations as it may specify in properly authorized
Instructions.
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<PAGE> 4
(D) Cash Accounts.
(i) All cash received or held by the Bank or by any
entity authorized to hold Property in accordance with Section 7 hereof as
interest, dividends, proceeds from transfer, and other payments for or with
respect to the Securities shall be (x) held in a cash account in accordance
with properly authorized Instructions received by the Bank or such entity, or
(y) if specified in the Fund's Instructions, converted to or from U.S. dollars
and remitted to the Fund. The Fund shall bear any foreign exchange risk in
connection with any such conversion. In effecting any currency conversions
hereunder, the Bank or such entity may use any methods or agencies as it may
see fit including the Bank's or such entity's facilities at customary rates.
(ii) The Fund agrees, with respect to all payments for
purchases of Securities to be deposited in the Custody Account, that funds for
settlement will be on deposit by the settlement date at the location of
settlement, in good available funds and in the currency of settlement. The
Fund acknowledges that nothing in this Agreement shall obligate the Bank to
extend credit, grant financial accommodation or otherwise advance moneys to the
Fund for the purpose of making any payments for purchases or part thereof or
otherwise carrying out any Instructions.
(iii) The Fund authorizes the Bank from time to time to
cause the branch of the Bank located in London, England ("Citibank London") to
establish a multicurrency cash account reflecting cash received by any Eligible
Foreign Custodian on the Fund's behalf. Citibank London will maintain such
cash account in accordance with the requirements of Section 7 hereof applicable
to an entity authorized to hold Property hereunder.
(E) Reports.
(i) If the Bank has in place a system for providing
telecommunication access or other means of electronic access by customers to
the Bank's reporting system for Property in the Custody Account, then, at the
Fund's election, the Bank shall provide the Fund with such instructions and
passwords as may be necessary in order for the Fund to have such electronic
access through the Fund's terminal device. Such electronic access shall be
restricted to information relating to the Custody Account. If electronic
access to such reporting system is requested by the Fund, the Fund agrees to
assume full responsibility for the consequences of such use, including any
misuse or unauthorized use of the terminal device, instructions or passwords
referred to above, and agrees to defend and indemnify the Bank and hold the
Bank harmless from and against any and all liabilities, losses, damages, costs,
reasonable counsel fees, and other expenses of every nature suffered or
incurred by the Bank by reason of or in
-4-
<PAGE> 5
connection with such use by the Fund or others of such terminal device, unless
such liabilities, losses, damages, costs, counsel fees and other expenses can
be shown to be the result of negligent or wrongful acts of the Bank, the Bank's
employees or the Bank's agents. Further, in the event the Fund elects to have
electronic access, the Bank shall provide the Fund on each business day a
report of the preceding business day's transactions relating to the Custody
Account and of the closing or net balances of each business day. If the Fund
does not choose to have electronic access, the Bank shall provide the Fund with
such reports of transactions in the Custody Account by such means as may be
mutually agreed upon.
(ii) The Bank agrees to use reasonable efforts to furnish
the Fund with such information regarding Property held hereunder as the Fund
may reasonably request in connection with its complying with requests of any
regulatory authorities having jurisdiction over the Fund.
(iii) The Bank shall also, subject to restrictions under
applicable law, seek to obtain from any entity with which the Bank maintains
the physical possession of any of the Property in the Custody Account records
of such entity relating to the Property in the Custody Account as may be
required by the Fund or its agents in connection with an internal examination
by the Fund of its own affairs. Upon a reasonable request from the Fund, the
Bank shall use its best efforts to cash to the Fund reports (or portions
thereof) of the external auditors of each such entity relating directly to such
entity's system of internal accounting controls applicable to its duties under
its agreement with the Bank.
(F) Access. During the Bank's regular banking hours and upon
receipt of reasonable notice from the Fund, any officer or employee of the
Fund, any independent accountant(s) selected by the Fund and any person
designated by any regulatory authority having jurisdiction over the Fund shall
be entitled to examine on the Bank's premises, Property held by the Bank on its
premises and the Bank's records regarding Property held hereunder deposited
with entities authorized to hold Property in accordance with Section 6 or 7
hereof, but only upon the Fund's furnishing the Bank with properly authorized
Instructions to that effect, provided, that such examination shall be
consistent with the Bank's obligations of confidentiality to other parties.
The Bank's costs and expenses in facilitating such examinations shall be borne
by the Fund, provided that such costs and expenses shall not be deemed to
include the Bank's costs in providing to the Fund: (i) the "single audit
report" of the independent certified public accountants engaged by the Bank and
(ii) such reports and documents as this Agreement contemplates that the Bank
shall furnish routinely to the Fund.
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<PAGE> 6
(G) Voting and other Action.
(i) The Bank will transmit to the Fund upon receipt, and
will instruct any entities authorized to hold Property in accordance with
Section 6 or 7 hereof to transmit to the Fund upon receipt, all financial
reports, stockholder communications, notices, proxies and proxy soliciting
materials received from issuers of the Securities, and all information relating
to exchange or tender offers received from offers with respect to the
Securities. Such proxies will be executed by the registered holder if other
than the Fund, but the manner in which Securities are to be voted will not be
indicated. Neither the Bank nor any other entity holding Property hereunder
shall vote any of the Securities or authorize the voting of any Securities or
give any consent or take any other action with respect thereto, except as
otherwise provided herein.
(ii) In the event of tender offers, the Fund will hand
deliver or telecopy Instructions to the Bank as to the action to be taken with
respect thereto, designating such Instructions as being related to a tender
offer. The Fund shall hold the Bank harmless from any adverse consequences of
the Fund's use of any other method of transmitting Instructions relating to a
tender offer.
(iii) The Fund agrees that if it gives an Instruction for
the performance of an act on the last permissible date of a period established
by a tender offer or on the last permissible date for the performance of such
act, the Fund shall hold the Bank harmless from any adverse consequences in
connection with acting upon or failing to act upon such Instructions.
(iv) The Bank is authorized to accept and open on the
Fund's behalf all mail or communications relating to the Property received by
the Bank or directed in its care.
6. AUTHORIZED USE OF U.S. DEPOSITORIES
The Fund authorizes the Bank, for any Securities held hereunder, to
use the services of any United States securities depository permitted to
perform such services for registered investment companies and their custodians
under Rule 17f-4 promulgated under the Investment Company Act, including but
not limited to, The Depository Trust Company, the Federal Reserve Book Entry
System and Participants Trust Company ("U.S. Depositories"). The Bank will
deposit Securities held hereunder with a U.S. Depository only in an account
which holds assets of customers of the Bank.
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<PAGE> 7
7. USE OF FOREIGN CUSTODIANS
(A) Authorization.
(i) The Bank may cause Securities which are foreign
securities within the meaning of Rule 17f-5(c)(1) promulgated under the
Investment Company Act ("Foreign Securities") and amounts of cash and cash
equivalents reasonably required to effect the Fund's Foreign Securities
transactions ("Cash") in the Custody Account to be held in such country or
other jurisdiction as the Fund shall direct in properly authorized
Instructions.
(ii) Subject to prior approval by the Fund, the Bank may
hold such Foreign Securities and Cash in subcustody accounts, which shall be
deemed part of the Custody Account and which have been established by the Bank
with (x) branches of "Qualified U.S. Banks", as defined in Rule 17f-5(c)(3)
promulgated under the Investment Company Act ("Branches"), or (y) foreign
custodians which satisfy the provisions of Rule 17f-5(c)(2)(i) or (ii)
promulgated under the Investment Company Act, or Exempt Subsidiaries or other
foreign custodians which are exempt from such provisions under the Exemptive
Order or any other order or release issued by the Securities and Exchange
Commission (such Branches, foreign custodians and Exempt Subsidiaries,
collectively, the "Eligible Foreign Custodians"). The Fund shall deliver to
the Bank a certified copy of the resolution approving both the use of each
Eligible Foreign Custodian with which the Foreign Securities and Cash of the
Fund will be kept and, with respect to Eligible Foreign Custodians other than
Branches, the Bank's contract with such Eligible Foreign Custodian.
(iii) Subject to prior approval by the Fund, the Bank or an
Eligible Foreign Custodian is authorized to hold Foreign Securities of the Fund
in an account with any foreign securities depository or foreign clearing agency
which in the Bank's judgment satisfies the provisions of Rule 17f-5(c)(iii) or
(iv) promulgated under the Investment Company Act, or which is exempt from such
provisions under an order, no-action letter or release issued by the Securities
and Exchange Commission ("Eligible Foreign Securities Depository"). The Fund
shall deliver to the Bank a certified copy of the resolution approving the use
of each Eligible Foreign Securities Depository with which Foreign Securities of
the Fund will be deposited.
(iv) Any Foreign Securities or Cash held by an Eligible
Foreign Custodian or an Eligible Foreign Securities Depository, shall be
subject to applicable laws, regulations, decrees, orders, government acts,
restrictions, customs, procedures, and market practices (the "Laws") (i) to
which such Eligible Foreign Custodian or Eligible Foreign Securities Depository
is subject, (ii) as exist in the country in which such Foreign Securities and
Cash is held, and (iii) of the country of the currency in which
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<PAGE> 8
the Property is denominated. In the event that the Laws to which an Eligible
Foreign Custodian or Eligible Foreign Securities Depository is subject change
in a way that would prevent or limit the performance of duties and obligations
by the Eligible Foreign Custodian or Foreign Securities Depository, such duties
and obligations shall be superseded and neither the Bank nor its parent, nor
any other of its branches, subsidiaries or affiliates shall be liable therefor
or for any damages in any way resulting from such prevented or limited
performance. The Fund acknowledges that, as is normally the case with respect
to the deposits outside the United States, deposits with Citibank London, and
any other entity authorized to hold property pursuant to this Agreement, are
not insured by the Federal Deposit Insurance Corporation..
(B) Provision of information Regarding Foreign Custodians and
Securities Depositories.
(i) The Bank shall use its best efforts to provide the
Fund with the Following:
(a) As to each country in which Property is
held, information concerning whether, and to what extent, applicable foreign
law would restrict the access afforded the Fund's independent public
accountants to books and records kept by a foreign custodian or foreign
securities depository used in that country,
(b) As to each country in which Property is held,
information concerning whether, and to what extent, applicable foreign law
would restrict the Fund's ability to recover its assets in the event of the
bankruptcy of a foreign custodian or foreign securities depository used in that
country;
(c) As to each country in which Property is held,
information concerning whether, and to what extent, applicable foreign law
would restrict the Fund's ability to recover assets that are lost while under
the control of a foreign custodian or foreign securities depository used in
that country;
(d) As to each country in which Property is held,
information concerning whether under applicable foreign currency exchange
regulations the Fund's cash and cash equivalents held in that country are
readily convertible to U.S. dollars;
(e) Information relating to whether each foreign
custodian or foreign securities depository used would provide a level of
safeguards for maintaining the Fund's Securities not materially different from
that provided by the Bank in maintaining the Securities in the United States;
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<PAGE> 9
(f) Information concerning whether each foreign
custodian or foreign securities depository used has offices in the United
States in order to facilitate the assertion of jurisdiction over and
enforcement of judgments against such custodian or depository; and
(g) As to each foreign securities depository
used, information concerning the number of participants in, and operating
history of, such depository.
(ii) During the term of this Agreement, the Bank shall use
its best efforts to provide the Fund with prompt notice of any material changes
in the facts or circumstances upon which any of the foregoing information or
statements were based.
(iii) Notwithstanding any of the foregoing provisions of
this subsection (b) of this Section 7, the Bank's undertaking to provide the
Fund with the information referred to in this subsection (b) of this Section 7
shall neither increase the Bank's duty of care nor reduce the Fund's
responsibility to determine for itself the prudence of entrusting its assets to
any particular foreign custodian or foreign securities depository.
(C) Segregation and Identification of Assets. The Bank will
deposit Property of the Fund with an Eligible Foreign Custodian only in an
account which holds exclusively assets of customers of the Bank. In the event
that an Eligible Foreign Custodian is authorized to hold any of the Foreign
Securities placed in its care in an Eligible Foreign Securities Depository
pursuant to the provisions of subsection (A) of this Section 7, the Bank will
direct such Eligible Foreign Custodian to identify such Foreign Securities on
its books as being held for the account of the Bank as custodian for its
customers.
(D) Instructions to Eligible Foreign Custodians; Instructions to
Eligible Foreign Securities Depositories. Any Property in the Custody Account
held by an Eligible Foreign Custodian will be subject only to the instructions
of the Bank or its agents; and any Foreign Securities held in an Eligible
Foreign Securities Depository for the account of an Eligible Foreign Custodian
will be subject only to the instructions of such Eligible Foreign Custodian, as
subcustodian for the Bank.
(E) Contracts between the Bank and Exempt Subsidiaries. The
Bank's contract with each Exempt Subsidiary provides:
(i) an acknowledgement by such Exempt Subsidiary that it
is acting as a foreign custodian for U.S. Investment Companies or their
custodians pursuant to the terms of the Exemptive Order; and
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<PAGE> 10
(ii) that the Fund is entitled to enforce the terms of the
subcustodian agreement between the Bank and the Exempt Subsidiary and is
entitled to seek relief directly against the Exempt Subsidiary.
8. CITICORP GUARANTEE
Citicorp agrees that it shall be liable, in accordance with the terms
of a guarantee issued in compliance with the conditions of the Exemptive Order,
for losses incurred by the Fund resulting from bankruptcy or insolvency of
Exempt Subsidiaries operating pursuant to the terms of the Exemptive Order.
9. USE OF AGENTS
The Bank may, subject to applicable laws, rules and regulations,
appoint agents, whether in its own name or that of the Fund, to perform any of
the duties of the Bank hereunder, and the Bank may delegate to any such agent
so appointed any of its functions under this Agreement.
10. INSTRUCTIONS
(A) The Bank is authorized to rely and act upon instructions
("Instructions") in writing which are signed by persons ("Authorized Persons")
named in a list provided to the Bank from time to time, which list must be
certified by the Fund's Secretary or Assistant Secretary and include
authenticated specimen signatures of all Authorized Persons. Such list shall
separately designate those Authorized Persons who may authorize the withdrawal
of the Securities free of payment, those Authorized Persons who may authorize
the unconditional transfer of funds, and those Authorized Persons who may give
Instructions by electronic access.
(B) The Fund agrees that the Bank is authorized to rely and act
upon such Instructions in accordance with this Section 10 and the Funds
Transfer Procedures attached hereto and incorporated herein by reference
(including each Schedule A) to this Agreement and to debit or credit the
applicable account(s) of the Fund accordingly and that such Funds Transfer
Procedures and method(s) of transmission are commercially reasonable.
(C) The Bank shall be entitled to rely upon the continued
authority of any Authorized Person to give Instructions until the Bank receives
notice from the Fund to the contrary; and the Bank shall be entitled to rely
upon any Instructions it reasonably believes in good faith to have been given
by an Authorized Person.
(D) The Bank is further authorized to rely upon any Instructions
received by any other means and identified as having
-10-
<PAGE> 11
been given or authorized by any Authorized Person, regardless of whether such
Instructions shall in fact have been authorized or given by any of such
Authorized Persons, provided that the Bank and the Fund shall have agreed in
writing upon the means of transmission and the method of identification for
such Instructions. Instructions received by any other means shall include but
not be limited to oral Instructions only in connection with delivery against
payment or receipt against payment transactions and transfer from one account
with the Bank to another with the Bank and provided that such oral Instructions
are promptly confirmed in writing by the Fund. Notwithstanding the foregoing,
in the event any such oral Instructions are not subsequently confirmed in
writing, as provided above, the Fund agrees to hold the Bank harmless and
without liability for any claims or losses in connection with such oral
Instructions.
(E) The Fund agrees to be bound by any Instruction, whether or not
authorized, given to the Bank in its name and reasonably accepted by the Bank
in accordance with the provisions hereof (including but not limited to the
Funds Transfer Procedures and Schedule A thereto) and further agrees to
indemnify and hold the Bank harmless from and against any loss, liability,
claim or expense (including reasonable legal fees and expenses) associated with
the Bank's acting upon such Instructions as provided herein, except such as may
arise from the Bank's own negligence, bad faith or willful misconduct.
(F) The Fund may appoint one or more investment managers
("Investment Managers") with respect to the Custody Account. The Bank is
authorized to act upon Instructions received from any Investment Manager to the
same extent that the Bank would act upon the Instructions of an Authorized
Person, provided that the Bank has received written evidence of the Investment
Manager's appointment and written confirmation from the Investment Manager
evidencing acceptance of such appointment. The Investment Manager shall
provide to the Bank from time to time a list of persons authorized to give
Instructions on behalf of the Investment Manager. The list must be certified
by the Investment Manager's Secretary or Assistant Secretary and include
authenticated specimen signatures of such persons.
(G) If the Fund should choose to have telecommunication or other
means of electronic access to the Banks reporting system for Property in the
Custody Account, pursuant to paragraph (E) of Section 5, the Bank is also
authorized to rely and act upon any Instructions received by it through a
terminal device, provided that such Instructions are accompanied by code words
which the Bank has furnished to the Fund, or an Authorized Person, by any
method mutually agreed to in writing by the Bank and the Fund, provided that
the Bank has not been notified by the Fund, or any such Authorized Person to
cease to recognize such code words,
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<PAGE> 12
regardless of whether such Instructions shall in fact have been given or
authorized by the Fund or any such Authorized Person.
11. THE FUND
(A) The Fund agrees that no printed material or other matter in
any language (including without limitation, prospectuses, statements of
additional information, notices to shareholders, annual reports and promotional
material) which mention the Bank's or Citicorp's name or the rights, powers or
duties of the custodian of the Fund shall be issued by the Fund or of Citicorp
or on the Fund's behalf unless the Bank shall first have given its specific
written consent thereto; provided, however, that no prior consent shall be
required if the only reference to the Bank's or Citicorp's name is in
identifying the Bank as the Fund's custodian.
(B) The Fund shall give prior notice to the Bank of any change in
its state of organization, mailing address, or sponsors, or any significant
change in management, investment objectives, fees or redemption rights.
(C) The Fund confirms that it is, and agrees that in the future it
will be, audited at least annually by an independent accounting firm and that
it mails, and in the future will mail an audited financial report of the Fund
to its shareholders at least annually.
12. FEES AND EXPENSES
Fees and expenses for the services rendered under this Agreement shall
be mutually agreed upon by the parties in writing. The Bank shall be entitled
to debit the Custody Account for such fees and expenses.
13. LIENS
The Bank shall have a lien on the Property in the Custody Account to
secure payment of fees and expenses for the services rendered under this
Agreement. If the Bank advances cash or securities to the Fund for any purpose
or in the event that the Bank or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of its duties hereunder, except such as may arise from its or
its nominee's negligent action, negligent failure to act or willful misconduct,
any Property at any time held for the Custody Account shall be security
therefor and the Fund hereby grants a security interest therein to the Bank.
The Fund shall promptly reimburse the Bank for any such advance of cash or
securities or any such taxes, charges, expenses, assessments, claims or
liabilities upon request for payment, but should the Fund fail to so reimburse
the Bank, the
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<PAGE> 13
Bank shall be entitled to dispose of such Property to the extent necessary to
obtain reimbursement. The Bank shall be entitled to debit any account of the
Fund with the Bank including, without limitation, the Custody Account, in
connection with any such advance and interest at the Bank's prime rate.
14. TAX STATUS
(A) The Fund's Tax Identification Numbers are as follows:
<TABLE>
<S> <C>
U.S. Treasury Securities Fund . . . . . . . . . . . . . . . . . . . . . . 31-1276812
Cash Management Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-1276808
Tax-Free Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-1276813
Limited Maturity Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 31-1276806
Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-1276807
Equity Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-1276814
Pennsylvania Tax-Free Bond Fund . . . . . . . . . . . . . . . . . . . . . 31-1357991
Special Equity Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-1399991
</TABLE>
(B) The Fund may be required from time to time to file such proof
of taxpayer status or residence, to execute such certificates and to make such
representations and warranties, or to provide any other information or
documents, as the Bank and/or a Eligible Foreign Custodian may deem necessary
or proper to fulfill the Banks and/or Eligible Foreign Custodian's obligations
under applicable law. The Fund shall provide the Bank and/or Eligible Foreign
Custodian, in a timely manner, with copies of originals if necessary and
appropriate, or any such proofs of residence, taxpayer status, beneficial
ownership and any other information or documents which the Bank and/or an
Eligible Foreign Custodian may reasonably request.
(C) If any tax or other governmental charge or assessment shall
become payable with respect to any payment due to the Fund ("Taxes"), such
Taxes shall be withheld from such payment in accordance with applicable law.
The Bank and/or a Eligible Foreign Custodian may withhold any interest, any
dividends or other distributions or securities receivable in respect of
Securities, proceeds from the sale or distribution of Securities ("Payments"),
or may sell for the account of the Fund any part thereof or all of the
Securities, and may apply such Payment in satisfaction of such Taxes, the Fund
remaining liable for any deficiency. If any Taxes shall become payable with
respect to any payment made to the Fund by the Bank or an Eligible Foreign
Custodian in a prior year, the Bank and the Eligible Foreign Custodian may
withhold Payments in satisfaction of such prior year's Taxes. The Fund shall
indemnify and hold harmless the Bank and the Eligible Foreign Custodian, its
officers, employees, agents and affiliated companies against any Taxes,
penalties, additions to tax, and interest, and costs and expenses related
thereto, arising out of claims against the Bank and/or the Eligible Foreign
Custodian by any governmental authority for
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<PAGE> 14
failure to withhold Taxes or arising out of any reclaim or refund of taxes or
other tax benefit obtained by the Bank or the Eligible Foreign Custodian for
the Fund.
(D) This Section 14 shall survive the termination of this
Agreement and continue in force until the time for assessment of all Taxes
expires.
15. AMENDMENT
This Agreement may not be amended except by a written agreement among
the parties hereto.
16. TERMINATION
Either the Bank or the Fund may terminate this Agreement upon sixty
(60) days' written notice to the other parties.
17. CONFIDENTIALITY
Subject to the foregoing provisions of this Agreement and subject to
any applicable law, the Fund and the Bank shall each use best efforts to
maintain the confidentiality of matters concerning Property in the Custody
Account.
18. NOTICES
All notices and other communications hereunder, except for
Instructions and reports relating to the Property which are transmitted through
the Bank's electronic reporting system for Property in the Custody Account,
shall be in writing, telex or telecopy or, if oral, shall be promptly confirmed
in writing, and shall be hand-delivered, telexed, telecopied or mailed by
prepaid first class mail (except that notice of termination, if mailed, shall
be by prepaid registered or certified mail) to each party at its address set
forth above, if to the Fund, marked "Attention President" and if to the Bank,
marked "Citibank as Custodian for the Conestoga Family of Funds", and if to
Citicorp, marked "Attention of Office of Corporate Finance, Gregory C. Ehlke,
Vice President", or at such other address as either party may give notice of to
the other.
19. ASSIGNMENT
No party may assign, transfer or charge all or any of its rights and
benefits hereunder without the written consent of the other parties. Any
purported assignments made in contravention of this Section shall be null and
void and of no effect whatsoever.
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<PAGE> 15
20. GOVERNING LAW
This Agreement shall be governed by and construed according to the
laws of the State of New York and the parties agree that the courts of the
State of New York shall have jurisdiction to hear and determine any suit,
action or proceeding and to settle any disputes which may arise out to or in
connection with this Agreement, and, for such purposes, each irrevocably
submits to the non-exclusive jurisdiction of such courts.
21. MISCELLANEOUS
(A) This Agreement may be executed in several counterparts, each
of which shall be an original but all of which shall constitute one and the
same instrument.
(B) This Agreement contains the entire agreement among the parties
relating to custody of Property and supersedes the Custodial Services
Agreement, dated November 24, 1989, by and between the Fund and the Bank, and
all other agreements on this subject made prior to the date hereof.
(C) The captions of the various sections and subsections of this
Agreement have been inserted only for the purposes of convenience and shall not
be deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement.
(D) The names "Conestoga Family of Funds" and "Trustees of
Conestoga Family of Funds" refer respectively to the trust created and the
trustees, as trustees but not individually or personally, acting from time to
time under a Declaration of Trust dated August 1, 1989 which is hereby referred
to and a copy of which is on file at the office of the State Secretary of The
Commonwealth of Massachusetts and at the principal office of the Fund. The
obligations of "Conestoga Family of Funds" entered into in the name or on
behalf thereof by any of the trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
trustees, shareholders or representatives of the Fund personally, but bind only
the trust property. Notwithstanding any other provision of this Agreement, all
persons, including the parties hereto, dealing with any portfolio or class of
shares of the Fund must
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<PAGE> 16
look solely to the property belonging to such portfolio or class for the
enforcement of any claims against the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized.
<TABLE>
<S> <C>
CITIBANK, N.A. CITICORP
BY:s/ Gene Fauquier BY:s/ Gregory C. Ehlke
--------------------------- ---------------------------
NAME: Gene Fauquier NAME: Gregory C. Ehlke
------------------------- -------------------------
TITLE: Vice President TITLE: Vice President
------------------------ ------------------------
CONESTOGA FAMILY OF FUNDS
BY:s/ Mark S. Redman
---------------------------
NAME: Mark S. Redman
-------------------------
TITLE: Vice President
------------------------
</TABLE>
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<PAGE> 1
EXHIBIT (8)(b)
CUSTODY AGREEMENT
Agreement made as of this 1st day of May 1995, between Conestoga
Family of Funds, a trust organized and existing under the laws of the
Commonwealth of Massachusetts having its principal office and place of business
at 680 E. Swedesford Road, Wayne, PA 19087, hereinafter called the "Company"),
and THE BANK OF NEW YORK, a New York corporation authorized to do a banking
business, having the principal office and place of business at 48 Wall Street,
New York, New York 10286 (hereinafter called the "Custodian").
W I T N E S S E T E H:
that for and in consideration of the mutual promises hereinafter set forth, the
Company and the Custodian agree as follows:
ARTICLE I.
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and federal agency
securities, its successor or successors and its nominee or nominees.
2. "Call Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options, Futures Contracts,
and Futures Contract Options entitling the holder, upon timely exercise and
payment of the exercise price, as specified therein, to purchase from the
writer thereof the specified underlying Securities.
3. "Certificate" shall mean any notice, instruction, or
other instrument in writing, authorized or required by this Agreement to be
given to the Custodian which is actually received by the Custodian and signed
on behalf of the Company by any two officers, and the term Certificate shall
also include instructions by the Company to the Custodian communicated by a
Terminal Link.
4. "Clearing Member" shall mean a registered
broker-dealer which is a clearing member under the rules of O.C.C. and a member
of a national securities exchange qualified to act as a custodian for an
investment company, or any broker-dealer
<PAGE> 2
reasonably believed by the Custodian to be such a clearing member.
5. "Collateral Account" shall mean a segregated account
so denominated which is specifically allocated to the Fund and pledged to the
Custodian as security for, and in consideration of, the Custodian's issuance of
(a) any Put Option guarantee letter or similar document described in paragraph
8 of Article V herein, or (b) any receipt described in Article V or VIII
herein.
6. "Covered Call Option" shall mean an exchange traded
option entitling the holder, upon timely exercise and payment of the exercise
price, as specified therein, to purchase from the writer thereof the specified
underlying Securities (excluding Futures Contracts) which are owned by the
writer thereof and subject to appropriate restrictions.
7. "Depository" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission, its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, specifically identified in a certified
copy of a resolution of the Company's Board of Trustees specifically approving
deposits therein by the Custodian.
8. "Financial Futures Contract" shall mean the firm
commitment to buy or sell fixed income securities including, without
limitation, U.S. Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds,
domestic bank certificates of deposit, and Eurodollar certificates of deposit,
during a specified month at an agreed upon price.
9. "Fund" shall mean the Conestoga International Equity
Fund.
10. "Futures Contract" shall mean a Financial Futures
Contract and/or Stock Index Futures Contracts.
11. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
12. "Margin Account" shall mean a segregated account in
the name of a broker, dealer, futures commission merchant, or a Clearing
Member, or in the name of the Company for the benefit of a broker, dealer,
futures commission merchant, or Clearing Member, or otherwise, in accordance
with an agreement between the Company, the Custodian and a broker, dealer,
futures commission merchant or a Clearing Member (a "Margin Account
Agreement"),
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separate and distinct from the custody account, in which certain Securities
and/or money of the Company shall be deposited and withdrawn from time to time
in connection with such transactions as the Company may from time to time
determine. Securities held in the Book-Entry System or the Depository shall be
deemed to have been deposited in, or withdrawn from, a Margin Account upon the
Custodian's effecting an appropriate entry in its books and records.
13. "Money Market Security" shall be deemed to include,
without limitation, certain Reverse Repurchase Agreements, debt obligations
issued or guaranteed as to interest and principal by the government of the
United States or agencies or instrumentalities thereof, any tax, bond or
revenue anticipation note issued by any state or municipal government or public
authority, commercial paper, certificates of deposit and bankers, acceptances,
repurchase agreements with respect to the same and bank time deposits, where
the purchase and sale of such securities normally requires settlement in
federal funds on the same day as such purchase or sale.
14. "O.C.C." shall mean the Options Clearing Corporation,
a clearing agency registered under Section 17A of the Securities Exchange Act
of 1934, its successor or successors, and its nominee or nominees.
15. "Officers" shall be deemed to include the President,
any Vice President, the Secretary, the Treasurer, the Controller, any Assistant
Secretary, any Assistant Treasurer, and any other person or persons, whether or
not any such other person is an officer of the Company, duly authorized by the
Board of Trustees of the Company to execute any Certificate, instruction,
notice or other instrument on behalf of the Company and listed in the
Certificate annexed hereto as Appendix A or such other Certificate as may be
received by the Custodian from time to time.
16. "Option" shall mean a Call Option, Covered Call
Option, Stock Index Option and/or a Put Option.
17. "Oral Instructions" shall mean verbal instructions
actually received by the Custodian from an Officer or from a person reasonably
believed by the Custodian to be an Officer.
18. "Put Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options, Futures Contracts,
and Futures Contract Options entitling the holder, upon timely exercise and
tender of the specified underlying Securities, to sell such Securities to the
writer thereof for the exercise price.
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<PAGE> 4
19. "Reverse Repurchase Agreement" shall mean an
agreement pursuant to which the Company sells Securities and agrees to
repurchase such Securities at a described or specified date and price.
20. "Security" shall be deemed to include, without
limitation, Money Market Securities, Call Options, Put Options, Stock Index
Options, Stock Index Futures Contracts, Stock Index Futures Contract Options,
Financial Futures Contracts, Financial Futures Contract Options, Reverse
Repurchase Agreements, common stocks and other securities having
characteristics similar to common stocks, preferred stocks, debt obligations
issued by state or municipal governments and by public authorities, (including,
without limitation, general obligation bonds, revenue bonds, industrial bonds
and industrial development bonds), bonds, debentures, notes, mortgages or other
obligations, and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase, sell or subscribe for the same, or
evidencing or representing any other rights or interest therein, or any
property or assets.
21. "Senior Security Account" shall mean an account
maintained and specifically allocated to the Fund under the terms of this
Agreement as a segregated account, by recordation or otherwise, within the
custody account in which certain Securities and/or other assets of the Company
specifically allocated to the Fund shall be deposited and withdrawn from time
to time in accordance with Certificates received by the Custodian in connection
with such transactions as the Company may from time to time determine.
22. "Shares" shall mean the shares of beneficial
interest of the Fund.
23. "Stock Index Futures Contract" shall mean a bilateral
agreement pursuant to which the parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the value of a particular stock index at the close of the last business day of
the contract and the price at which the futures contract is originally struck.
24. "Stock Index Option" shall mean an exchange traded
option entitling the holder, upon timely exercise, to receive an amount of cash
determined by reference to the difference between the exercise price and the
value of the index on the date of exercise.
25. "Terminal Link" shall mean an electronic data
transmission link between the Company and the Custodian requiring in connection
with each use of the Terminal Link by or on behalf of the Company use of an
authorization code provided by the
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<PAGE> 5
Custodian and at least two access codes established by the Company.
ARTICLE II.
APPOINTMENT OF CUSTODIAN
1. The Company hereby constitutes and appoints the
Custodian as custodian of the Securities and moneys deposited by the Fund with
the Custodian during the period of this Agreement.
2. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III.
CUSTODY OF CASE AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, the Fund will deliver or cause to be delivered to
the Custodian Securities and moneys owned by it, at any time during the period
of this Agreement. The Custodian shall segregate, keep and maintain the assets
of the Fund separate and apart. The Custodian will not be responsible for any
Securities and moneys not actually received by it. The Custodian will be
entitled to reverse any credits made on the Fund's behalf where such credits
have been previously made and moneys are not finally collected. The Company
shall deliver to the Custodian a certified resolution of the Board of Trustees
of the Company, substantially in the form of Exhibit A hereto, approving,
authorizing and instructing the Custodian on a continuous and on-going basis to
deposit in the Book-Entry System all Securities eligible for deposit therein,
and to utilize the Book-Entry System to the extent possible in connection with
its performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities and
deliveries and returns of Securities collateral. Priority to a deposit of
Securities in the Depository, the Company shall deliver to the Custodian a
certified resolution of the Board of Trustees of the Company, substantially in
the form of Exhibit B hereto, approving, authorizing and instructing the
Custodian on a continuous and ongoing basis until instructed to the contrary by
a Certificate actually received by the Custodian to deposit in the Depository
all Securities eligible for deposit therein, and to utilize the Depository to
the extent possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and moneys
deposited in either
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<PAGE> 6
the Book-Entry System or the Depository will be represented in accounts which
include only assets held by the Custodian for customers, including, but not
limited to, accounts in which the Custodian acts in a fiduciary or
representative capacity and will be specifically allocated on the Custodian's
books to the separate account for the applicable Series. Prior to the
Custodian's accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options for the Fund as provided
in this Agreement, the Custodian shall have received a certified resolution of
the Company's Board of Trustees, substantially in the form of Exhibit C hereto,
approving, authorizing and instructing the Custodian on a continuous and
on-going basis, until instructed to the contrary by a Certificate actually
received by the Custodian, to accept, utilize and act in accordance with such
confirmations as provided in this Agreement.
2. The Custodian shall establish and maintain a separate
account, in the name of the Fund, and shall credit to the separate account all
moneys received by it for the account of the Fund. Money credited to a
separate account shall be disbursed by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the
name and address of the person to whom the payment is to be made, the Series
account from which payment is to be made and the purpose for which payment is
to be made; or
(c) In payment of the fees and in reimbursement
of the expenses and liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the
Custodian shall furnish the Company with confirmations and a summary, of all
transfers to or from the account of the Fund, either hereunder or with any
co-custodian or sub-custodian appointed in accordance with this Agreement
during said day. Where Securities are transferred to the account of the Fund,
the Custodian shall also by book-entry or otherwise identify as belonging to
such Series a quantity of Securities in a fungible bulk of Securities
registered in the name of the Custodian (or its nominee) or shown on the
Custodian's account on the books of the Book-Entry System or the Depository.
At least monthly and from time to time, the Custodian shall furnish the Company
with a detailed statement of the Securities and moneys held by the Custodian
for the Fund.
4. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, all Securities held by the Custodian hereunder,
which are issued or issuable only in bearer
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<PAGE> 7
form, except such Securities as are held in the Book-Entry System, shall be
held by the Custodian in that form; all other Securities held hereunder may be
registered in the name of the Company, in the name of any duly appointed
registered nominee of the Custodian as the Custodian may from time to time
determine, or in the name of the Book-Entry System or the Depository or their
successor or successors, or their nominee or nominees. The Company agrees to
furnish to the Custodian appropriate instruments to enable the Custodian to
hold or deliver in proper form for transfer, or to register in the name of its
registered nominee or in the name of the Book-Entry System or the Depository
any Securities which it may hold hereunder and which may from time to time be
registered in the name of the Company. The Custodian shall hold all such
Securities specifically allocated to the Fund which are not held in the
Book-Entry System or in the Depository in a separate account in the name of
such Fund physically segregated at all times from those of any other person or
persons.
5. Except as otherwise provided in this Agreement and
unless otherwise instructed to the contrary by a Certificate, the Custodian by
itself, or through the use of the Book-Entry System or the Depository with
respect to Securities held hereunder and therein deposited, shall with respect
to all Securities held for the Company hereunder in accordance with preceding
paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount
payable upon such Securities which are called, but only if either (i) the
Custodian receives a written notice of such call, or (ii) notice of such call
appears in one or more of the publications listed in Appendix B annexed hereto,
which may be amended at any time by the Custodian without the prior
notification or consent of the Company;
(c) Present for payment and collect the amount
payable upon all Securities which mature;
(d) Surrender Securities in temporary form for
definitive Securities;
(e) Execute, as custodian, any necessary
declarations or certificates of ownership under the Federal Income Tax Laws or
the laws or regulations of any other taxing authority now or hereafter in
effect; and
(f) Hold directly, or through the Book-Entry
System or the Depository with respect to Securities therein deposited, for the
account of the Fund, all rights and similar securities issued with respect to
any Securities held by the Custodian for such Fund hereunder.
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<PAGE> 8
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry System or the
Depository, shall:
(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authorizations, and any other
instruments whereby the authority of the Company as owner of any Securities
held by the Custodian hereunder for the Fund specified in such Certificate may
be exercised;
(b) Deliver any Securities held by the Custodian
hereunder for the Fund specified in such Certificate in exchange for other
Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege and receive and hold
hereunder specifically allocated to such Fund any cash or other Securities
received in exchange;
(c) Deliver any Securities held by the Custodian
hereunder for the Fund specified in such Certificate to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, and receive and hold hereunder specifically
allocated to such Fund such certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the
assets of the Fund specified in such Certificate, and take such other steps as
shall be stated in such Certificate to be for the purpose of effectuating any
duly authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect the amount
payable upon Securities not described in preceding paragraph 5(b) of this
Article which may be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained
herein, the Custodian shall not be required to obtain possession of any
instrument or certificate representing any Futures Contract, any Option, or any
Futures Contract Option until after it shall have determined, or shall have
received a Certificate from the Company stating, that any such instruments or
certificates are available. The Company shall deliver to the Custodian such a
Certificate no later than the business day preceding the availability of any
such instrument or certificate. Prior to such availability, the Custodian
shall comply with Section 17(f) of the Investment Company Act of 1940, as
amended,
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<PAGE> 9
in connection with the purchase, sale, settlement, closing out or writing of
Futures Contracts, Options, or Futures Contract Options by making payments or
deliveries specified in Certificates received by the Custodian in connection
with any such purchase, sale, writing, settlement or closing out upon its
receipt from a broker, dealer, or futures commission merchant of a statement or
confirmation reasonably believed by the Custodian to be in the form customarily
used by brokers, dealers, or future commission merchants with respect to such
Futures Contracts, Options, or Futures Contract Options, as the case may be,
confirming that such Security is held by such broker, dealer or futures
commission merchant, in book-entry form or otherwise, in the name of the
Custodian (or any nominee of the Custodian) as custodian for the Fund,
provided, however, that notwithstanding the foregoing, payments to or
deliveries from the Margin Account, and payments with respect to Securities to
which a Margin Account relates, shall be made in accordance with the terms and
conditions of the Margin Account Agreement. Whenever any such instruments or
certificates are available, the Custodian shall, notwithstanding any provision
in this Agreement to the contrary, make payment for any Futures Contract,
Option, or Futures Contract Option for which such instruments or such
certificates are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such certificates are
available only against receipt by the Custodian of payment therefor. Any such
instrument or certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the provisions of this
Agreement.
ARTICLE IV.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the
Fund, other than a purchase of an Option, a Futures Contract, or a Futures
Contract Option, the Company shall deliver to the Custodian (i) with respect to
each purchase of Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each purchase of Money Market Securities,
a Certificate or Oral Instructions, specifying with respect to each such
purchase: (a) the name of the issuer and the title of the Securities; (b) the
number of shares or the principal amount purchased and accrued interest, if
any; (c) the date of purchase and settlement; (d) the purchase price per unit;
(e) the total amount payable upon such purchase; (f) the name of the person
from whom or the broker through whom the purchase was made, and the name of the
clearing broker, if any; and (g) the name of the
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<PAGE> 10
broker to whom payment is to be made. The Custodian shall, upon receipt of
Securities purchased by or for the Fund, pay to the broker specified in the
Certificate out of the moneys held for the account of such Fund the total
amount payable upon such purchase, provided that the same conforms to the total
amount payable as set forth in such Certificate or Oral Instructions.
2. Promptly after each sale of Securities by the Fund,
other than a sale of any Option, Futures Contract, Futures Contract Option, or
any Reverse Repurchase Agreement, the Company shall deliver to the Custodian
(i) with respect to each sale of Securities which are not Money Market
Securities, a Certificate, and (ii) with respect to each sale of Money Market
Securities, a Certificate or Oral Instructions, specifying with respect to each
such sale: (a) the name of the issuer and the title of the Security; (b) the
number of shares or principal amount sold, and accrued interest, if any; (c)
the date of sale; (d) the sale price per unit; (e) the total amount payable to
the Fund upon such sale; (f) the name of the broker through whom or the person
to whom the sale was made, and the name of the clearing broker, if any; and (g)
the name of the broker to whom the Securities are to be delivered. The
Custodian shall deliver the Securities specifically allocated to such Fund to
the broker specified in the Certificate against payment of the total amount
payable to the Fund upon such sale, provided that the same conforms to the
total amount payable as set forth in such Certificate or Oral Instructions.
ARTICLE V.
OPTIONS
1. Promptly after the purchase of any Option by the
Fund, the Company shall deliver to the Custodian a Certificate specifying with
respect to each option purchased: (a) the type of Option (put or call); (b) the
name of the issuer and the title and number of shares subject to such Option
or, in the case of a Stock Index Option, the stock index to which such Option
relates and the number of Stock Index Options purchased; (c) the expiration
date; (d) the exercise price; (e) the dates of purchase and settlement; (f) the
total amount payable by the Fund in connection with such purchase; (g) the name
of the Clearing Member through whom such Option was purchased; and (h) the name
of the broker to whom payment is to be made. The Custodian shall pay, upon
receipt of a Clearing Member's statement confirming the purchase of such Option
held by such Clearing Member for the account of the Custodian (or any duly
appointed and registered nominee of the Custodian) as custodian for the Fund,
out of moneys held for the account of the Fund to which such Option is to be
specifically allocated, the total amount payable upon such purchase to the
Clearing Member through whom the purchase was
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<PAGE> 11
made, provided that the same conforms to the total amount payable as set forth
in such Certificate.
2. Promptly after the sale of any Option purchased by
the Fund pursuant to paragraph 1 hereof, the Company shall deliver to the
Custodian a Certificate specifying with respect to each such sale: (a) the type
of Option (put or call); (b) the name of the issuer and the title and number of
shares subject to such Option or, in the case of a Stock Index Option, the
stock index to which such Option relates and the number of Stock Index Options
sold; (c) the date of sale; (d) the sale price; (e) the date of settlement; (f)
the total amount payable to the Fund upon such sale; and (g) the name of the
Clearing Member through whom the sale was made. The Custodian shall consent to
the delivery of the Option sold by the Clearing Member which previously
supplied the confirmation described in preceding paragraph 1 of this Article
with respect to such Option against payment to the Custodian of the total
amount payable to the Fund, provided that the same conforms to the total amount
payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call
Option purchased by the Fund pursuant to paragraph 1 hereof, the Company shall
deliver to the Custodian a Certificate specifying with respect to such Call
Option: (a) the name of the issuer and the title and number of shares subject
to the Call Option; (b) the expiration date; (c) the date of exercise and
settlement; (d) the exercise price per share; (e) the total amount to be paid
by the Fund upon such exercise; and (f) the name of the Clearing Member through
whom such Call Option was exercised. The Custodian shall, upon receipt of the
Securities underlying the Call Option which was exercised, pay out of the
moneys held for the account of the Fund to which such Call Option was
specifically allocated the total amount payable to the Clearing Member through
whom the Call Option was exercised, provided that the same conforms to the
total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put
Option purchased by the Fund pursuant to paragraph 1 hereof, the Company shall
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the name of the issuer and the title and number of shares subject
to the Put Option; (b) the expiration date; (c) the date of exercise and
settlement; (d) the exercise price per share; (e) the total amount to be paid
to the Fund upon such exercise; and (f) the name of the Clearing Member through
whom such Put Option was exercised. The Custodian shall, upon receipt of the
amount payable upon the exercise of the Put Option, deliver or direct the
Depository to deliver the Securities specifically allocated to such Fund,
provided the same conforms to the amount payable to the Fund as set forth in
such Certificate.
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<PAGE> 12
5. Promptly after the exercise by the Fund of any Stock
Index Option purchased by the Fund pursuant to paragraph 1 hereof, the Company
shall deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the type of Stock Index Option (put or call); (b) the
number of Options being exercised; (c) the stock index to which such Option
relates; (d) the expiration date; (e) the exercise price; (f) the total amount
to be received by the Fund in connection with such exercise; and (g) the
Clearing Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the
Company shall promptly deliver to the Custodian a Certificate specifying with
respect to such Covered Call Option: (a) the name of the issuer and the title
and number of shares for which the Covered Call Option was written and which
underlie the same; (b) the expiration date; (c) the exercise price; (d) the
premium to be received by the Fund; (e) the date such Covered Call Option was
written; and (f) the name of the Clearing Member through whom the premium is to
be received. The Custodian shall deliver or cause to be delivered, in exchange
for receipt of the premium specified in the Certificate with respect to such
Covered Call Option, such receipts as are required in accordance with the
customs prevailing among Clearing Members dealing in Covered Call Options and
shall impose, or direct the Depository to impose, upon the underlying
Securities specified in the Certificate specifically allocated to such Fund
such restrictions as may be required by such receipts. Notwithstanding the
foregoing, the Custodian has the right, upon prior written notification to the
Company, at any time to refuse to issue any receipts for Securities in the
possession of the Custodian and not deposited with the Depository underlying a
Covered Call Option.
7. Whenever a Covered Call Option written by the Fund
and described in the preceding paragraph of this Article is exercised, the
Company shall promptly deliver to the Custodian a Certificate instructing the
Custodian to deliver, or to direct the Depository to deliver, the Securities
subject to such Covered Call Option and specifying: (a) the name of the issuer
and the title and number of shares subject to the Covered Call Option; (b) the
Clearing Member to whom the underlying Securities are to be delivered; and (c)
the total amount payable to the Fund upon such delivery. Upon the return
and/or cancellation of any receipts delivered pursuant to paragraph 6 of this
Article, the Custodian shall deliver, or direct the Depository to deliver, the
underlying Securities as specified in the Certificate against payment of the
amount to be received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Company
shall promptly deliver to the Custodian a Certificate specifying with respect
to such Put Option: (a) the name of the issuer and
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<PAGE> 13
the title and number of shares for which the Put Option is written and which
underlie the same; (b) the expiration date; (c) the exercise price; (d) the
premium to be received by the Fund; (e) the date such Put Option is written;
(f) the name of the Clearing Member through whom the premium is to be received
and to whom a Put Option guarantee letter is to be delivered; (g) the amount of
cash, and/or the amount and kind of Securities, if any, specifically allocated
to such Fund to be deposited in the Senior Security Account for such Fund; and
(h) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Fund to be deposited into the Collateral Account for such
Fund. The Custodian shall, after making the deposits into the Collateral
Account specified in the Certificate, issue a Put Option guarantee letter
substantially in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate. Notwithstanding the
foregoing, the Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of the
representations contained therein-
9. Whenever a Put Option written by the Fund and
described in the preceding paragraph is exercised, the Company shall promptly
deliver to the Custodian a Certificate specifying: (a) the name of the issuer
and title and number of shares subject to the Put Option; (b) the Clearing
Member from whom the underlying Securities are to be received; (c) the total
amount payable by the Fund upon such delivery; (d) the amount of cash and/or
the amount and kind of Securities specifically allocated to such Fund to be
withdrawn from the Collateral Account for such Fund and (e) the amount of cash
and/or the amount and kind of Securities, specifically allocated to such Fund,
if any, to be withdrawn from the Senior Security Account. Upon the return
and/or cancellation of any Put Option guarantee letter or similar document
issued by the Custodian in connection with such Put Option, the Custodian shall
pay out of the moneys held for the account of the Fund to which such Put Option
was specifically allocated the total amount payable to the Clearing Member
specified in the Certificate as set forth in such Certificate against delivery
of such Securities, and shall make the withdrawals specified in such
Certificate.
10. Whenever the Fund writes a Stock Index Option, the
Company shall promptly deliver to the Custodian a Certificate specifying with
respect to such Stock Index Option: (a) whether such Stock Index Option is a
put or a call; (b) the number of options written; (c) the stock index to which
such Option relates; (d) the expiration date; (e) the exercise price; (f) the
Clearing Member through whom such Option was written; (g) the premium to be
received by the Fund; (h) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Fund to be deposited in the
Senior Security Account for
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<PAGE> 14
such Fund; (i) the amount of cash and/or the amount and kind of Securities, if
any, specifically allocated to such Fund to be deposited in the Collateral
Account for such Fund; and (j) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Fund to be deposited in a
Margin Account, and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Senior Security Account
specified in the Certificate, and either (1) deliver such receipts, if any,
which the Custodian has specifically agreed to issue, which are in accordance
with the customs prevailing among Clearing Members in Stock Index options and
make the deposits into the Collateral Account specified in the Certificate, or
(2) make the deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and
described in the preceding paragraph of this Article is exercised, the Company
shall promptly deliver to the Custodian a Certificate specifying with respect
to such Stock Index Option: (a) such information as may be necessary to
identify the Stock Index Option being exercised; (b) the Clearing Member
through whom such Stock Index Option is being exercised; (c) the total amount
payable upon such exercise, and whether such amount is to be paid by or to the
Fund; (d) the amount of cash and/or amount and kind of Securities, if any, to
be withdrawn from the Margin Account; and (e) the amount of cash and/or amount
and kind of Securities, if any, to be withdrawn from the Senior Security
Account for such Fund; and the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Collateral Account for such Fund.
Upon the return and/or cancellation of the receipt, if any, delivered pursuant
to the preceding paragraph of this Article, the Custodian shall pay out of the
moneys held for the account of the Fund to which such Stock Index Option was
specifically allocated to the Clearing Member specified in the Certificate the
total amount payable, if any, as specified therein.
12. Whenever the Fund purchases any option identical to a
previously written Option described in paragraphs, 6, 8 or 10 of this Article
in a transaction expressly designated as a "Closing Purchase Transaction" in
order to liquidate its position as a writer of an Option, the Company shall
promptly deliver to the Custodian a Certificate specifying with respect to the
Option being purchased: (a) that the transaction is a Closing Purchase
Transaction; (b) the name of the issuer and the title and number of shares
subject to the Option, or, in the case of a Stock Index Option, the stock index
to which such Option relates and the number of Options held; (c) the exercise
price; (d) the premium to be paid by the Fund; (e) the expiration date; (f) the
type of Option (put or call); (g) the date of such purchase; (h) the name of
the Clearing Member to whom the premium is to be paid; and (i)
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<PAGE> 15
the amount of cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Collateral Account, a specified Margin Account, or the
Senior Security Account for such Fund. Upon the Custodian's payment of the
premium and the return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the Option being
liquidated through the Closing Purchase Transaction, the Custodian shall
remove, or direct the Depository to remove, the previously imposed restrictions
on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a
Closing Purchase Transaction with respect to any Option purchased or written by
the Fund and described in this Article, the Custodian shall delete such Option
from the statements delivered to the Company pursuant to paragraph 3 Article
III herein, and upon the return and/or cancellation of any receipts issued by
the Custodian, shall make such withdrawals from the Collateral Account, and the
Margin Account and/or the Senior Security Account as may be specified in a
Certificate received in connection with such expiration, exercise, or
consummation.
ARTICLE VI.
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures
Contract, the Company shall deliver to the Custodian a Certificate specifying
with respect to such Futures Contract, (or with respect to any number of
identical Futures Contract(s)): (a) the category of Futures Contract (the name
of the underlying stock index or financial instrument); (b) the number of
identical Futures Contracts entered into; (c) the delivery or settlement date
of the Futures Contract(s); (d) the date the Futures Contract(s) was (were)
entered into and the maturity date; (e) whether the Fund is buying (going long)
or selling (going short) on such Futures Contract(s); (f) the amount of cash
and/or the amount and kind of Securities, if any, to be deposited in the Senior
Security Account for such Fund; (g) the name of the broker, dealer, or futures
commission merchant through whom the Futures Contract was entered into; and (h)
the amount of fee or commission, if any, to be paid and the name of the broker,
dealer, or futures commission merchant to whom such amount is to be paid. The
Custodian shall make the deposits, if any, to the Margin Account in accordance
with the terms and conditions of the Margin Account Agreement. The Custodian
shall make payment out of the moneys specifically allocated to such Fund of the
fee or commission, if any, specified in the Certificate and deposit in the
Senior Security Account for such Fund the amount of cash and/or the amount and
kind of Securities specified in said Certificate.
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<PAGE> 16
2. (a) Any variation margin payment or similar
payment required to be made by the Fund to a broker, dealer, or futures
commission merchant with respect to an outstanding Futures Contract, shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
(b) Any variation margin payment or similar
payment from a broker, dealer, or futures commission merchant to the Fund with
respect to an outstanding Futures Contract, shall be received and dealt with by
the Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
3. Whenever a Futures Contract held by the Custodian
hereunder is retained by the Fund until delivery or settlement is made on such
Futures Contract, the Company shall deliver to the Custodian a Certificate
specifying: (a) the Futures Contract; (b) with respect to a Stock Index Futures
Contract, the total cash settlement amount to be paid or received, and with
respect to a Financial Futures Contract, the Securities and/or amount of cash
to be delivered or received; (c) the broker, dealer, or futures commission
merchant to or from whom payment or delivery is to be made or received; and (d)
the amount of cash and/or Securities to be withdrawn from the Senior Security
Account for such Fund. The Custodian shall make the payment or delivery
specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Company pursuant to paragraph 3 of Article III
herein.
4. Whenever the Fund shall enter into a Futures Contract
to offset a Futures Contract held by the Custodian hereunder, the Company shall
deliver to the Custodian a Certificate specifying: (a) the items of information
required in a Certificate described in paragraph 1 of this Article, and (b) the
Futures Contract being offset. The Custodian shall make payment out of the
money specifically allocated to such Fund of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Company pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Fund as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
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<PAGE> 17
ARTICLE VII.
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract
Option by the Fund, the Company shall promptly deliver to the Custodian a
Certificate specifying with respect to such Futures Contract Option: (a) the
type of Futures Contract Option (put or call); (b) the type of Futures Contract
and such other information as may be necessary to identify the Futures Contract
underlying the Futures Contract option purchased; (c) the expiration date; (d)
the exercise price; (e) the dates of purchase and settlement; (f) the amount of
premium to be paid by the Fund upon such purchase; (g) the name of the broker
or futures commission merchant through whom such option was purchased; and (h)
the name of the broker, or futures commission merchant, to whom payment is to
be made. The Custodian shall pay out of the moneys specifically allocated to
such Fund, the total amount to be paid upon such purchase to the broker or
futures commissions merchant through whom the purchase was made, provided that
the same conforms to the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract
Option purchased by the Fund pursuant to paragraph 1 hereof, the Company shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such sale: (a) the type of Future Contract Option (put or call); (b) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (c) the date of
sale; (d) the sale price; (e) the date of settlement; (f) the total amount
payable to the Fund upon such sale; and (g) the name of the broker of futures
commission merchant through whom the sale was made. The Custodian shall
consent to the cancellation of the Futures Contract Option being closed against
payment to the Custodian of the total amount payable to the Fund, provided the
same conforms to the total amount payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the
Fund pursuant to paragraph 1 is exercised by the Fund, the Company shall
promptly deliver to the Custodian a Certificate specifying: (a) the particular
Futures Contract Option (put or call) being exercised; (b) the type of Futures
Contract underlying the Futures Contract Option; (c) the date of exercise; (d)
the name of the broker or futures commission merchant through whom the Futures
Contract Option is exercised; (e) the net total amount, if any, payable by the
Fund; (f) the amount, if any, to be received by the Fund; and (g) the amount of
cash and/or the amount and kind of Securities to be deposited in the Senior
Security Account for such Fund. The Custodian shall make, out of the moneys
and Securities specifically allocated to such Fund,
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<PAGE> 18
the payments, if any, and the deposits, if any, into the Senior Security
Account as specified in the Certificate. The deposits, if any, to be made to
the Margin Account shall be made by the Custodian in accordance with the terms
and conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option,
the Company shall promptly deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the type of Futures Contract
Option (put or call); (b) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract underlying the
Futures Contract Option; (c) the expiration date; (d) the exercise price; (e)
the premium to be received by the Fund; (f) the name of the broker or futures
commission merchant through whom the premium is to he received; and (g) the
amount of cash and/or the amount and kind of Securities, if any, to be
deposited in the Senior Security Account for such Fund. The Custodian shall,
upon receipt of the premium specified in the Certificate, make out of the
moneys and Securities specifically allocated to such Fund the deposits into the
Senior Security Account, if any, as specified in the Certificate. The
deposits, if any, to be made to the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
5. Whenever a Futures Contract Option written by the
Fund which is a call is exercised, the Company shall promptly deliver to the
Custodian a Certificate specifying: (a) the particular Futures Contract Option
exercised; (b) the type of Futures Contract underlying the Futures Contract
Option; (c) the name of the broker or futures commission merchant through whom
such Futures Contract Option was exercised; (d) the net total amount, if any,
payable to the Fund upon such exercise; (e) the net total amount, if any,
payable by the Fund upon such exercise; and (f) the amount of cash and/or the
amount and kind of Securities to be deposited in the Senior Security Account
for such Fund. The Custodian shall, upon its receipt of the net total amount
payable to the Fund, if any, specified in such Certificate make the payments,
if any, and the deposits, if any, into the Senior Security Account as specified
in the Certificate. The deposits, if any, to be made to the Margin Account
shall be made by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written
by the Fund and which is a put is exercised, the Company shall promptly deliver
to the Custodian a Certificate specifying: (a) the particular Futures Contract
Option exercised; (b) the type of Futures Contract underlying such Futures
Contract option; (c) the name of the broker or futures commission merchant
through whom such Futures Contract Option is exercised; (d) the net total
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<PAGE> 19
amount, if any, payable to the Fund upon such exercise; (e) the net total
amount, if any, payable by the Fund upon such exercise; and (f) the amount and
kind of Securities and/or cash to be withdrawn from or deposited in, the Senior
Security Account for such Fund, if any. The Custodian shall, upon its receipt
of the net total amount payable to the Fund, if any, specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Fund, the payments, if any, and the deposits, if any, into the Senior
Security Account as specified in the Certificate. The deposits to and/or
withdrawals from the Margin Account, if any, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract
Option identical to a previously written Futures Contract Option described in
this Article in order to liquidate its position as a writer of such Futures
Contract Option, the Company shall promptly deliver to the Custodian a
Certificate specifying with respect to the Futures Contract Option being
purchased: (a) that the transaction is a closing transaction; (b) the type of
Futures Contract and such other information as may be necessary to identify the
Futures Contract underlying the Futures Option Contract; (c) the exercise
price; (d) the premium to be paid by the Fund; (e) the expiration date; (f) the
name of the broker or futures commission merchant to whom the premium is to be
paid; and (g) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Senior Security Account for such Fund. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a
closing transaction with respect to, any Futures Contract Option written or
purchased by the Fund and described in this Article, the Custodian shall (a)
delete such Futures Contract Option from the statements delivered to the
Company pursuant to paragraph 3 of Article III herein and, (b) make such
withdrawals from and/or in the case of an exercise such deposits into the
Senior Security Account as may be specified in a Certificate. The deposits to
and/or withdrawals from the Margin Account, if any, shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
9. Futures Contracts acquired by the Fund through the
exercise of a Futures Contract Option described in this Article shall be
subject to Article VI hereof.
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<PAGE> 20
ARTICLE VIII.
SHORT SALES
1. Promptly after any short sales by any Series of the
Fund, the Company shall promptly deliver to the Custodian a Certificate
specifying: (a) the name of the issuer and the title of the Security; (b) the
number of shares or principal amount sold, and accrued interest or dividends,
if any; (c) the dates of the sale and settlement; (d) the sale price per unit;
(e) the total amount credited to the Fund upon such sale, if any, (f) the
amount of cash and/or the amount and kind of Securities, if any, which are to
be deposited in a Margin Account and the name in which such Margin Account has
been or is to be established; (g) the amount of cash and/or the amount and kind
of Securities, if any, to be deposited in a Senior Security Account, and (h)
the name of the broker through whom such short sale was made. The Custodian
shall upon its receipt of a statement from such broker confirming such sale and
that the total amount credited to the Fund upon such sale, if any, as specified
in the Certificate is held by such broker for the account of the Custodian (or
any nominee of the Custodian) as custodian of the Fund, issue a receipt or make
the deposits into the Margin Account and the Senior Security Account specified
in the Certificate.
2. In connection with the closing-out of any short sale,
the Company shall promptly deliver to the Custodian a Certificate specifying
with respect to each such closing out: (a) the name of the issuer and the title
of the Security; (b) the number of shares or the principal amount, and accrued
interest or dividends, if any, required to effect such closing-out to be
delivered to the broker; (c) the dates of closing-out and settlement; (d) the
purchase price per unit; (e) the net total amount payable to the Fund upon
such closing-out; (f) the net total amount payable to the broker upon such
closing-out; (g) the amount of cash and the amount and kind of Securities to be
withdrawn, if any, from the Margin Account; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from the Senior Security
Account; and (i) the name of the broker through whom the Fund is effecting such
closing-out. The Custodian shall, upon receipt of the net total amount payable
to the Fund upon such closing-out, and the return and/or cancellation of the
receipts, if any, issued by the Custodian with respect to the short sale being
closed-out, pay out of the moneys held for the account of the Fund to the
broker the net total amount payable to the broker, and make the withdrawals
from the Margin Account and the Senior Security Account, as the same are
specified in the Certificate.
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ARTICLE IX.
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase
Agreement with respect to Securities and money held by the Custodian hereunder,
the Company shall deliver to the Custodian a Certificate, or in the event such
Reverse Repurchase Agreement is a Money Market Security, a Certificate or Oral
Instructions specifying: (a) the total amount payable to the Fund in connection
with such Reverse Repurchase Agreement and specifically allocated to such Fund;
(b) the broker or dealer through or with whom the Reverse Repurchase Agreement
is entered; (c) the amount and kind of Securities to be delivered by the Fund
to such broker or dealer; (d) the date of such Reverse Repurchase Agreement;
and (e) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Fund to be deposited in a Senior Security
Account for such Fund in connection with such Reverse Repurchase Agreement.
The Custodian shall, upon receipt of the total amount payable to the Fund
specified in the Certificate, Oral Instructions, or Written Instructions make
the delivery to the broker or dealer, and the deposits, if any, to the Senior
Security Account, specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase
Agreement described in preceding paragraph 1 of this Article, the Company shall
promptly deliver a Certificate or, in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate or Oral Instructions to the
Custodian specifying: (a) the Reverse Repurchase Agreement being terminated;
(b) the total amount payable by the Fund in connection with such termination;
(c) the amount and kind of Securities to be received by the Fund; (d) the date
of termination; (e) the name of the broker or dealer with or through whom
the Reverse Repurchase Agreement is tobe terminated; and (f) the amount of cash
and/or the amount and kind of Securities to be withdrawn from the Senior
Securities Account for such Fund. The Custodian shall, upon receipt of the
amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Senior Security Account, specified in such
Certificate or Oral Instructions.
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ARTICLE X.
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities
specifically allocated to the Series held by the Custodian hereunder, the
Company shall deliver or cause to be delivered to the Custodian a Certificate
specifying with respect to each such loan: (a) the name of the issuer and the
title of the Securities, (b) the number of shares or the principal amount
loaned, (c) the date of loan and delivery, (d) the total amount to be delivered
to the Custodian against the loan of the Securities, including the amount of
cash collateral and the premium, if any, separately identified, and (e) the
name of the broker, dealer, or financial institution to which the loan was
made. The Custodian shall deliver the Securities thus designated to the
broker, dealer or financial institution to which the loan was made upon receipt
of the total amount designated as to be delivered against the loan of
Securities. The Custodian may accept payment in connection with a delivery
otherwise than through the Book-Entry System or Depository only in the form of
a certified or bank cashier's check payable to the order of the Company or the
Custodian drawn on New York Clearing House funds and may deliver Securities in
accordance with the customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of
Securities by the Company, the Company shall deliver or cause to be delivered
to the Custodian a Certificate specifying with respect to each such loan
termination and return of Securities: (a) the name of the issuer and the title
of the Securities to be returned, (b) the number of shares or the principal
amount to be returned, (c) the date of termination, (d) the total amount to be
delivered by the Custodian (including the cash collateral for such Securities
minus any offsetting credits as described in said Certificate), and (e) the
name of the broker, dealer, or financial institution from which the Securities
will be returned. The Custodian shall receive all Securities returned from the
broker, dealer, or financial institution to which such Securities were loaned
and upon receipt thereof shall pay, out of the moneys held for the account of
the Fund, the total amount payable upon such return of Securities as set forth
in the Certificate.
ARTICLE XI.
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such
deposits to, or withdrawals from, a Senior Security Account as specified in a
Certificate received by the Custodian. Such
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<PAGE> 23
Certificate shall specify the Fund for which such deposit or withdrawal is to
be made and the amount of cash and/or the amount and kind of Securities
specifically allocated to such Fund to be deposited in, or withdrawn from, such
Senior Security Account for such Fund. In the event that the Company fails to
specify in a Certificate, the name of the issuer, the title and the number of
shares or the principal amount of any particular Securities to be deposited by
the Custodian into, or withdrawn from, a Senior Securities Account, the
Custodian shall be under no obligation to make any such deposit or withdrawal
and shall so notify the Company.
2. The Custodian shall make deliveries or payments from
a Margin Account to the broker, dealer, futures commission merchant or Clearing
Member in whose name, or for whose benefit, the account was established as
specified in the Margin Account Agreement.
3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any Margin Account shall
be dealt with in accordance with the terms and conditions of the Margin Account
Agreement.
4. The Custodian shall have a continuing lien and
security interest in and to any property at any time held by the Custodian in
any Collateral Account described herein. In accordance with applicable law the
Custodian may enforce its lien and realize on any such property whenever the
Custodian has made payment or delivery pursuant to any Put Option guarantee
letter or similar document or any receipt issued hereunder by the Custodian.
In the event the Custodian should realize on any such property net proceeds
which are less than the Custodian; obligations under any Put Option guarantee
letter or similar document or any receipt, such deficiency shall be a debt owed
the Custodian by the Company within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the
Company with a statement with respect to each Margin Account in which money or
Securities are held specifying as of the close of business on the previous
business day: (a) the name of the Margin Account; (b) the amount and kind of
Securities held therein; and (c) the amount of money held therein. The
Custodian shall make available upon request to any broker, dealer, or futures
commission merchant specified in the name of a Margin Account a copy of the
statement furnished to the Company with respect to such Margin Account.
6. Promptly after the close of business on each business
day in which cash and/or Securities are maintained in a Collateral Account for
any Fund, the Custodian shall furnish the Company with a statement with respect
to such Collateral Account specifying the amount of cash and/or the amount and
kind of
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<PAGE> 24
Securities held therein. No later than the close of business next succeeding
the delivery to the Company of such statement, the Company shall furnish to the
Custodian a Certificate or Written Instructions specifying the then market
value of the Securities described in such statement. In the event such then
market value is indicated to be less than the Custodian's obligation with
respect to any outstanding Put Option guarantee letter or similar document, the
Company shall promptly specify in a Certificate the additional cash and/or
Securities to be deposited in such Collateral Account to eliminate such
deficiency.
ARTICLE XII.
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Company shall furnish to the Custodian a copy of
the resolution of the Board of Trustees of the Company, certified by the
Secretary or any Assistant Secretary, either (i) setting forth with respect to
the Series specified therein the date of the declaration of a dividend or
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable per
Share of such Fund to the shareholders of record as of that date and the total
amount payable to the Dividend Agent and any sub-dividend agent or co-dividend
agent of the Fund on the payment date, or (ii) authorizing with respect to the
Fund specified therein the declaration of dividends and distributions on a
daily basis and authorizing the Custodian to rely on Oral Instructions or a
Certificate setting forth the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable per
Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution,
Oral Instructions or Certificate, as the case may be, the Custodian shall pay
out of the moneys held for the account of such Fund the total amount payable to
the Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund.
ARTICLE XIII.
SALE AND REDEMPTION OF SHARES
1. Whenever the Company shall sell any Shares of the
Fund, it shall deliver to the Custodian a Certificate duly specifying:
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(a) The number of Shares sold, trade date, and
price; and
(b) The amount of money to be received by the
Custodian for the sale of such Shares and specifically allocated to the
separate account in the name of such Fund.
2. Upon receipt of such money from the Transfer Agent,
the Custodian shall credit such money to the separate account in the name of
the Fund for which such money was received.
3. Upon issuance of any Shares of the Fund described in
the foregoing provisions of this Article, the Custodian shall pay, out of the
money held for the account of such Fund, all original issue or other taxes
required to be paid by the Company in connection with such issuance upon the
receipt of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Company
desires the Custodian to make payment out of the money held by the Custodian
hereunder in connection with a redemption of any Shares of the Fund, it shall
furnish to the Custodian a Certificate specifying:
(a) The number and Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice
setting forth the number of Shares received by the Transfer Agent for
redemption and that such Shares are in good form for redemption, the Custodian
shall make payment to the Transfer Agent out of the moneys held in the separate
account in the name of the Fund the total amount specified in the Certificate
issued pursuant to the foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the
redemption of any Shares, whenever any Shares are redeemed pursuant to any
check redemption privilege which may from time to time be offered by the
Company, the Custodian, unless otherwise instructed by a Certificate, shall,
upon receipt of an advice from the Company or its agent setting forth that the
redemption is in good form for redemption in accordance with the check
redemption procedure, honor the check presented as part of such check
redemption privilege out of the moneys held in the separate account of the Fund
of the Shares being redeemed.
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ARTICLE XIV.
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion
advance funds on behalf of the Series which results in an overdraft because the
moneys held by the Custodian in the separate account for such Series shall be
insufficient to pay the total amount payable upon a purchase of Securities
specifically allocated to such Series, as set forth in a Certificate or Oral
Instructions, or which results in an overdraft in the separate account of such
Series for some other reason, or if the Company is for any other reason
indebted to the Custodian with respect to the Fund (except a borrowing for
investment or for temporary or emergency purposes using Securities as
collateral pursuant to a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to
be a loan made by the Custodian to the Company for such Series payable on
demand and shall bear interest from the date incurred at a rate per annum
(based on a 360-day year for the actual number of days involved) equal to 1/2%
over Custodian's prime commercial lending rate in effect from time to time,
such rate to be adjusted on the effective date of any change in such prime
commercial lending rate but in no event to be less than 6% per annum. In
addition, the Company hereby agrees that the Custodian shall have a continuing
lien and security interest in and to any property specifically allocated to
such Series at any time held by it for the benefit of such Series or in which
the Company may have an interest which is then in the Custodian's possession or
control or in possession or control of any third party acting in the
Custodian's behalf. The Company authorizes the Custodian, in its sole
discretion, at any time to charge any such overdraft or indebtedness together
with interest due thereon against any balance of account standing to such
Series' credit on the Custodian's books. In addition, the Company hereby
covenants that on each Business Day on which either it intends to enter a
Reverse Repurchase Agreement and/or otherwise borrow from a third party, or
which next succeeds a Business Day on which at the close of business the Fund
had outstanding a Reverse Repurchase Agreement or such a borrowing, it shall
prior to 9 a.m., New York City time, advise the Custodian, in writing, of each
such borrowing and shall not incur any indebtedness not so specified other than
from the Custodian.
2. The Company will cause to be delivered to the
Custodian by any bank (including, if the borrowing is pursuant to a separate
agreement, the Custodian) from which it borrows money for investment or for
temporary or emergency purposes using Securities held by the Custodian
hereunder as collateral for such borrowings, a notice or undertaking in the
form currently employed by any such bank setting forth the amount which such
bank will loan to the Company against delivery of a stated amount
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of collateral. The Company shall promptly deliver to the Custodian a
Certificate specifying with respect to each such borrowing: (a) the name of the
bank, (b) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed by the
Fund, or other loan agreement, (c) the time and date, if known, on which the
loan is to be entered into, (d) the date on which the loan becomes due and
payable, (e) the total amount payable to the Fund on the borrowing date, (f)
the market value of Securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities, and (g) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the Investment Company Act
of 1940 and the Fund's prospectus. The Custodian shall deliver on the
borrowing date specified in a Certificate the specified collateral and the
executed promissory note, if any, against delivery by the lending bank of the
total amount of the loan payable, provided that the same conforms to the total
amount payable as set forth in the Certificate. The Custodian may, at the
option of the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending bank by
virtue of any promissory note or loan agreement. The Custodian shall deliver
such Securities as additional collateral as may be specified in a Certificate
to collateralize further any transaction described in this paragraph. The
Company shall cause all Securities released from collateral status to be
returned directly to the Custodian, and the Custodian shall receive from time
to time such return of collateral as may be tendered to it. In the event that
the company fails to specify in a Certificate the Series, the name of the
issuer, the title and number of shares or the principal amount of any
particular Securities to be delivered as collateral by the Custodian, the
Custodian shall not be under any obligation to deliver any Securities.
ARTICLE XV.
TERMINAL LINK
1. At no time and under no circumstances shall the
Company be obligated to have or utilize the Terminal Link, and the provisions
of this Article shall apply if, but only if, the Company in its sole and
absolute discretion elects to utilize the Terminal Link to transmit
Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Company
only for the purpose of the Company providing Certificates to the Custodian
with respect to transactions involving Securities or for the transfer of money
to be applied to the payment of dividends, distributions or redemptions of Fund
Shares, and shall
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be utilized by the Custodian only for the purpose of providing notices to the
Company. Such use shall commence only after the Company shall have delivered
to the Custodian a Certificate substantially in the form of Exhibit D and shall
have established access codes. Each use of the Terminal Link by the Company
shall constitute a representation and warranty that the Terminal Link is being
used only for the purposes permitted hereby, that at least two Officers have
each utilized an access code, that such safekeeping procedures have been
established by the Company, and that such use does not contravene the
Investment Company Act of 1940, as amended, or the rules or regulations
thereunder.
3. The Company shall obtain and maintain at its own cost
and expense all equipment and services, including, but not limited to
communications services, necessary for it to utilize the Terminal Link, and the
Custodian shall not be responsible for the reliability or availability of any
such equipment or services.
4. The Company acknowledges that any data bases made
available as part of, or through the Terminal Link and any proprietary data,
software, processes, information and documentation (other than any such which
are or become part of the public domain or are legally required to be made
available to the public) (collectively, the "Information"), are the exclusive
and confidential property of the Custodian. The Company shall, and shall
inform others to which it discloses the Information, to keep the Information
confidential by using the same care and discretion it uses with respect to its
own confidential property and trade secrets, and shall neither make nor permit
any disclosure without the express prior written consent of the Custodian.
5. Upon termination of this Agreement for any reason,
the Company shall return to the Custodian any and all copies of the Information
which are in the Company's possession or under its control, or which the
Company distributed to third parties. The provisions of this Article shall not
affect the copyright status of any of the Information which may be copyrighted
and shall apply to all Information whether or not copyrighted.
6. The Custodian reserves the right to modify the
Terminal Link from time to time without notice to the Company except that the
Custodian shall give the Company notice not less than 75 days in advance of any
modification which would materially adversely affect the Company's operation,
and the Company agrees that the Company shall not modify or attempt to modify
the Terminal Link without the Custodian's prior written consent. The Company
acknowledges that any software or procedures provided the Company as part of
the Terminal Link are the property of the Custodian and, accordingly, the
Company agrees that any modifications to the Terminal Link, whether by
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the Company, or by the Custodian and whether with or without the Custodian's
consent, shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and
suppliers it utilizes or the Company utilizes in connection with the Terminal
Link makes any warranties or representations, express or implied, in fact or in
law, including but not limited to warranties of merchantability and fitness for
a particular purpose.
8. The Company will advise its Officers and employees to
treat the authorization codes and the access codes applicable to Terminal Link
with extreme care, and irrevocably authorizes the Custodian to act in
accordance with and rely on Certificates received by it through the Terminal
Link. The Company acknowledges that it is its responsibility to assure that
only its Officers use the Terminal Link on its behalf, and that a Custodian
shall not be responsible nor liable for use of the Terminal Link on the
Company's behalf by persons other than such persons or Officers, or by only a
single Officer, nor for any alteration, omission, or failure to promptly
forward.
9.(a). Except as otherwise specifically provided in Section
9(b) of this Article, the Custodian shall have no liability for any losses,
damages, injuries, claims, costs or expenses arising out of or in connection
with any failure, malfunction or other problem relating to the Terminal Link
except for money damages suffered as the direct result of the negligence of the
Custodian in an amount not exceeding for any incident $25,000 provided,
however, that the Custodian shall have no liability under this Section 9 if the
Company fails to comply with the provisions of Section 11.
9(b). The Custodian's liability for its negligence in
executing or failing to execute in accordance with a Certificate received
through Terminal Link shall be only with respect to a transfer of funds which
is not made in accordance with such Certificate after such Certificate shall
have been duly acknowledged by the Custodian, and shall be contingent upon the
Company complying with the provisions of Section 12 of this Article, and shall
be limited to (i) restoration of the principal amount mistransferred, if and to
the extent that the Custodian would be required to make such restoration under
applicable law, and (ii) the lesser of (A) a Company's actual pecuniary loss
incurred by reason of its loss of use of the mistransferred funds or the funds
which were not transferred, as the case may be, or (B) compensation for the
loss of the use of the mistransferred funds or the funds which were not
transferred, as the case may be, at a rate per annum equal to the average
federal funds rate as computed from the Federal Reserve Bank of New York's
daily determination of the effective rate for federal funds, for the period
during which a Company has lost use of such funds. In no
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event shall the Custodian have any liability for failing to execute in
accordance with a Certificate a transfer of funds where the Certificate is
received by the Custodian through Terminal Link other than through the
applicable transfer module for the particular instructions contained in such
Certificate.
10. Without limiting the generality of the foregoing, in
no event shall the Custodian or any manufacturer or supplier of its computer
equipment, software or services relating to the Terminal Link be responsible
for any special, indirect, incidental or consequential damages which the
Company may incur or experience by reason of its use of the Terminal Link even
if the Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall the Custodian or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
11. The Company shall notify the Custodian of any errors,
omissions or interruptions in, or delay or unavailability of, the Terminal Link
as promptly as practicable, and in any event within 24 hours after the earliest
of (i) discovery thereof, (ii) the Business Day on which discovery should have
occurred through the exercise of reasonable care and (iii) in the case of any
error, the date of actual receipt of the earliest notice which reflects such
error, it being agreed that discovery and receipt of notice may only occur on a
business day. The Custodian shall advise the Company as aforesaid whenever the
Custodian learns of any errors, omissions or interruption in, or delay or
unavailability of, the Terminal Link.
12. The Custodian shall verify to the Company, by use of
the Terminal Link, receipt of each Certificate the Custodian receives through
the Terminal Link, and in the absence of such verification the Custodian shall
not be liable for any failure to act in accordance with such Certificate and
the Company may not claim that such Certificate was received by the Custodian.
Such verification, which may occur after the Custodian has acted upon such
Certificate, shall be accomplished on the same day on which such Certificate is
received.
ARTICLE XVI.
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ,
as sub-custodian for the Series' Foreign Securities (as
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such term is defined in paragraph (c)(1) of Rule 17f-5 under the Investment
Company Act of 1940, as amended) and other assets, the foreign banking
institutions and foreign securities depositories and clearing agencies
designated on Schedule I hereto ("Foreign Sub-Custodians") to carry out their
respective responsibilities in accordance with the terms of the sub-custodian
agreement between each such Foreign SubCustodian and the Custodian, copies of
which have been previously delivered to the Company and receipt of which is
hereby acknowledged (each such agreement, a "Foreign SubCustodian Agreement").
Upon receipt of a Certificate, together with a certified resolution
substantially in the form attached as Exhibit E of the Company's Board of
Trustees, the Company may designate any additional foreign sub-custodian with
which the Custodian has an agreement for such entity to act as the Custodian's
agent, as its sub-custodian and any such additional foreign sub-custodian shall
be deemed added to Schedule I. Upon receipt of a Certificate from the Company,
the Custodian shall cease the employment of any one or more Foreign
Sub-Custodians for maintaining custody of the Fund's assets and such Foreign
Sub-Custodian shall be deemed deleted from Schedule I
2. Each Foreign Sub-Custodian Agreement shall be
substantially in the form previously delivered to the Company and will not be
amended in a way that materially adversely affects the Company or the Fund
without the Company's prior written consent.
3. The Custodian shall identify on its books as
belonging to the Fund the Foreign Securities held by each Foreign
Sub-Custodian. At the election of the Company, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims by the
Company against a Foreign Sub-Custodian as a consequence of any loss, damage,
cost, expense, liability or claim sustained or incurred by the Fund or the
Company if and to the extent that the Fund or the Company has not been made
whole for any such loss, damage, cost, expense, liability or claim.
4. Upon request of the Company, the Custodian will,
consistent with the terms of the applicable Foreign Sub-Custodian Agreement,
use reasonable efforts to arrange for the independent accountants of the
Company to be afforded access to the books and records of any Foreign
Sub-Custodian insofar as such books and records relate to the performance of
such Foreign Sub-Custodian under its agreement with the Custodian on behalf of
the Fund.
5. The Custodian will supply to the Company from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by Foreign SubCustodians, including but not
limited to, an identification of entities having possession of the Fund's
Foreign Securities and
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other assets, and advices or notifications of any transfers of Foreign
Securities to or from each custodial account maintained by a Foreign
Sub-Custodian for the Custodian on behalf of the Fund.
6. The Custodian shall furnish annually to the Company,
as mutually agreed upon, information concerning the Foreign Sub-Custodians
employed by the Custodian. Such information shall be similar in kind and scope
to that furnished to the Company in connection with the Company's initial
approval of such Foreign Sub-Custodians and, in any event, shall include
information pertaining to (i) the Foreign Custodians' financial strength,
general reputation and standing in the countries in which they are located and
their ability to provide the custodial services required, and (ii) whether the
Foreign Sub-Custodians would provide a level of safeguards for safekeeping and
custody of securities not materially different form those prevailing in the
United States. The Custodian shall monitor the general operating performance
of each Foreign Sub-Custodian, and at least annually obtain and review the
annual financial report published by such Foreign Sub-Custodian to determine
that it meets the financial criteria of an "Eligible Foreign Custodian" under
Rule 17f-5(c)(2)(i) or (ii). The Custodian will promptly inform the Company in
the event that the Custodian learns that a Foreign Sub-Custodian no longer
satisfies the financial criteria of an "Eligible Foreign Custodian" under such
Rule. The Custodian agrees that it will use reasonable care in monitoring
compliance by each Foreign Sub-Custodian with the terms of the relevant Foreign
Sub-Custodian Agreement and that if it learns of any breach of such Foreign
Sub-Custodian Agreement believed by the Custodian to have a material adverse
effect on the Fund or the Company it will promptly notify the Company of such
breach. The Custodian also agrees to use reasonable and diligent efforts to
enforce its rights under the relevant Foreign Sub-Custodian Agreement.
7. The Custodian shall transmit promptly to the Company
all notices, reports or other written information received pertaining to the
Fund's Foreign Securities, including without limitation, notices of corporate
action, proxies and proxy solicitation materials.
8. Notwithstanding any provision of this Agreement to
the contrary, settlement and payment for securities received for the account of
the Fund and delivery of securities maintained for the account of the Fund may
be effected in accordance with the customary or established securities trading
or securities processing practices and procedures in the jurisdiction or market
in which the transaction occurs, including, without limitation, delivery of
securities to the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a
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receipt with the expectation of receiving later payment for such securities
from such purchaser or dealer.
9. Notwithstanding any other provision in this Agreement
to the contrary other than this Section 9, with respect to any losses or
damages arising out of or relating to actions or omissions of any Foreign
sub-Custodian the sole responsibility and liability of the Custodian shall be
to take appropriate action at the Fund's expense to recover such loss or damage
from the Foreign sub-Custodian. It is expressly understood and agreed that the
Custodian's sole responsibility and liability with respect to any such losses
or damages shall be limited to amounts so recovered from the Foreign
sub-Custodian, provided, however, that if the Custodian has failed to fulfill
its duties and obligations under this Article then the Custodian shall, in
addition, be liable for the direct money damages caused by any such failure,
but in no event shall be liable for any special, indirect, or consequential
damages, or lost profits or loss of business, even if previously informed of
the possibility of such damages and regardless of the form of action.
ARTICLE XVII.
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in
Article XVI neither the Custodian nor its nominee shall be liable for any loss
or damage, including counsel fees, resulting from its action or omission to act
or otherwise, either hereunder or under any Margin Account Agreement, except
for any such loss or damage arising out of its own negligence or willful
misconduct. In no event shall the Custodian be liable to the Company or any
third party for special, indirect or consequential damages or lost profits or
loss of business, arising under or in connection with this Agreement, even if
previously informed of the possibility of such damages and regardless of the
form of action. The Custodian may, with respect to questions of law arising
hereunder or under any Margin Account Agreement, apply for and obtain the
advice and opinion of counsel to the Company or of its own counsel and shall be
fully protected with respect to anything done or omitted by it in good faith in
conformity with such written advice or written opinion. The Custodian shall be
liable to the Company for any loss or damage resulting from the use of the
Book-Entry System or any Depository arising by reason of any negligence or
willful misconduct on the part of the Custodian or any of its employees or
agents.
2. Without limiting the generality of the foregoing, the
Custodian shall be under no obligation to inquire into, and shall not be liable
for:
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(a) The validity of the issue of any Securities
purchased, sold, or written by or for the Company, the legality of the
purchase, sale or writing thereof, or the propriety of the amount paid or
received therefor;
(b) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid therefor;
(c) The legality of the declaration or payment of
any dividend by the Company;
(d) The legality of any borrowing by the Company
using Securities as collateral;
(e) The legality of any loan of portfolio
Securities, nor shall the Custodian be under any duty or obligation to see to
it that any cash collateral delivered to it by a broker, dealer, or financial
institution or held by it at any time as a result of such loan of portfolio
Securities of the Company is adequate collateral for the Fund against any loss
it might sustain as a result of such loan. The Custodian specifically, but not
by way of limitation, shall not be under any duty or obligation periodically to
check or notify the Company that the amount of such cash collateral held by it
for the Company is sufficient collateral for the Fund, but such duty or
obligation shall be the sole responsibility of the Company. In addition, the
Custodian shall be under no duty or obligation to see that any broker, dealer
or financial institution to which portfolio Securities of the Company are lent
pursuant to Article XIV of this Agreement makes payment to it of any dividends
or interest which are payable to or for the account of the Company during the
period of such loan or at the termination of such loan, provided, however, that
the Custodian shall promptly notify the Company in the event that such
dividends or interest are not paid and received when due; or
(f) The sufficiency or value of any amounts of
money and/or Securities held in any Margin Account, Senior Security Account or
Collateral Account in connection with transactions by the Company. In
addition, the Custodian shall be under no duty or obligation to see that any
broker, dealer, futures commission merchant or Clearing Member makes payment to
the Company of any variation margin payment or similar payment which the
Company may be entitled to receive from such broker, dealer, futures commission
merchant or Clearing Member, to see that any payment received by the Custodian
from any broker, dealer, futures commission merchant or Clearing Member is the
amount the Company is entitled to receive, or to notify the Company of the
Custodian's receipt or non-receipt of any such payment.
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3. The Custodian shall not be liable for, or considered
to be the Custodian of, any money, whether or not represented by any check,
draft, or other instrument for the payment of money, received by it on behalf
of the Company until the Custodian actually receives and collects such money
directly or by the final crediting of the account representing the Company's
interest at the Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall
not be liable for ascertaining or acting upon any calls, conversions, exchange
offers, tenders, interest rate changes or similar matters relating to
Securities held in the Depository, unless the Custodian shall have actually
received timely notice from the Depository. In no event shall the Custodian
have any responsibility or liability for the failure of the Depository to
collect, or for the late collection or late crediting by the Depository of any
amount payable upon Securities deposited in the Depository which may mature or
be redeemed, retired, called or otherwise become payable. However, upon
receipt of a Certificate from the Company of an overdue amount on Securities
held in the Depository the Custodian shall make a claim against the Depository
on behalf of the Company, except that the Custodian shall not be under any
obligation to appear in, prosecute or defend any action suit or proceeding in
respect to any Securities held by the Depository which in its opinion may
involve it in expense or liability, unless indemnity satisfactory to it against
all expense and liability be furnished as often as may be required.
5. The Custodian shall not be under any duty or
obligation to take action to effect collection of any amount due to the Company
from the Transfer Agent of the Company nor to take any action to effect payment
or distribution by the Transfer Agent of the Company of any amount paid by the
Custodian to the Transfer Agent of the Company in accordance with this
Agreement.
6. The Custodian shall not be under any duty or
obligation to take action to effect collection of any amount, if the Securities
upon which such amount is payable are in default, or if payment is refused
after due demand or presentation, unless and until (i) it shall be directed to
take such action by a Certificate and (ii) it shall be assured to its
satisfaction of reimbursement of its costs and expenses in connection with any
such action.
7. The Custodian may in addition to the employment of
Foreign Sub-Custodians pursuant to Article XVI appoint one or more banking
institutions as Depository or Depositories, as Sub-Custodian or Sub-Custodians,
or as Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and moneys at any time
owned by the Company, upon such terms and conditions as may be approved in
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a Certificate or contained in an agreement executed by the Custodian, the
Company and the appointed institution.
8. The Custodian shall not be under any duty or
obligation (a) to ascertain whether any Securities at any time delivered to, or
held by it or by any Foreign Sub-Custodian, for the account of the Company and
specifically allocated to the Fund are such as properly may be held by the
Company or the Fund under the provisions of its then current prospectus, or (b)
to ascertain whether any transactions by the Company, whether or not involving
the Custodian, are such transactions as may properly be engaged in by the
Company.
9. The Custodian shall be entitled to receive and the
Company agrees to pay to the Custodian all out-of-pocket expenses and such
compensation as may be agreed upon in writing from time to time between the
Custodian and the Company. The Custodian may charge such compensation and any
expenses with respect to the Series incurred by the Custodian in the
performance of its duties pursuant to such agreement against any money
specifically allocated to such Series. The expenses for which the Custodian
shall be entitled to reimbursement hereunder shall include, but are not limited
to, the expenses of sub-custodians and foreign branches of the Custodian
incurred in settling outside of New York City transactions involving the
purchase and sale of Securities of the Company.
10. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by the Custodian
and reasonably believed by the Custodian to be a Certificate. The Custodian
shall be entitled to rely upon any Oral Instructions actually received by the
Custodian hereinabove provided for. The Company agrees to forward to the
Custodian a Certificate or facsimile thereof confirming such Oral Instructions
in such manner so that such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are given to the Custodian. The Company agrees that the fact that such
confirming instructions are not received, or that contrary instructions are
received, by the Custodian shall in no way affect the validity of the
transactions or enforceability of the transactions hereby authorized by the
Company. The Company agrees that the Custodian shall incur no liability to the
Company in acting upon Oral Instructions given to the Custodian hereunder
concerning such transactions provided such instructions reasonably appear to
have been received from an Officer.
11. The Custodian shall be entitled to rely upon any
instrument, instruction or notice received by the Custodian and reasonably
believed by the Custodian to be given in accordance with the terms and
conditions of any Margin Account Agreement.
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Without limiting the generality of the foregoing, the Custodian shall be under
no duty to inquire into, and shall not be liable for, the accuracy of any
statements or representations contained in any such instrument or other notice
including, without limitation, any specification of any amount to be paid to a
broker, dealer, futures commission merchant or Clearing Member.
12. The books and records pertaining to the Company which
are in the possession of the Custodian shall be the property of the Company.
Such books and records shall be prepared and maintained as required by the
Investment Company Act of 1940, as amended, and other applicable securities
laws and rules and regulations. The Company, or the Company's authorized
representatives, shall have access to such books and records during the
Custodian's normal business hours. Upon the reasonable request of the Company,
copies of any such books and records shall be provided by the Custodian to the
Company or the Company's authorized representative, and the Company shall
reimburse the Custodian its expenses of providing such copies. Upon reasonable
request of the Company, the Custodian shall provide in hard copy or on
microfilm, whichever the Custodian elects, any records included in any such
delivery which are maintained by the Custodian on a computer disc, or are
similarly maintained, and the Company shall reimburse the Custodian for its
expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Company with any
report obtained by the Custodian on the system of internal accounting control
of the Book-Entry System, the Depository or O.C.C., and with such reports on
its own systems of internal accounting control as the Company may reasonably
request from time to time.
14. The Company agrees to indemnify the Custodian against
and save the Custodian harmless from all liability, claims, losses and demands
whatsoever, including reasonable attorney's fees, howsoever arising or incurred
because of or in connection with this Agreement, including the Custodian's
payment or non-payment of checks pursuant to paragraph 6 of Article XIII as
part of any check redemption privilege program of the Company, except for any
such liability, claim, loss and demand arising out of the Custodian's own
negligence or willful misconduct.
15. Subject to the foregoing provisions of this
Agreement, including, without limitation, those contained in article XVI the
Custodian may deliver and receive Securities, and receipts with respect to such
Securities, and arrange for payments to be made and received by the Custodian
in accordance with the customs prevailing from time to time among brokers or
dealers in such Securities. When the Custodian is instructed to deliver
Securities against payment, delivery of such Securities and receipt of payment
therefor may not be completed
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<PAGE> 38
simultaneously. The Company assumes all responsibility and liability for all
credit risks involved in connection with the Custodian's delivery of Securities
pursuant to instructions of the Company, which responsibility and liability
shall continue until final payment in full has been received by the Custodian.
16. The Custodian shall have no duties or
responsibilities whatsoever except such duties and responsibilities as are
specifically set forth in this Agreement, and no covenant or obligation shall
be implied in this Agreement against the Custodian.
ARTICLE XVIII.
TERMINATION
1. Either of the parties hereto may terminate this
Agreement by giving to the other party a notice in writing specifying the date
of such termination, which shall be not less than ninety (90) days after the
date of giving of such notice. In the event such notice is given by the
Company, it shall be accompanied by a copy of a resolution of the Board of
Trustees of the Company, certified by the Secretary or any Assistant Secretary,
electing to terminate this Agreement and designating a successor custodian or
custodians, each of which shall be a bank or trust company having not less than
$2,000,000 aggregate capital, surplus and undivided profits. In the event such
notice is given by the Custodian, the Company shall, on or before the
termination date, deliver to the Custodian a copy of a resolution of the Board
of Trustees of the Company, certified by the Secretary or any Assistant
Secretary, designating a successor custodian or custodians. In the absence of
such designation by the Company, the Custodian may designate a successor
custodian which shall be a bank or trust company having not less than
$2,000,000 aggregate capital, surplus and undivided profits. Upon the date set
forth in such notice this Agreement shall terminate, and the Custodian shall
upon receipt of a notice of acceptance by the successor custodian on that date
deliver directly to the successor custodian all Securities and moneys then
owned by the Company and held by it as Custodian, after deducting all fees,
expenses and other amounts for the payment or reimbursement of which it shall
then be entitled.
2. If a successor custodian is not designated by the
Company or the Custodian in accordance with the preceding paragraph, the
Company shall upon the date specified in the notice of termination of this
Agreement and upon the delivery by the Custodian of all Securities (other than
Securities held in the Book-Entry System which cannot be delivered to the
Company) and moneys then owned by the Company be deemed to be its own custodian
and the Custodian shall thereby be relieved of all
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<PAGE> 39
duties and responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book Entry System which cannot be
delivered to the Company to hold such Securities hereunder in accordance with
this Agreement.
ARTICLE XIX.
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed
by two of the present Officers of the Company under its seal, setting forth the
names and the signatures of the present Officers of the Company. The Company
agrees to furnish to the Custodian a new Certificate in similar form in the
event any such present Officer ceases to be an Officer of the Company, or in
the event that other or additional Officers are elected or appointed. Until
such new Certificate shall be received, the Custodian shall be fully protected
in acting under the provisions of this Agreement upon the signatures of the
Officers as set forth in the last delivered Certificate.
2. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or delivered to it
at its offices at 90 Washington Street, New York, New York 10286, or at such
other place as the Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Company shall be sufficiently
given if addressed to the Company and mailed or delivered to it at its office
at the address for the Company first above written, or at such other place as
the Company may from time to time designate in writing.
4. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties with the same
formality as this Agreement and approved by a resolution of the Board of
Trustees of the Company.
5. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Company without the
written consent of the Custodian, or by the Custodian without the written
consent of the Company, authorized or approved by a resolution of the Company's
Board of Trustees.
6. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Massachusetts New York
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<PAGE> 40
without giving effect to conflict of laws principles thereof. Each party
hereby consents to the jurisdiction of a state or federal court situated in New
York City, New York in connection with any dispute arising hereunder and hereby
waives its right to trial by jury.
7. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
8. The names "Conestoga Family of Funds," the "Company,"
the "Board of Trustees of the Company," and the "Company's Board of Trustees"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated August 1, 1989, as amended, which is hereby referred to and a copy
of which is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Company. The obligations of
the Company entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders or
representatives of the Company personally, but bind only Company property, and
all persons dealing with any class of Shares of the Company must look solely to
the Company property belonging to such class for the enforcement of any claims
against the Company.
-40-
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective corporate Officers, thereunto duly
authorized and their respective corporate seals to be hereunto affixed, as of
the day and year first above written.
CONESTOGA FAMILY OF FUNDS
[SEAL] BY:s/
----------------------
Attest:
s/
- ---------------------------
THE BANK OF NEW YORK
[SEAL] By:s/
----------------------
Name:
Title:
Attest:
- ----------------------------
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<PAGE> 42
APPENDIX B
I, , a Vice President with THE BANK OF NEW
YORK do hereby designate the following publications:
The Bond Buyer
Depository trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
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<PAGE> 43
EXHIBIT A
CERTIFICATION
The undersigned, Kevin P. Robins, hereby certifies that he or
she is the duly elected and acting Vice President of Conestoga
Family of Funds, a Massachusetts trust (the "Company"), and
further certifies that the following resolution was adopted by
the Board of Trustees of the Company by unanimous consent on
May 1, 1995, and that such resolution has not been modified or
rescinded and is in full force and effect as of the date
hereof.
VOTED: That The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Company in the
form presented to this Board (the "Custody Agreement') is
authorized and instructed on a continuous and ongoing basis to
deposit in the Book-Entry System, as defined in the Custody
Agreement, all securities allocated to the Fund, as defined in
the Custody Agreement, eligible for deposit therein, and to
utilize the Book-Entry System to the extent possible in
connection with its performance thereunder, including, without
limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and
returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal
of Conestoga Family of Funds as of the 1 day of May, 1995.
(SEAL) s/ Kevin P. Robins
------------------------------
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<PAGE> 44
EXHIBIT B
CERTIFICATION
The undersigned, Kevin P. Robins, hereby certifies that he or
she is the duly elected and acting Vice President of Conestoga
Family of Funds, a Massachusetts trust (the "Company"), and
further certifies that the following resolution was adopted by
the Board of Trustees of the Company by unanimous consent on
May 1, 1995, and that such resolution has not been modified or
rescinded and is in full force and effect as of the date
hereof.
VOTED: That The Bank of New York, as Custodian pursuant to the
Custody Agreement is authorized and instructed on a continuous
and ongoing basis until such time as it receives a
Certificate, as defined in the Custody Agreement, to the
contrary to deposit in the Depository, as defined in the
Custody Agreement, all securities allocated to the
International Equity Fund, as defined in the Custody
Agreement, eligible for deposit therein, and to utilize the
Depository to the extent possible in connection with its
performance thereunder, including, without limitation, in
connection with settlements of purchases and sales of
securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal
of Conestoga Family of Funds as of the 1 day of May, 1995.
(SEAL) s/ Kevin P. Robins
------------------------------
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<PAGE> 45
EXHIBIT C
CERTIFICATION
The undersigned, Kevin P. Robins, hereby certifies that he or
she is the duly elected and acting Vice President of Conestoga
Family of Funds, a Massachusetts trust (the "Company"), and
further certifies that the following resolution was adopted by
the Board of Trustees of the Company by unanimous consent on
May 1, 1995, and that such resolution has not been modified or
rescinded and is in full force and effect as of the date
hereof.
VOTED: That The Bank of New York, as Custodian pursuant to the
Custody Agreement is authorized and instructed on a continuous
and ongoing basis until such time as it receives a
Certificate, as defined in the Custody Agreement, to the
contrary, to accept, utilize and act with respect to Clearing
Member confirmations for Options and transactions in Options
allocated to the Fund, as such terms are defined in the
Custody Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal
of Conestoga Family of Funds as of the 1 day of May, 1995.
(SEAL) s/ Kevin P. Robins
------------------------------
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<PAGE> 46
EXHIBIT D
CERTIFICATION
The undersigned, Kevin P. Robins, hereby certifies that he or
she is the duly elected and acting Vice President of Conestoga
Family of Funds, a Massachusetts trust (the "Company"), and
further certifies that the following resolution was adopted by
the Board of Trustees of the Company by unanimous consent on
May 1, 1995, and that such resolution has not been modified or
rescinded and is in full force and effect as of the date
hereof.
VOTED That The Bank of New York, as Custodian pursuant to the
Custody Agreement is authorized and instructed on a continuous
and ongoing basis to act in accordance with, and to rely on
Certificates (as defined in the Custody Agreement) given by
the Company to the Custodian by a Terminal Link (as defined in
the Custody Agreement).
FURTHER That the Company shall establish access codes and
VOTED: grant use of such access codes only to Officers of the Company
as defined in the Custody Agreement, shall establish internal
safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes, shall
limit its use of the Terminal Link to those purposes
permitted by the Custody Agreement, shall require at least two
such Officers to utilize their respective access codes in
connection with each such Certificate, and shall use the
Terminal Link only in a manner that does not contravene the
Investment Company Act of 1940, as amended, or the rules and
regulations thereunder.
FURTHER That Officers of the Company shall, following the
VOTED: establishment of such access codes and internal safekeeping
procedures, advise the Custodian that the same have been
established by delivering a Certificate, as defined in the
Custody Agreement, and the Custodian shall be entitled to rely
upon such advice.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal
of Conestoga Family of Funds as of the 1 day of May, 1995.
(SEAL) s/ Kevin P. Robins
-----------------------------
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<PAGE> 47
THE BANK OF NEW YORK
GLOBAL CUSTODY FEE SCHEDULE
17F-5 QUALIFIED SUB-CUSTODIANS
FOR
CONESTOGA INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
GLOBAL/
SAFEKEEPING FEE TRANSACTION FEE
*(IN BASIS POINTS) (U.S. DOLLARS)
<S> <C> <C>
Argentina 34.50 90
Australia 4.00 70
Austria 6.00 85
Bangladesh 50.00 185
Belgium (reg.bds) 2.50 85
Belgium (equities and cpn bds.) 4.00 85
Brazil 55.00 85
Canada 2.00 17
Chile 50.00 100
China 31.00 60
Columbia 75.00 125
Chez Republic 23.00 50
Denmark 3.50 105
Euromarket 3.00 15
Finland 12.50 70
France 5.00 85
Germany 2.00 35
Greece 37.50 165
Hong Kong 11.00 90
Hungary 50.00 150
India 55.00 175
Indonesia 13.50 140
Ireland 3.50 50
Israel 75.00 55
Italy 9.00 60
Japan (bonds) 4.00 10
Japan (equities) 3.00 10
Luxembourg 8.00 80
Malaysia 15.00 140
Mexico (bonds) 8.00 70
Mexico (equities) 15.00 70
Netherlands 6.00 12
New Zealand 3.50 85
Norway 2.00 85
Pakistan 40.00 165
Peru 75.00 190
Philippines 14.50 140
Poland 60.00 165
Portugal 31.00 240
Singapore 15.00 135
</TABLE>
-47-
<PAGE> 48
<TABLE>
<CAPTION>
GLOBAL/
SAFEKEEPING FEE TRANSACTION FEE
*(IN BASIS POINTS) (U.S. DOLLARS)
<S> <C> <C>
South Africa 1.50 35
South Korea 13.00 25
Spain 6.00 30
Sri Lanka 20.00 70
Sweden 3.00 60
Switzerland 3.50 125
Taiwan 17.00 135
Thailand 15.00 85
Turkey 30.00 100
United Kingdom 3.00 35
United Kingdom (gilts) 4.00 55
Uruguay 55.00 85
Venezuela 41.50 75
</TABLE>
*Fee is expressed in basis points per annum and is calculated based upon month
end market value.
Minimum fee for use of our global network
$500 per month, per portfolio
Minimum charges imposed by Agent Banks/Local Administrators
Chile - USD 5,000 per annum.
Columbia - USD 600 per month.
Multicurrency Accounting
Monthly fee of $1,250.00/per account/manager.
Additional Charges
Charges incurred by The Bank of New York for local taxes, stamp duties or other
local duties and assessments, stock exchange fees, postage and insurance for
shipping, extraordinary telecommunication fees or other unusual expenses which
are unique to a country in which our client is investing will be in addition to
the states fees.
-48-
<PAGE> 1
EXHIBIT 8(c)
CUSTODIAN AGREEMENT
CONESTOGA FAMILY OF FUNDS
This Agreement, dated as of the _____ day of , 1996 by and
between Conestoga Family of Funds (the "Company"), a business trust duly
organized under the laws of the Commonwealth of Massachusetts and CoreStates
Bank, N.A. (the "Bank").
WITNESSETH:
WHEREAS, the Company desires to appoint the Bank to act as Custodian of
its portfolio securities, cash and other property from time to time deposited
with or collected by the Bank for the Trust;
WHEREAS, the Bank is qualified and authorized to act as Custodian for the
Company and the separate series thereof except the International Equity Fund
(each a "Fund" and, collectively, the "Funds"), and is willing to act in such
capacity upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
SECTION 1. The terms as defined in this Section wherever used in this
Agreement, or in any amendment or supplement hereto, shall have meanings herein
specified unless the context otherwise requires.
CUSTODIAN: The term Custodian shall mean the Bank in its capacity as Custodian
under this Agreement.
DEPOSITORY: The term Depository means any depository service which acts as a
system for the central handling of securities where all securities of any
particular class or series of an issuer deposited within the system are treated
as fungible and may be transferred by bookkeeping entry without physical
delivery.
PROPER INSTRUCTIONS. For purposes of this Agreement, the Custodian shall be
deemed to have received Proper Instructions upon receipt of written (including
instructions received by means of computer terminals or facsimile
transmissions), telephone or telegraphic instructions from a person or persons
authorized from time to time by the Trustees of the Company to give the class
of instructions. Telephone or telegraphic instructions shall be confirmed in
writing by such person or persons as said Trustees shall have from time to time
authorized to give the particular particular
- 1 -
<PAGE> 2
class of instructions in question. The Custodian may act upon telephone
or telegraphic instructions without awaiting receipt of written confirmation,
and shall not be liable for the Trust's failure to confirm such instructions in
writing.
SECURITIES: The term Securities means stocks, bonds, rights, warrants and all
other negotiable or non-negotiable paper issued in certificated or book-entry
form commonly known as "securities" in banking custom or practice.
SHAREHOLDERS: The term Shareholders shall mean the registered owners from time
to time of the Shares of the Companyin accordance with the registry records
maintained by the Companyor agents on its behalf.
SHARES: The term Shares of the Company shall mean the units of beneficial
interest.
SECTION 2. The Company hereby appoints the Custodian as Custodian of the
Company's cash, Securities and other property, to be held by the Custodian as
provided in this Agreement. The Custodian hereby accepts such appointment
subject to the terms and conditions hereinafter provided. The Bank shall open
a separate custodial account in the name of the Company on the books and
records of the Bank to hold the Securities of the Company deposited with,
transferred to or collected by the Bank for the account of the Company, and a
separate cash account to which the Bank shall credit monies received by the
Bank for the account of or from the Company. Such cash shall be segregated
from the assets of others and shall be and remain the sole property of the
Company.
SECTION 3. The Company shall from time to time file with the Custodian a
certified copy of each resolution of its Board of Trustees authorizing the
person or persons to give Proper Instructions and specifying the class of
instructions that may be given by each person to the Custodian under this
Agreement, together with certified signatures of such persons authorized to
sign, which shall constitute conclusive evidence of the authority of the
officers and signatories designated therein to act, and shall be considered in
full force and effect with the Custodian fully protected in acting in reliance
thereon until it receives written notice to the contrary; provided, however,
that if the certifying officer is authorized to give Proper Instructions, the
certification shall be also signed by a second officer of the Company.
SECTION 4. The Company will cause to be deposited with the Custodian
hereunder the applicable net asset value of Shares sold from time to time
whether representing initial issue, other stock or reinvestments of dividends
and/or distributions payable to Shareholders.
- 2 -
<PAGE> 3
SECTION 5. The Bank, acting as agent for the Company, is authorized,
directed and instructed subject to the further provisions of this Agreement:
(a) to hold Securities issued only in bearer form in bearer form;
(b) to register in the name of the nominee of the Bank, the Bank's
Depositories, or sub-custodians, (i) Securities issued only in
registered form, and (ii) Securities issued in both bearer and
registered form, which are freely interchangeable without penalty;
(c) to deposit any Securities which are eligible for deposit (i) with any
domestic or foreign Depository on such terms and conditions as such
Depository may require, including provisions for limitation or
exclusion of liability on the part of the Depository; and (ii) with
any sub-custodian which the Bank uses, including any subsidiary or
affiliate of the Bank;
(d) (i) to credit for the account of the Company all proceeds received
and payable on or in respect of the assets maintained
hereunder,
(ii) to debit the account of the Company for the cost of acquiring
Securities the Bank has received for the Company, against
delivery of such Securities to the Bank,
(iii) to present for payment Securities and other obligations
(including coupons) upon maturity, when called for redemption,
and when income payments are due, and
(iv) to make exchanges of Securities which, in the Bank's opinion,
are purely ministerial as, for example, the exchange of
Securities in temporary form for Securities in definitive form
or the mandatory exchange of certificates;
(e) to forward to the Company, and/or any other person designated by the
Company, all proxies and proxy materials received by the Bank in
connection with Securities held in the Company's account, which have
been registered in the name of the Bank's nominee, or are being held
by any Depository, or sub-custodian, on behalf of the Bank;
(f) to sell any fractional interest of any Securities which the Bank has
received resulting from any stock dividend, stock split,
distribution, exchange, conversion or similar activity;
- 3 -
<PAGE> 4
(g) to release the Company's name, address and aggregate share position
to the issuers of any domestic Securities in the account of the
Company, provided, however, the Company may instruct the Bank not to
provide any such information to any issuer;
(h) to endorse and collect all checks, drafts or other orders for the
payment of money received by the Bank for the account of or from the
Company;
(i) at the direction of the Company, to enroll designated Securities
belonging to the Company and held hereunder in a program for the
automatic reinvestment of all income and capital gains distributions
on those Securities in new shares (an "Automatic Reinvestment
Program"), or instruct any Depository holding such Securities to
enroll those Securities in an Automatic Reinvestment Program;
(j) at the direction of the Company, to receive, deliver and transfer
Securities and make payments and collections of monies in connection
therewith, enter purchase and sale orders and perform any other acts
incidental or necessary to the performance of the above acts with
brokers, dealers or similar agents selected by the Company, including
any broker, dealer or similar agent affiliated with the Bank, for the
account and risk of the Company in accordance with accepted industry
practice in the relevant market, provided, however, if it is
determined that any certificated Securities transferred to a
Depository or sub-custodian, the Bank, or the Bank's nominee, the
Bank's sole responsibility for such Securities under this Agreement
shall be to safekeep the Securities in accordance with Section 11
hereof; and
(k) to notify the Company and/or any other person designated by the
Company upon receipt of notice by the Bank of any call for
redemption, tender offer, subscription rights, merger, consolidation,
reorganization or recapitalization which (i) appears in The Wall
Street Journal (New York edition), The Standard & Poor's Called Bond
Record for Preferred Stocks, Financial Daily Called Bond Service, The
Kenny Services, any official notifications from The Depository Trust
Company and such other publications or services to which the Bank may
from time to time subscribe, (ii) requires the Bank to act in
response thereto, and (iii) pertain to Securities belonging to the
Company and held hereunder which have been registered in the name of
the Bank's nominee or are being held by a Depository or sub-custodian
on behalf of the Bank. Notwithstanding anything contained herein to
the contrary, the Company shall have the sole responsibility for
monitoring the applicable dates on which Securities with put option
features must be exercised. All
- 4 -
<PAGE> 5
solicitation fees payable to the Bank as agent in connection herewith
will be retained by the Bank unless expressly agreed to the contrary
in writing by the Bank.
Notwithstanding anything in this Section to the contrary, the Bank is
authorized to hold Securities for the Company which have transfer limitations
imposed upon them by the Securities Act of 1933, as amended, or represent
shares of mutual funds (i) in the name of the Company, (ii) in the name of the
Bank's nominee, or (iii) with any Depository or sub-custodian.
SECTION 6. The Custodian's compensation shall be as set forth in
Schedule A hereto attached, or as shall be set forth in amendments to such
schedule approved by the Company and the Custodian. The Bank is authorized to
charge the Company's account for such compensation. All expenses and taxes
payable with respect to the Securities in the account of the Company including,
without limitation, commission charges on purchases and sales and the amount of
any loss or liability for stockholders' assessments or otherwise, claimed or
asserted against the bank or against the Bank's nominee by reason of any
registration hereunder shall be charged to the Company.
SECTION 7. In connection with its functions under this Agreement, the
Custodian shall:
(a) render to the Company a daily report of all monies received or paid
on behalf of the Trust; and
(b) create, maintain and retain all records relating to its activities
and obligations under this Agreement in such manner as will meet the
obligations of the Company with respect to said Custodian's
activities in accordance with generally accepted accounting
principles. All records maintained by the Custodian in connection
with the performance of its duties under this Agreement will remain
the property of the Company and in the event of termination of this
Agreement will be relinquished to the Company.
SECTION 8. Any Securities deposited with any Depository or with any
sub-custodian will be represented in accounts in the name of the Bank which
include only property held by the Bank as Custodian for customers in which the
Bank acts in a fiduciary or agency capacity.
Should any Securities which are forwarded to the Bank by the Company, and which
are subsequently deposited to the Bank's account in any Depository or with any
sub-custodian, or which the Company may arrange to deposit in the Bank's
account in any Depository or with any sub-custodian, not be deemed acceptable
for deposit by such
- 5 -
<PAGE> 6
Depository or sub-custodian, for any reason, and as a result thereof there is a
short position in the account of the Bank with the Depository for such
Security, the Company agrees to furnish the Bank immediately with like
Securities in acceptable form.
SECTION 9. The Company represents and warrants that: (i) it has the
legal right, power and authority to execute, deliver and perform this Agreement
and to carry out all of the transactions contemplated hereby; (ii) it has
obtained all necessary authorizations; (iii) the execution, delivery and
performance of this Agreement and the carrying out of any of the transactions
contemplated hereby will not be in conflict with, result in a breach of or
constitute a default under any agreement or other instrument to which the
Company is a party or which is otherwise known to the Trust; (iv) it does not
require the consent or approval of any governmental agency or instrumentality,
except any such consents and approvals which the Company has obtained; (v) the
execution and delivery of this Agreement by the Company will not violate any
law, regulation, charter, by-law, order of any court or governmental agency or
judgment applicable to the Company; and (vi) all persons executing this
Agreement on behalf of the Company and carrying out the transactions
contemplated hereby on behalf of the Company are duly authorized to do so.
In the event any of the foregoing representations should become untrue,
incorrect or misleading, the Company agrees to notify the Bank immediately in
writing thereof.
The names "Conestoga Family of Funds" and "Trustees of Conestoga Family of
Funds" refer respectively to the trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under a
Declaration of Trust dated August 1, 1989 which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Fund. The
obligations of "Conestoga Family of Funds" entered into in the name or on
behalf thereof by any of the Trustees, represenatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
trustees, shareholders or represenatives of the Company personally, but bind
only the trust property. Notwithstanding any other provision of this
Agreement, all persons, including the parties hereto, dealing with any
portfolio or class of shares of the Company must look solely to the property
belonging to such portfolio or class for the enforcement of any claims against
the Company.
SECTION 10. The Bank represents and warrants that: (i) it has the legal right,
power and authority to execute, deliver and perform this Agreement and to carry
out all of the transactions contemplated hereby; (ii) it has obtained all
necessary authorizations; (iii) the execution, delivery and performance of this
Agreement and the carrying out of any of the transactions contemplated hereby
will not be in conflict with, result in a breach of or constitute a default
under any agreement or other instrument to which the Bank is a
- 6 -
<PAGE> 7
party or which is otherwise known to the Bank; (iv) it does not require the
consent or approval of any governmental agency or instrumentality, except any
such consents and approvals which the Bank has obtained; (v) the execution and
delivery of this Agreement by the Bank will not violate any law, regulation,
charter, by-law, order of any court or governmental agency or judgment
applicable to the Bank; and (vi) all persons executing this Agreement on behalf
of the Bank and carrying out the transactions contemplated hereby on behalf of
the Bank are duly authorized to do so. In the event that any of the foregoing
representations should become untrue, incorrect or misleading, the Bank agrees
to notify the Company immediately in writing thereof.
SECTION 11. All cash and Securities held by the Bank hereunder shall be kept
with the care exercised as to the Bank's own similar property. The Bank may at
its option insure itself against loss from any cause but shall be under no
obligation to insure for the benefit of the Company.
SECTION 12. No liability of any kind shall be attached to or incurred by the
Custodian by reason of its custody of the Company's assets held by it from time
to time under this Agreement, or otherwise by reason of its position as
Custodian hereunder except only for its own negligence, bad faith, or willful
misconduct in the performance of its duties as specifically set forth in the
Custodian Agreement. Without limiting the generality of the foregoing
sentence, the Custodian:
(a) may rely upon the advice of counsel for the Company; and for any
action taken or suffered in good faith based upon such advice or
statements the Custodian shall not be liable to anyone;
(b) shall not be liable for anything done or suffered to be done in good
faith in accordance with any request or advice of, or based upon
information furnished by, the Company or its authorized officers or
agents;
(c) is authorized to accept a certificate of the Secretary or Assistant
Secretary of the Company, or Proper Instructions, to the effect that
a resolution in the form submitted has been duly adopted by its Board
of Trustees or by the Shareholders, as conclusive evidence that such
resolution has been duly adopted and is in full force and effect; and
(d) may rely and shall be protected in acting upon any signature, written
(including telegraph or other mechanical) instructions, request,
letter of transmittal, certificate, opinion of counsel, statement,
instrument, report, notice, consent, order, or other paper or
document reasonably believed by it to be genuine and to have been
signed, forwarded or presented by the purchaser, Company or other
proper party or parties.
- 7 -
<PAGE> 8
SECTION 13. The Company, its successors and assigns do hereby fully indemnify
and hold harmless the Custodian its successors and assigns, from any and all
loss, liability, claims, demand, actions, suits and expenses of any nature as
the same may arise from the failure of the Company to comply with any law,
rule, regulation or order of the United States, any state or any other
jurisdiction, governmental authority, body, or board relating to the sale,
registration, qualification of units of beneficial interest in the Company, or
from the failure of the Company to perform any duty or obligation under this
Agreement.
Upon written request of the Custodian, the Company shall assume the entire
defense of any claim subject to the foregoing indemnity, or the joint defense
with the Custodian of such claim, as the Custodian shall request. The
indemnities and defense provisions of this Section 13 shall indefinitely
survive termination of this Agreement.
SECTION 14.This Agreement may be amended from time to time without notice to or
approval of the Shareholders by a supplemental agreement executed by the
Companyand the Bank and amending and supplementing this Agreement in the manner
mutually agreed.
SECTION 15. Either the Company or the Custodian may give thirty (30) days'
written notice to the other of the termination of this Agreement, such
termination to take effect at the time specified in the notice. In case such
notice of termination is given either by the Company or by the Custodian, the
Trustees of the Company shall, by resolution duly adopted, promptly appoint a
successor Custodian (the "Successor Custodian") which Successor Custodian shall
be a bank, trust company, or a bank and trust company in good standing, with
legal capacity to accept custody of the cash and Securities of a mutual fund.
Upon receipt of written notice from the Company of the appointment of such
Successor Custodian and upon receipt of Proper Instructions, the Custodian
shall deliver such cash and Securities as it may then be holding hereunder
directly and only to the Successor Custodian. Unless or until a Successor
Custodian has been appointed as above provided, the Custodian then acting shall
continue to act as Custodian under this Agreement.
Every Successor Custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, powers, obligations and custody of its predecessor
Custodian. The Custodian ceasing to act shall nevertheless, upon request of
the Company and the Successor Custodian and upon payment of its charges and
disbursements, execute an instrument in form approved by its counsel
transferring to the Successor Custodian all the predecessor Custodian's rights,
duties, obligations and custody.
- 8 -
<PAGE> 9
Subject to the provisions of Section 21 hereof, in case the Custodian shall
consolidate with or merge into any other corporation, the corporation remaining
after or resulting from such consolidation or merger shall ipso facto without
the execution of filing of any papers or other documents, succeed to and be
substituted for the Custodian with like effect as though originally named as
such, provided, however, in every case that said Successor corporation
maintains the qualifications set out in Section 17(f) of the Investment Company
Act of 1940, as amended.
SECTION 16. This Agreement shall take effect when assets of the Company are
first delivered to the Custodian.
SECTION 17. This Agreement may be executed in two or more counterparts, each
of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
SECTION 18. A copy of the Declaration of Trust of the Company is on file with
the Secretary of State of the Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Company as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees, officers or Shareholders
of the Company individually, but binding only upon the assets and property of
the Company. No Fund of the Company shall be liable for the obligations of any
other Fund of the Company.
SECTION 19. The Custodian shall create and maintain all records relating to
its activities and obligations under this Agreement in such manner as will meet
the obligations of the Company under the Investment Company Act of 1940, as
amended, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, applicable Federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Company.
Subject to security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian, the books and
records of the Custodian pertaining to this Agreement shall be open to
inspection and audit at any reasonable times by officers of, attorneys for, and
auditors employed by, the Company.
SECTION 20. Nothing contained in this Agreement is intended to or shall
require the Custodian in any capacity hereunder to perform any functions or
duties on any holiday or other day of special observance on which the Custodian
is closed. Functions or duties normally scheduled to be performed on such days
shall be performed on, and as of, the next business day the Custodian is open.
- 9 -
<PAGE> 10
SECTION 21. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Company without the written
consent of the Custodian, or by the Custodian without the written consent of
the Company, authorized or approved by a resolution of its Board of Trustees.
SECTION 22. All communications (other than Proper Instructions which are to be
furnished hereunder to either party, or under any amendment hereto) shall be
sent by mail to the address listed below, provided that in the event that the
Bank, in its sole discretion, shall determine that an emergency exists, the
Bank may use such other means of communications as the Bank deems advisable.
To the Company: SEI Corporation
680 E. Swedesford Road
Wayne, PA 19087
Attn. Legal Department
copy to: Henry S. Hilles, Jr., Esq.
-
To the Bank:
-----------------------------
-----------------------------
-----------------------------
SECTION 23. This Agreement, and any amendments hereto, shall be governed,
construed and interpreted in accordance with the laws of Commonwealth of
Massachusetts applicable to agreements made and to be performed entirely within
such jurisdiction.
- 10 -
<PAGE> 11
IN WITNESS WHEREOF, the Company and the Custodian have caused this Agreement to
be signed by their respective officers as of the day and year first above
written.
CONESTOGA FAMILY OF FUNDS
By:
--------------------------
Name:
Title:
CORESTATES BANK, N.A.
By:
--------------------------
Name:
Title:
- 11 -
<PAGE> 12
SCHEDULE A
CONESTOGA FAMILY OF FUNDS
FEE SCHEDULE
TRANSACTIONS FEE
DTC $10.00
FBE $10.00
PTC $18.00
MMI, Book Entry $10.00
MMI, Physical $10.00
Physical $22.00
Strips $40.00
Mortgage-Backed $40.00
Outgoing Money Wire $7.00
ISSUE SAFEKEEPING (ANNUAL) FEE
DTC $48.00
FBE $48.00
PTC $66.00
MMI, Book Entry $48.00
MMI, Physical $48.00
Physical $48.00
Strips $120.00
Mortgage-Backed $120.00
- 12 -
<PAGE> 1
EXHIBIT (9)(a)
ADMINISTRATION AGREEMENT
CONESTOGA FAMILY OF FUNDS
THIS AGREEMENT is made as of this 1st day of May 1995, by and between the
Conestoga Family of Funds (the "Trust"), a Massachusetts business trust, and
SEI Financial Management Corporation (the "Administrator"), a Delaware
corporation.
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares; and
WHEREAS, the Trust desires the Administrator to provide, and the
Administrator is willing to provide, management, shareholder services and
administrative services to such portfolios of the Trust as the Trust and the
Administrator may agree on (the "Portfolios") and as listed on the schedules
attached hereto (the "Schedules") and made a part of this Agreement, on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Administrator hereby agree as follows:
ARTICLE 1. Retention of the Administrator. The Trust hereby
retains the Administrator to act as the administrator of the Portfolios and to
furnish the Portfolios with the management and administrative services as set
forth below. The Administrator hereby accepts such employment to perform the
duties set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Trust in any way and shall
not be deemed an agent of the Trust.
ARTICLE 2. Other Administrative Services. The Administrator shall
perform or supervise the performance by others of administrative services in
connection with the operations of the Portfolios, and, on behalf of the Trust,
will investigate, assist in the selection of and conduct relations with
custodians, depositories, accountants, legal counsel, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations.
The Administrator shall provide the Trustees of the Trust with such reports
regarding investment performance as they may reasonably request but shall have
no responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities.
The Administrator shall provide the Trust with regulatory reporting
and blue sky filings, fund accounting and related portfolio accounting
services, all necessary office space, equipment (including back-up facilities
in the event of equipment or systems failure), personnel compensation and
facilities (excluding facilities for Shareholders' and Trustees' meetings held
outside Pennsylvania) for handling
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<PAGE> 2
the affairs of the Portfolios and such other services as the Administrator
shall, from time to time, determine to be necessary to perform its obligations
under this Agreement. In addition, at the request of the Board of Trustees, the
Administrator shall make reports to the Trust's Trustees concerning the
performance of its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator shall:
(a) calculate contractual Trust expenses and control all
disbursements for the Trust, and as appropriate compute the
Trust's yields, total return, expense ratios, portfolio
turnover rate and, if required, portfolio average
dollar-weighed maturity;
(b) assist Trust counsel with the preparation of prospectuses,
statements of additional information, registration statements,
proxy materials;
(c) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with Federal and state securities
law) as may be necessary or desirable to register the Trust's
shares with state securities authorities and file with the
appropriate state securities authorities the registration
statements and reports for the Trust and the Trust's shares
and all amendments thereto, as may be necessary or convenient
to register and keep effective the Trust and the Trust's
shares with state securities authorities to enable the Trust
to make a continuous offering of its shares;
(d) develop and prepare communications to shareholders, including
the annual report to shareholders, coordinate mailing
prospectuses, notices, proxy statements, proxies and other
reports to Trust shareholders, and supervise and facilitate
the solicitation of proxies solicited by the Trust for all
shareholder meetings, including tabulation process for
shareholder meetings;
(e) administer contracts on behalf of the Trust with, among
others, the Trust's investment adviser, distributor,
custodian, and transfer agent;
(f) maintain the Trust's general ledger and prepare the Trust's
financial statements, including expense accruals and payments,
and on each business day determine the net asset value and per
share offering price of the Trust's assets and of the Trust's
shares;
(g) prepare and file the Trust's federal and state tax returns;
(h) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and
printing of the Trust's semi-annual and annual reports to
shareholders;
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<PAGE> 3
(i) provide internal legal and administrative services as
reasonably requested by the Trust from time to time;
(j) assist with the design, development, and operation of the
Trust, including new portfolio and class investment
objectives, policies and structure;
(k) provide individuals reasonably acceptable to the Trust's Board
of Trustees for nomination, appointment, or election as
officers of the Trust, who will be responsible for the
management of certain of the Trust's affairs as determined by
the Trust's Board of Trustees;
(l) advise the Trust and its Board of Trustees on matters
concerning the Trust and its affairs;
(m) obtain and keep in effect fidelity bonds and Trustees and
officers/errors and omissions insurance policies for the Trust
in accordance with the requirements of Rules 17g-1 and
17d-1(7) under the 1940 Act as such bonds and policies are
approved by the Trust's Board of Trustees;
(n) monitor and advise the Trust and its Portfolios on their
registered investment company status under the Internal
Revenue Code of 1986, as amended;
(o) perform all administrative services and functions of the Trust
and each Portfolio to the extent administrative services and
functions are not provided to the Trust or such Portfolio
pursuant to the Trust's or such Portfolio's investment
advisory agreement, distribution agreement, custodian
agreement and transfer agent agreement;
(p) prepare and file with the SEC the semi-annual report for the
Trust on Form N-SAR and all required notices pursuant to Rule
24f-2;
(q) calculate and pay dividends and capital gain distributions to
be paid to each Portfolio's shareholders in conformity with
subchapter M of the Internal Revenue Code;
(r) pay all expenses payable by the Company;
(s) prepare such reports relating to the business and affairs of
the Portfolio (not otherwise appropriately prepared by the
Trust's investment adviser, counsel or auditors) as the
Trustees of the Trust may from time to time reasonably request
in connection with performance of their duties;
(t) provide reviews and quarterly compliance reports to the
Trustees regarding all applicable regulatory and operating
requirements;
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<PAGE> 4
(u) mail the annual reports of the Portfolios; prepare an annual
list of shareholders; and mail notices of shareholders'
meetings, proxies and proxy statements, for all of which the
Trust will pay the Administrator's out-of-pocket expenses;
(v) answer such correspondence and inquiries from Shareholders,
securities brokers and others relating to its duties hereunder
and such other correspondence and inquiries as may from time
to time on such terms as may be mutually agreed upon between
the Administrator and the Trust;
(w) regarding foreign investments:
(1) Regulatory Compliance.
(A) Obtain the Custodian's 17f-5 package for the Trust's Board
regarding sub-custodian and selected countries for investment.
(B) Coordinate Board approval of selected countries and subsequent
completion of sub-custodial documents.
(2) Financial Reporting.
(A) Monitor and review tax reclaims chronologically, by country
and type; report on same to Trust management.
a. File/complete tax withholding documents, as supplied by
the custodian.
(B) Monitor procedures for timely and accurate pricing.
(C) Review and monitor treatment of currency gain/loss and capital
gain/loss.
a. Section 988 transactions.
b. Section 1256 contracts.
(3) Tax Reporting.
(A) Determine tax treatment of foreign investments and their impact on
a. Subchapter M tests-- e.g. diversification, qualified
income, 30% tests.
b. Taxable income and capital gains.
(B) Calculate distributions to shareholders.
a. Monitor character and impact of realized currency
gain/loss on distribution amount.
4
<PAGE> 5
(C) Calculate income and expenses by country in order to determine
foreign tax credit available to shareholders.
Also, the Administrator will perform other services for the Trust as agreed
from time to time at the request of the Board of Trustees, including, but not
limited to performing internal audit examinations.
ARTICLE 3. Allocation of Charges and Expenses.
(A) The Administrator. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel necessary to perform
its obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Trust as well as all Trustees of the
Trust who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Trust retained by the Trustees of the Trust
to perform services on behalf of the Trust.
(B) The Trust. The Trust assumes and shall pay or cause to be paid
all other expenses of the Trust not otherwise allocated herein, including,
without limitation, organizational costs, taxes, expenses for outside legal and
auditing services, the expenses of preparing (including typesetting), printing
and mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the cost of custodial
services, the cost of pricing services, the cost of initial and ongoing
registration of the Shares under Federal and state securities laws, fees and
out-of-pocket expenses of Trustees who are not affiliated persons of the
Administrator or the investment adviser to the Trust or any affiliated
corporation of the Administrator or the investment adviser, insurance,
interest, brokerage costs, litigation and other extraordinary or nonrecurring
expenses, and all fees and charges of investment advisers to the Trust.
ARTICLE 4. Compensation of the Administrator.
(A) Administration Fee. For the services to be rendered, the
facilities furnished and the expenses assumed by the Administrator pursuant to
this Agreement, the Trust shall pay to the Administrator compensation at an
annual rate specified in the Schedules. Such compensation shall be calculated
and accrued daily, and paid to the Administrator monthly. The Trust shall also
reimburse the Administrator for its reasonable out of pocket expenses.
If this Agreement becomes effective subsequent to the first day of a
month or terminates before the last day of a month, the Administrator's
compensation for that part of the month in which this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as
set forth above. Payment of the Administrator's compensation for the preceding
month shall be made promptly.
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<PAGE> 6
(B) Compensation from Transactions. The Trust hereby authorizes any
entity or person associated with the Administrator which is a member of a
national securities exchange to effect any transaction on the exchange for the
account of the Trust which is permitted by Section 11 (a) of the Securities
Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Trust hereby
consents to the retention of compensation for such transactions in accordance
with Rule 11a2-2(T) (a) (2) (iv).
(C) Survival of Compensation Rates. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.
ARTICLE 5. Limitation of Liability of the Administrator. The
duties of the Administrator shall be confined to those expressly set forth
herein, and no implied duties are assumed by or may be asserted against the
Administrator hereunder. The Administrator shall not be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in carrying out its duties hereunder, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless disregard of its
obligations and duties hereunder, except as may otherwise be provided under
provisions of applicable law which cannot be waived or modified hereby. (As
used in this Article 5, the term "Administrator" shall include directors,
officers, employees and other corporate agents of the Administrator as well as
that corporation itself.)
The Administrator may apply to the Trust at any time for instructions
and may consult counsel for the Trust or its own counsel and with accountants
and other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or
accountable for any action taken or omitted by it in good faith in accordance
with such instruction or with the written opinion of such counsel, accountants
or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. Nor shall the Administrator be held to have
notice of any change of authority of any officers, employee or agent of the
Trust until receipt of written notice thereof from the Trust.
ARTICLE 6. Activities of the Administrator. The services of the
Administrator rendered to the Trust are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests so long as its services hereunder are not hindered
thereby. It is understood that Trustees, officers, employees and Shareholders
of the Trust are or may be or become interested in the Administrator, as
directors, officers, employees and shareholders or otherwise and that
directors, officers, employees and shareholders of the Administrator and its
counsel are or may be or become similarly interested in the Trust, and that the
Administrator may be or become interested in the Trust as a Shareholder or
otherwise.
6
<PAGE> 7
ARTICLE 7. Duration of this Agreement.This Agreement shall
remain in effect for three years after the date of the Agreement. Thereafter,
if not terminated, this Agreement shall continue in effect for successive
periods of two years each, provided, that each such continuance is specifically
approved (a) by the vote of a majority of those members of the Company's Board
of Trustees who are not parties to this Agreement or interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the vote of a majority of the Company's
Board of Trustees, and provided further, that the failure to obtain specific
approval of continuance as aforesaid shall cause this Agreement to terminate 90
days after the end of the initial three-year period or the last two-year period
which was specifically approved as aforesaid.
Notwithstanding the foregoing, in the event of a material breach of
this Agreement by either party, the non-breaching party shall notify the
breaching party in writing of such breach and upon receipt of such notice, the
breaching party shall have 45 days to remedy the breach or the non-breaching
party may terminate this Agreement immediately.
If either party terminates this Agreement other than in accordance
with the foregoing, such party shall forthwith pay the other party such damages
for breach of this Agreement as are provided by law.
This Agreement shall not be assignable by either party without the
written consent of the other party and neither party will delegate its
responsibilities to any other person without the written approval of the other
party.
ARTICLE 8. Amendments. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved (i) by the vote of a
majority of the Trustees of the Trust, and (ii) by the vote of a majority of
the Trustees of the Trust who are not parties to this Agreement or interested
persons of any such party, cast in person at a Board of Trustees meeting called
for the purpose of voting on such approval.
For special cases, the parties hereto may amend such procedures set
forth herein as may be appropriate or practical under the circumstances, and
the Administrator may conclusively assume that any special procedure which has
been approved by the Trust does not conflict with or violate any requirements
of its Declaration of Trust, By-Laws or then current prospectuses, or any rule,
regulation or requirement of any regulatory body.
ARTICLE 9. Trustees' Liability. The names "Conestoga Family of Funds"
and "Trustees of Conestoga Family of Funds" refer respectively to the Trust
created and the Trustees, as trustees but not individually or personally,
acting from time to time under a Declaration of Trust dated August 1, 1989
which is hereby referred to and a copy of which is on file at the office of the
State Secretary of the Commonwealth of Massachusetts and at the principal
office of the Trust. The obligations of "Conestoga Family of Funds" entered
into in the name or on behalf thereof by any of the Trustees, represenatives or
agents are made not individually, but in such capacities, and are not binding
upon any
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<PAGE> 8
of the Trustees, Shareholders, represenatives of the Trust personally, but bind
only the Trust Property, and all persons dealing with any class of shares of
the Trust must look solely to the Trust Property belonging to such class for
the enforcement of any claims against the Trust.
ARTICLE 10. Certain Records. The Administrator shall maintain
customary records in connection with its duties as specified in this Agreement.
Any records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Trust shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Trust and will be made
available to or surrendered promptly to the Trust on request.
The Administrator agrees on behalf of itself and its directors,
officers, employees, and agents to treat confidentially and as proprietary
information of the Trust all non-public records and other non-public
information relative to the Trust and prior, present or potential Shareholders
of the Trust (and clients of said Shareholders), and not to use such records
and information for any purpose other than performance of its responsibilities
and duties hereunder, except after prior notification to and approval in
writing by the Trust, which approval shall not be unreasonably withheld and may
not be withheld where the Administrator may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Trust.
The Administrator shall not be required to obtain the prior approval of the
Trust to disclose proprietary information in connection with a regulatory
examination or audit.
ARTICLE 11. Definitions of Certain Terms. The terms "assignment",
"interested person" and "affiliated person," when used in this Agreement, shall
have the respective meanings specified in the 1940 Act and the rules and
regulations thereunder, subject to such exemptions as may be granted by the
Securities and Exchange Commission.
ARTICLE 12. Notice. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party
giving notice: if to the Trust, to Thomas J. Taylor, 1015 Darby Drive, Yardley,
PA 19067 with a copy to Meridian Investment Company, 55 Valley Stream Parkway,
Malvern, PA 19355, Attention, President, and if to the Administrator at 680
East Swedesford Road, Wayne, PA 19087-1658.
ARTICLE 13. Governing Law. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts and the
applicable provisions of the 1940 Act. To the extent that the applicable laws
of the Commonwealth of Massachusetts, or any of the provisions herein, conflict
with the applicable provisions of the 1940 Act, the latter shall control.
ARTICLE 14. Multiple Originals. This Agreement may be executed in
two or more counterparts, each of which when so executed shall be deemed to be
an original, but such counterparts shall together constitute but one and the
same instrument.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
CONESTOGA FAMILY OF FUNDS
By: [SIG]
----------------------------------------
Attest: [SIG]
---------------------------
SEI FINANCIAL MANAGEMENT CORPORATION
By: [SIG]
----------------------------------------
Attest: [SIG]
---------------------------
9
<PAGE> 10
SCHEDULE
TO THE ADMINISTRATION AGREEMENT
DATED MAY 1, 1995
BETWEEN
CONESTOGA FAMILY OF FUNDS
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Fees: Pursuant to Article 4, Section A, the Trust shall pay the
Administrator compensation for services rendered to the
Conestoga Cash Management, Tax-Free, U.S. Treasury Securities,
Equity, International Equity, Special Equity, Bond,
Intermediate Income, Pennsylvania Tax-Free Bond, Short-Term
Income and Balanced Funds (the "Portfolios") at an annual rate
of .17% of the average daily net assets of each Portfolio,
which is calculated daily and paid monthly. All subsequent
portfolios will be subject to a minimum annual fee of $60,000
(domestic portfolios) and $80,000 (international portfolios).
An additional minimum fee of $15,000 for each class of shares
in excess of two classes will be imposed on all current and
future portfolios.
10
<PAGE> 1
EXHIBIT (9)(b)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
SEI FINANCIAL MANAGEMENT CORPORATION
and
CONESTOGA FAMILY OF FUNDS
<PAGE> 2
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1st day of May, 1995, by and between
Conestoga Family of Funds, a Massachusetts business trust, having its principal
office and place of business at 680 E. Swedesford Road, Wayne, PA 19087(the
"Fund"), and SEI Financial Management Corporation, a Delaware corporation
having its principal office and place of business at 680 E. Swedesford Road,
Wayne, PA 19087("SFM").
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund currently offers shares in (11) eleven series listed
on Schedule A hereto (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 10, herein referred to as a "Portfolio", and
collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint SFM
as its transfer agent, dividend disbursing agent, and agent in connection with
certain other activities, and SFM desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of SFM
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund, on behalf of the Portfolios, hereby employs and appoints
SFM to act as, and SFM agrees to act as its transfer agent for the authorized
and issued shares of beneficial interest of the Fund representing interests
in each of the respective Portfolios ("Shares"), dividend disbursing agent,
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of each of the respective Portfolios of the Fund
("Shareholders") and set out in the currently effective prospectus and
statement of additional information ("prospectus") of the Fund on behalf of
the
2
<PAGE> 3
applicable Portfolio, including without limitation any periodic investment
plan or periodic withdrawal program.
1.02 SFM agrees that it will perform the following services:
(a) In accordance with any procedures which may be
established from time to time by written agreement between the Fund on behalf
of each of the Portfolios, as applicable and SFM, SFM shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation thereof to the Custodian of the Fund
authorized pursuant to the Declaration of Trust of
the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and
(iii) above, SFM shall execute transactions directly
with broker-dealers authorized by the Fund (or the
Distributor) who shall thereby be deemed to be acting
on behalf of the Fund;
(v) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over in
the appropriate manner such monies as instructed by
the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the
applicable Portfolio;
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<PAGE> 4
(viii) Maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and
maintain pursuant to SEC Rule 17Ad-10(e) a record of
the total number of Shares which are authorized,
based upon data provided to it by the Fund, and
issued and outstanding. SFM shall also provide the
Fund on a regular basis with the total number of
Shares which are authorized and issued and
outstanding and shall have no obligation, when
recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of any
laws relating to the issue or sale of such Shares,
which functions shall be the sole responsibility of
the Fund.
(x) SFM shall provide additional services on behalf of
the Fund (i.e., escheatment services) which may be
agreed upon in writing between the Fund and SFM.
(b) In addition to and neither in lieu nor in
contravention of the services set forth in the above paragraph (a), SFM shall:
(i) perform the customary services of a transfer agent, dividend disbursing
agent, and, as relevant, agent in connection with accumulation, open-account
or similar plans (including without limitation any periodic investment plan or
periodic withdrawal program), including but not limited to: maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
mailing Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts, preparing
and filing U.S. Treasury Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by federal authorities for
all Shareholders, preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders, and providing Shareholder account
information and (ii) provide a system which will enable the Fund to monitor the
total number of Shares sold in each State.
4
<PAGE> 5
(c) In addition, the Fund shall (i) identify to SFM in
writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to the effective date of this Agreement. The
responsibility of SFM for the Fund's blue sky State registration status is
solely limited to monitoring the daily activity for each State, the initial
establishment of transactions subject to blue sky compliance by the Fund and
the reporting of such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these
services in Article 1 may be established from time to time by written agreement
between the Fund and SFM, whereby SFM may perform only a portion of these
services and the Fund or other agent may perform these services on each
Portfolio's behalf.
Article 2 Fees and Expenses
2.01 For the performance by SFM pursuant to this Agreement,
the Fund agrees on behalf of each of the Portfolios to pay SFM an annual
maintenance fee for each Shareholder account as set out in Schedule B attached
hereto. Such fees and out-of-pocket expenses and advances identified under
Section 2.02 below may be changed from time to time subject to mutual written
agreement between the Fund and SFM.
2.02 In addition to the fee paid under Section 2.01 above,
the Fund agrees on behalf of each of the Portfolios to reimburse SFM for
out-of-pocket expenses as set forth in Schedule B hereto, or advances incurred
by SFM for the items set out in Schedule B attached hereto. In addition, any
other expenses incurred by SFM at the request or with the consent of the Fund,
will be reimbursed by the Fund on behalf of the applicable Portfolio.
2.03 The Fund agrees on behalf of each of the Portfolios to
pay all fees and reimbursable expenses within five days following the receipt
of the respective billing notice. Postage for mailing of dividends, proxies,
Fund reports and other mailings to all Shareholder accounts shall be advanced
to SFM by the Fund at least seven (7) days prior to the mailing date of such
materials.
5
<PAGE> 6
Article 3 Representations and Warranties of SFM
SFM represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in
good standing under the laws of the State of Delaware.
3.02 It is duly qualified to carry on its business in the
State of Delaware.
3.03 It is empowered under applicable laws and by its Charter
and By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to SFM that:
4.01 It is a business trust duly organized and existing and
in good standing under the laws of the Commonwealth of Massachusetts.
4.02 It is empowered under applicable laws and by its
Declaration of Trust and Code of Regulations to enter into and perform this
Agreement.
4.03 All proceedings required by said Declaration of Trust
and Code of Regulations have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is an open-end and management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of
1933, as amended, on behalf of each of the Portfolios is currently effective
and will remain effective.
Article 5 Data Access and Proprietary Information
5.01 The Fund acknowledges that the data bases, computer
programs, screen formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by SFM as part of the Fund's
ability to access certain Fund-related data ("Customer Data")
6
<PAGE> 7
maintained by SFM on data bases under the control and ownership of SFM or other
third party ("Data Access Services") constitute copyrighted, trade secret, or
other proprietary information (collectively, "Proprietary Information") of
substantial value to SFM or other third party. In no event shall Proprietary
Information be deemed Customer Data. The Fund agrees to treat all Proprietary
Information as proprietary to SFM and further agrees that it shall not divulge
any Proprietary Information to any person or organization except as may be
provided hereunder. Without limiting the foregoing, the Fund agrees for itself
and its employees and agents:
(a) to access Customer Data solely from locations as may
be designated in writing by SFM and solely in
accordance with SFM's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any
portion of the Proprietary Information, and if such
access is inadvertently obtained, to inform in a
timely manner of such fact and dispose of such
information in accordance with SFM's instructions;
(d) to refrain from causing or allowing third-party data
acquired hereunder from being retransmitted to any
unauthorized computer facility or other location,
except with the prior written consent of SFM;
(e) that the Fund shall have access only to those
authorized transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by SFM
to protect at SFM's expense the rights of SFM in
Proprietary Information at common law, under federal
copyright law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Article 5. The obligations of this Article
shall survive any earlier termination of this Agreement.
7
<PAGE> 8
5.02 If the Fund notifies SFM that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, SFM shall endeavor in a timely manner to
correct such failure. Organizations from which SFM may obtain certain data
included in the Data Access Services are solely responsible for the contents of
such data and the Fund agrees to make no claim against SFM arising out of the
contents of such third-party data, including, but not limited to, the accuracy
thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS
AVAILABLE BASIS. SFM EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY
STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Fund include the
ability to originate electronic instructions to SFM in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder information
or other information (such transactions constituting a "COEFI"), then in such
event SFM shall be entitled to rely on the validity and authenticity of such
instruction without undertaking any further inquiry as long as such instruction
is undertaken in conformity with security procedures established by SFM from
time to time.
Article 6 Indemnification
6.01 SFM shall not be responsible for, and the Fund shall
indemnify and hold SFM harmless from and against, any and all losses, damages,
costs, charges, reasonable counsel fees, payments, expenses and liability
arising out of or attributable to:
(a) All actions of SFM or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or warranty of
the Fund hereunder.
8
<PAGE> 9
(c) The reliance on or use by SFM or its agents or
subcontractors of information, records, documents or services which (i) are
received by SFM or its agents or subcontractors, and (ii) have been prepared,
maintained or performed by the Fund or any other person or firm on behalf of
the Fund including but not limited to any previous transfer agent or registrar,
provided that such actions are taken in good faith and without negligence or
willful misconduct.
(d) The reliance on, or the carrying out by SFM or its agents
or subcontractors of any instructions or requests of the Fund on behalf of the
applicable Portfolio, provided that such actions are taken in good faith and
without negligence or willful misconduct.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by any
federal agency or any state with respect to the offer or sale of such Shares in
such state, provided that such actions are taken in good faith and without
negligence or willful misconduct.
6.02 At any time SFM may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by SFM under this
Agreement, and SFM and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund on behalf of the applicable Portfolio for any
action taken or omitted by it in reliance upon such instructions or upon the
written opinion of such counsel. SFM, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Fund, reasonably believed to be genuine and to have been
signed by the proper person or persons, or upon any instruction, information,
data, records or documents provided SFM or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund. SFM, its
agents and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the
9
<PAGE> 10
Fund, and the proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
6.03 In order that the indemnification provisions contained
in this Article 6 shall apply, upon the assertion of a claim for which the Fund
may be required to indemnify SFM, SFM shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to participate with SFM
in the defense of such claim or to defend against said claim in its own name or
in the name of SFM. SFM shall in no case confess any claim or make any
compromise in any case in which the Fund may be required to indemnify SFM
except with the Fund's prior written consent.
Article 7 Standard of Care
7.01 SFM shall at all times act in good faith and agrees to
use its best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility and
shall not be liable for loss or damage due to errors unless said errors are
caused by its negligence, bad faith, or willful misconduct of that of its
employees.
Article 8 Covenants of the Fund and SFM
8.01 The Fund shall promptly furnish to SFM the following:
(a) A certified copy of the resolution of the Board of
Trustees of the Fund authorizing the appointment of SFM and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund
and amendments thereto.
8.02 SFM hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Fund for safekeeping of check forms
and facsimile signature imprinting devices, if any; and for the preparation or
use, and for keeping account of, such forms and devices.
8.03 SFM shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as
amended, and the Rules thereunder, SFM agrees that all such records prepared or
maintained by SFM relating to the services to be performed by SFM hereunder
10
<PAGE> 11
are the property of the Fund and will be preserved, maintained and made
available in accordance with such Section and Rules, and will be surrendered
promptly to the Fund on and in accordance with its request.
8.04 SFM and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
8.05 In case of any requests or demands for the inspection of
the Shareholder records of any of the Fund, SFM will endeavor to notify the
Fund and to secure instructions from an authorized officer of the Fund as to
such inspection. SFM reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon
one hundred twenty (120) days written notice to the other.
9.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material
will be borne by the Fund on behalf of the applicable Portfolio(s).
Additionally, SFM reserves the right to charge for any other reasonable
expenses associated with such termination up to a maximum of $20,000.
Article 10 Additional Funds
10.01 In the event that the Fund establishes one or more
additional series of Shares with respect to which it desires to have SFM render
services as transfer agent under the terms hereof, it shall notify SFM in
writing, and if SFM agrees in writing to provided such services, such series of
Shares shall become a Portfolio hereunder.
11
<PAGE> 12
Article 11 Assignment
11.01 Except as provided in Section 10.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
11.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
11.03 SFM may, without further consent on the part of the
Fund, subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered
as a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange
Act of 1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly
registered as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS
affiliate; provided, however, that SFM shall be as fully responsible to the
Fund for the acts and omissions of any subcontractor as it is for its own acts
and omissions.
Article 12 Amendment
12.01 This Agreement may be amended or modified by a written
agreement executed by both parties.
Article 13 Massachusetts Law to Apply
13.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the Commonwealth
of Massachusetts.
Article 14 Force Majeure
14.01 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes.
12
<PAGE> 13
Article 15 Consequential Damages
15.01 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to act
hereunder.
Article 16 Merger of Agreement
16.01 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
Article 17 Approvals and Limitations
17.01 All agreements and consents on behalf of the
Fund in connection with this Agreement shall require the approval of the Board
of Trustees of the Fund.
17.02 The names "Conestoga Family of Funds" and "Trustees of
Conestoga Family of Funds" refer respectively to the Trust created and
the Trustees, as trustees but not individually or personally, acting from time
to time under a Declaration of Trust dated August 1, 1989 which is hereby
referred to and a copy of which is on file at the office of the State Secretary
of the Commonwealth of Massachusetts and at the principal office of the Trust.
The obligations of "Conestoga Family of Funds" entered into in the name or on
behalf thereof by any of the Trustees, represenatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, Shareholders or represenatives of the Trust personally, but bind only
the Trust property, and all persons dealing with any class of shares of the
Trust must look solely to the Trust property belonging to such class for the
enforcement of any claims against the Trust.
Article 18 Counterparts
18.01 This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together shall
be deemed to constitute one and the same instrument.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
CONESTOGA FAMILY OF FUNDS
BY: [SIG]
----------------------
ATTEST:
[SIG]
- ----------------------
SEI FINANCIAL MANAGEMENT
CORPORATION
BY: [SIG]
----------------------
Vice President
ATTEST:
[SIG]
- ----------------------
14
<PAGE> 15
SCHEDULE A
TO THE TRANSFER AGENCY
AND SERVICE AGREEMENT
DATED
MAY 1, 1995
Conestoga Cash Management Fund
Conestoga Tax-Free Fund
Conestoga U.S. Treasury Securities Fund
Conestoga Equity Fund
Conestoga International Equity Fund
Conestoga Special Equity Fund
Conestoga Bond Fund
Conestoga Intermediate Income Fund
Conestoga Pennsylvania Tax-Free Bond Fund
Conestoga Short-Term Income Fund
Conestoga Balanced Fund
15
<PAGE> 16
SCHEDULE B
TO THE TRANSFER AGENCY
AND SERVICE AGREEMENT
DATED
MAY 1, 1995
Pursuant to Article 2, the Fund shall pay SFM an annual fee equal to .02% of
total assets of the Fund plus $25 per account and out of pocket expenses which
include but are not limited to: confirmation statements, postage, forms, audio
response, telephone, records retention, transcripts, microfiche, and expenses
incurred at the specific direction of the fund.
16
<PAGE> 1
EXHIBIT (9)(c)
SUB-TRANSFER AGENCY AND SERVICE AGREEMENT
between
SEI FINANCIAL MANAGEMENT CORPORATION
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Article 1 Terms of Appointment; Duties of the Bank............................................ 1
Article 2 Fees and Expenses................................................................... 4
Article 3 Representations and Warranties of the Bank.......................................... 5
Article 4 Representations and Warranties of the Transfer
Agent............................................................................... 5
Article 5 Data Access and Proprietary Information............................................. 6
Article 6 Indemnification..................................................................... 8
Article 7 Standard of Care.................................................................... 10
Article 8 Covenants of the Fund and the Transfer Agent........................................ 10
Article 9 Termination of Agreement............................................................ 11
Article 10 Assignment.......................................................................... 11
Article 11 Amendment........................................................................... 12
Article 12 Massachusetts Law to Apply.......................................................... 12
Article 13 Force Majeure....................................................................... 12
Article 14 Consequential Damages............................................................... 12
Article 15 Merger of Agreement................................................................. 12
Article 16 Counterparts........................................................................ 12
</TABLE>
<PAGE> 3
SUB-TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1st day of May, 1995, by and between SEI
Financial Management Corporation ("SFM"), a Delaware corporation, having its
principal office and place of business at 680 East Swedesford Road, Wayne, PA
19087 (the "Transfer Agent"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business
at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Transfer Agent has been appointed by each of the
investment companies (including each series thereof) listed on Schedule A (the
"Fund(s)"), each an open-end diversified management investment company
registered under the Investment Company Act of 1940, as amended, as transfer
agent, dividend disbursing agent and shareholder servicing agent in connection
with certain activities, and the Transfer Agent has accepted each such
appointment;
WHEREAS, the Transfer Agent has entered into a Transfer Agency and
Service Agreement with each of the Funds (including each series thereof) listed
on Schedule A pursuant to which the Transfer Agent is responsible for certain
transfer agency and dividend disbursing functions and the Transfer Agent is
authorized to subcontract for the performance of its obligations and duties
thereunder in whole or in part with the Bank;
WHEREAS, the Transfer Agent is desirous of having the Bank perform
certain shareholder accounting, administrative and servicing functions
(collectively "Shareholder and Record-Keeping Services");
WHEREAS, the Transfer Agent desires to appoint the Bank as its agent,
and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this
Agreement, the Transfer Agent hereby employs and appoints the Bank to act as,
and the Bank agrees to act as, the agent of
<PAGE> 4
the Transfer Agent for the Shares of each of the Funds in connection with any
accumulation, open-account, retirement plan or similar plan provided to the
shareholders of each Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus") of
each such Fund, including without limitation any periodic investment plan or
periodic withdrawal program. As used herein, the term "Shares" means the
authorized and issued shares of common stock, or shares of beneficial interest,
as the case may be, for each of the Funds (including each series thereof)
enumerated in Schedule A.
1.02 The Bank agrees that it will perform the following
Shareholder and Record-Keeping services:
(a) In accordance with any procedures which may be
established from time to time by written agreement between the Transfer Agent
and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation thereof to the Custodian of the Fund
authorized pursuant to the Articles of Incorporation
or Declaration of Trust of each Fund (the
"Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and
(iii) above, the Bank shall execute transactions
directly with broker-dealers authorized by the Funds
or the Distributor who shall thereby be deemed to be
acting on behalf of the Funds;
(v) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over in
the appropriate manner such monies as instructed by
the redeeming Shareholders;
2
<PAGE> 5
(vi) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by each Fund;
(viii) Maintain records of account for and advise each Fund
and its Shareholders as to the foregoing; and
(ix) Record the issuance of shares of each Fund and
maintain pursuant to SEC Rule 17Ad-10(e) a record of
the total number of shares of each Fund which are
authorized, based upon data provided to it by each
Fund, and issued and outstanding. The Bank shall
also provide each Fund on a regular basis with the
total number of shares which are authorized and
issued and outstanding and shall have no obligation,
when recording the issuance of shares, to monitor the
issuance of such shares or to take cognizance of any
laws relating to the issue or sale of such shares,
which functions shall be the sole responsibility of
each Fund.
(x) The Bank shall provide additional services on behalf
of the Transfer Agent (i.e., escheatment services)
which may be agreed upon in writing between the
Transfer Agent and the Bank.
(b) In addition to and neither in lieu nor in
contravention of the services set forth in the above paragraph (a), the Bank
shall: (i) perform the customary services of a transfer agent, dividend
disbursing agent, custodian of certain retirement plans and, as relevant, agent
in connection with accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining all Shareholder accounts,
preparing Shareholder meeting lists, mailing proxies, mailing Shareholder
reports and prospectuses to current Shareholders, withholding taxes on U.S.
resident and non-resident alien accounts, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms required with respect to
dividends and distributions by federal authorities for all
3
<PAGE> 6
Shareholders, preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders, and providing Shareholder account
information and (ii) provide a system which will enable each Fund to monitor
the total number of Shares sold in each State.
(c) In addition, each Fund shall (i) identify to the Bank
in writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to the effective date of this Agreement. The
responsibility of the Bank for each Fund's blue sky State registration status
is solely limited to the initial establishment of transactions subject to blue
sky compliance by each Fund and the reporting of such transactions to each Fund
as provided above.
(d) Procedures as to who shall provide certain of these
services in Article 1 may be established from time to time by written agreement
between the Transfer Agent and the Bank, whereby the Bank may perform only a
portion of these services and the Transfer Agent, the Funds or other agent may
perform these services on each Fund's behalf.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this
Agreement, the Transfer Agent agrees to pay the Bank an annual maintenance fee
for each Shareholder account as set out in Schedule B attached hereto. Such
fees and out-of-pocket expenses and advances identified under Section 2.02
below may be changed from time to time subject to mutual written agreement
between the Transfer Agent and the Bank.
2.02 In addition to the fee paid under Section 2.01 above,
the Transfer Agent agrees to reimburse the Bank for reasonable out-of-pocket
expenses incidental to the Bank's performance of its responsibilities
hereunder, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, tabulating proxies, records storage,
or advances incurred by the Bank or its agent for the items set out in Schedule
B attached hereto. In addition,
4
<PAGE> 7
any other expenses incurred by the Bank at the request or with the consent of
the Transfer Agent, will be reimbursed by the Transfer Agent.
2.03 The Transfer Agent agrees to pay all fees and
reimbursable expenses within five days following the receipt of the respective
billing notice. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all shareholder accounts shall be advanced to the Bank by the
Transfer Agent at least seven (7) days prior to the mailing date of such
materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Transfer Agent that:
3.01 It is a trust company duly organized and existing and in
good standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter
and By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Transfer Agent
The Transfer Agent represents and warrants to the Bank that:
4.01 It is a corporation duly organized and existing and in
good standing under the laws of the State of Delaware.
4.02 It is empowered under applicable laws and by its Charter
and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Charter and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
5
<PAGE> 8
4.04 Each Fund is an open-end and diversified management
investment company registered under the Investment Company Act of 1940, as
amended.
4.05 A registration statement under the Securities Act of
1933, as amended for each Fund is currently effective and will remain
effective, and appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of each Fund being offered for
sale.
Article 5 Data Access and Proprietary Information
5.01 The Transfer Agent acknowledges that the data bases,
computer programs, screen formats, report formats, interactive design
techniques, and documentation manuals furnished to the Transfer Agent by the
Bank as part of the Fund's ability to access certain Fund-related data
("Customer Data") maintained by the Bank on data bases under the control and
ownership of the Bank or other third party ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information (collectively,
"Proprietary Information") of substantial value to the Bank or other third
party. In no event shall Proprietary Information be deemed Customer Data. The
Transfer Agent agrees to treat all Proprietary Information as proprietary to
the Bank and further agrees that it shall not divulge any Proprietary
Information to any person or organization except as may be provided hereunder.
Without limiting the foregoing, the Transfer Agent agrees for itself and its
employees and agents:
(a) to access Customer Data solely from locations as may
be designated in writing by the Bank and solely in
accordance with the Bank's applicable user
documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any
portion of the Proprietary Information, and if such
access is inadvertently obtained, to inform in a
timely manner of such fact and dispose of such
information in accordance with the Bank's
instructions;
6
<PAGE> 9
(d) to refrain from causing or allowing third-party data
acquired hereunder from being retransmitted to any
unauthorized computer facility or other location,
except with the prior written consent of the Bank;
(e) that the Transfer Agent shall have access only to
those authorized transactions agreed upon by the
parties;
(f) to honor all reasonable written requests made by the
Bank to protect at the Bank's expense the rights of
the Bank in Proprietary Information at common law,
under federal copyright law and under other federal
or state law.
Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Article 5. The obligations of this Article
shall survive any earlier termination of this Agreement.
5.02 If the Transfer Agent notifies the Bank that any of the
Data Access Services do not operate in material compliance with the most
recently issued user documentation for such services, the Bank shall endeavor
in a timely manner to correct such failure. Organizations from which the Bank
may obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Transfer Agent agrees to make
no claim against the Bank arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND
ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH
ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL
WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Transfer Agent
include the ability to originate electronic instructions to the Bank in order
to (i) effect the transfer or movement of cash or Shares or (ii) transmit
Shareholder information or other information (such transactions constituting a
7
<PAGE> 10
"COEFI"), then in such event the Bank shall be entitled to rely on the validity
and authenticity of such instruction without undertaking any further inquiry as
long as such instruction is undertaken in conformity with security procedures
established by the Bank from time to time.
Article 6 Indemnification
6.01 The Bank shall not be responsible for, and the Transfer
Agent shall indemnify and hold the Bank harmless from and against, any and all
losses, damages, costs, charges, reasonable counsel fees, payments, expenses
and liability arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Transfer Agent's negligent or willful breach of any
material representation or warranty of the Transfer Agent hereunder.
(c) The good faith reliance on or use by the Bank or its
agents or subcontractors of information, records, documents or services which
(i) are received by the Bank or its agents or subcontractors, and (ii) have
been prepared, maintained or performed by the Transfer Agent or each Fund or
any other person or firm on behalf of the Transfer Agent or each Fund including
but not limited to any previous transfer agent or registrar, provided that such
actions are taken in good faith and without negligence or willful misconduct.
(d) The good faith reliance on, or the carrying out by the
Bank or its agents or subcontractors of any instructions or requests reasonably
believed by the Bank to have been signed or authorized by the Transfer Agent
or each Fund, provided that such actions are taken in good faith and without
negligence or willful misconduct.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by any
federal agency or any state with respect to the offer or sale of such Shares in
such state, provided that such actions are taken in good faith and without
negligence or willful misconduct and further
8
<PAGE> 11
provided, that the Bank shall not be indemnified with respect to claims based
solely on the fact that shares of the Fund were not registered in a state and
the Bank had been notified previously by the Funds or the Transfer Agent that
the Funds are not registered in such state.
6.02 At any time the Bank may apply to any officer of the
Transfer Agent for instructions, and may consult with legal counsel acceptable
to the Transfer Agent with respect to any matter arising in connection with the
services to be performed by the Bank under this Agreement, and the Bank and its
agents or subcontractors shall not be liable and shall be indemnified by the
Transfer Agent for any action taken or omitted by it in reliance upon such
instructions or upon the written opinion of such counsel. The Bank, its agents
and subcontractors shall be protected and indemnified in acting upon any paper
or document furnished by or on behalf of the Transfer Agent or each Fund,
reasonably believed to be genuine and to have been signed by the proper person
or persons, or upon any instruction, information, data, records or documents
provided the Bank or its agents or subcontractors by machine readable input,
telex, CRT data entry or other similar means authorized by the Transfer Agent
and reasonably believed by the Bank to be genuine, and shall not be held to
have notice of any change of authority of any person, until receipt of written
notice thereof from the Transfer Agent.
6.03 In order that the indemnification provisions contained
in this Article 6 shall apply, upon the assertion of a claim for which the
Transfer Agent may be required to indemnify the Bank, the Bank shall promptly
notify the Transfer Agent of such assertion, and shall keep the Transfer Agent
advised with respect to all developments concerning such claim. The Transfer
Agent shall have the option to participate with the Bank in the defense of such
claim or to defend against said claim in its own name or in the name of the
Bank. The Bank shall in no case confess any claim or make any compromise in
any case in which the Transfer Agent may be required to indemnify the Bank
except with the Transfer Agent's prior written consent.
9
<PAGE> 12
Article 7 Standard of Care
7.01 The Bank shall at all times act in good faith and agrees
to use its best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility and
shall not be liable for loss or damage due to errors unless said errors are
caused by its negligence, bad faith, or willful misconduct or that of its
officers, employees and agents. Such liability hereunder shall include
reasonable counsel fees incurred by the Transfer Agent.
Article 8 Covenants of the Transfer Agent and the Bank
8.01 The Transfer Agent shall promptly furnish to the Bank
the following:
(a) A certified copy of the resolution of the Board of
Directors of the Transfer Agent authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
8.02 The Bank hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Transfer Agent for
safekeeping of check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such forms and
devices.
8.03 The Bank shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable. To
the extent required by Section 31 of the Investment Company Act of 1940, as
amended, and the Rules thereunder, the Bank agrees that all such records
prepared or maintained by the Bank relating to the services to be performed by
the Bank hereunder are the property of each Fund and will be preserved,
maintained and made available in accordance with such Section and Rules, and
will be surrendered promptly to each Fund on and in accordance with its
request.
8.04 The Bank and the Transfer Agent agree that all books,
records, information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
10
<PAGE> 13
8.05 In case of any requests or demands for the inspection of
the Shareholder records of any of the Fund's, the Bank will endeavor to notify
the Transfer Agent and to secure instructions from an authorized officer of the
Transfer Agent as to such inspection. The Bank reserves the right, however, to
exhibit the Shareholder records to any person whenever it is advised by its
counsel that it may be held liable for the failure to exhibit the Shareholder
records to such person.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon
one hundred twenty (120) days written notice to the other.
9.02 Should the Transfer Agent exercise its right to
terminate, all reasonable out-of-pocket expenses associated with the movement
of records and material will be borne by the Transfer Agent. Additionally, the
Bank reserves the right to charge as liquidated damages associated with such
termination a charge equivalent to the prior one month transfer agency fees if
termination occurs within the first year of this Agreement.
Article 10 Assignment
10.01 Except as provided in Section 10.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
10.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
10.03 The Bank may, without further consent on the part of
the Transfer Agent, subcontract for the performance hereof with (i) Boston
Financial Data Services, Inc., a Massachusetts corporation ("BFDS") which is
duly registered as a transfer agent pursuant to Section 17A(c)(1) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)"), (ii) a BFDS
subsidiary duly registered as a transfer agent pursuant to Section 17A(c)(1) or
(iii) a BFDS affiliate; provided, however, that the Bank shall be as fully
responsible to the Transfer Agent for the acts and omissions of any
subcontractor as it is for its own acts and omissions.
11
<PAGE> 14
Article 11 Amendment
11.01 This Agreement may be amended or modified by a written
agreement executed by both parties.
Article 12 Massachusetts Law to Apply
12.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the Commonwealth
of Massachusetts.
Article 13 Force Majeure
13.01 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its reasonable
control, or other causes reasonably beyond its control, such party shall not be
liable for damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
Article 14 Consequential Damages
14.01 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to act
hereunder.
Article 15 Merger of Agreement
15.01 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
Article 16 Counterparts
16.01 This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together shall
be deemed to constitute one and the same instrument.
12
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf by and
through their duly authorized officers, as of the day and year first above
written.
SEI FINANCIAL MANAGEMENT
CORPORATION
BY: [SIG]
---------------------
ATTEST:
[SIG]
- --------------------------------
STATE STREET BANK AND TRUST COMPANY
BY: [SIG]
---------------------
Executive Vice President
ATTEST:
[SIG]
- --------------------------------
Assistant VP Associate Counsel
<PAGE> 16
SCHEDULE A
TO THE SUB-TRANSFER AGENCY
AND SERVICE AGREEMENT
Conestoga Cash Management Fund
Conestoga Tax-Free Fund
Conestoga U.S.Treasury Securities Fund
Conestoga Equity Fund
Conestoga International Equity Fund
Conestoga Special Equity Fund
Conestoga Bond Fund
Conestoga Intermediate Income Fund
Conestoga Pennsylvania Tax-Free Bond Fund
Conestoga Short-Term Income Fund
Conestoga Balanced Fund
<PAGE> 17
SCHEDULE B
TO THE SUB-TRANSFER AGENCY
AND SERVICE AGREEMENT
Annual fees (per class/per fund) $15,000
Fees are billable on a monthly basis at the rate of 1/12 of the annual fee.
Account Transaction Fee $25.00/account
IRA Custodial Fees
Acceptance & Setup $5.00/account
Annual Maintenance $10.00/account
Out-of-Pocket Expenses
Out of pocket expenses include but are not limited to: confirmation
statements, postage, forms, audio response, telephone, records retention,
transcripts, microfilm, microfiche, and expenses incurred at the specific
direction of the fund.
<PAGE> 1
EXHIBIT (11)(a)
CONSENT OF COUNSEL
CONESTOGA FAMILY OF FUNDS
We hereby consent to the use of our name and to the references to our
firm under the caption "Management of the Company - Counsel" in the Statement
of Additional Information included in Post-Effective Amendment No. 14 to the
Registration Statement (File No. 33-30431) on Form N-1A of Conestoga Family of
Funds under the Securities Act of l933 and the Investment Company Act of l940,
respectively. This consent does not constitute a consent under Section 7 of
the Securities Act of l933, and in consenting to the use of our name and the
references to our firm under such captions we have not certified any part of
the Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 of the rules and regulations
of the Securities and Exchange Commission thereunder.
s/ DRINKER BIDDLE & REATH
-------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
December 27, 1995
<PAGE> 1
EXHIBIT (11)(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 14 under the Securities Act of 1933 and Post-Effective Amendment No. 17
under the Investment Company Act of 1940 to the Registration Statement on Form
N-1A (33-30431) of our report dated December 8, 1995 on our audit of the
financial statements and financial highlights of The Conestoga Funds. We also
consent to the references to our firm under the caption "Financial Highlights"
in each of the Prospectus' of Retail Shares and Institutional Shares and
"Financial Statements" in the Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 29, 1995
<PAGE> 1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
of The Conestoga Funds:
We have audited the accompanying statements of net assets of The Conestoga Funds
(the Fund) (comprising, respectively, the Equity Fund, the Special Equity Fund,
the International Equity Fund, the Balanced Fund, the Bond Fund (formerly the
Income Fund), the Intermediate Income Fund (formerly the Limited Maturity Fund),
the Short-Term Income Fund, the Pennsylvania Tax-Free Bond Fund, the Cash
Management Fund, the U.S. Treasury Securities Fund, and the Tax-Free Fund) as of
October 31, 1995, and the related statements of operations for the year (or
periods) then ended, the statement of changes in net assets, and the financial
highlights for each of the respective periods presented. These financial
statements and the financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the Fund's custodian and brokers, or
other auditing procedures where correspondence from brokers was not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios comprising The Conestoga Funds as of October 31,
1995 and the results of their operations for the year (or periods) then ended
and the changes in their net assets and the financial highlights for the periods
presented in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 8, 1995
10
<PAGE> 2
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Equity Fund
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
COMMON STOCK -- 98.5%
AEROSPACE & DEFENSE -- 0.9%
Lockheed Martin 25,401 $ 1,730
McDonnell Douglas 21,717 1,776
------
Total Aerospace & Defense 3,506
------
AIRCRAFT -- 2.3%
Allied Signal 84,775 3,603
Boeing 27,310 1,792
Textron 30,000 2,063
United Technologies 16,500 1,464
------
Total Aircraft 8,922
------
APPAREL/TEXTILES -- 0.5%
Burlington Industries* 49,771 554
Fruit Of The Loom* 75,000 1,303
------
Total Apparel/Textiles 1,857
------
AUTOMOTIVE -- 1.8%
Ford Motor 205,000 5,894
Magna International, Class A 27,500 1,189
------
Total Automotive 7,083
------
BANKS -- 10.0%
Bank Of Boston 74,000 3,293
BankAmerica 196,900 11,322
Chase Manhattan 206,600 11,774
Chemical Banking 103,000 5,858
Citicorp 99,000 6,423
------
Total Banks 38,670
------
BUILDING & CONSTRUCTION -- 0.6%
Webb (Dell E.) 105,000 2,179
------
Total Building & Construction 2,179
------
CHEMICALS -- 3.2%
Dow Chemical 25,525 1,752
Hercules 5,100 272
IMC Global 36,600 2,562
Monsanto 32,500 3,404
Praxair 155,000 4,185
------
Total Chemicals 12,175
------
COMMUNICATIONS EQUIPMENT -- 1.4%
First Alert* 33,800 524
Motorola 32,175 2,111
Qualcomm* 65,000 2,503
------
Total Communications Equipment 5,138
------
COMPUTER SOFTWARE -- 1.4%
Autotote -- Class A* 90,230 271
Computer Associates
International 52,500 2,887
International Game Technology 146,358 1,701
Pyxis* 24,839 314
------
Total Computer Software 5,173
------
COMPUTER AND OFFICE EQUIPMENT -- 3.1%
Hewlett Packard 14,330 1,327
IBM 98,000 9,531
Novell* 56,435 931
------
Total Computer and Office Equipment 11,789
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
COMPUTERS & SERVICES -- 2.9%
Apple Computer 94,000 $ 3,413
Compaq Computer* 57,500 3,206
Digital Equipment* 84,750 4,587
------
Total Computers & Services 11,206
------
CONCRETE & MINERAL PRODUCTS -- 0.5%
Owens Corning Fiberglass* 46,910 1,988
------
Total Concrete & Mineral Products 1,988
------
CONTAINERS & PACKAGING -- 0.4%
Owens-Illinois* 119,455 1,508
------
Total Containers & Packaging 1,508
------
ELECTRICAL SERVICES -- 6.3%
Central & South West 124,200 3,322
Consolidated Edison New York 142,000 4,313
Pacific Gas & Electric 120,800 3,549
Peco Energy 200,000 5,850
SCE 425,000 7,225
------
Total Electrical Services 24,259
------
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT -- 3.9%
General Electric 180,000 11,385
Philips Electronics ADR 75,000 2,897
Texas Instruments 13,100 894
------
Total Electronic and Other
Electrical Equipment 15,176
------
ENTERTAINMENT -- 0.3%
MGM Grand* 43,870 1,047
President Casinos* 31,325 96
------
Total Entertainment 1,143
------
ENVIRONMENTAL SERVICES -- 1.0%
Browning Ferris Industries 125,000 3,641
------
Total Environmental Services 3,641
------
FINANCIAL SERVICES -- 4.1%
Dean Witter Discover 89,013 4,428
Fleet Financial Group 55,000 2,131
Household International 38,000 2,138
ITT 40,000 4,901
MBNA 62,900 2,319
------
Total Financial Services 15,917
------
FOOD, BEVERAGE & TOBACCO -- 7.9%
Buenos Aires Embotellado-ADR 27,355 626
IBP 38,200 2,287
Nabisco Holdings -- Class A 179,500 4,824
Philip Morris Companies 173,860 14,691
RJR Nabisco Holdings 256,160 7,877
------
Total Food, Beverage & Tobacco 30,305
------
</TABLE>
11
<PAGE> 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
HOUSEHOLD PRODUCTS -- 0.4%
Maytag 85,800 $ 1,630
------
Total Household Products 1,630
------
INSURANCE -- 4.0%
Aetna Life & Casualty 30,000 2,111
Cigna 30,000 2,974
Equitable Companies 195,500 4,154
The Travelers Group 125,000 6,312
Transport Holdings -- Class A* 625 25
------
Total Insurance 15,576
------
MACHINERY -- 3.0%
Baker Hughes 90,000 1,766
Brunswick 80,800 1,576
Case Equipment 55,000 2,097
Caterpillar 33,700 1,891
Deere 40,000 3,575
McDermott International 30,635 486
------
Total Machinery 11,391
------
MEDICAL PRODUCTS & SERVICES -- 2.6%
Beverly Enterprises* 136,600 1,605
Community Psychiatric* 48,400 526
Coram Healthcare* 100,000 400
FHP International* 45,000 1,091
Foundation Health* 53,704 2,276
Humana* 122,300 2,585
Novacare* 25,964 162
United Healthcare 9,850 523
United States Surgical 37,557 920
------
Total Medical Products & Services 10,088
------
METALS & MINING -- 0.9%
Potash of Saskatchewan 49,400 3,439
------
Total Metals & Mining 3,439
------
OIL AND GAS FIELD EXPLORATION SERVICES -- 9.7%
Ashland 100,000 3,163
British Petroleum Plc ADR 92,000 8,118
Diamond Shamrock 31,750 818
Enron 85,000 2,922
Mobil 78,600 7,919
Repsol S.A. ADR 161,500 4,784
Royal Dutch Petroleum 53,550 6,580
Tosco 57,700 1,991
YPF Sociedad Anonima ADR 72,385 1,240
------
Total Oil and Gas Field
Exploration Services 37,535
------
PAPER & PAPER PRODUCTS -- 0.5%
International Paper 50,000 1,850
------
Total Paper & Paper Products 1,850
------
PHARMACEUTICALS -- 2.6%
Caremark International 23,200 479
Elan Public* 111,100 4,457
Merck 45,805 2,634
Mylan Laboratories 63,100 1,199
Teva Pharmaceutical Industries
ADR 32,672 1,282
------
Total Pharmaceuticals 10,051
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 0.4%
Xerox 13,000 $ 1,687
------
Total Photographic Equipment & Supplies 1,687
------
RAILROADS -- 1.3%
Burlington Northern Santa Fe 30,000 2,517
CSX 28,600 2,395
------
Total Railroads 4,912
------
RESTAURANTS -- 2.0%
Darden Restaurants* 619,000 7,041
Rally's Hamburgers* 18,426 35
Vicorp Restaurants* 61,534 677
------
Total Restaurants 7,753
------
RETAIL -- 4.6%
Bed, Bath & Beyond* 7,600 238
Borders Group* 187,000 3,202
CML Group 275,000 1,581
Kroger* 169,505 5,657
Lowe's 159,200 4,298
Pep Boys 100,000 2,188
Vons* 23,000 584
------
Total Retail 17,748
------
RUBBER & PLASTIC -- 2.4%
Goodyear Tire & Rubber 245,000 9,310
------
Total Rubber & Plastic 9,310
------
SEMI-CONDUCTORS/INSTRUMENTS -- 2.5%
Intel 73,400 5,129
Micron Technology 24,500 1,730
National Semiconductor* 76,000 1,853
VLSI Technology 40,000 940
------
Total Semi-Conductors/Instruments 9,652
------
SERVICES-EMPLOYMENT AGENCIES -- 0.8%
Manpower 116,000 3,147
------
Total Services-Employment Agencies 3,147
------
SPECIALTY MACHINERY -- 0.9%
Westinghouse Electric 235,000 3,319
------
Total Specialty Machinery 3,319
------
STEEL & STEEL WORKS -- 1.6%
Birmingham Steel 8,070 123
Phelps Dodge 46,600 2,953
USX -- U.S. Steel Group 100,100 2,991
------
Total Steel & Steel Works 6,067
------
</TABLE>
12
<PAGE> 4
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Equity Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
TELEPHONES & TELECOMMUNICATION -- 5.6%
Cellular Communications -- Class
A* 24,773 $ 1,328
MCI Communications 178,475 4,451
SBC Communications 80,000 4,470
Worldcom* 350,100 11,422
------
Total Telephones & Telecommunication 21,671
------
WHOLESALE -- 0.2%
Jan Bell Marketing* 80,480 272
Michael Foods 3,726 45
Universal -- Va 21,770 457
------
Total Wholesale 774
------
Total Common Stock
(Cost $362,939,414) 379,235
------
PREFERRED STOCKS -- 0.7%
PRINTING & PUBLISHING -- 0.4%
News -- Preferred Shares ADR 72,915 1,331
------
Total Printing & Publishing 1,331
------
TELEPHONES & TELECOMMUNICATION -- 0.3%
Cellular Communications
Preferred* 23,866 1,280
------
Total Telephones & Telecommunication 1,280
------
Total Preferred Stocks
(Cost $2,565,048) 2,611
------
COMMERCIAL PAPER -- 0.9%
American Express
5.750%, 11/01/95 $ 3,336 3,336
------
Total Commercial Paper
(Cost $3,336,000) 3,336
------
Total Investments -- 100.1%
(Cost $368,840,462) 385,182
------
OTHER ASSETS AND LIABILITIES -- (0.1%)
Other Assets and Liabilities,
Net (239)
------
Total Other Assets and Liabilities (239)
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 22,159,807
outstanding shares of
beneficial interest 334,512
Portfolio shares of the Retail
Class (unlimited
authorization -- $0.001 par
value) based on 385,955
outstanding shares of
beneficial interest 5,056
Undistributed net investment
income 101
Undistributed net realized gain
on investments 28,932
Unrealized appreciation on
investments 16,342
------
Total Net Assets -- 100.0% $ 384,943
======
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 17.07
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 17.08
======
Maximum Offering Price Per
Share -- Retail Class
($17.08 / 98.0%) $ 17.43
======
* Non-income producing security
ADR American Depository Receipt
SPECIAL EQUITY FUND
COMMON STOCK -- 96.1%
AEROSPACE & DEFENSE -- 1.0%
McDonnell Douglas 7,500 $ 613
------
Total Aerospace & Defense 613
------
AGRICULTURE PRODUCTS -- 0.8%
Terra Industries 35,000 442
------
Total Agriculture Products 442
------
APPAREL/TEXTILES -- 3.7%
Burlington Industries* 5,117 57
Cyrk International* 20,100 221
Fieldcrest Cannon* 17,400 335
Gadzooks* 1,000 19
Gucci Group* 2,700 81
Haggar 20,000 330
Oneita Industries* 55,000 371
Oxford Industries 20,000 325
Quaker Fabric* 11,900 107
Supreme International* 18,400 294
------
Total Apparel/Textiles 2,140
------
AUTOMOTIVE -- 1.2%
Ford 13,000 373
Magna International -- Class A 6,500 281
Walbro 3,000 59
------
Total Automotive 713
------
BANKS -- 5.4%
Bank of Boston 14,500 645
BankAmerica 13,900 799
Barnett Banks 7,000 387
Chase Manhattan 12,000 684
Chemical Banking 9,100 518
MBNA 2,200 81
------
Total Banks 3,114
------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 0.1%
Argyle Television* 2,000 34
------
Total Broadcasting, Newspapers & Advertising 34
------
</TABLE>
13
<PAGE> 5
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
BUILDING & CONSTRUCTION -- 1.4%
Empresas ICA S.A.-ADS 7,500 $ 71
Webb (Del. E.) 35,000 727
------
Total Building & Construction 798
------
CHEMICALS -- 0.4%
Kinark* 65,000 195
------
Total Chemicals 195
------
COMMUNICATIONS EQUIPMENT -- 1.0%
ECI Telecommunications* 9,000 171
First Alert* 22,000 341
Qualcomm* 1,500 58
------
Total Communications Equipment 570
------
COMPUTER SOFTWARE -- 4.7%
Autotote -- Class A* 35,000 105
Checkfree* 3,600 76
Computer Associates
International 8,500 468
Computervision* 72,500 850
Control Data Systems* 60,000 795
Gametek* 10,000 18
Pyxis* 16,947 214
Simware* 18,400 173
------
Total Computer Software 2,699
------
COMPUTERS & SERVICES -- 2.4%
IBM 8,500 826
International Game Technology 21,514 250
Landmark Graphics* 7,200 157
Mizar* 18,200 155
------
Total Computers & Services 1,388
------
CONCRETE & MINERAL PRODUCTS -- 1.3%
Owens Corning Fiberglass* 17,500 742
------
Total Concrete & Mineral Products 742
------
CONTAINERS & PACKAGING -- 0.6%
Owens-Illinois* 25,700 324
------
Total Containers & Packaging 324
------
ELECTRICAL SERVICES -- 1.0%
SCE 35,000 595
------
Total Electrical Services 595
------
ELECTRONIC GAMING DEVICES -- 1.1%
Mikohn Gaming* 110,000 495
Video Lottery Technologies* 34,200 162
------
Total Electronic Gaming Devices 657
------
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT -- 1.9%
Cincinnati Microwave* 27,300 157
Philips Electronics ADR* 18,300 707
Rexel* 18,800 216
Smartflex Systems* 2,300 34
------
Total Electronic and Other Electrical Equipment 1,114
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
ENERGY & POWER -- 1.3%
Zurn Industries 30,000 $ 750
------
Total Energy & Power 750
------
ENGINEERING CONSULTING -- 0.1%
Corrpro Companies* 9,700 55
------
Total Engineering Consulting 55
------
ENTERTAINMENT -- 1.0%
Boomtown* 17,000 125
Cinergi Pictures Entertainment* 14,300 55
Hollywood Park* 20,000 194
President Casinos* 17,226 53
Sports Club* 38,000 162
------
Total Entertainment 589
------
ENVIRONMENTAL CONSULTING -- 0.5%
Harding Associates* 40,300 277
------
Total Environmental Consulting 277
------
ENVIRONMENTAL SERVICES -- 1.3%
Browning Ferris Industries 25,000 728
------
Total Environmental Services 728
------
FINANCIAL SERVICES -- 3.7%
Donaldson, Luftkin, & Jenrette* 4,800 143
Household International 5,600 315
ITT 5,000 613
Jayhawk Acceptance* 27,400 329
WFS Financial* 45,000 747
------
Total Financial Services 2,147
------
FOOD, BEVERAGE & TOBACCO -- 5.6%
Cott 19,000 157
Michael Foods 51,476 624
Pepsi-Cola Puerto Rico Bottling* 69,200 944
Philip Morris Companies 8,500 718
RJR Nabisco Holdings 19,200 590
Rymer Foods* 178,600 223
------
Total Food, Beverage & Tobacco 3,256
------
HOME BUILDERS -- 0.4%
Belmont Homes* 4,100 72
Cavalier Homes 10,925 185
------
Total Home Builders 257
------
HOTELS & LODGING -- 1.3%
John Q. Hammons Hotels* 9,600 113
Prime Hospitality* 64,500 637
------
Total Hotels & Lodging 750
------
HOUSEHOLD FURNITURE & FIXTURES -- 0.7%
Ameriwood Industries
International* 20,900 105
Winsleow Furniture* 44,180 287
------
Total Household Furniture & Fixtures 392
------
</TABLE>
14
<PAGE> 6
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Special Equity Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
INSURANCE -- 3.5%
Allstate 740 $ 27
Gryphon Holdings* 36,700 573
Pac Rim Holding* 87,700 252
Prudential Reinsurance Holdings* 32,700 667
St. Paul Companies 3,840 195
The Travelers Group 6,500 328
Transport Holdings* 33 1
------
Total Insurance 2,043
------
LABORATORY ANALYTICAL INSTRUMENTS -- 0.4%
Molecular Dynamics* 1,400 8
Perseptive Biosystems* 21,000 224
------
Total Laboratory Analytical Instruments 232
------
MACHINERY -- 3.9%
Agco 8,950 401
Caterpillar 11,500 645
Deere 7,500 670
Kuhlman 50,000 575
------
Total Machinery 2,291
------
MEDICAL PRODUCTS & SERVICES -- 6.0%
Acme United* 129,200 388
Aequitron Medical* 9,000 71
Community Psychiatric* 12,400 135
Cooper Companies* 50,000 294
Keravision* 34,500 427
Metra Biosystems* 6,800 126
Pace Health Management Systems* 43,500 201
Possis Medical* 22,600 319
Resound* 47,400 373
Scios Nova* 218,200 789
Sterling House* 18,000 223
United Healthcare 1,366 73
Value Health* 5,400 124
------
Total Medical Products & Services 3,543
------
METALS & MINING -- 0.9%
Potash of Saskatchewan 7,800 543
------
Total Metals & Mining 543
------
OIL AND GAS FIELD EXPLORATION SERVICES -- 1.9%
Enron 10,000 344
Repsol S.A. ADR 25,000 740
------
Total Oil and Gas Field
Exploration Services 1,084
------
PAPER & PAPER PRODUCTS -- 1.1%
International Paper 17,000 629
------
Total Paper & Paper Products 629
------
PETROLEUM & FUEL PRODUCTS -- 0.1%
Kelley Oil & Gas* 15,000 38
------
Total Petroleum & Fuel Products 38
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
PHARMACEUTICALS -- 7.1%
Alpharma 18,700 $ 449
Anesta* 45,200 480
Aphton* 24,300 231
Elan* 17,000 682
Guilford Pharmaceuticals* 22,600 373
ISIP Pharmaceuticals* 27,300 276
NBTY* 26,500 133
Pharmaceutical Resources* 91,300 753
Roberts Pharmaceutical* 12,500 242
Teva Pharmaceutical Industries
ADR 14,000 550
------
Total Pharmaceuticals 4,169
------
RAILROADS -- 1.0%
CSX 7,200 603
------
Total Railroads 603
------
REAL ESTATE -- 0.2%
Agree Realty 9,400 139
------
Total Real Estate 139
------
REPAIR SERVICES -- 0.1%
Earl Scheib* 4,900 29
------
Total Repair Services 29
------
RESTAURANTS -- 4.0%
Darden Restaurants* 81,500 927
Hometown Buffet* 44,800 588
Rally's Hamburgers* 5,815 11
Uno Restaurant* 90,000 686
Vicorp Restaurants* 5,000 55
Vie De France* 21,000 66
------
Total Restaurants 2,333
------
RETAIL -- 6.4%
Bed Bath & Beyond* 3,500 109
Bon-Ton Stores* 51,000 332
Border Group* 54,000 926
Chico's Fas* 8,300 37
CML Group 92,200 530
De Rigo S.P.A. ADR* 200 4
Drug Emporium* 92,100 374
Intimate Brands* 5,400 90
Kroger* 16,000 534
Pacific Sunwear of California* 74,900 543
Sportmart Class A* 14,400 68
Sportmart* 14,400 110
Strouds* 19,000 88
------
Total Retail 3,745
------
RUBBER & PLASTIC -- 1.7%
Goodyear Tire And Rubber 13,000 494
O'Sullivan 45,000 495
------
Total Rubber & Plastic 989
------
</TABLE>
15
<PAGE> 7
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
SEMI-CONDUCTORS -- 3.8%
ESS Technology* 9,100 $ 273
Intel 7,400 517
Lam Research* 7,500 457
Micron Technology 7,800 550
National Semiconductor* 17,300 422
------
Total Semi-Conductors 2,219
------
SERVICES-EMPLOYMENT AGENCIES -- 0.9%
Manpower 20,000 543
------
Total Services-Employment Agencies 543
------
SPORTING AND ATHLETIC GOODS -- 1.2%
Callaway Golf 36,500 597
Meridian Sports* 17,300 104
------
Total Sporting and Athletic Goods 701
------
STEEL & STEEL WORKS -- 2.5%
Ak Steel Holding 22,000 682
Cold Metal Products* 42,800 246
USX 17,500 523
------
Total Steel & Steel Works 1,451
------
TELEPHONES & TELECOMMUNICATION -- 2.3%
Cellular Communications -- Class
A* 5,439 292
Executone Information Systems* 55,900 143
Intermedia Communications of
Florida* 40,500 511
Nextel Communications* 15,000 208
Peoples Telephone* 14,300 37
Telefonica De Espana ADR 4,000 151
------
Total Telephones & Telecommunication 1,342
------
TRUCKING -- 1.6%
Expeditors International of
Washington 25,000 656
PST Vans* 45,900 258
------
Total Trucking 914
------
VIDEO TECHNOLOGY -- 1.3%
Videonics* 55,000 770
------
Total Video Technology 770
------
WHOLESALE -- 0.3%
Government Technology Services* 33,500 188
------
Total Wholesale 188
------
Total Common Stock
(Cost $55,333,061) 55,877
------
COMMERCIAL PAPER -- 4.4%
American Express
5.750%, 11/01/95 $ 2,540 2,540
------
Total Commercial Paper
(Cost $2,540,000) 2,540
------
Total Investments -- 100.5%
(Cost $57,873,061) 58,417
------
OTHER ASSETS AND LIABILITIES -- (0.5%)
Other Assets and Liabilities,
Net (287)
------
Total Other Assets and Liabilities (287)
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 5,027,349
outstanding shares of
beneficial interest $ 48,443
Portfolio shares of the Retail
Class (unlimited
authorization -- $0.001 par
value) based on 64,279
outstanding shares of
beneficial interest 643
Undistributed net investment
income 16
Undistributed net realized gain
on investments 8,483
Unrealized appreciation on
investments 545
------
Total Net Assets: -- 100.0% $ 58,130
======
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 11.42
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 11.42
======
Maximum Offering Price Per
Share -- Retail Class
($11.42 / 98.0%) $ 11.65
======
* Non-income producing security
ADR American Depository Receipt
INTERNATIONAL EQUITY FUND
FOREIGN COMMON STOCKS 90.2%
ARGENTINA 1.4%
Banco Frances Rio Plata ADR 2,200 $ 49
Cementera Argentina* 6,500 28
Commercial del Plata* 19,000 38
Irsa GDR* 1,400 29
Quilmes Industrial 2,200 39
------
Total Argentina 183
------
AUSTRALIA 0.8%
Newscorp 21,000 106
------
Total Australia 106
------
CHILE 0.2%
Santa Isabel ADR* 1,100 25
------
Total Chile 25
------
FINLAND 3.6%
Nokia, Cl A 8,400 481
------
Total Finland 481
------
</TABLE>
16
<PAGE> 8
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
International Equity Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
FRANCE 1.7%
Axa 800 $ 44
Business Objects ADR* 1,300 56
Castorama 165 27
Cie Bancaire 350 36
SGS-Thomson ADR* 1,500 68
------
Total France 231
------
GERMANY 0.7%
Veba 2,250 92
------
Total Germany 92
------
HONG KONG 5.9%
Cheung Kong Holdings 11,000 62
Citic Pacific 20,800 65
First Pacific 266,000 306
HSBC Holdings 15,200 221
Hutchison Whampoa 12,000 66
Sun Hung Kai Properties 8,000 64
------
Total Hong Kong 784
------
INDIA 0.6%
East India Hotels GDR* 1,400 24
I.T.C. ADR* 4,100 36
Ranbaxy Laboratories GDR 1,000 22
------
Total India 82
------
INDONESIA 1.0%
Indonesian Satellite ADR 4,000 133
------
Total Indonesia 133
------
IRELAND 0.4%
Elan ADR* 1,300 52
------
Total Ireland 52
------
ISRAEL 0.3%
ECI Telecommunications 1,800 34
------
Total Israel 34
------
ITALY 2.7%
Assicurazioni Generali 2,200 51
Falck* 12,200 28
Fila Holdings ADR 900 39
Gucci Group ADR* 3,100 93
Mediobanca 4,000 27
Telecom Italia 71,500 120
------
Total Italy 358
------
JAPAN 27.7%
Advantest 4,000 227
Alpine Electronics 4,000 56
Best Denski 2,000 29
Bridgestone 3,000 42
Canon 6,000 103
Canon Sales 1,000 24
Daini Denden 32 259
Daiwa Securities 7,000 82
Fanuc 2,000 87
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
Hirose Electric 1,050 $ 67
Ito Yokado 3,000 164
Keyence 500 62
Koa 5,000 81
Kokusai Electric 5,000 114
Komatsu 6,000 47
Kubota 6,000 37
Kurita Water Industries 1,000 28
Kyocera 4,000 328
Makita 2,000 31
Marui 2,000 35
Matsushita Electric 3,000 43
Mitsubishi Electric 5,000 37
Mitsubishi Estate 7,000 75
Mitsubishi Trust & Banking 2,000 28
Mitsui Fudosan 5,000 57
Murata 4,000 140
NEC 20,000 264
Nikon 10,000 143
Nippon Telegraph & Telephone 4 33
Nissan Motors 7,000 47
Nomura Securities 6,000 110
NTT Data Communications 3 75
Sankyo 1,000 22
Sanwa Bank 3,000 51
Sharp 7,000 97
Sony 1,000 45
Sumitomo Bank 3,000 53
Sumitomo Trust & Banking 4,000 46
Takeda Chemical Industries 2,000 28
TDK 1,000 52
Tokyo Electronics 4,000 174
Toray 6,000 37
Toyota Motor 4,000 74
Ushio 2,000 23
Yamanouchi Pharmaceutical 3,000 67
------
Total Japan 3,724
------
LUXEMBOURG 0.1%
Millicom International* 500 17
------
Total Luxembourg 17
------
MALAYSIA 3.8%
Arab-Malaysian Merchant Bank 12,000 148
Malayan Banking 10,000 81
New Straits Times Press 20,000 63
Sime Darby Malaysia 20,000 50
Technology Resources* 44,000 112
United Engineers 9,000 56
------
Total Malaysia 510
------
</TABLE>
17
<PAGE> 9
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
MEXICO 2.0%
Bufete Industrial ADR* 1,600 $ 21
Cemex, Cl A 5,300 16
Cifra* 35,000 37
Grupo Carso ADR* 2,500 24
Grupo Financiero Banamex, Cl B 11,000 19
Grupo Financiero Banamex, Cl L 550 1
Grupo Financiero Inbursa, Cl C 20,000 55
Grupo Iusacell ADS* 1,400 17
Grupo Modelo, Cl C 5,000 19
Grupo Posadas, Cl A* 52,300 17
Grupo Synkro ADR, Cl B* 80,000 20
Kimberly Clark, Cl A 1,700 22
------
Total Mexico 268
------
NETHERLANDS 4.7%
Advanced Semi-Conductor ADR* 700 33
ASM Litho Holdings ADR* 2,000 97
Baan ADR* 2,300 98
Elsevier 4,500 58
Getronics 1,000 48
International Nederlanden 500 30
Madge Networks ADR* 1,900 80
Philips Electronics 1,800 70
Polygram 1,100 69
Wolters Kluwer 500 46
------
Total Netherlands 629
------
NEW ZEALAND 0.5%
Telecom New Zealand ADR 1,015 67
------
Total New Zealand 67
------
NORWAY 1.2%
Hafslund Nycomed, Cl B 1,200 34
Petroleum Geo-Services ADR* 6,200 120
------
Total Norway 154
------
PERU 0.3%
Banco Wiese ADR 6,900 46
------
Total Peru 46
------
PHILIPPINES 0.5%
San Miguel, Cl B 20,000 66
------
Total Philippines 66
------
SINGAPORE 1.9%
City Development 7,000 43
Creative Technology ADR* 1,100 13
Flextronics ADR* 1,000 23
Singapore Press, F 2,400 38
Straits Steamship Land 14,000 39
United Overseas Bank, F 10,600 93
------
Total Singapore 249
------
SOUTH KOREA 3.1%
Korea Fund 3,000 65
Korea Mobile Telecom GDR* 2,500 93
Samsung Electric Non-Voting
GDS New* 4,000 256
Samsung Electric Voting GDR* 22 2
------
Total South Korea 416
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
SWEDEN 7.4%
Allgan, Cl B 1,600 $ 24
Asea, Cl B 1,400 138
Astra, Cl B 5,200 188
Autoliv 2,200 126
Ericsson Telephone ADR 23,400 500
Pharmacia, Cl B 500 17
------
Total Sweden 993
------
SWITZERLAND 4.9%
Brown Boveri & Cie Bearer 65 75
Ciba Geigy 125 108
Roche Holdings 35 255
Sandoz Pharmaceutical 260 215
------
Total Switzerland 653
------
THAILAND 2.3%
Advanced Info Service, F 9,000 148
Land and House, F 2,000 32
Total Access Communications ADR 11,000 67
United Communications 5,000 63
------
Total Thailand 310
------
UNITED KINGDOM 10.5%
Barclays Bank 5,200 61
BAT 4,200 34
British Sky Broadcasting ADR 5,500 197
Commercial Union 5,300 51
Glaxo Wellcome 7,200 97
Logica 6,100 46
Next 12,000 78
Reuters 16,200 151
Smithkline Beecham 20,500 210
Takare 6,000 19
Tele-Communications ADR, Cl A* 7,500 170
Vodafone Group 26,200 108
WPP Group 11,600 28
Zeneca Group 8,000 149
------
Total United Kingdom 1,399
------
Total Foreign Common Stocks
(Cost $11,387,561) 12,062
------
FOREIGN PREFERRED STOCKS 1.4%
GERMANY 1.4%
SAP 1,250 191
------
Total Germany 191
------
Total Foreign Preferred Stocks
(Cost $158,684) 191
------
</TABLE>
18
<PAGE> 10
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
International Equity Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
TIME DEPOSIT 7.7%
Bank of New York -- Cayman
Time Deposit
5.563%, 11/01/95 $ 1,029 $ 1,029
------
Total Time Deposit
(Cost $1,028,558) 1,029
------
Total Investments (99.3% of Net Assets)
(Cost $12,574,803) 13,282
------
OTHER ASSETS AND LIABILITIES 0.7%
Other Assets and Liabilities, Net 99
------
Total Other Assets and Liabilities 99
------
NET ASSETS:
Portfolio shares of
Institutional
Class (unlimited
authorization -- $0.001 par
value) -- based on
1,214,982 outstanding shares 12,425
Portfolio shares of Retail
Class (unlimited
authorization -- $0.001 par
value) -- based on
758 outstanding shares 8
Accumulated net investment loss (5)
Undistributed net realized gain
on investments and foreign
currency transactions 201
Unrealized appreciation on
forward foreign currency
contracts, foreign currency
and translation of other
assets and liabilities in
foreign currency 45
Unrealized appreciation on
investments 707
------
Total Net Assets: -- 100.0% $ 13,381
======
Net Asset Value, Offering Price
and
Redemption Price Per Share --
Institutional Class $ 11.01
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.99
======
Maximum Offering Price Per
Share -- Retail Class
($10.99 / 98%) $ 11.21
======
* Non-income producing security
ADR American Depository Receipts
ADS American Depository Shares
GDR Global Depository Receipts
GDS Global Depository Shares
Cl Class
F Foreign Registry Shares
BALANCED FUND
COMMON STOCK -- 38.5%
AEROSPACE & DEFENSE -- 0.2%
McDonnell Douglas 900 $ 74
------
Total Aerospace & Defense 74
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C> <C>
AIRCRAFT -- 1.1%
Allied Signal 3,800 $ 162
Boeing 1,500 98
Textron 1,000 69
United Technologies 900 80
------
Total Aircraft 409
------
APPAREL/TEXTILES -- 0.2%
Burlington Industries* 1,900 21
Fruit Of The Loom* 3,000 52
------
Total Apparel/Textiles 73
------
AUTOMOTIVE -- 0.7%
Ford Motor 7,700 222
Magna International, Class A 1,000 43
------
Total Automotive 265
------
BANKS -- 3.9%
Bank of Boston 2,600 116
BankAmerica 8,300 477
Chase Manhattan 7,800 445
Chemical Banking 4,400 250
Citicorp 3,500 227
------
Total Banks 1,515
------
BOOKS -- 0.0%
Borders Group* 1,000 17
------
Total Books 17
------
BUILDING & CONSTRUCTION -- 0.3%
Webb (Del E.) 5,400 112
------
Total Building & Construction 112
------
CHEMICALS -- 1.5%
Dow Chemical 900 62
Hercules 1,900 101
IMC Global 1,700 119
Monsanto 1,200 126
Praxair 6,500 175
------
Total Chemicals 583
------
COMMUNICATIONS EQUIPMENT -- 0.5%
First Alert* 1,200 19
Motorola 1,300 85
Qualcomm* 2,500 96
------
Total Communications Equipment 200
------
COMPUTER SOFTWARE -- 0.5%
Computer Associates
International 2,400 131
International Game Technology 5,400 63
Pyxis* 1,000 13
------
Total Computer Software 207
------
</TABLE>
19
<PAGE> 11
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
COMPUTERS & SERVICES -- 2.4%
Apple Computer 3,600 $ 131
Compaq Computer* 2,000 112
Digital Equipment* 3,500 189
Hewlett Packard 800 74
IBM 4,000 389
Novell* 2,252 37
------
Total Computers & Services 932
------
CONCRETE & MINERAL PRODUCTS -- 0.1%
Owens Corning Fiberglass* 1,200 51
------
Total Concrete & Mineral Products 51
------
CONTAINERS & PACKAGING -- 0.2%
Owens-Illinois* 5,300 67
------
Total Containers & Packaging 67
------
ELECTRICAL SERVICES -- 2.5%
American Electric Power 1,800 69
Central And South West 4,100 110
Consolidated Edison New York 5,400 164
Pacific Gas And Electric 4,200 123
Peco Energy 8,500 248
SCE 14,300 243
------
Total Electrical Services 957
------
ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT -- 1.8%
General Electric 7,200 456
Philips Electronics ADR 2,700 104
Texas Instruments 1,800 123
------
Total Electronic and Other
Electrical Equipment 683
------
ENTERTAINMENT -- 0.1%
MGM Grand* 1,800 43
------
Total Entertainment 43
------
ENVIRONMENTAL SERVICES -- 0.3%
Browning Ferris Industries 4,500 131
------
Total Environmental Services 131
------
FINANCIAL SERVICES -- 1.6%
Dean Witter Discover 3,700 183
Fleet Financial Group 2,000 78
Household International 1,400 79
ITT 1,500 184
MBNA 2,500 92
------
Total Financial Services 616
------
FOOD, BEVERAGE & TOBACCO -- 3.1%
IBP 1,900 114
Nabisco Holdings -- Class A 8,000 215
Philip Morris Companies 6,700 566
RJR Nabisco Holdings 10,300 317
------
Total Food, Beverage & Tobacco 1,212
------
HOUSEHOLD PRODUCTS -- 0.1%
Maytag 2,700 51
------
Total Household Products 51
------
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
INSURANCE -- 1.6%
Aetna Life And Casualty 1,200 $ 84
Allstate 462 17
Cigna 1,200 119
Equitable Companies 7,300 155
The Travelers Group 5,000 253
Transport Holdings -- Class A* 25 1
------
Total Insurance 629
------
MACHINERY -- 1.1%
Baker Hughes 3,000 59
Case Equipment 2,500 95
Caterpillar 1,200 67
Deere 1,800 161
McDermott International 1,300 21
------
Total Machinery 403
------
MEDICAL PRODUCTS & SERVICES -- 0.8%
Beverly Enterprises* 5,100 60
Community Psychiatric* 1,500 16
FHP International* 1,500 36
Foundation Health* 1,600 68
Health Systems International
Class A* 700 21
Humana* 1,500 32
Novacare* 2,300 14
United Healthcare 500 27
United States Surgical 1,700 42
------
Total Medical Products & Services 316
------
METALS & MINING -- 0.3%
Potash of Saskatchewan 1,700 118
------
Total Metals & Mining 118
------
OIL AND GAS FIELD EXPLORATION SERVICES -- 4.0%
Ashland 3,500 111
British Petroleum PLC ADR 4,000 353
Diamond Shamrock 1,400 36
Enron 3,500 120
Mobil 3,200 322
Repsol S.A. ADR 7,100 210
Royal Dutch Petroleum 2,200 270
Tosco 2,300 79
YPF Sociedad Anonima ADR 2,700 46
------
Total Oil and Gas Field Exploration Services 1,547
------
PAPER & PAPER PRODUCTS -- 0.2%
International Paper 1,800 67
------
Total Paper & Paper Products 67
------
PHARMACEUTICALS -- 1.0%
Caremark International 900 19
Elan Public* 3,900 156
Merck 1,600 92
Mylan Laboratories 2,500 48
Teva Pharmaceutical Industries
ADR 1,400 55
------
Total Pharmaceuticals 370
------
</TABLE>
20
<PAGE> 12
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Balanced Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Market
Description Shares Value (000)
----------------------------------------------------------
<S> <C>
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 0.2%
Xerox 500 $ 65
------
Total Photographic Equipment & Supplies 65
------
RAILROADS -- 0.5%
Burlington Northern Santa Fe 1,100 92
CSX 1,200 101
------
Total Railroads 193
------
RESTAURANTS -- 0.6%
Darden Restaurants* 17,300 197
Vicorp Restaurants* 2,200 24
------
Total Restaurants 221
------
RETAIL -- 1.5%
CML Group 9,000 52
Kroger* 7,200 239
Lowe's 6,500 176
Pep Boys 3,500 77
Vons* 1,500 38
------
Total Retail 582
------
RUBBER & PLASTIC -- 1.0%
Goodyear Tire And Rubber 9,700 369
------
Total Rubber & Plastic 369
------
SEMI-CONDUCTORS/INSTRUMENTS -- 1.0%
Intel 3,100 216
Micron Technology 900 64
National Semiconductor* 3,200 78
VLSI Technology 1,500 35
------
Total Semi-Conductors/Instruments 393
------
SERVICES-EMPLOYMENT AGENCIES -- 0.3%
Manpower 4,000 109
------
Total Services-Employment Agencies 109
------
SPECIALTY MACHINERY -- 0.3%
Westinghouse Electric 7,500 106
------
Total Specialty Machinery 106
------
STEEL & STEEL WORKS -- 0.6%
Birmingham Steel 300 5
Phelps Dodge 1,900 120
USX -- U.S. Steel Group 3,900 117
------
Total Steel & Steel Works 242
------
TELEPHONES & TELECOMMUNICATION -- 2.3%
Cellular Communications -- Class
A* 2,000 107
MCI Communications 6,500 162
SBC Communications 3,000 168
Worldcom* 14,300 467
------
Total Telephones & Telecommunication 904
------
WHOLESALE -- 0.1%
Universal -- Va 900 19
------
Total Wholesale 19
------
Total Common Stock
(Cost $14,129,471) 14,851
------
PREFERRED STOCKS -- 0.1%
PRINTING & PUBLISHING -- 0.1%
News -- Preferred Shares ADR 3,200 58
------
Total Printing & Publishing 58
------
Total Preferred Stocks
(Cost $64,400) 58
------
<CAPTION>
----------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 34.8%
U.S. Treasury Bonds
8.750%, 05/15/17 $ 1,040 $ 1,320
7.625%, 02/15/25 80 93
U.S. Treasury Notes
7.375%, 05/15/96 700 707
7.500%, 01/31/97 950 971
6.500%, 05/15/97 645 653
8.500%, 05/15/97 85 89
7.375%, 11/15/97 1,645 1,699
8.125%, 02/15/98 355 373
9.000%, 05/15/98 815 878
9.250%, 08/15/98 430 469
8.875%, 11/15/98 1,105 1,201
6.750%, 05/31/99 1,215 1,253
7.125%, 09/30/99 600 627
7.500%, 10/31/99 970 1,028
7.500%, 11/15/01 1,275 1,379
9.250%, 02/15/16 510 673
------
Total U.S. Treasury Obligations
(Cost $13,321,228) 13,413
------
CORPORATE OBLIGATIONS -- 5.2%
Ahmanson H. F
7.875%, 09/01/04 185 197
Bear Stearns
6.875%, 10/01/05 175 175
Capital One Bank
8.125%, 02/27/98 90 94
Chase Manhattan Bank
6.500%, 08/01/05 100 98
Chemical Bank
6.125%, 11/01/08 230 214
First Nationwide
10.000%, 10/01/06 50 59
Lehman Brothers Holdings
7.125%, 09/15/03 175 176
Manufacturers & Traders
7.000%, 07/01/05 165 165
Niagara Mohawk Power
Callable @100 04/01/02
8.750%, 04/01/22 80 76
Provident Bank
6.375%, 01/15/04 160 156
TCI Communications
8.750%, 08/01/15 90 96
Tele-Communications
8.250%, 01/15/03 100 105
United Air Lines
10.670%, 05/01/04 320 375
------
Total Corporate Obligations
(Cost $1,968,434) 1,986
------
</TABLE>
21
<PAGE> 13
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 6.2%
FHLMC CMO Pool #E00388
7.000%, 08/01/10 $ 139 $ 140
FHLMC Pool #D63546
7.000%, 09/01/25 350 347
FNMA Pool #190203
8.000%, 02/01/23 176 180
FNMA Pool #290383
7.500%, 05/01/25 159 161
FNMA Pool #303460
6.500%, 07/01/10 288 286
FNMA Pool #317278
7.500%, 07/01/25 175 176
GNMA Pool #356688
7.000%, 07/15/23 386 384
GNMA Pool #780190
7.500%, 07/15/25 715 728
------
Total U.S. Government Agency Obligations
(Cost $2,393,321) 2,402
------
YANKEE BONDS -- 3.3%
AAB-Global
7.250%, 05/31/05 250 260
Carter Holt Harvey
8.375%, 04/15/15 85 94
CSR Finance
7.700%, 07/21/25 200 208
Laidlaw
8.750%, 04/15/25 75 86
Noranda
8.000%, 06/01/03 100 107
Quebec Province
7.500%, 07/15/23 280 281
Santander Finance
7.875%, 04/15/05 100 107
Toronto-Domnion Bank -- New York
6.150%, 10/15/08 140 131
------
Total Yankee Bonds
(Cost $1,251,897) 1,274
------
COMMERCIAL PAPER -- 10.5%
American Express
5.750%, 11/01/95 4,030 4,030
------
Total Commercial Paper
(Cost $4,030,000) 4,030
------
MORTGAGE RELATED -- 0.9%
Premier Auto Trust Series 1995-1
Class A4
7.850%, 09/04/98 110 113
Prudential Home Mortgage
Securities Pool #1994-29 Class
A5
7.000%, 10/25/24 235 230
------
Total Mortgage Related
(Cost $339,218) 343
------
Total Investments -- 99.5%
(Cost $37,497,969) 38,357
------
OTHER ASSETS AND LIABILITIES -- 0.5%
Other Assets and Liabilities, Net 206
------
Total Other Assets and Liabilities 206
------
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 3,707,254
outstanding shares of
beneficial interest $ 37,304
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
6,676 outstanding shares of
beneficial interest 68
Undistributed net investment
income 47
Undistributed net realized gain
on investments 285
Unrealized appreciation on
investments 859
------
Total Net Assets: -- 100.0% $ 38,563
======
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 10.38
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.39
======
Maximum Offering Price Per
Share -- Retail Class
($10.39 / 98.0%) $ 10.60
======
</TABLE>
* Non-income producing security
ADR American Depository Receipt
CMO Collateralized Mortgage Obligation
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
<TABLE>
<CAPTION>
BOND FUND
U.S. TREASURY OBLIGATIONS -- 35.8%
<S> <C> <C>
U.S. Treasury Bonds
10.750%, 05/15/03 $ 200 $ 257
8.750%, 05/15/17 8,745 11,099
8.125%, 08/15/19 195 235
8.500%, 02/15/20 2,600 3,251
7.500%, 11/15/24 500 571
7.625%, 02/15/25 2,450 2,843
U.S. Treasury Notes
7.500%, 01/31/97 1,065 1,089
6.500%, 05/15/97 1,155 1,170
8.500%, 05/15/97 1,225 1,276
8.500%, 07/15/97 2,075 2,170
9.000%, 05/15/98 6,345 6,836
9.250%, 08/15/98 12,140 13,231
8.875%, 02/15/99 4,568 4,991
6.750%, 05/31/99 6,050 6,239
7.125%, 09/30/99 6,335 6,625
</TABLE>
22
<PAGE> 14
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Bond Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
U.S. TREASURY OBLIGATIONS -- CONTINUED
7.500%, 10/31/99 $ 3,955 $ 4,192
7.750%, 01/31/00 3,780 4,051
------
Total U.S. Treasury Obligations
(Cost $69,349,806) 70,126
------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 30.9%
FHLMC Pool #D63546
7.000%, 09/01/25 3,542 3,517
FHLMC Pool #E00388
7.000%, 08/01/10 1,386 1,398
FHLMC Pool #E20013
7.500%, 01/01/08 3,674 3,748
FHLMC Pool #E20185
7.000%, 07/01/10 1,559 1,572
FHLMC Series 1254 Class F
7.250%, 04/15/18 2,020 2,025
FHLMC Series 1411 Class E
6.000%, 02/15/16 2,580 2,562
FHLMC Series 1519 Class F
6.750%, 03/15/07 1,925 1,953
FHLMC Series 1528 Class C
6.500%, 05/15/05 1,920 1,848
FHLMC Series 1606 Class KA
6.250%, 11/15/08 1,971 1,970
FHLMC Series 30 Class D
9.500%, 02/15/20 2,000 2,186
FNMA Pool #190203
8.000%, 02/01/23 1,836 1,883
FNMA Pool #290383
7.500%, 05/01/25 1,651 1,669
FNMA Pool #303460
6.500%, 07/01/10 3,340 3,313
FNMA Pool #317278
7.500%, 07/01/25 1,840 1,860
FNMA Pool #50726
7.000%, 05/01/23 3,534 3,505
FNMA Series 1992-124 Class PG
7.000%, 01/25/18 1,930 1,942
FNMA Series 1992-196 Class E
5.750%, 02/25/03 1,680 1,655
FNMA Series 1992-210 Class H
6.500%, 03/25/19 1,660 1,641
FNMA Series 1992-65 Class H
8.500%, 01/25/20 1,836 1,914
FNMA Series 1993-194 Class B
5.500%, 10/25/98 1,585 1,543
FNMA Series 1993-2 Class PD
6.750%, 01/25/16 1,600 1,603
FNMA Series G92-24 Class E
6.500%, 11/25/20 1,397 1,392
GNMA Pool #286395
9.000%, 04/15/20 2,611 2,744
GNMA Pool #356688
7.000%, 07/15/23 3,825 3,802
GNMA Pool #780190
7.500%, 07/15/25 7,153 7,280
------
Total U.S. Government Agency Obligations
(Cost $59,949,162) 60,525
------
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
CORPORATE OBLIGATIONS -- 15.4%
Ahmanson H. F.
7.875%, 09/01/04 $ 2,500 $ 2,656
Bear Stearns
6.875%, 10/01/05 1,640 1,638
Capital One Bank
8.125%, 02/27/98 910 948
Chase Manhattan Bank
6.500%, 08/01/05 1,005 980
Chemical Bank
6.125%, 11/01/08 2,140 1,988
First Nationwide
10.000%, 10/01/06 485 572
Georgia Pacific
7.700%, 06/15/15 975 997
8.250%, 03/01/23 770 805
Great Lakes Power
8.900%, 12/01/99 750 798
Laidlaw
8.750%, 04/15/25 1,485 1,710
Lehman Brothers
9.875%, 10/15/00 1,050 1,188
Lehman Brothers Holdings
7.125%, 09/15/03 1,725 1,736
Manufacturers & Traders
7.000%, 07/01/05 1,605 1,605
Niagara Mohawk Power
Callable 04/01/02 @ 104
8.750%, 04/01/22 940 888
Provident Bank
6.375%, 01/15/04 1,855 1,813
Southern Cal Gas
7.500%, 06/15/23 665 687
System Energy Resources
10.500%, 09/01/96 1,020 1,057
TCI Communications
8.750%, 08/01/15 905 965
Tele-Communications
Callable 01/15/03
9.250%, 01/15/23 1,885 2,019
Texas Utilities
Callable 04/01/03 @ 103.85
7.875%, 04/01/24 720 751
United Air Lines
10.670%, 05/01/04 2,910 3,427
Virginia Electric & Power
Callable 03/01/05 @ 103.48
8.250%, 03/01/25 840 919
------
Total Corporate Obligations
(Cost $29,483,836) 30,147
------
MORTGAGE RELATED -- 3.3%
GE Capital Mortgage Services
Series 1994-2 Class A4
6.000%, 01/25/09 2,680 2,605
Prudential Home Mortgage
Securities Series 1994-29
Class A5
7.000%, 10/25/24 2,475 2,419
</TABLE>
23
<PAGE> 15
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
MORTGAGE RELATED -- CONTINUED
Residential Funding Mtg Sec 1
Series 1993-S7 Class A6
7.150%, 02/25/08 $ 1,500 $ 1,499
------
Total Mortgage Related
(Cost $6,450,512) 6,523
------
ASSET BACKED SECURITIES -- 2.5%
Banc One Credit Card Master
Trust Series 1994-A Class A
7.150%, 12/15/98 1,970 2,003
Premier Auto Trust Series 1995-1
Class A4
7.850%, 09/04/98 1,080 1,111
Standard Credit Card Master
Trust Series 1991-4 Class B
8.250%, 10/07/97 1,675 1,710
------
Total Asset Backed Securities
(Cost $4,788,625) 4,824
------
YANKEE BOND -- 7.0%
AAB-Global
7.250%, 05/31/05 2,070 2,150
Carter Holt Harvey
8.375%, 04/15/15 865 961
CSR Finance
7.700%, 07/21/25 1,815 1,885
Korea Electric Power
7.750%, 04/01/13 805 830
Noranda
8.000%, 06/01/03 1,330 1,423
Quebec Province
7.500%, 07/15/23 2,895 2,903
Santander Finance
7.875%, 04/15/05 2,265 2,418
Toronto-Domnion Bank-New York
6.150%, 10/15/08 1,160 1,088
------
Total Yankee Bond
(Cost $13,291,504) 13,658
------
MEDIUM TERM NOTE -- 1.2%
Paine Webber
6.730%, 01/20/04 1,300 1,267
Salomon
6.280%, 02/05/97 1,160 1,156
------
Total Medium Term Note
(Cost $2,339,420) 2,423
------
COMMERCIAL PAPER -- 2.4%
American Express
5.750%, 11/01/95 4,607 4,607
------
Total Commercial Paper
(Cost $4,607,000) 4,607
------
Total Investments -- 98.5%
(Cost $190,259,865) 192,833
------
OTHER ASSETS AND LIABILITIES -- 1.5%
Other Assets and Liabilities, Net 2,982
------
Total Other Assets and Liabilities 2,982
------
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 18,422,250
outstanding shares of
beneficial interest $ 189,788
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
130,046 outstanding shares of
beneficial interest 1,372
Undistributed net investment
income 384
Undistributed net realized gain
on investments 1,698
Unrealized appreciation on
investments 2,573
------
Total Net Assets: -- 100.0% $ 195,815
======
Net Asset Value, Offering Price
and
Redemption Price Per Share --
Institutional Class $ 10.55
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.56
======
Maximum Offering Price Per
Share -- Retail Class
($10.56 / 98.0%) $ 10.78
======
</TABLE>
CMO Collateralized Mortgage Obligation
FNMA Federal National Mortgage Association
FHLMC Federal Home Loan Mortgage Corporation
GNMA Government National Mortgage Association
<TABLE>
<CAPTION>
INTERMEDIATE INCOME FUND
U.S. TREASURY OBLIGATIONS -- 61.1%
<S> <C> <C>
U.S. Treasury Notes
7.500%, 01/31/97 $ 4,110 $ 4,202
6.500%, 05/15/97 7,010 7,098
8.500%, 05/15/97 700 729
8.500%, 07/15/97 8,670 9,068
6.500%, 08/15/97 6,890 6,990
7.375%, 11/15/97 2,420 2,499
8.125%, 02/15/98 145 153
9.000%, 05/15/98 4,050 4,364
9.250%, 08/15/98 10,580 11,531
6.750%, 05/31/99 2,215 2,284
7.125%, 09/30/99 7,015 7,336
7.500%, 10/31/99 6,270 6,646
7.750%, 11/30/99 230 246
7.750%, 01/31/00 3,315 3,553
7.500%, 11/15/01 14,690 15,883
7.500%, 02/15/05 2,360 2,602
------
Total U.S. Treasury Obligations
(Cost $84,374,220) 85,184
------
</TABLE>
24
<PAGE> 16
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Intermediate Income Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
CORPORATE OBLIGATIONS -- 13.3%
Bear Stearns
6.875%, 10/01/05 $ 710 $ 709
Capital One Bank
8.125%, 02/27/98 800 833
Chase Manhattan Bank
6.500%, 08/01/05 695 678
Chrysler, Callable @ 100 08/01/97
10.400%, 08/01/99 1,095 1,162
Colonial National Bank
7.000%, 08/01/03 1,595 1,609
First National Bank of Boston
8.000%, 09/15/04 2,000 2,150
Great Lakes Power
8.900%, 12/01/99 990 1,053
KN Energy
9.940%, 02/01/96 300 303
Lehman Bothers
9.875%, 10/15/00 2,000 2,263
Pennsylvania Power And Light
7.750%, 05/01/02 1,280 1,358
Philip Morris, Callable @ 100
06/11/92
6.500%, 12/12/95 250 250
Provident Bank
5.000%, 06/15/96 225 224
System Energy Resources
10.500%, 09/01/96 725 751
Tele-Communications
8.250%, 01/15/03 1,600 1,672
Transcont Gas
8.125%, 01/15/97 1,055 1,076
United Airlines
6.750%, 12/01/97 2,435 2,426
------
Total Corporate Obligations
(Cost $18,319,062) 18,517
------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.6%
FHLMC Remic Series 1254 Class F
7.250%, 04/15/18 205 205
FHLMC Remic Series 1411 Class E
6.000%, 02/15/16 1,725 1,713
FHLMC Remic Series 1509 Class A
6.500%, 10/15/00 1,233 1,216
FHLMC Remic Series 1519 Class F
6.750%, 03/15/07 1,755 1,780
FHLMC Remic Series 1528 Class C
6.500%, 05/15/05 1,755 1,689
FHLMC Remic Series 1606 Class KA
6.250%, 11/15/08 757 757
FNMA Pool #303460
6.500%, 07/01/10 1,809 1,795
FNMA Pool #327118
6.500%, 10/01/10 1,360 1,349
FNMA Remic Series 1992-124 Class
PG
7.000%, 01/25/18 300 302
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
FNMA Remic Series 1992-196 Class
E
5.750%, 02/25/03 1,140 $ 1,123
FNMA Remic Series 1993-194 Class
B
5.500%, 10/25/98 $1,900 1,851
FNMA Remic Series G92-24 Class E
6.500%, 11/25/20 947 943
------
Total U.S. Government Agency Obligations
(Cost $14,643,023) 14,723
------
YANKEE BONDS -- 7.0%
BHP Financial
5.625%, 11/01/00 1,730 1,661
Carter Holt Harvey
8.875%, 12/01/04 1,120 1,277
CSR America
6.875%, 07/21/05 1,670 1,693
Korea Development Bank
6.250%, 05/01/00 1,000 994
Laidlaw
7.875%, 04/15/05 1,490 1,585
Noranda
8.000%, 06/01/03 775 829
Santander Finance
7.875%, 04/15/05 1,625 1,734
------
Total Yankee Bonds
(Cost $9,551,082) 9,773
------
MEDIUM TERM NOTES -- 2.2%
First USA Bank
6.880%, 09/12/96 655 661
Fleet Financial Group
7.180%, 07/09/97 160 163
International Leases
7.830%, 11/14/96 1,345 1,370
Paine Webber
6.730%, 01/20/04 750 731
Paine Webber Group
6.630%, 09/17/97 160 161
------
Total Medium Term Notes
(Cost $3,018,165) 3,086
------
ASSET BACKED SECURITIES -- 3.1%
Banc One Credit Card
Master Trust 1994-A
7.150%, 12/15/98 1,675 1,703
Premier Auto Trust Series 1992-2
Class A
6.375%, 09/15/97 15 15
Premier Auto Trust Series 1994-4
Class A4
6.450%, 05/02/98 1,625 1,639
Premier Auto Trust Series 1995-1
Class 4
7.850%, 09/04/98 870 895
------
Total Asset Backed Securities
(Cost $4,230,806) 4,252
------
</TABLE>
25
<PAGE> 17
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER -- 1.1%
American Express
5.750%, 11/01/95 $1,567 $ 1,567
------
Total Commercial Paper
(Cost $1,567,000) 1,567
------
Total Investments -- 98.3%
(Cost $135,703,358) 137,102
------
OTHER ASSETS AND LIABILITIES -- 1.7%
Other Assets and Liabilities, Net 2,371
------
Total Other Assets and Liabilities 2,371
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 12,909,945
outstanding shares of
beneficial interest 135,805
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
114,722 outstanding shares of
beneficial interest 1,243
Undistributed net investment
income 261
Undistributed net realized gain
on investments 765
Unrealized appreciation on
investments 1,399
------
Total Net Assets: -- 100.0% $ 139,473
======
Net Asset Value, Offering Price and
Redemption Price Per Share --
Institutional Class $ 10.71
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.72
======
Maximum Offering Price Per
Share -- Retail Class
($10.72 / 98.0%) $ 10.94
======
</TABLE>
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
REMIC Real Estate Mortgage Investment Conduit
<TABLE>
<CAPTION>
SHORT-TERM INCOME FUND
U.S. TREASURY OBLIGATIONS -- 65.8%
<S> <C> <C>
U.S. Treasury Notes
7.500%, 01/31/96 $2,975 $ 2,989
5.125%, 03/31/96 4,515 4,508
7.875%, 07/31/96 1,500 1,525
6.500%, 09/30/96 555 559
7.500%, 01/31/97 5,000 5,113
6.500%, 05/15/97 2,140 2,167
8.500%, 05/15/97 190 198
5.625%, 08/31/97 2,000 2,000
7.375%, 11/15/97 2,500 2,582
7.125%, 09/30/99 2,000 2,091
------
Total U.S. Treasury Obligations
(Cost $23,674,766) 23,732
------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS -- 13.0%
Philip Morris
6.500%, 12/12/95 500 $ 500
Provident Bank
5.000%, 06/15/96 520 518
Smith Barney
6.000%, 03/15/97 600 599
Smithkline Beecham
5.250%, 01/26/96 1,000 999
Tele-Communications
5.280%, 08/20/96 560 555
Transcont Gas
8.125%, 01/15/97 525 536
W.R. Grace
6.500%, 12/01/95 1,000 1,000
------
Total Corporate Bonds
(Cost $4,698,191) 4,707
------
MEDIUM TERM NOTES -- 9.0%
First USA Bank
6.880%, 09/12/96 190 192
Ford Motor Credit
8.850%, 05/01/96 1,000 1,015
International Lease
7.830%, 11/14/96 1,000 1,018
McDonnell Douglas Finance
7.310%, 02/19/96 500 502
Salomon Brothers
9.000%, 07/23/96 500 509
------
Total Medium Term Notes
(Cost $3,224,578) 3,236
------
ASSET BACKED SECURITIES -- 6.1%
Banc One Credit Card
Master Trust 1994-A
7.150%, 12/15/98 420 427
Fical Home Equity Loans 90-1a
8.900%, 11/15/97 23 23
Premier Auto Trust 1994-4
Class A-4
6.450%, 05/02/98 600 605
</TABLE>
26
<PAGE> 18
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Short-Term Income Fund -- continued
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
ASSET BACKED SECURITIES -- CONTINUED
Premier Auto Trust Series 1992-2
Class A
6.375%, 09/15/97 $ 103 $ 103
Premier Auto Trust Series 1995-1
Class 4
7.850%, 09/04/98 1,000 1,028
------
Total Asset Backed Securities
(Cost $2,176,405) 2,186
------
U.S. GOVERNMENT AGENCY OBLIGATION -- 1.6%
FNMA Remic Series G92-24 Class E
6.500%, 11/25/20 577 575
------
Total U.S. Government Agency Obligation
(Cost $569,547) 575
------
COMMERCIAL PAPER -- 2.6%
American Express
5.750%, 11/01/95 932 932
------
Total Commercial Paper
(Cost $932,000) 932
------
Total Investments -- 98.1%
(Cost $35,275,487) 35,368
------
OTHER ASSETS AND LIABILITIES -- 1.9%
Other Assets and Liabilities,
Net 702
------
Total Other Assets and Liabilities 702
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 3,587,673
outstanding shares of
beneficial interest 35,870
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
1,131 outstanding shares of
beneficial interest 11
Undistributed net investment
income 64
Undistributed net realized gain
on investments 33
Unrealized appreciation on
investments 92
------
Total Net Assets: -- 100.0% $ 36,070
======
Net Asset Value, Offering Price
and
Redemption Price Per Share --
Institutional Class $ 10.05
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.04
======
Maximum Offering Price Per
Share -- Retail Class
($10.04 / 98.0%) $ 10.24
======
FNMA Federal National Mortgage Association
REMIC Real Estate Mortgage Investment Conduit
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
PENNSYLVANIA TAX-FREE
Bond Fund
MUNICIPAL BONDS -- 100.8%
PENNSYLVANIA -- 100.8%
Allegheny County, Mercy Hospital
of Pittsburgh, RB, AMBAC
6.450%, 04/01/01 $ 200 $ 219
Allegheny County, Montefiore
Hospital Improvement, RB,
Escrowed To Maturity
5.800%, 10/01/03 140 146
Allentown, Water Authority, RB
5.650%, 07/15/96 100 101
Central Bucks, School District,
GO
6.600%, 02/01/03 175 191
Dauphin County, Correctional
Facility, GO, MBIA
5.450%, 08/01/07 200 204
Delaware County GO,
Callable @ 100 09/01/96
7.100%, 12/01/98 170 176
Delaware County, Villanova
University, RB, AMBAC
5.400%, 08/01/08 200 203
Erie County, Correctional
Facility, GO, MBIA, Escrowed
To Maturity
5.850%, 11/01/96 100 102
Gettysburg, Gettysburg College,
RB
5.300%, 02/15/97 250 254
Gettysburg, RB, VRDN
3.950%, 03/01/04 (B) 100 100
Hampden Township,
Sewer Authority, SO,
Escrowed To Maturity
5.350%, 04/01/03 140 145
Harrisburg, Resource Recovery,
RB
5.875%, 09/01/13 (A) 200 201
Hempfield, School District, GO,
FGIC
5.300%, 10/15/14 250 241
Keystone, School District, GO,
FGIC
4.750%, 09/01/06 240 231
Lehigh County, Sewer Authority,
RB, VRDN, FGIC
3.850%, 03/15/05 (B) 200 200
Lower Burrell, Sewer Authority,
RB, AMBAC
5.125%, 02/01/16 250 234
Millcreek Township, Sewer
Authority, RB, MBIA,
Pre-Refunded
6.000%, 11/01/99 (C) 150 159
Montgomery County, Hospital
Authority, Abington Hospital,
Series A, RB, AMBAC
5.125%, 06/01/14 250 232
</TABLE>
27
<PAGE> 19
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
PENNSYLVANIA -- CONTINUED
Montgomery County, Public
Improvements, GO,
Callable @ 100 10/15/03
5.750%, 10/15/11 $ 175 $ 179
Nazareth, School District, GO,
AMBAC
5.500%, 11/15/12 200 198
Northampton County, Lehigh
University, Series A, RB, MBIA
5.750%, 11/15/18 150 150
Pennsylvania State, Allegheny
General Hospital, Series A, RB
6.300%, 09/01/97 200 207
Pennsylvania State, Housing
Finance Authority, Series 37a,
RB
5.450%, 10/01/17 (A) 200 183
Pennsylvania State, Industrial
Development Authority, RB,
AMBAC
5.800%, 07/01/09 250 258
Pennsylvania State,
Miscellaneous Improvement, GO,
Callable @ 100 09/01/99
6.250%, 09/01/00 150 154
Pennsylvania State, Penn State
University, RB, Callable @ 100
03/01/04
6.150%, 03/01/05 (A) 145 157
Pennsylvania State, Turnpike
Commission, Series P, RB
5.100%, 12/01/99 250 257
5.350%, 12/01/01 250 259
Pennsylvania State, University
Improvement, Series F, RB,
AMBAC, Callable @ 100 12/15/02
6.000%, 12/15/09 225 232
Philadelphia, Pennsylvania
Hospital, Series A, RB
5.250%, 02/15/14 250 236
Philadelphia, Philadelphia Gas
Works, Series 15, RB, MBIA
4.600%, 08/01/03 250 247
Quakertown, Hospital Authority,
RB, VRDN
3.750%, 07/01/05 (A) (B) 100 100
Rose Tree Media, School
District, GO, FGIC
5.350%, 02/15/10 150 150
Scranton-Lackawanna, University
of Scranton, Series A, RB,
Callable @ 100 03/01/02
6.150%, 03/01/03 (A) 150 160
Venango, Pollution Control, RB,
VRDN
4.600%, 12/01/12 (A) (B) 200 200
<CAPTION>
----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
Wayne County, Housing Authority,
RB, MBIA
5.350%, 10/01/07 $ 190 $ 186
------
Total Pennsylvania 6,852
------
Total Municipal Bonds
(Cost $6,839,773) 6,852
------
Total Investments -- 100.8%
(Cost $6,839,773) 6,852
------
OTHER ASSETS AND LIABILITIES -- (0.8)%
Other Assets and Liabilities, Net (55)
------
Total Other Assets and Liabilities (55)
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 584,020
outstanding shares of
beneficial interest 6,018
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
80,106 outstanding shares of
beneficial interest 825
Undistributed net investment
income 10
Accumulated net realized loss on
investments (68)
Unrealized appreciation on
investments 12
------
Total Net Assets: -- 100.0% $ 6,797
======
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 10.23
======
Net Asset Value and Redemption
Price Per Share -- Retail Class $ 10.23
======
Maximum Offering Price Per
Share -- Retail Class
($10.23 / 98.0%) $ 10.44
======
</TABLE>
AMBAC American Municipal Bond Assurance Company
FGIC Federal Guaranty Insurance Corporation
GO General Obligation
MBIA Municipal Bond Insurance Association
RB Revenue Bonds
SO Special Obligation
VRDN Variable Rate Demand Note
(A) Securities are held in connection with a letter of
credit or other credit support.
(B) Floating Rate Security -- the rate reflected on the
Statement of Net Assets is the rate in effect on October
31, 1995.
(C) Pre-Refunded Security -- The Maturity Date shown is the
pre-refunded date.
28
<PAGE> 20
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
COMMERCIAL PAPER -- 36.6%
Abbey National
5.590%, 01/08/96 $ 5,000 $ 4,947
AIG Funding
6.035%, 11/01/95 3,000 3,000
American Express
5.700%, 11/01/95 5,000 5,002
5.690%, 01/12/96 5,000 4,943
Associates
5.700%, 01/23/96 5,000 4,934
Caisse Des Depots Et
Consignations
5.640%, 01/16/96 5,000 4,940
Eli Lilly
5.820%, 01/16/96 3,000 2,963
General Electric Capital
5.670%, 11/16/95 4,000 3,991
5.660%, 02/12/96 5,000 4,919
International Lease Finance
5.710%, 01/08/96 5,000 4,946
5.630%, 01/22/96 5,000 4,936
J.C. Penney
5.710%, 11/30/95 5,000 4,977
Pepsico
5.670%, 11/03/95 5,000 4,998
Province of Alberta
5.550%, 01/12/96 3,000 2,967
Sara Lee
5.800%, 11/02/95 5,000 4,999
5.710%, 11/08/95 5,000 4,994
Toronto Dominion Bank
5.660%, 01/17/96 5,000 4,939
5.490%, 03/19/96 5,000 4,894
Transamerica Finance
5.620%, 02/15/96 5,000 4,917
------
Total Commercial Paper
(Cost $87,206,251) 87,206
------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 7.5%
FHLB
5.490%, 01/17/96 3,000 2,965
FHLMC
5.560%, 11/21/95 5,000 4,985
FNMA
5.590%, 01/04/96 5,000 4,950
5.580%, 02/20/96 5,000 4,914
------
Total U.S. Government Agency Obligations
(Cost $17,813,615) 17,814
------
BANK NOTES -- 3.8%
FCC National Bank
5.900%, 08/21/96 5,000 4,996
5.650%, 11/01/96 4,000 3,997
------
Total Bank Notes
(Cost $8,993,431) 8,993
------
U.S. TREASURY OBLIGATIONS -- 3.3%
U.S. Treasury Bills
5.410%, 01/11/96 $ 3,000 2,968
5.540%, 07/25/96 5,000 4,795
------
Total U.S. Treasury Obligations
(Cost $7,762,549) 7,763
------
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
CERTIFICATES OF DEPOSIT -- 2.1%
National Westminster Bank
5.770%, 12/11/95 5,000 $ 5,000
------
Total Certificates of Deposit
(Cost $5,000,000) 5,000
------
REPURCHASE AGREEMENTS -- 48.8%
Hong Kong Shanghai Banking
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $35,005,688
(collateralized by
U.S. Treasury Note, par value
$35,000,000, 6.875%, matures
03/31/97: market value
$35,803,299) 35,000 35,000
Merrill Lynch
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $46,173,402
(collateralized by various
U.S. Treasury Notes,
total par value $44,803,000,
6.500%-6.875%, 04/30/97: total
market value $47,090,599) 46,166 46,166
Morgan Stanley
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $35,005,688
(collateralized by
U.S. Treasury Note, par value
$26,675,000, 9.250%, matures
02/15/16: market value
$35,747,093) 35,000 35,000
------
Total Repurchase Agreements
(Cost $116,165,900) 116,166
------
Total Investments -- 102.1%
(Cost $242,941,746) 242,942
------
OTHER ASSETS AND LIABILITIES -- (2.1%)
Other Assets and Liabilities,
Net (5,064)
------
Total Other Assets and Liabilities (5,064)
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 234,652,830
outstanding shares of
beneficial interest 234,653
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
3,361,129 outstanding shares
of
beneficial interest 3,361
</TABLE>
29
<PAGE> 21
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
NET ASSETS -- CONTINUED
Accumulated net realized loss on
investments $ (136)
------
Total Net Assets: -- 100.0% $ 237,878
======
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 1.00
======
Net Asset Value, Offering Price
and Redemption Price Per
Share --
Retail Class $ 1.00
======
</TABLE>
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
<TABLE>
<CAPTION>
U.S. TREASURY
SECURITIES FUND
U.S. TREASURY OBLIGATIONS -- 39.9%
<S> <C> <C>
U.S. Treasury Bills
5.720%, 11/09/95 $ 10,000 $ 9,987
5.400%, 12/21/95 20,000 19,850
5.340%, 01/04/96 25,000 24,763
5.310%, 01/11/96 10,000 9,895
5.410%, 01/11/96 10,000 9,893
5.830%, 01/11/96 10,000 9,885
5.780%, 02/08/96 10,000 9,851
5.300%, 03/07/96 15,000 14,720
5.290%, 03/14/96 10,000 9,803
5.310%, 04/04/96 15,000 14,657
6.020%, 04/04/96 5,000 4,875
5.540%, 05/02/96 10,000 9,718
5.540%, 07/25/96 5,000 4,795
U.S. Treasury Notes
7.500%, 02/29/96 10,000 10,062
7.625%, 04/30/96 10,000 10,096
U.S. Treasury Strip
05/15/96 5,000 4,854
------
Total U.S. Treasury Obligations
(Cost $177,703,757) 177,704
------
REPURCHASE AGREEMENTS -- 60.5%
Barclays De Zoete Wedd
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $50,008,125
(collateralized by
U.S. Treasury Note, par value
$32,632,000, 11.250%, matures
02/15/15: market value
$51,069,081) 50,000 50,000
Hong Kong Shanghai Banking
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $85,013,813
(collateralized by various
U.S. Treasury Notes,
total par value $70,220,000,
7.125%-12.500%,
08/15/14-02/15/23:
total market value
$87,257,890) $ 85,000 85,000
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C>
Merrill Lynch
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $49,579,455
(collateralized by various
U.S. Treasury Notes, total par
value $40,257,000, 7.250%-
9.875%, 11/15/15-05/15/17:
total market value
$50,566,595) 49,571 $ 49,571
Morgan Stanley
5.850%, dated 10/31/95,
matures 11/01/95, repurchase
price $85,013,813
(collateralized by
U.S. Treasury Note, par value
$66,670,000, 8.750%, matures
08/15/20: market value
$86,689,520) 85,000 85,000
------
Total Repurchase Agreements
(Cost $269,571,400) 269,571
------
Total Investments -- 100.4%
(Cost $447,275,157) 447,275
------
OTHER ASSETS AND LIABILITIES -- (0.4%)
Other Assets and Liabilities,
Net (2,016)
------
Total Other Assets and Liabilities (2,016)
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 444,422,563
outstanding shares of
beneficial interest 444,423
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value) based on
729,856 outstanding shares of
beneficial interest 730
Undistributed net realized gain
on investments 106
------
Total Net Assets: -- 100.0% $ 445,259
======
Net Asset Value, Offering and
Redemption Price Per Share --
Institutional Class $ 1.00
======
Net Asset Value, Offering and
Redemption Price Per Share --
Retail Class $ 1.00
======
</TABLE>
30
<PAGE> 22
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
TAX-FREE FUND
<TABLE>
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- 99.9%
ALABAMA -- 0.7%
McIntosh, Industrial Development
Board, Ciba Geigy Corporate
Project, RB, VRDN
4.000%, 07/01/04 (A) (B) $ 400 $ 400
------
Total Alabama 400
------
ARIZONA -- 0.4%
Flagstaff, TECP
3.500%, 12/05/95 (B) 250 250
------
Total Arizona 250
------
ARKANSAS -- 4.9%
Mesa, Municipal Developement,
TECP
3.800%, 12/06/95 (B) 3,000 3,000
------
Total Arkansas 3,000
------
COLORADO -- 3.2%
Colorado State, Health
Facilities Authority, RB,
VRDN, MBIA
3.900%, 10/01/14 (A) 1,955 1,955
------
Total Colorado 1,955
------
FLORIDA -- 1.1%
Hillsborough, Pollution Control,
RB, VRDN
4.000%, 09/01/25 (A) (B) 700 700
------
Total Florida 700
------
GEORGIA -- 3.9%
Burke County, TECP
3.750%, 12/07/95 (B) 2,400 2,400
------
Total Georgia 2,400
------
HAWAII -- 2.4%
St County Honolulu, TECP
3.800%, 12/05/95 (B) 1,500 1,500
------
Total Hawaii 1,500
------
ILLINOIS -- 1.9%
Chicago, O'Hare Airport, RB,
VRDN
3.900%, 01/01/18 (A) (B) 1,200 1,200
------
Total Illinois 1,200
------
KANSAS -- 4.8%
Burlington, TECP
3.750%, 11/15/95 (B) 1,450 1,450
3.850%, 12/13/95 (B) 1,500 1,500
------
Total Kansas 2,950
------
KENTUCKY -- 3.6%
Jefferson County, TECP
3.800%, 11/20/95 (B) 2,200 2,200
------
Total Kentucky 2,200
------
LOUISIANA -- 2.5%
Louisiana State, Public
Facilities, RB, VRDN, FGIC
3.900%, 09/01/10 (A) $ 1,565 1,565
------
Total Louisiana 1,565
------
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
MICHIGAN -- 4.5%
Delta County, TECP
3.750%, 11/21/95 (B) 1,300 $ 1,300
Michigan State, Storage Tank
Financial Authority, RB, VRDN
3.900%, 12/01/04 (A) (B) 1,500 1,500
------
Total Michigan 2,800
------
MINNESOTA -- 6.0%
Robbinsdale, Industrial
Development, Unicare Homes
Project,
RB, VRDN
4.000%, 10/01/14 (A) (B) 1,100 1,100
Rochester, TECP
3.150%, 11/09/95 (B) 1,100 1,100
3.800%, 01/22/96 (B) 1,500 1,500
------
Total Minnesota 3,700
------
MISSISSIPPI -- 6.2%
Independence, Waste, TECP
3.500%, 11/03/95 (B) 2,000 2,000
Jackson County, Pollution
Control, RB, VRDN
3.900%, 12/01/16 (A) 1,000 1,000
Perry County, Pollution Control,
RB, VRDN
3.950%, 03/01/02 (A) (B) 800 800
------
Total Mississippi 3,800
------
MISSOURI -- 1.1%
Kansas City, Hospital, RB, VRDN,
MBIA
4.000%, 04/15/15 (A) 700 700
------
Total Missouri 700
------
MONTANA -- 1.0%
Billings, Industrial
Development, RB, VRDN
3.950%, 12/01/14 (A) (B) 600 600
------
Total Montana 600
------
NEW YORK -- 2.1%
New York, Water Finance
Authority, RB, VRDN, FGIC
4.000%, 06/15/22 (A) 300 300
4.000%, 06/15/23 (A) 1,000 1,000
------
Total New York 1,300
------
NORTH CAROLINA -- 6.6%
Eastern Municipal Agency, Power
Systems, RB, Prerefunded
01/01/96 @ 103
7.750%, 01/01/96 (C) 2,000 2,070
</TABLE>
31
<PAGE> 23
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
NORTH CAROLINA -- CONTINUED
North Carolina, Municipal Power,
TECP
3.750%, 01/24/96 (B) $ 2,000 $ 2,000
------
Total North Carolina 4,070
------
OHIO -- 8.1%
Ohio State, Air Quality
Development Authority, RB,
VRDN
4.000%, 09/01/30 (A)(B) 2,000 2,000
Ohio State, Air Quality, TECP
3.700%, 11/06/95 (B) 3,000 3,000
------
Total Ohio 5,000
------
PENNSYLVANIA -- 2.4%
Delaware County, TECP, FGIC
3.600%, 11/02/95 1,500 1,500
------
Total Pennsylvania 1,500
------
TEXAS -- 12.3%
Harris County, RB, VRDN
4.000%, 03/01/24 (A) (B) 1,100 1,100
San Antonio, Independent School
District, GO, Prerefunded
11/01/95 @ 100
8.000%, 11/01/95 (C) 1,700 1,700
Texas A & M, TECP
3.800%, 12/08/95 (B) 1,500 1,500
Texas Port Development
Authority, Stolt Terminals
Project, RB, VRDN
3.850%, 01/15/14 (A) (B) 1,300 1,300
Texas State, TAN
4.750%, 08/30/96 2,000 2,012
------
Total Texas 7,612
------
VIRGINIA -- 3.2%
Chesapeake, Independent
Development Authority, TECP
3.600%, 11/06/95 (B) 1,000 1,000
Penninsula Ports, TECP
3.650%, 11/07/95 (B) 1,000 1,000
------
Total Virginia 2,000
------
WASHINGTON, D.C. -- 4.6%
District of Columbia, Education
Bonds, American University
Issue A, RB, VRDN
3.950%, 12/01/15 (A) (B) 2,835 2,835
------
Total Washington, D.C. 2,835
------
WYOMING -- 12.5%
Converse, TECP
3.500%, 11/06/95 (B) 1,000 1,000
Gillette County, TECP
3.700%, 11/17/95 (B) 1,000 1,000
<CAPTION>
----------------------------------------------------------
Face
Description Amount (000) Value (000)
----------------------------------------------------------
<S> <C> <C>
Lincoln County, TECP
3.700%, 11/21/95 (B) $ 1,400 $ 1,400
Sweetwater County, TECP
3.650%, 12/08/95 2,500 2,499
Uinta County, Pollution Control,
RB, VRDN
3.900%, 08/15/02 (A) (B) 1,800 1,800
------
Total Wyoming 7,699
------
Total Municipal Bonds
(Cost $61,736,077) 61,736
------
Total Investments -- 99.9%
(Cost $61,736,077) 61,736
------
OTHER ASSETS AND LIABILITIES -- 0.1%
Other Assets and Liabilites, Net 55
------
Total Other Assets and Liabilities 55
------
NET ASSETS:
Portfolio shares of the
Institutional Class (unlimited
authorization -- $0.001 par
value) based on 60,491,930
outstanding shares of
beneficial interest 60,492
Portfolio shares of the Retail
Class (unlimited
authorization --
$0.001 par value ) based on
1,281,648 outstanding shares
of
beneficial interest 1,282
Undistributed net realized gain
on investments 17
------
Total Net Assets: -- 100.0% $ 61,791
======
Net Asset Value, Offering and
Redemption Price Per Share --
Institutional Class $ 1.00
======
Net Asset Value, Offering and
Redemption Price Per Share --
Retail Class $ 1.00
======
</TABLE>
FGIC Financial Guaranty Insurance Corporation
GO General Obligation
MBIA Municipal Bond Insurance Association
RB Revenue Bond
TAN Tax Anticipation Note
TECP Tax Exempt Commercial Paper
VRDN Variable Rate Demand Note
(A) Floating Rate Security -- the rate reflected on the
Statement of Net Assets is the rate in effect on October
31, 1995.
(B) Securities are held in conjunction with a letter of
credit or other credit support.
(C) The maturity date shown is the pre-refunded date.
32
<PAGE> 24
STATEMENT OF OPERATIONS (000)
- --------------------------------------------------------------------------------
The Conestoga Funds--For the year ended October 31, 1995
<TABLE>
<CAPTION>
------- ------- ------------ --------
SPECIAL INTERNATIONAL
EQUITY EQUITY EQUITY BALANCED
FUND FUND FUND(1) FUND(2)
------- ------- ------------ --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ 582 $ 121 $ 50 $ 427
Dividend Income 4,507 351 48 104
Less Foreign Taxes Withheld -- -- (6) --
------- ------- -------- -------
Total Investment Income 5,089 472 92 531
------- ------- -------- -------
EXPENSES:
Investment Advisory Fees 1,503 480 51 89
Investment Advisory Fees Waived -- (466) -- (30)
Reimbursement from Advisor -- (50) -- --
Administrator Fees 352 56 9 20
Administrator Fees Waived (97) (18) -- (1)
Shareholder Servicing Fees(3) 38 8 -- --
Shareholder Servicing Fees Waived -- (8) -- --
Distribution Fees(4) 17 2 -- --
Distribution Fees Waived (10) (2) -- --
Registration Fees 114 20 5 4
Custody and Accounting Fees 71 30 17 2
Professional Fees 48 11 1 4
Transfer Agent Fees 86 25 1 4
Printing Fees 25 4 1 1
Pricing Expense 3 -- 8 --
Trustee Fees 12 2 -- 1
Insurance and Other Fees 3 2 2 1
Amortization of Deferred Organization Costs -- 8 2 2
------- ------- -------- -------
Total Expenses 2,165 104 97 97
------- ------- -------- -------
NET INVESTMENT INCOME (LOSS) 2,924 368 (5) 434
------- ------- -------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) on Security Transactions 28,979 8,512 (33) 285
Net Realized Gain on Foreign Currency Transactions -- -- 234 --
Net Change in Unrealized Appreciation on Investments 12,894 1,127 707 859
Net Change in Unrealized Appreciation on Foreign
Currency
and Translation of Other Assets and Liabilities in
Foreign Currencies -- -- 45 --
------- ------- -------- -------
Net Realized and Unrealized Gain (Loss) on
Investments: 41,873 9,639 953 1,144
------- ------- -------- -------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $44,797 $10,007 $ 948 $1,578
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
(1) The International Equity Fund and the Short-Term Income Fund commenced
operations on May 15, 1995.
(2) The Balanced Fund commenced operations on June 26, 1995.
(3) Shareholder Servicing Fees relate to a Shareholder Service Plan that was in
effect through February 20, 1995.
(4) Distribution Fees relate to a Distribution Plan effective February 21, 1995
and are incurred solely by the Retail Class.
The accompanying notes are an integral part of the financial statements.
33
<PAGE> 25
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------- ------------ ---------- ------------ ---------- ------------- --------
PENNSYLVANIA
INTERMEDIATE SHORT-TERM TAX-FREE CASH U.S. TREASURY
BOND INCOME INCOME BOND MANAGEMENT SECURITIES TAX-FREE
FUND FUND FUND(1) FUND FUND FUND FUND
------- ------------ ---------- ------------ ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 6,924 $4,760 $1,095 $323 $ 11,680 $21,001 $2,484
-- -- -- -- -- -- --
-- -- -- -- -- -- --
------- --------- -------- -------- -------- ---------- -------
6,924 4,760 1,095 323 11,680 21,001 2,484
------- --------- -------- -------- -------- ---------- -------
750 552 135 46 794 1,457 259
(409) (365) (82) (39) (397) (456) (158)
-- (6) -- (24) -- -- --
176 129 31 11 366 671 120
(13) (5) -- (3) -- (35) (35)
21 14 -- 5 145 266 51
(3) (8) -- (5) (62) (106) (51)
3 4 -- 2 10 30 5
(1) (2) -- (2) (3) (13) (5)
63 47 13 1 53 63 21
46 38 3 21 64 100 27
31 26 3 4 62 116 19
39 36 5 11 43 61 23
12 9 2 2 20 44 9
2 5 1 1 -- -- --
6 4 1 -- 11 24 4
3 6 1 1 19 45 7
-- -- 1 -- -- -- --
------- --------- -------- -------- -------- ---------- -------
726 484 114 32 1,125 2,267 296
------- --------- -------- -------- -------- ---------- -------
6,198 4,276 981 291 10,555 18,734 2,188
------- --------- -------- -------- -------- ---------- -------
3,058 1,152 32 (68) 2 41 (4)
-- -- -- -- -- -- --
3,499 1,825 92 501 -- -- --
-- -- -- -- -- -- --
------- --------- -------- -------- -------- ---------- -------
6,557 2,977 124 433 2 41 (4)
------- --------- -------- -------- -------- ---------- -------
$12,755 $7,253 $1,105 $724 $ 10,557 $18,775 $2,184
------- --------- -------- -------- -------- ---------- -------
------- --------- -------- -------- -------- ---------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE> 26
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
<TABLE>
<CAPTION>
-------------------- -------------------- ----------- ---------- --------------------
SPECIAL INTERNATIONAL
EQUITY EQUITY EQUITY BALANCED BOND
FUND FUND FUND FUND FUND
-------------------- -------------------- ----------- ---------- --------------------
11/1/94 11/1/93 11/1/94 3/15/94** 5/15/95** 6/26/95** 11/1/94 11/1/93
to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/95 to 10/31/95 to 10/31/94
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income
(Loss) $ 2,924 $ 361 $ 368 $ 62 $ (5) $ 434 $ 6,198 $ 1,302
Net Realized Gain (Loss)
on Securities and
Foreign Currency
Transactions 28,979 2,619 8,512 51 201 285 3,058 (1,359)
Net Change in Unrealized
Appreciation
(Depreciation) of
Investments and Foreign
Currencies 12,894 (1,933) 1,127 (583) 752 859 3,499 (1,239)
-------- -------- -------- -------- --------- -------- -------- --------
Increase (Decrease) in
Net Assets Resulting
from Operations 44,797 1,047 10,007 (470) 948 1,578 12,755 (1,296)
-------- -------- -------- -------- --------- -------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net Investment Income:
Prior Class (a)* (125) (361) (35) (57) -- -- (359) (1,291)
Retail Class (b)* (53) -- (5) -- -- (1) (56) --
Institutional Class
(b)* (2,638) -- (316) -- -- (386) (5,443) --
Net Realized Gains:
Prior Class (a)* (2,660) (1,895) (80) -- -- -- -- (841)
-------- -------- -------- -------- --------- -------- -------- --------
Total Distributions (5,476) (2,256) (436) (57) -- (387) (5,858) (2,132)
CAPITAL TRANSACTIONS (C):
Prior Class (a)*:
Redesignated to Retail
Class (5,674) -- (471) -- -- -- (1,365) --
Redesignated to
Institutional Class (42,589) -- (9,970) -- -- -- (29,097) --
Proceeds from Shares
Issued 4,679 15,691 652 11,284 -- -- 9,204 5,563
Reinvestment of Cash
Distributions 2,420 1,929 115 57 -- -- 244 1,430
Cost of Shares
Repurchased (6,294) (11,959) (81) (745) -- -- (2,665) (7,534)
-------- -------- -------- -------- --------- -------- -------- --------
Increase (Decrease) in
Net Assets Derived from
Prior Class
Transactions (47,458) 5,661 (9,755) 10,596 -- -- (23,679) (541)
Retail Class (b)*:
Redesignated from Prior
Class 5,674 -- 471 -- -- -- 1,365 --
Proceeds from Shares
Issued 676 -- 186 -- 9 68 164 --
Reinvestment of Cash
Distributions 52 -- 5 -- -- -- 48 --
Cost of Shares
Repurchased (948) -- (57) -- (1) -- (291) --
-------- -------- -------- -------- --------- -------- -------- --------
Increase in Net Assets
Derived from Retail
Class Transactions 5,454 -- 605 -- 8 68 1,286 --
Institutional Class (b)*:
Redesignated from Prior
Class 42,589 -- 9,970 -- -- -- 29,097 --
Proceeds from Shares
Issued 351,837 -- 46,892 -- 13,282 39,740 192,154 --
Reinvestment of Cash
Distributions 2,568 -- 316 -- -- 386 5,109 --
Cost of Shares
Repurchased (59,497) -- (9,538) -- (857) (2,822) (38,426) --
-------- -------- -------- -------- --------- -------- -------- --------
Increase (Decrease) in
Net Assets Derived from
Institutional Class
Transactions 337,497 -- 47,640 -- 12,425 37,304 187,934 --
-------- -------- -------- -------- --------- -------- -------- --------
Increase (Decrease) in Net
Assets Derived from
Capital Transactions 295,493 5,661 38,490 10,596 12,433 37,372 165,541 (541)
-------- -------- -------- -------- --------- -------- -------- --------
Net Increase (Decrease)
in Net Assets 334,815 4,452 48,061 10,069 13,381 38,563 172,438 (3,969)
-------- -------- -------- -------- --------- -------- -------- --------
NET ASSETS:
Beginning of Period 50,128 45,676 10,069 -- -- -- 23,377 27,346
-------- -------- -------- -------- --------- -------- -------- --------
End of Period $ 384,943 $ 50,128 $58,130 $10,069 $13,381 $38,563 $ 195,815 $23,377
-------- -------- -------- -------- --------- -------- -------- --------
-------- -------- -------- -------- --------- -------- -------- --------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
* On February 21, 1995, the shareholders of each fund ratified the
classification of such fund's outstanding shares into Retail and
Institutional shares.
** Commencement of operations.
(a) For the current fiscal year Prior Class figures represent activity from
November 1, 1994 to February 21, 1995.
(b) Retail and Institutional Class figures represent activity from February 22,
1995 through October 31, 1995.
(c) See Capital Share Transactions in the Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
35
<PAGE> 27
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------- ---------- -------------------- -------------------- -------------------- -----------
SHORT- PENNSYLVANIA
INTERMEDIATE TERM TAX-FREE CASH U.S. TREASURY
INCOME INCOME BOND MANAGEMENT SECURITIES TAX-FREE
FUND FUND FUND FUND FUND FUND
-------------------- ---------- -------------------- -------------------- -------------------- -----------
11/1/94 11/1/93 5/15/95** 11/1/94 11/1/93 11/1/94 11/1/93 11/1/94 11/1/93 11/1/94
to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/94 to 10/31/95 to 10/31/94 to 10/31/95
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 4,276 $ 1,036 $ 981 $ 291 $ 354 $ 10,555 $ 4,692 $ 18,734 $ 9,637 $ 2,188
1,152 (387) 32 (68) 9 2 (220) 41 10 (4)
1,825 (920) 92 501 (767) -- -- -- -- --
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
7,253 (271) 1,105 724 (404) 10,557 4,472 18,775 9,647 2,184
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
(264) (1,030) -- (81) (351) (2,788) (4,692) (5,069) (9,637) (706)
(50) -- -- (25) -- (133) -- (586) -- (42)
(3,736) -- (917) (186) -- (7,634) -- (13,079) -- (1,440)
-- (294) -- (9) (42) -- -- -- -- --
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
(4,050) (1,324) (917) (301) (393) (10,555) (4,692) (18,734) (9,637) (2,188)
(1,398) -- -- (684) -- (4,185) -- (618) -- (2,456)
(15,213) -- -- (5,397) -- (206,899) -- (311,650) -- (67,736)
1,544 8,000 -- 470 6,261 229,934 588,009 304,528 797,674 113,629
179 891 -- 40 175 31 34 10 17 86
(6,352) (10,096) -- (1,662) (4,513) (159,426) (662,501) (317,660) (730,256) (98,423)
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
(21,240) (1,205) -- (7,233) 1,923 (140,545) (74,458) (325,390) 67,435 (54,900)
1,398 -- -- 684 -- 4,185 -- 618 -- 2,456
161 -- 11 168 -- 1,981 -- 130,272 -- 330
46 -- -- 23 -- 126 -- 22 -- 42
(429) -- -- (78) -- (2,934) -- (130,182) -- (1,546)
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
1,176 -- 11 797 -- 3,358 -- 730 -- 1,282
15,213 -- -- 5,397 -- 206,899 -- 311,650 -- 67,736
139,413 -- 46,933 1,858 -- 457,561 -- 1,003,030 -- 201,870
3,580 -- 917 73 -- 478 -- 683 -- 91
(23,119) -- (11,979) (1,527) -- (430,420) -- (870,864) -- (209,187)
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
[135,087] -- 35,871 5,801 -- 234,518 -- 444,499 -- 60,510
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
115,023 (1,205) 35,882 (634) 1,923 97,331 (74,458) 119,839 67,435 6,891
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
118,226 (2,800) 36,070 (211) 1,126 97,333 (74,678) 119,880 67,445 6,887
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
21,247 24,047 -- 7,008 5,882 140,545 215,223 325,379 257,934 54,904
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
$ 139,473 $ 21,247 $ 36,070 $ 6,797 $ 7,008 $ 237,878 $ 140,545 $ 445,259 $ 325,379 $ 61,791
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
-------- -------- -------- -------- -------- --------- --------- --------- --------- ---------
<CAPTION>
TAX-FREE
FUND
-----------
11/1/93
to 10/31/94
------------
<S> <C>
$ 1,197
--
--
---------
1,197
---------
(1,197)
--
--
--
---------
(1,197)
--
--
261,151
73
(252,559)
---------
8,665
--
--
--
--
---------
--
--
--
--
--
---------
--
---------
8,665
---------
8,665
---------
46,239
---------
$ 54,904
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE> 28
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Conestoga Funds--For the year ended October 31, 1995
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net
Realized and
Unrealized Net
Net Asset Gains Dividends Distributions Assets
Value Net (Losses) from Net from Net Asset End of
Beginning Investment on Investment Realized Value End Total Period
of Period Income Investments Income Capital Gains of Period Return* (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------
EQUITY FUND
- -------------
RETAIL
1995(1) $ 15.00 $ 0.18 $ 2.87 $(0.17) $ (0.80) $ 17.08 21.94% $ 6,591
INSTITUTIONAL
1995(1) 15.00 0.19 2.87 (0.19) (0.80) 17.07 22.00% 378,352
PRIOR CLASS
1994 15.39 0.11 0.22 (0.11) (0.61) 15.00 2.21% 50,128
1993 13.93 0.14 1.89 (0.14) (0.43) 15.39 14.90% 45,677
1992 13.08 0.19 1.02 (0.19) (0.17) 13.93 9.27% 28,103
1991 8.95 0.26 4.13 (0.26) -- 13.08 49.37% 12,830
1990(2) 10.00 0.14 (1.05) (0.14) -- 8.95 (9.22)% 5,982
- ----------------------
SPECIAL EQUITY FUND
- ----------------------
RETAIL
1995(1) $ 9.37 $ 0.12 $ 2.12 $(0.12) $ (0.07) $ 11.42 24.44% $ 734
INSTITUTIONAL
1995(1) 9.37 0.12 2.12 (0.12) (0.07) 11.42 24.44% 57,396
PRIOR CLASS
1994(3) 10.00 0.06 (0.63) (0.06) -- 9.37 (5.72)% 10,069
- ----------------------------
INTERNATIONAL EQUITY FUND
- ----------------------------
RETAIL
1995(4) $ 10.00 $ (.01) $ 1.00 $ -- $ -- $ 10.99 9.90% $ 9
INSTITUTIONAL
1995(4) 10.00 -- 1.01 -- -- 11.01 10.10% 13,372
- ----------------
BALANCED FUND
- ----------------
RETAIL
1995(5) $ 9.97 $ 0.11 $ 0.42 $(0.11) $ -- $ 10.39 5.27% $ 69
INSTITUTIONAL
1995(6) 10.00 0.12 0.37 (0.11) -- 10.38 4.89% 38,494
- ------------
BOND FUND
- ------------
RETAIL
1995(1) $ 9.81 $ 0.60 $ 0.72 $(0.57) $ -- $ 10.56 13.83% $ 1,373
INSTITUTIONAL
1995(1) 9.81 0.61 0.71 (0.58) -- 10.55 13.87% 194,442
PRIOR CLASS
1994 11.18 0.53 (1.04) (0.52) (0.34) 9.81 (4.75)% 23,377
1993 10.89 0.56 0.54 (0.56) (0.25) 11.18 10.63% 27,346
1992 10.65 0.70 0.32 (0.68) (0.10) 10.89 9.82% 15,180
1991 9.96 0.78 0.69 (0.78) -- 10.65 15.16% 7,255
1990(2) 10.00 0.50 (0.04) (0.50) -- 9.96 4.64% 4,593
- -----------------------------
INTERMEDIATE INCOME FUND
- -----------------------------
RETAIL
1995(1) $ 10.27 $ 0.55 $ 0.44 $(0.54) $ -- $ 10.72 9.90% $ 1,230
INSTITUTIONAL
1995(1) 10.27 0.57 0.42 (0.55) -- 10.71 9.92% 138,243
PRIOR CLASS
1994 11.01 0.50 (0.61) (0.49) (0.14) 10.27 (0.97)% 21,247
1993 10.87 0.53 0.21 (0.53) (0.07) 11.01 6.99% 24,047
1992 10.61 0.65 0.29 (0.64) (0.04) 10.87 9.11% 16,718
1991 10.12 0.77 0.50 (0.77) (0.01) 10.61 12.94% 7,116
1990(2) 10.00 0.48 0.12 (0.48) -- 10.12 6.10% 3,986
- ----------------------------
SHORT-TERM INCOME FUND
- ----------------------------
RETAIL
1995(7) $ 10.01 $ 0.23 $ 0.02 $(0.22) $ -- $ 10.04 2.57% $ 11
INSTITUTIONAL
1995(4) 10.00 0.25 0.03 (0.23) -- 10.05 2.87% 36,059
<CAPTION>
Ratio of
Ratio of of Expenses Income
Net to Average to Average
Ratio of Investment Net Assets Net Assets
Expenses Income (Excluding (Excluding Portfolio
to Average to Average Waivers and Waivers and Turnover
Net Assets Net Assets Reimbursements) Reimbursements) Rate
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------
EQUITY FUND
- -------------
RETAIL
1995(1) 1.34% 1.23% 1.53% 1.04% 119%
INSTITUTIONAL
1995(1) 1.05% 1.44% 1.10% 1.44% 119%
PRIOR CLASS
1994 1.49% 0.75% 1.51% 0.73% 35%
1993 1.20% 0.94% 1.41% 0.73% 24%
1992 0.92% 1.47% 1.23% 1.17% 39%
1991 0.54% 2.30% 1.48% 1.36% 68%
1990(2) 0.65% 2.29% 1.59% 1.35% 43%
- ----------------------
SPECIAL EQUITY FUND
- ----------------------
RETAIL
1995(1) 0.27% 1.29% 2.24% (0.68)% 129%
INSTITUTIONAL
1995(1) 0.32% 1.14% 1.97% (0.51)% 129%
PRIOR CLASS
1994(3) 0.15% 1.06% 2.10% (0.89)% 39%
- ----------------------------
INTERNATIONAL EQUITY FUND
- ----------------------------
RETAIL
1995(4) 2.13% (.69)% 2.26% (.83)% 23%
INSTITUTIONAL
1995(4) 1.88% (0.10)% 1.88% (0.10)% 23%
- ---------------
BALANCED FUND
- ---------------
RETAIL
1995(5) 1.07% 3.37% 1.32% 3.12% 65%
INSTITUTIONAL
1995(6) 0.82% 3.66% 1.07% 3.41% 65%
- ------------
BOND FUND
- ------------
RETAIL
1995(1) 0.97% 6.02% 1.44% 5.55% 352%
INSTITUTIONAL
1995(1) 0.71% 6.09% 1.12% 5.68% 352%
PRIOR CLASS
1994 1.01% 5.07% 1.60% 4.48% 232%
1993 0.88% 5.16% 1.49% 4.55% 158%
1992 0.46% 6.78% 1.24% 6.01% 99%
1991 0.47% 7.71% 1.41% 6.78% 47%
1990(2) 0.68% 7.75% 1.62% 6.81% 23%
- -----------------------------
INTERMEDIATE INCOME FUND
- -----------------------------
RETAIL
1995(1) 0.93% 5.47% 1.51% 4.89% 260%
INSTITUTIONAL
1995(1) 0.64% 5.72% 1.15% 5.21% 260%
PRIOR CLASS
1994 0.90% 4.66% 1.64% 3.92% 170%
1993 0.78% 4.89% 1.50% 4.17% 90%
1992 0.47% 6.31% 1.24% 5.57% 53%
1991 0.40% 7.69% 1.34% 6.76% 33%
1990(2) 0.75% 7.42% 1.69% 6.48% 39%
- ----------------------------
SHORT-TERM INCOME FUND
- ----------------------------
RETAIL
1995(7) 0.88% 5.05% 1.33% 4.60% 40%
INSTITUTIONAL
1995(4) 0.63% 5.43% 1.08% 4.98% 40%
</TABLE>
37
<PAGE> 29
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Realized and
Unrealized Net
Net Asset Gains Dividends Distributions Assets
Value Net (Losses) from Net from Net Asset End of
Beginning Investment on Investment Realized Value End Total Period
of Period Income Investments Income Capital Gains of Period Return* (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------
PENNSYLVANIA TAX-FREE BOND FUND
- --------------------------------------
RETAIL
1995(1) $ 9.56 $ 0.47 $ 0.67 $(0.46) $ (0.01) $ 10.23 12.30% $ 820
INSTITUTIONAL
1995(1) 9.56 0.47 0.67 (0.46) (0.01) 10.23 12.30% 5,977
PRIOR CLASS
1994 10.48 0.46 (0.85) (0.46) (0.07) 9.56 (3.90)% 7,008
1993 9.77 0.45 0.70 (0.44) -- 10.48 11.94% 5,883
1992(8) 10.00 -- (0.23) -- -- 9.77 (2.28)% 3,405
- --------------------------
CASH MANAGEMENT FUND
- --------------------------
RETAIL
1995(1) $ 1.00 $ 0.05 $ -- $(0.05) $ -- $ 1.00 5.25% $ 3,358
INSTITUTIONAL
1995(1) 1.00 0.05 -- (0.05) -- 1.00 5.43% 234,520
PRIOR CLASS
1994 1.00 0.03 (0.03) -- -- 1.00 3.41% 140,545
1993 1.00 0.03 (0.03) -- -- 1.00 2.80% 215,223
1992 1.00 0.04 (0.04) -- -- 1.00 3.79% 113,096
1991 1.00 0.06 (0.06) -- -- 1.00 6.22% 151,166
1990(9) 1.00 0.07 (0.07) -- -- 1.00 7.59% 39,061
- ---------------------------------
U.S. TREASURY SECURITIES FUND
- ---------------------------------
RETAIL
1995(1) $ 1.00 $ 0.05 $ -- $(0.05) $ -- $ 1.00 5.16% $ 730
INSTITUTIONAL
1995(1) 1.00 0.05 -- (0.05) -- 1.00 5.27% 444,529
PRIOR CLASS
1994 1.00 0.03 (0.03) -- -- 1.00 3.07% 325,379
1993 1.00 0.03 (0.03) -- -- 1.00 2.57% 257,934
1992 1.00 0.04 (0.04) -- -- 1.00 3.64% 340,904
1991 1.00 0.06 (0.06) -- -- 1.00 5.96% 341,931
1990(9) 1.00 0.07 (0.07) -- -- 1.00 7.44% 106,771
- ----------------
TAX-FREE FUND
- ----------------
RETAIL
1995(1) $ 1.00 $ 0.03 $ -- $(0.03) $ -- $ 1.00 3.39% $ 1,282
INSTITUTIONAL
1995(1) 1.00 0.03 -- (0.03) -- 1.00 3.43% 60,509
PRIOR CLASS
1994 1.00 0.02 (0.02) -- -- 1.00 2.21% 54,904
1993 1.00 0.02 (0.02) -- -- 1.00 1.97% 46,239
1992 1.00 0.03 (0.03) -- -- 1.00 2.88% 46,295
1991 1.00 0.04 (0.04) -- -- 1.00 4.44% 45,647
1990(9) 1.00 0.05 (0.05) -- -- 1.00 5.31% 24,167
<CAPTION>
Ratio of
Ratio of of Expenses Income
Net to Average to Average
Ratio of Investment Net Assets Net Assets
Expenses Income (Excluding (Excluding Portfolio
to Average to Average Waivers and Waivers and Turnover
Net Assets Net Assets Reimbursements) Reimbursements) Rate
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------
PENNSYLVANIA TAX-FREE BOND FUND
- --------------------------------------
RETAIL
1995(1) 0.51% 4.64% 1.62% 3.53% 15%
INSTITUTIONAL
1995(1) 0.51% 4.64% 1.65% 3.50% 15%
PRIOR CLASS
1994 0.38% 4.61% 1.57% 3.42% 37%
1993 0.51% 4.35% 1.63% 3.23% 50%
1992(8) 2.67% 0.52% 3.41% (0.22)% 31%
- --------------------------
CASH MANAGEMENT FUND
- --------------------------
RETAIL
1995(1) 0.74% 5.16% 0.97% 4.93% N/A
INSTITUTIONAL
1995(1) 0.56% 5.32% 0.79% 5.09% N/A
PRIOR CLASS
1994 0.71% 3.32% 0.99% 3.05% N/A
1993 0.65% 2.75% 0.87% 2.53% N/A
1992 0.48% 3.76% 0.70% 3.55% N/A
1991 0.49% 5.84% 0.79% 5.54% N/A
1990(9) 0.42% 7.95% 0.75% 7.62% N/A
- ---------------------------------
U.S. TREASURY SECURITIES FUND
- ---------------------------------
RETAIL
1995(1) 0.73% 5.26% 0.79% 5.20% N/A
INSTITUTIONAL
1995(1) 0.62% 5.14% 0.78% 4.98% N/A
PRIOR CLASS
1994 0.72% 3.03% 0.97% 2.78% N/A
1993 0.66% 2.55% 0.87% 2.33% N/A
1992 0.46% 3.65% 0.69% 3.44% N/A
1991 0.51% 5.61% 0.79% 5.32% N/A
1990(9) 0.38% 7.73% 0.79% 7.32% N/A
- ----------------
TAX-FREE FUND
- ----------------
RETAIL
1995(1) 0.48% 3.35% 0.88% 2.95% N/A
INSTITUTIONAL
1995(1) 0.46% 3.37% 0.83% 3.00% N/A
PRIOR CLASS
1994 0.37% 2.22% 1.05% 1.53% N/A
1993 0.45% 1.95% 0.96% 1.44% N/A
1992 0.33% 2.83% 0.73% 2.45% N/A
1991 0.43% 4.37% 0.87% 3.93% N/A
1990(9) 0.31% 5.57% 0.91% 4.97% N/A
</TABLE>
* Total Return figures do not reflect applicable sales loads.
(1) On February 21, 1995 the shares of the Fund were redesignated as either
Retail or Institutional shares. For the year ended October 31, 1995, the
Financial Highlights' ratios of expenses, ratios of net investment income,
total return, and the per share investment activities and distributions are
presented on a basis whereby the Fund's net investment income, expenses, and
distributions for the period November 1, 1994 through February 20, 1995 were
allocated to each class of shares based upon the relative net assets of each
class of shares as of February 21, 1995 and the results combined therewith
the results of operations and distributions for each applicable class for
the period February 21, 1995 through October 31, 1995.
(2) Commenced operations on February 28, 1990. All ratios for the period have
been annualized.
(3) Commenced operations on March 15, 1994. All ratios for the period have been
annualized.
(4) Commenced operations on May 15, 1995. All ratios for the period have been
annualized.
(5) Commenced operations on June 29, 1995. All ratios for the period have been
annualized.
(6) Commenced operations on June 26, 1995. All ratios for the period have been
annualized.
(7) Commenced operations on May 17, 1995. All ratios for the period have been
annualized.
(8) Commenced operations on September 21, 1992. All ratios for the period have
been annualized.
(9) Commenced operations on November 27, 1989. All ratios for the period have
been annualized.
The accompanying notes are an integral part of the financial statements.
38
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
1. Organization:
The Conestoga Family of Funds (the "Company") was organized as a Massachusetts
business trust under a Declaration of Trust dated August 1, 1989. The Company is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company with eleven funds: the U.S. Treasury Securities
Fund, the Cash Management Fund, the Tax-Free Fund (collectively "the Money
Market Funds"), the Intermediate Income Fund, the Bond Fund, the Pennsylvania
Tax-Free Bond Fund, the Short-Term Income Fund (collectively "the Fixed Income
Funds"), the Equity Fund, the Special Equity Fund, the International Equity Fund
(collectively "the Equity Funds") and the Balanced Fund. The assets of each Fund
are segregated, and a shareholder's interest is limited to the Fund in which
shares are held. The Company currently offers two classes of shares in each
Fund: Institutional and Retail. Each Fund is authorized to issue an unlimited
number of shares of either class which are units of beneficial interest with a
par value of $0.001 per share. The Institutional and Retail Shares of each Fund
are subject to the same expenses except that Institutional Shares are not
subject to a distribution fee, and the Institutional Shares of the Fixed Income
and Equity Funds are not sold with a sales charge.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the
Company. These policies are
in conformity with generally accepted accounting principles.
Security Valuation--Investments in equity securities which are traded on a
national securities exchange (or reported on the NASDAQ national market system)
are stated at the last quoted sales price--if readily available for such equity
securities--on each business day. If there is no such reported sale, these
securities, and unlisted securities for which market quotations are readily
available, are valued at the most recently quoted bid price.
Debt obligations exceeding 60 days to maturity for which market quotations
are readily available are valued at the most recently quoted bid price. Debt
obligations with 60 days or less until maturity may be valued either at the most
recently quoted bid price or at their amortized cost.
Investment securities held by the Money Market Funds are stated at
amortized cost which approximates market value. Under the amortized cost method,
any discount or premium is amortized ratably to the maturity of the security and
is included in interest income.
Foreign securities in the International Equity Fund are valued based upon
quotations from the primary market in which they are traded.
Federal Income Taxes--It is each Fund's intention to qualify as a regulated
investment company by complying with the appropriate provisions of the Internal
Revenue Code of 1986, as amended. Accordingly, no provisions for Federal income
taxes are required in the accompanying financial statements.
Security Transactions and Investment Income--
Security transactions are accounted for on the trade date of the security
purchase or sale. Dividend income is recognized on ex-dividend date, and
interest income is recognized on an accrual basis and includes the pro rata
amortization of premium or accretion of discount. The cost used in determining
net realized capital gains and losses on the sale of securities are those of the
specific securities sold, adjusted for the accretion and amortization of
purchase discounts and premiums during the applicable holding period. Purchase
discounts and premiums on securities held by the Equity and Fixed Income Funds
are accreted and amortized to maturity using the scientific amortization method,
which approximates the effective interest method.
Repurchase Agreements--Securities pledged as collateral for repurchase
agreements are held at a custodian bank in the name of the Fund until the
repurchase agreements mature. Provisions of the repurchase agreements ensure
that the market value of the collateral, including accrued interest thereon, is
sufficient in the event of default of the counterparty. If the counterparty
defaults and the value of the collateral declines or if the counterparty enters
an insolvency proceeding, realization of the collateral by the Funds may be
delayed or limited.
Net Asset Value Per Share--The net asset value per share of each class of
each Fund is calculated on each business day. In general, it is computed by
dividing the assets of each class of each Fund, less its liabilities, by the
number of outstanding shares of the respective class of the Fund. The maximum
offering price per share for Retail Shares of the Equity and Fixed Income Funds
is
39
<PAGE> 31
- --------------------------------------------------------------------------------
equal to the net asset value per share plus a sales load of 2.00%. The offering
price per share for the Institutional Shares of the Equity and Fixed Income
Funds is the net asset value per share. The offering price for Institutional and
Retail Shares of the Money Market Funds is the amortized cost per share, which
approximates net asset value per share.
Foreign Currency Translation--The books and records of the International
Equity Fund are maintained in U.S. dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The International Equity Fund does not isolate that portion of gains and
losses on investments in equity securities which is due to changes in the
foreign exchange rates from that which is due to changes in market prices of
equity securities.
The International Equity Fund reports certain foreign currency related
transactions as components of realized gains for financial reporting purposes,
whereas such components are treated as ordinary income for Federal income tax
purposes.
Forward Foreign Currency Contracts--The International Equity Fund enters
into forward foreign currency contracts as hedges against either specific
transactions or Fund positions. All commitments are "marked-to-market" daily at
the applicable foreign exchange rate and any resulting unrealized gains or
losses are recorded currently. The International Equity Fund realizes gains or
losses at the time the forward contracts are extinguished. Unrealized gains or
losses on outstanding positions in forward foreign currency contracts held at
the close of the year will be recognized as ordinary income or loss for Federal
income tax purposes.
Maturity Dates--Certain variable rate and floating rate securities are
subject to "maturity shortening" devices such as put or demand features. Under
Rule 2a-7 of the Investment Company Act of 1940 (the "1940 Act"), as amended,
these securities are deemed to have maturities shorter than the ultimate
maturity dates. Accordingly, the maturity dates reflected in the Statement of
Net Assets are the shorter of the effective demand/put date or the ultimate
maturity date.
Classes--Class-specific expenses are borne by that class. Other expenses,
income, and realized and unrealized gains and losses are allocated to their
respective classes on the basis of relative daily net assets.
Other--Distributions from net investment income for the Equity and Fixed
Income Funds are declared and paid to shareholders on a periodic basis.
Distributions from net investment income for the Money Market Funds are declared
daily and paid to shareholders monthly. Any net realized capital gains are
distributed to shareholders at least annually.
3. Administration and Distribution Agreements:
The Company and SEI Financial Management Corporation (the "Administrator") are
parties to an administration agreement (the "Administration Agreement") dated
May 1, 1995. Under the terms of the Administration Agreement the Administrator
is entitled to a fee calculated daily and paid monthly at an annual rate of .17%
of the average daily net assets of each Fund. Prior to May 1, 1995, The Winsbury
Company ("Winsbury") served as the Administrator to the Company and was entitled
to a fee calculated daily and paid monthly at the annual rate of .20% of the
average daily net assets of each Fund.
The Company has adopted a distribution and services plan (the "Distribution
Plan") applicable to the Retail Shares pursuant to rule 12b-1 under the 1940
Act. As provided in the Distribution Plan, each Fund is authorized to pay the
distributor a fee for distribution services in an amount not to exceed on an
annual basis .40% of the average daily net assets of the Retail Shares of the
Funds. The Company and SEI Financial Services Company (the "Distributor"), a
wholly-owned subsidiary of SEI Corporation and a registered broker-dealer, are
parties to a distribution agreement (the "Distribution Agreement") dated May 1,
1995. Under the terms of the Distribution Agreement, the Distributor receives no
fees for its Institutional Shares distribution services, and is entitled to
receive fees as set forth in the Distribution Plan for services performed and
expenses assumed under the Distribution Agreement as to the Retail Shares of the
Funds. Prior to May 1, 1995 Winsbury served as Distributor to the Company and
was entitled to receive commissions earned on sales of shares of the Equity and
40
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS -- continued
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
Fixed Income Funds. For the six months ended April 30, 1995, Winsbury received
$7,736 from commissions earned on sales of shares of the Equity and Fixed Income
Funds, of which $261 was reallowed to Meridian Securities Inc., an affiliate of
Meridian Bancorp, and an investment dealer of the Funds.
4. Investment Advisory Agreements:
Investment advisory services are provided to the Company by Meridian Investment
Company (the "Investment Advisor"), a subsidiary of Meridian Bancorp, Inc. Under
the terms of the investment advisory agreements, the Investment Advisor is
entitled to receive a fee from the Fund, computed daily and paid monthly, at an
annual rate equal to the lesser of (a) (i) .40% of the average daily net assets
of each of the Cash Management, Tax-Free and U.S. Treasury Securities Funds,
(ii) .74% of the average daily net assets of each of the Equity, Bond,
Intermediate Income, Pennsylvania Tax-Free Bond, and Short-Term Income Funds,
(iii) .75% of the average daily net assets of the Balanced Fund, (iv) 1.00% of
the average daily net assets of the International Equity Fund, and (v) 1.50% of
the average daily net assets of the Special Equity Fund, or (b) such fee as
agreed upon in writing by a Fund and the Investment Advisor in advance of the
period to which the fee relates.
Pursuant to the Company's investment advisory agreement for the
International Equity Fund, the Investment Advisor has retained Marvin & Palmer
Associates, Inc. ("Marvin & Palmer") as Sub-Advisor to such Fund pursuant to a
Sub-Investment Advisory Agreement. For its services under such Sub-Investment
Advisory Agreement, Marvin & Palmer is paid a monthly fee by Meridian calculated
on an annual basis equal to .75% of the first $100 million of the International
Equity Fund's average daily net assets, .70% of the second $100 million of the
International Equity Fund's average daily net assets, .65% of the third $100
million of the International Equity Fund's average daily net assets, and .60% of
the International Equity Fund's average daily net assets in excess of $300
million.
5. Organizational Costs and
Transactions with Affiliates:
Organizational costs have been capitalized by the Company and are being, or
were, amortized on a straight line basis over a maximum of sixty months
following commencement of operations. In the event any of the initial shares of
the Company are redeemed by any holder thereof during the period that the
Company is amortizing its organizational costs, the redemption proceeds payable
to the holder thereof by the Company will be reduced by the unamortized
organizational cost in the same ratio as the number of initial shares being
redeemed bears to the number of initial shares outstanding at the time of
redemption.
Certain officers of the Company are also officers of the Administrator
and/or SEI Financial Services Company (the "Distributor"). Such officers are
paid no fees by the Company for serving as officers of the Company.
6. Investment Transactions:
The cost of security purchases and the proceeds from security sales, excluding
short-term investments, for the year ended October 31, 1995 were as follows:
<TABLE>
<CAPTION>
U.S. Govt.
Purchases Sales Purchases U.S. Govt. Sales
(000) (000) (000) (000)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Equity $ 228,276 $229,329 -- --
Special Equity 38,281 39,567 -- --
International Equity 14,651 2,343 -- --
Balanced 52,677 20,147 -- --
Bond 255,196 251,397 $ 163,069 $182,327
Intermediate Income 140,542 138,144 101,752 100,103
Short-Term Income 20,442 7,585 16,637 5,479
Pennsylvania
Tax-Free Bond 897 1,865 -- --
</TABLE>
At October 31, 1995, the total cost of securities and net realized gains or
losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Equity
41
<PAGE> 33
- --------------------------------------------------------------------------------
and Fixed Income Funds at October 31, 1995 were as follows:
<TABLE>
<CAPTION>
Net
Unrealized
Appreciated Depreciated Appreciation--
Securities Securities (Depreciation)
(000) (000) (000)
------- ------- ---------
<S> <C> <C> <C>
Equity $28,816 $12,474 $16,342
Special Equity 5,315 4,771 544
International Equity 1,081 374 707
Balanced 1,218 359 859
Bond 2,765 192 2,573
Intermediate Income 1,472 73 1,399
Short-Term Income 94 2 92
Pennsylvania Tax-Free Bond 89 77 12
</TABLE>
At October 31, 1995 the following Funds had available realized capital
losses to offset future net capital gains in the amounts shown as follows:
<TABLE>
<CAPTION>
Capital Loss Carryover
Fund October 31, 1995 Expiring 2002 Expiring 2003
- --- -------------- -------- --------
<S> <C> <C> <C>
International Equity $ 21,098 $ -- $21,098
Pennsylvania
Tax-Free Bond 68,029 -- 68,029
Cash Management 217,837 217,837 --
Tax-Free 3,824 -- 3,824
</TABLE>
The Bond Fund utilized its entire capital loss carryforward balance of
$1,283,474 which was carried over from the previous year.
The Cash Management Fund utilized $2,310 of its capital loss carryforward
balance during the year.
The Intermediate Income Fund utilized its entire capital loss carryforward
balance of $383,000 which was carried over from the previous year.
7. Forward Foreign Currency Contracts:
The International Equity Fund may enter into forward foreign currency exchange
contracts as hedges against fund positions. Such contracts, which may protect
the value of the Fund's investment securities against a decline in the value of
currency, do not eliminate fluctuations in the underlying prices of the
securities. They simply establish an exchange rate at a future date. Also,
although such contracts tend to minimize the risk of loss due to a decline in
the value of a hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of such foreign currency
increase.
The following forward foreign currency contracts
in the International Equity Fund were outstanding at
October 31, 1995:
<TABLE>
<CAPTION>
Net Unrealized
Contracts to In Exchange Appreciation/
Settlement Deliver FX For $ Depreciation
Date Currency (000) (000) (000)
------- ----- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Foreign Currency 11/30/95 UK 450 $ 709 $ --
Sales 11/30/95 JY 191,660 1,930 46
11/02/95 JY 3,209 31 --
11/02/95 SK 139 21 --
----------- ---
$ 2,691 $ 46
----------- ---
Foreign Currency 11/02/95 JY 2,927 $ 29 $ --
Purchases 11/02/95 JY 2,237 22 --
----------- ---
$ 51 $ --
----------- ---
$ 46
==========
</TABLE>
Currency Legend
JY Japanese Yen
SK Swedish Krona
UK British Sterling Pound
42
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS -- continued
- --------------------------------------------------------------------------------
The Conestoga Funds--October 31, 1995
8. Share Transactions:
<TABLE>
<CAPTION>
Special International Intermediate
Equity Equity Equity Balanced Bond Income
Fund Fund Fund Fund Fund Fund
---- ---- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
PERIOD FROM
NOVEMBER 1, 1994
THROUGH
FEBRUARY 21, 1995:
Exchange out to
Retail Class (401) (52) -- -- (138) (136)
Exchange out to
Institutional Class (3,007) (1,099) -- -- (2,935) (1,478)
Shares issued 331 73 -- -- 938 151
Shares issued in
lieu of cash
distributions 180 13 -- -- 25 18
Shares repurchased (446) (9) -- -- (273) (625)
------ ------ ----- ----- ------ ------
Net Decrease (3,343) (1,074) -- -- (2,383) (2,070)
====== ====== ===== ===== ====== ======
PERIOD FROM
FEBRUARY 22, 1995
THROUGH
OCTOBER 31, 1995:
RETAIL CLASS:
Exchange in from
previous class 401 52 -- -- 138 136
Shares issued 41 17 1 7 15 15
Shares issued in
lieu of cash
distributions 3 -- -- -- 5 4
Shares repurchased (59) (5) -- -- (28) (40)
------ ------ ----- ----- ------ ------
Net Increase 386 64 1 7 130 115
====== ====== ===== ===== ====== ======
INSTITUTIONAL CLASS:
Exchange in from
previous class 3,007 1,099 -- -- 2,935 1,478
Shares issued 22,654 4,786 1,291 3,945 18,682 13,274
Shares issued in
lieu of cash
distributions 151 28 -- 37 491 338
Shares repurchased (3,652) (886) (76) (275) (3,686) (2,180)
------ ------ ----- ----- ------ ------
Increase in net
assets derived from
Institutional
transactions 22,160 5,027 1,215 3,707 18,422 12,910
====== ====== ===== ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Short-Term Tax-Free Cash U.S. Treasury
Income Bond Management Securities Tax-Free
Fund Fund Fund Fund Fund
------ -------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
PERIOD FROM
NOVEMBER 1, 1994
THROUGH
FEBRUARY 21, 1995:
Exchange out to
Retail Class -- (69) (4,188) (618) (2,456)
Exchange out to
Institutional
Class -- (543) (207,034) (311,574) (67,719)
Shares issued -- 49 229,934 304,528 113,629
Shares issued in lieu
of cash distributions -- 4 31 10 86
Shares repurchased -- (174) (159,426) (317,660) (98,423)
--
---- -------- -------- -------
Net Decrease -- (733) (140,683) (325,314) (54,883)
== ==== ======== ======== =======
PERIOD FROM
FEBRUARY 22, 1995
THROUGH OCTOBER 31,
1995:
RETAIL CLASS:
Exchange in from
previous class -- 69 4,188 618 2,456
Shares issued 1 16 1,981 130,272 332
Shares issued in lieu
of cash distributions -- 2 126 22 42
Shares repurchased -- (7) (2,934) (130,182) (1,548)
--
---- -------- -------- -------
Net Increase 1 80 3,361 730 1,282
== ==== ======== ======== =======
INSTITUTIONAL CLASS:
Exchange in from
previous class -- 543 207,034 311,574 67,719
Shares issued 4,689 185 457,561 1,003,029 201,868
Shares issued in lieu
of cash distributions 91 7 479 683 91
Shares repurchased (1,192) (151) (430,420) (870,863) (209,186)
--
---- -------- -------- -------
Net Increase 3,588 584 234,654 444,423 60,492
== ==== ======== ======== =======
</TABLE>
43
<PAGE> 35
- --------------------------------------------------------------------------------
9. Shareholder Voting Results:
A special meeting of shareholders was held on January 9, 1995 (reconvened
January 12, 1995, January 13, 1995 and February 10, 1995) for the Company to
vote on the following proposals (i) the election of a Board of seven (7)
trustees (Dominic S. Genuardi, Sr., Steven I. Gross, J. David Huber, Robert C.
Kingston, Dale E. Smith, Thomas J. Taylor and William J. Tomko); (ii) the
ratification of the selection of Coopers & Lybrand, L.L.P. as independent
accountants for the Company for the fiscal year ending October 31, 1995; (iii)
the approval of the adoption of a new Distribution and Services Plan with
respect to the Retail Shares of each of the Company's existing Funds (the U.S.
Treasury Securities Fund, the Cash Management Fund, the Tax-Free Fund, the
Intermediate Income Fund, the Bond Fund, the Equity Fund, the Pennsylvania
Tax-Free Bond Fund and the Special Equity Fund), pursuant to Rule 12b-1 under
the Investment Company Act of 1940; (iv) with respect to the Bond Fund only, the
approval of a change in the fundamental investment objective of the Fund; and
(v) with respect to the Intermediate Income Fund only, the approval of a change
in the fundamental investment objective of the Fund. The following were the
results of the vote (Unaudited):
MEETING OF SHAREHOLDERS
JANUARY 9, 1995
<TABLE>
<CAPTION>
Proposal 3 Cash Management Tax-Free Special Equity
- ---------------------- --------------- ---------- --------------
<S> <C> <C> <C>
For................... 81,862,297 30,681,945 934,540
Against............... 3,217,557 634,459 1,368
Abstentions........... 8,118,366 1,444,175 none
</TABLE>
RECONVENED
JANUARY 13, 1995
<TABLE>
<CAPTION>
Proposal 1 In Favor Withheld
- ------------------------ ----------- -----------
<S> <C> <C>
Dominic S. Genuardi,
Sr..................... 347,299,332 23,395,703
Steven I. Gross......... 347,159,952 23,535,083
J. David Huber.......... 347,283,622 23,411,413
Robert C. Kingston...... 346,762,700 23,932,336
Dale E. Smith........... 347,304,576 23,390,459
Thomas J. Taylor........ 347,283,622 23,411,413
William J. Tomko........ 347,283,622 23,411,413
</TABLE>
<TABLE>
<CAPTION>
Proposal 2
- -------------------------
<S> <C>
COOPERS & LYBRAND, L.L.P.
For...................... 330,010,191
Against.................. 16,943,555
Abstentions.............. 23,741,287
</TABLE>
<TABLE>
<CAPTION>
Proposal 3 Intermediate Income Bond Equity PA Tax-Free
- ---------------------- ------------------- --------- -------------- -----------
<S> <C> <C> <C> <C>
For................... 1,107,049 1,110,841 1,343,747 369,400
Against............... 5,266 54,399 366,865 10,079
Abstentions........... 9,098 39,677 102,000 47,478
</TABLE>
<TABLE>
<CAPTION>
Proposal 4 Bond
- -------------------------- ---------
<S> <C>
For....................... 1,138,236
Against................... 29,140
Abstentions............... 37,540
</TABLE>
<TABLE>
<CAPTION>
Proposal 5 Intermediate Income
- -------------------- -------------------
<S> <C>
For................. 1,107,122
Against............. 5,722
Abstentions......... 8,568
</TABLE>
RECONVENED
FEBRUARY 10, 1995
<TABLE>
<CAPTION>
U.S. Treasury
Proposal 3 Securities
- ----------------- ------------------------
<S> <C>
For.............. 178,314,048
Against.......... 3,692,885
Abstentions...... 50,897,923
</TABLE>
44
<PAGE> 36
NOTICE TO SHAREHOLDERS OF THE CONESTOGA FUNDS
For shareholders that do not have an October 31, 1995 taxable year end, this
notice is for informational purposes only. For shareholders with an October 31,
1995 taxable year end, please consult your tax advisor as to the pertinence of
this notice.
For the fiscal year ended October 31, 1995 the portfolios of The Conestoga Funds
are designating long term capital gains and qualifying dividend income with
regard to distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A) (B)
LONG TERM ORDINARY
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS)
- ---------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Equity 37% 63% 100%
Special Equity 0% 100% 100%
International Equity 0% 100% 100%
Balanced 0% 100% 100%
Bond 0% 100% 100%
Intermediate Income 0% 100% 100%
Short-Term Income 0% 100% 100%
Pennsylvania Tax-Free Bond 3% 97% 100%
Cash Management 0% 100% 100%
U.S. Treasury Securities 0% 100% 100%
Tax-Free 0% 100% 100%
</TABLE>
<TABLE>
<CAPTION>
(C) (D) (E)
QUALIFYING TAX EXEMPT FOREIGN
FUND DIVIDENDS (1) INTEREST TAX CREDIT
- ---------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Equity 53% 0% 0%
Special Equity 49% 0% 0%
International Equity 0% 0% 0%
Balanced 10% 0% 0%
Bond N/A 0% 0%
Intermediate Income N/A 0% 0%
Short-Term Income N/A 0% 0%
Pennsylvania Tax-Free Bond N/A 100% 0%
Cash Management N/A 0% 0%
U.S. Treasury Securities N/A 0% 0%
Tax-Free N/A 97% 0%
</TABLE>
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* Items (A) and (B) are based on the percentage of each portfolio's total
distribution.
** Items (C) and (D) are based on the percentage of gross income of each
portfolio.
45
<PAGE> 1
EXHIBIT (13)
PURCHASE AGREEMENT
Conestoga Family of Funds (the "Company"), a Massachusetts
trust with transferrable shares, and SEI Financial Services Company, a
Pennsylvania corporation ("SEI"), intending to be legally bound, hereby agree
with each other as follows:
1. The Company hereby offers SEI and SEI hereby
purchases: one Class K-1 share and one Class K-2 share; one Class L-1 share and
one Class L-2 share; and one Class M-1 share and one Class M-2 share, each at a
price of $10 per share (such shares of beneficial interest in the Company being
hereinafter known as "Shares"). SEI hereby acknowledges purchase of the Shares
and the Company hereby acknowledges receipt from SEI of funds in the amount of
$60 in full payment for the Shares.
2. SEI represents and warrants to the Company that the
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.
3. The names "Conestoga Family of Funds" and "Trustees
of Conestoga Family of Funds" refer respectively to the Trust created and the
Trustees, as trustees but not individually or personally, acting from time to
time under an Agreement and Declaration of Trust dated August 1, 1989 which is
hereby referred to and a copy of which is on file at the office of the State
Secretary of the Commonwealth of Massachusetts and at the principal office of
the Company. The obligations of "Conestoga Family of Funds" entered into in
the name or on behalf thereof by any of the trustees, representatives or agents
are made not individually, but in such capacities, and are not binding upon any
of the trustees, shareholders or representatives of the Company personally, but
bind only the Trust Property (as defined in the Agreement and Declaration of
Trust), and all persons dealing with any class of shares of the Company must
look solely to the Trust Property belonging to such class for the enforcement
of any claims against the Company.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 1st day of May, 1995. (SEAL)
Attest: CONESTOGA FAMILY OF FUNDS
s/ By:s/
- ------------------------ ------------------------------
Title: Vice President
---------------------------
(SEAL)
Attest: SEI Financial Services Company
s/ By:s/
- ------------------------ ------------------------------
Title: Vice President
---------------------------
<PAGE> 1
EXHIBIT (15)
DISTRIBUTION AND SERVICES PLAN
This Plan (the "Plan") constitutes the DISTRIBUTION AND
SERVICES PLAN of Conestoga Family of Funds, a Massachusetts business trust (the
"Trust"), adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). The Plan relates to the Retail Shares ("Shares") of the
Trust's investment portfolios identified on Schedule A hereto, as such Schedule
may be amended from time to time (individually referred to as a "Fund" and
collectively, the "Funds").
Section 1. Subject to Section 11 of this Plan, each Fund
shall pay SEI Financial Financial Services Company (the "Distributor") a fee in
an amount not to exceed on an annual basis .40% of the average daily net assets
of the Retail Class of such Fund (the "Fee") to compensate the Distributor for
the following: (i) payments the Distributor makes to banks and other
institutions and industry professionals, broker-dealers, including the Adviser,
Distributor and their affiliates or subsidiaries (collectively referred to as
"Participating Organizations"), pursuant to an agreement in connection with
providing administrative support services to the holders of a Fund's Shares; or
(ii) payments to financial institutions and industry professionals (such as
insurance companies, investment counselors, accountants and estate planning
firms (but not including banks and savings and loan associations),
broker-dealers, and the Distributor's affiliates and subsidiaries in
consideration for distribution services provided and expenses assumed in
connection with distribution assistance, including but not limited to printing
and distributing Prospectuses to persons other than current shareholders of a
Fund, printing and distributing advertising and sales literature and reports to
shareholders used in connection with the sale of a Fund's Shares, and personnel
and communication equipment used in servicing shareholder accounts and
prospective shareholder inquiries.
Section 2. The Fee shall be accrued daily and payable
monthly, and shall be paid by each Fund to the Distributor to compensate the
Distributor for payments made pursuant to Section 1, irrespective of whether
such fee exceeds the amounts paid (or payable) by the Distributor.
Section 3. The Plan shall not take effect with respect to a
Fund until it has been approved by a vote of at least a majority of the
outstanding Shares of such Fund.
Section 4. The Plan shall not take effect until it has been
approved, together with any related agreements, by votes of a majority of both
(a) the Board of Trustees of the Trust and (b) the "Disinterested Trustees" (as
defined below) cast in person at
<PAGE> 2
a meeting called for the purpose of voting on the Plan or such agreement.
Section 5. This Plan shall become effective as to a Fund on
the date that the Multi-Class System of the Trust is implemented, and shall
continue automatically for successive annual periods, provided such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Section 4, unless earlier terminated in accordance with the
terms hereof.
Section 6. The Distributor shall provide to the Trustees of
the Trust, and the Trustees shall review, at least quarterly, a written report
of the amounts expended pursuant to Section 1 and the purposes for which such
expenditures were made.
Section 7. The Plan may be terminated with respect to a Fund
at any time by vote of a majority of the Disinterested Trustees, or by vote of
a majority of the outstanding Shares of that Fund.
Section 8. Payments by the Distributor to a Participating
Organization shall be subject to compliance by the Participating Organization
with the terms of an agreement with the Distributor. All agreements with any
person relating to implementation of the Plan shall be in writing, and any
agreement related to the Plan shall provide:
A. That such agreement may be terminated with respect to
a Fund at any time, without payment of any penalty,
by vote of a majority of the Disinterested Trustees,
or by vote of a majority of the outstanding Shares of
that Fund, on not more than 60-days' written notice;
and
B. That such agreement shall terminate automatically in
the event of its assignment.
Section 9. The Plan may not be amended to increase materially
the amount of distribution expenses permitted pursuant to Section 1 hereof with
respect to a Fund without approval in the manner provided in Sections 3 and 4
hereof, and all material amendments to the Plan shall be approved in the manner
provided for approval of the Plan in Section 4.
Section 10. Any person authorized to direct the disposition
of monies paid or payable by the Trust pursuant to this Agreement shall provide
to the Distributor and the Board of Trustees of the Trust or its designees, and
the Board will review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made. In addition,
each Participating Organization shall furnish the
-2-
<PAGE> 3
Trust or its designees with such information as may be reasonably requested
(including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein) and will otherwise
cooperate with the Trust or its designees (including, without limitation, any
auditors designated by the Trust or the Distributor), in connection with the
preparation of reports to the Board of Trustees concerning this Agreement and
the monies paid or payable by the Trust pursuant hereto, as well as any other
reports or filing that may be required by law.
Section 11.
(a) The monthly payments to the Distributor under this
Plan shall be made in accordance with, and subject to, the following
conditions:
(i) that payments made out of or
charged against the assets of a particular Fund must be in payment for
services rendered on behalf of such Fund, and
(ii) that payments of the Fee by the
Cash Management, U.S. Treasury Securities and Tax-Free Funds pursuant
to this Plan will be reduced to the extent necessary to ensure that
the amount of the Fee and any other operating expenses that are
accrued on any day with respect to each such Fund will not exceed the
gross income accrued with respect to such Fund on that day (with
written notice at the time of payment to a Participating
Organization).
(b) Joint distribution financing by the Funds on behalf
of Shares (which financing may also involve other investment portfolios or
companies that are affiliated persons of the Funds, affiliated persons of such
a person, or affiliated persons of the Distributor) shall be permitted in
accordance with applicable regulations of the Securities and Exchange
Commission as in effect from time to time, and nothing in subparagraph (a)
above or any other provision herein shall be construed to the contrary.
(c) For the purposes of determining the amounts payable
under this Plan, the value of a Fund's net assets shall be computed in the
manner specified in the Fund's current Prospectus as then in effect.
Section 12. As used herein, (a) the term "Disinterested
Trustees" shall mean those Trustees of the Trust who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Plan or any agreements related to it and (b) the terms
"affiliated person," "assignment," "interested person," and "majority of the
outstanding voting securities" shall have the
-3-
<PAGE> 4
respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
Section 13. The names "Conestoga Family of Funds" and
"Trustees of Conestoga Family of Funds" refer respectively to the Trust created
and the Trustees, as trustees but not individually or personally, acting from
time to time under the Agreement and Declaration of Trust dated August 1, 1989
which is hereby referred to and a copy of which is on file at the office of the
State Secretary of The Commonwealth of Massachusetts and at the principal
office of the Trust. The obligations of "Conestoga Family of Funds" entered
into in the name or on behalf thereof by any of the Trustees, representatives
or agents are made not individually, but in such capacities, and are not
binding upon any of the Trustees, shareholders or representatives of the Trust
personally, but bind only the Trust property, and all persons dealing with any
class of shares of the Trust must look solely to the Trust property belonging
to such class for the enforcement of any claims against the Trust.
-4-
<PAGE> 5
SCHEDULE A
to the Distribution and Services Plan
of the Conestoga Family of Funds
U.S. Treasury Securities Fund
Cash Management Fund
Tax-Free Fund
Intermediate Income Fund
Bond Fund
Equity Fund
Pennsylvania Tax-Free Bond Fund
Special Equity Fund
International Equity Fund
Short-Term Income Fund
Balanced Fund
<PAGE> 6
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087
SERVICING AGREEMENT FOR DISTRIBUTION ASSISTANCE
AND SHAREHOLDER ADMINISTRATIVE SUPPORT SERVICES
(For Broker-Dealers)
Participating Organization
Address
Ladies and Gentlemen:
SEI Financial Services Company (the "Distributor") serves as
the distributor of the Conestoga Family of Funds (the "Trust"), an open-end
management investment company, organized as a Massachusetts business trust and
registered with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940 (the "1940 Act"). Pursuant to Rule 12b-1 under
the 1940 Act ("Rule 12b-1"), the holders of the Retail Shares ("Shares") of
each of the investment portfolios of the Trust identified on Schedule A hereto
(individually, a "Fund"; collectively, the "Funds") have adopted a Distribution
and Shareholder Services Plan (the "Plan") that, among other things, authorizes
the Distributor to enter into agreements with third parties to implement the
Plan. The Distributor proposes to enter into this Servicing Agreement for
Distribution Assistance and Shareholder Administrative Support Services with
you (the "Participating Organization"), a registered broker-dealer, concerning
the provision of distribution assistance and shareholder administrative support
services in connection with the sale of Shares to the Participating
Organization's customers ("Customers") who may from time to time own of record
or beneficially a Fund's Shares. The terms and conditions of this Agreement
are as follows:
1. SERVICES AS PARTICIPATING ORGANIZATION.
1.1 The Participating Organization is hereby authorized and agrees
to provide the following distribution assistance with respect
to a Fund's Shares: (i) aggregating and placing purchase
exchange and redemption orders directly with the Trust's
Transfer Agent, in each case subject to the terms and
conditions set forth in the prospectus as amended from time to
time of a Fund (the "Prospectus") and the operating procedures
and policies
<PAGE> 7
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 2
established by the Distributor; (ii) engaging in advertising
with respect to a Fund's Shares; (iii) preparing, printing,
and distributing a Fund's Prospectus, reports and sales
literature; and/or (iv) such other similar services as the
Distributor may reasonably request to the extent the
Participating Organization is permitted to do so under
applicable statutes, rules, or regulations. The Participating
Organization may from time to time undertake to perform the
following administrative support services to Customers in
connection with investments in the Shares of a Fund: (i)
providing Customers with a service that invests the assets of
their accounts in a Fund's Shares pursuant to specific or
pre-authorized instructions; (ii) processing dividend and
distribution payments from a Fund on behalf of Customers;
(iii) providing information periodically to Customers showing
their positions in a Fund's Shares; (iv) arranging for bank
wire or electronic transfers of funds to or from a Customer's
account; (v) responding to inquiries from Customers relating
to their Shares or the services performed by the Participating
Organization under this Agreement; (vi) providing
subaccounting, or information necessary for subaccounting with
respect to a Fund's Shares beneficially owned by Customers;
(vii) if required by law, forwarding communications to
shareholders from the Trust (such as proxies, reports, and
dividend, distribution, and tax notices) to Customers; (viii)
forwarding to Customers proxy statements and proxies
containing any proposals regarding this Agreement or the Plan;
(ix) rendering ongoing advice respecting the suitability of
particular investment opportunities offered by the Trust in
light of the Customer's need; and (x) providing such other
similar services as the Distributor may reasonably request to
the extent the Participating Organization is permitted to do
so under applicable statutes, rules, or regulations.
1.2 The Participating Organization will provide such office space
and equipment, telephone facilities, and personnel (which may
be any part of the space, equipment, and facilities currently
used in the Participating Organization's business, or any
personnel employed by the Participating Organization) as may
be reasonably necessary or beneficial in order to provide
<PAGE> 8
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 3
such distribution assistance or support services with respect
to a Fund's Shares.
1.3 The minimum dollar purchase of a Fund's Shares (including
Shares being acquired by Customers pursuant to the exchange
privileges described in the Fund's Prospectus) shall be the
applicable minimum amount set forth in the Prospectus of such
Fund, and no order for less than such amount shall be accepted
by the Participating Organization. The procedures relating to
the handling of orders shall be subject to instructions which
the Distributor shall forward from time to time to the
Participating Organization. All orders for a Fund's Shares
are subject to acceptance or rejection by the Trust in its
sole discretion, and the Trust may, in its discretion and
without notice, suspend or withdraw the sale of a Fund's
Shares, including the sale of such Shares to the Participating
Organization for the account of any Customer or Customers.
1.4 In no transaction shall the Participating Organization act as
dealer for its own account; the Participating Organization
shall act solely for, upon the order of, and for the account
of, its Customers. For all purposes of this Agreement, the
Participating Organization will be deemed to be an independent
contractor, and will have no authority to act as agent for the
Distributor or the Trust in any matter or in any respect. No
person is authorized to make any representations concerning
the Distributor, the Trust, or a Fund's Shares except those
representations contained in the Fund's Prospectus and the
Company's Statement of Additional Information and in such
printed information as the Distributor of the Trust may
subsequently prepare. The Participating Organization is
specifically authorized to distribute to Customers a Fund's
Prospectus and the Company's Statement of Additional
Information and sales material received by the Participating
Organization from the Distributor. No person is authorized to
distribute any other sales material relating to the Trust
without the prior written approval of the Distributor. The
Participating Organization further agrees to deliver to
Customers, upon the request of the Distributor, copies of any
amended Prospectus and Statement of Additional Information.
<PAGE> 9
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 4
1.5 The Participating Organization and its employees will, upon
request, be available during normal business hours to consult
with the Distributor or its designees concerning the
performance of the Participating Organization's
responsibilities under this Agreement. Any person authorized
to direct the disposition of monies paid or payable by the
Distributor pursuant to Section 2 of this Agreement will
provide to the Distributor and the Trust's Board of Trustees,
and the Trust's Board of Trustees will review at least
quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made. In addition,
the Participating Organization will furnish to the
Distributor, the Trust or their designees such information as
the Distributor, the Trust or their designees may reasonably
request (including, without limitation, periodic
certifications confirming the rendering of distribution
assistance and support services with respect to Shares
described herein), and will otherwise cooperate with the
Distributor, the Trust and their designees (including, without
limitation, any auditors designated by the Trust), in the
preparation of reports to the Trust's Board of Trustees
concerning this Agreement and the monies paid or payable by
the Distributor pursuant hereto, as well as any other reports
or filings that may be required by law.
2. DISTRIBUTION FEE.
2.1 In consideration of the services and facilities provided by
the Participating Organization hereunder, the Distributor will
pay to the Participating Organization, and the Participating
Organization will accept as full payment therefor, a fee
calculated at the applicable annual rate set forth on Schedule
A hereto with respect to the average daily net asset value of
each Fund's Shares which are owned of record by the
Participating Organization as nominee for Customers or which
are owned by Customers whose records, as maintained by such
Fund or its agent, designate the Participating Organization as
the Customer's dealer of record, which fee will be computed
daily and paid monthly. The fee will not be paid to the
Participating Organization with respect to (i) Shares of a
Fund sold by it and redeemed or repurchased
<PAGE> 10
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 5
by the Trust or the Distributor within seven business days of
receipt of confirmation of such sale, or (ii) a Customer if
the amount of such fee on an annual basis with respect to such
Customer shall be less than $1.00. For purposes of determining
the amounts payable hereunder, the value of a Fund's net
assets shall be computed in the manner specified in the Fund's
Prospectus.
2.2 The Participating Organization hereby agrees to waive all or
such portion of any fees payable under this Section 2 as is
necessary to assure that the amount of such fee and other
operating expenses that are accrued on any day with respect to
any Fund does not exceed the gross income accrued with respect
to such Fund on that day.
2.3 The fee rate with respect to any Fund stated on Schedule A
hereto may be prospectively increased or decreased by the
Distributor, in its sole discretion, at any time upon notice
to the Participating Organization.
3. OTHER AGREEMENTS.
3.1 By written acceptance of this Agreement, the Participating
Organization represents, warrants, and agrees that the
Participating Organization is and will remain at all times
during the effectiveness of this Agreement a member in good
standing of the National Association of Securities Dealers,
Inc. (the "NASD") and properly registered as a broker-dealer
and otherwise qualified under all applicable federal, state
and local laws to engage in the business and transactions
described in this Agreement. The Participating Organization
agrees to comply with all applicable requirements, including
federal and state securities laws, the Rules and Regulations
of the SEC and the NASD (including, without limitation, all
applicable requirements of the Securities Act of 1933, the
Securities Exchange Act of 1934, the 1940 Act, and the
provisions of Section 26 of Article III of the Rules of Fair
Practice of the NASD). The Distributor has furnished the
Participating Organization a list of the states or other
jurisdictions in which the Distributor believes the Shares may
lawfully be sold,
<PAGE> 11
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 6
and the Participating Organization agrees that it will not
offer Shares to persons in any jurisdiction in which it may
not lawfully make such offer. The Participating Organization
further agrees that it will maintain all records required by
applicable law or otherwise reasonably requested by the
Distributor relating to transactions that it has executed
pursuant to this Agreement.
3.2 The Distributor shall not be liable to the Participating
Organization and the Participating Organization shall not be
liable to the Distributor except for acts or failures to act
which constitute lack of good faith or gross negligence and
for breach of obligations expressly assumed by either party
hereunder.
3.3 The Participating Organization will indemnify the Distributor
and hold it harmless from any claims or assertions relating to
the lawfulness of the Participating Organization's
participation in this Agreement and the transactions
contemplated hereby or relating to any activities of any
persons or entities affiliated with the Participating
Organization performed in connection with the discharge of its
responsibilities under this Agreement. If any such claims are
asserted, the Distributor shall have the right to manage its
own defense, including the selection and engagement of legal
counsel of its choosing, and all costs of such defense shall
be borne by the Participating Organization.
4. EFFECTIVE DATE; TERMINATION.
4.1 The Agreement will become effective with respect to each Fund
on the date a fully executed copy of this Agreement is
received by the Distributor or its designee. Unless sooner
terminated with respect to any Fund, this Agreement will
continue with respect to a Fund for one year, and thereafter
will continue automatically for successive annual periods
provided such continuance is specifically approved at least
annually by the vote of a majority of the Trustees of the
Trust who are not "interested persons" (as such term is
defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the
<PAGE> 12
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 7
Plan or any agreement relating to such Plan, including this
Agreement (the "Disinterested Trustees"), cast in person at a
meeting called for the purpose of voting on such approval.
4.2 This Agreement will automatically terminate with respect to a
Fund in the event of its assignment (as such term is defined
in the 1940 Act) with respect to such Fund. This Agreement
may be terminated with respect to any Fund by the Distributor
or by the Participating Organization, without penalty, upon
ten days' prior written notice to the other party. This
Agreement may also be terminated with respect to any Fund at
any time on ten days' written notice without penalty by the
vote of a majority of the Disinterested Trustees or of the
Shares of such Fund.
5. GENERAL.
5.1 All notices and other communications to either the
Participating Organization or the Distributor will be duly
given if mailed, telegraphed or telecopied to the appropriate
address set forth on page 1 hereof, or to such other address
as either party may provide in writing to the other party.
5.2 The Distributor may enter into other agreements for the
provision of distribution assistance and/or shareholder
services with any other person or persons without the
Participating Organization's consent.
5.3 This Agreement supersedes any other agreement between the
Distributor and the Participating Organization relating to the
subject matter of this Agreement. All covenants, agreements,
representations, and warranties made herein shall be deemed to
have been material and relied on by each party,
notwithstanding any investigation made by either party or on
behalf of either party, and shall survive the execution and
delivery of this Agreement. The invalidity or
unenforceability of any term or provision hereof shall not
affect the validity or enforceability of any other term or
provision hereof. The headings in this Agreement are for
convenience of reference only and shall not alter or otherwise
affect the meaning hereof. This Agreement may be executed in
any number of
<PAGE> 13
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 8
counterparts which together shale constitute one instrument
and shall be governed by and construed in accordance with the
laws (other than the conflict of laws rules) of the State of
Ohio and shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below
indicated.
SEI FINANCIAL SERVICES COMPANY
By: By:
------------------------- --------------------
Title:
-----------------
Date: Date:
---------------------- ------------------
<PAGE> 14
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 9
SCHEDULE A
TO THE SERVICING AGREEMENT FOR
DISTRIBUTION ASSISTANCE AND
SHAREHOLDER ADMINISTRATIVE SUPPORT SERVICES
WITH SEI FINANCIAL SERVICES COMPANY FOR CONESTOGA FAMILY OF FUNDS
<TABLE>
<CAPTION>
NAME OF
CONESTOGA FUND COMPENSATION*
-------------- ---------------------------------------------------------------------------
<S> <C>
U.S. Treasury Annual rate up to .___% of the average daily net assets of Shares from time
Securities Fund to time of Customers (as described in the Agreement) of the Participating
Organization.
Cash Management Annual rate up to .___% of the average daily net assets of Shares from time
Fund to time of Customers (as described in the agreement) of the Participating
Organization.
Equity Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
Intermediate Annual rate up to .___% of the average daily net assets of Shares from time
Income Fund to time of Customers (as described in the agreement) of the Participating
Organization.
Bond Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
Tax-Free Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
Pennsylvania Annual rate up to .___% of the average daily net assets of Shares from time
Tax-Free Bond to time of Customers (as described in the agreement) of the Participating
Fund Organization.
</TABLE>
<PAGE> 15
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 10
<TABLE>
<S> <C>
Special Equity Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
International Equity Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
Balanced Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
Short-Term Income Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
</TABLE>
- ----------------------
* ALL FEES ARE COMPUTED DAILY AND PAID MONTHLY.
<PAGE> 16
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087
SERVICING AGREEMENT FOR
SHAREHOLDER ADMINISTRATIVE SUPPORT SERVICES
[For Banks/Financial Institutions)
Participating Organization
Address
Ladies and Gentlemen:
SEI Financial Services Company (the "Distributor") serves as the
distributor of Conestoga Family of Funds (the "Company"), an open-end
management investment company, organized as a Massachusetts business trust and
registered with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940 (the "1940 Act"). Pursuant to Rule 12b-1 under
the 1940 Act ("Rule 12b-1"), the holders of the Retail Shares ("Shares") of
each of the investment portfolios of the Company identified on Schedule A
hereto, as such Schedule may be amended from time to time (individually, a
"Fund"; collectively, the "Funds") have adopted a Distribution and Services
Plan (the "Plan") that, among other things, authorizes the Distributor to enter
into agreements with third parties to implement the Plan. The Distributor
proposes to enter into this Servicing Agreement for Shareholder Administrative
Support Services with you (the "Participating Organization"), a bank or other
financial institution, concerning the provision of shareholder administrative
support services in connection with the sale of Shares to the Participating
Organization's customers ("Customers") who may from time to time own of record
or beneficially a Fund's Shares. The terms and conditions of this Agreement
are as follows:
1. SERVICES AS PARTICIPATING ORGANIZATION.
1.1 The Participating Organization is hereby authorized and agrees
to provide some or all of the following administrative support
services with respect to a Fund's Shares: (i) aggregating and
placing purchase, exchange and redemption orders directly with
the Company's Transfer Agent, in each case subject to the
terms and conditions set forth in the prospectus as
<PAGE> 17
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 2
amended from time to time of a Fund (the "Prospectus") and the
operating procedures and policies established by the
Distributor; (ii) providing Customers with a service that
invests the assets of their accounts in a Fund's Shares
pursuant to specific or pre-authorized instructions; (iii)
processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically
to Customers showing their positions in a Fund's Shares; (v)
arranging for bank wire or electronic transfers of funds to or
from a Customer's account; (vi) responding to inquiries from
Customers relating to their Shares or the services performed
by the Participating Organization under this Agreement; (vii)
providing subaccounting, or information necessary for
subaccounting, with respect to a Fund's Shares beneficially
owned by Customers; (viii) if required by law, forwarding
communications to shareholders from the Company (such as
proxies, reports, and dividend, distribution, and tax notices)
to Customers; (ix) forwarding to Customers proxy statements
and proxies containing any proposals regarding this Agreement
or the Plan; (x) rendering ongoing advice respecting the
suitability of particular investment opportunities offered by
the Company in light of the Customer's need; and (xi)
providing such other similar services as the Distributor may
reasonably request to the extent the Participating
Organization is permitted to do so under applicable statutes,
rules, or regulations.
1.2 The Participating Organization will provide such office space
and equipment, telephone facilities, and personnel (which may
be any part of the space, equipment, and facilities currently
used in the Participating Organization's business, or any
personnel employed by the Participating Organization) as may
be reasonably necessary or beneficial in order to provide such
distribution assistance or support services with respect to a
Fund's Shares.
1.3 The minimum dollar purchase of a Fund's Shares (including
Shares being acquired by Customers pursuant to the Exchange
Privileges described in a Fund's Prospectus) shall be the
applicable minimum amount set forth in the Prospectus of such
Fund, and no order for less than such amount shall be accepted
by the Participating Organization. The procedures relating to
the handling of orders shall be subject to instructions
<PAGE> 18
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 3
which the Distributor shall forward from time to time to the
Participating Organization. All orders for a Fund's Shares
are subject to acceptance or rejection by the Company in its
sole discretion, and the Company may, in its discretion and
without notice, suspend or withdraw the sale of a Fund's
Shares, including the sale of such Shares to the Participating
Organization for the account of any Customer or Customers.
1.4 In no transaction shall the Participating Organization act as
dealer for its own account; the Participating Organization
shall act solely for, upon the order of, and for the account
of, its Customers. For all purposes of this Agreement, the
Participating Organization will be deemed to be an independent
contractor, and will have no authority to act as agent for the
Distributor or the Company in any matter or in any respect.
No person is authorized to make any representations concerning
the Distributor, the Company, or a Fund's Shares except those
representations contained in the Fund's Prospectus and the
Company's Statement of Additional Information and in such
printed information as the Distributor of the Company may
subsequently prepare. The Participating Organization is
specifically authorized to distribute to Customers a Fund's
Prospectus and the Company's Statement of Additional
Information and sales material received by the Participating
Organization from the Distributor. No person is authorized to
distribute any other sales material relating to the Company
without the prior written approval of the Distributor. The
Participating Organization further agrees to deliver to
Customers, upon the request of the Distributor, copies of any
amended Prospectus and Statement of Additional Information.
1.5 The Participating Organization and its employees will, upon
request, be available during normal business hours to consult
with the Distributor or its designees concerning the
performance of the Participating Organization's
responsibilities under this Agreement. Any person authorized
to direct the disposition of monies paid or payable by the
Distributor pursuant to Section 2 of this Agreement agrees to
provide to the Distributor and the Company's Board of
Trustees, and the Company's Board of Trustees will review at
least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
<PAGE> 19
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 4
In addition, the Participating Organization will furnish to
the Distributor, the Company or their designees such
information as the Distributor, the Company or their designees
may reasonably request (including, without limitation,
periodic certifications confirming the rendering of
administrative support services with respect to Shares
described herein), and will otherwise cooperate with the
Distributor, the Company and their designees (including,
without limitation, any auditors designated by the Company),
in the preparation of reports to the Company's Board of
Trustees concerning this Agreement and the monies paid or
payable by the Distributor pursuant hereto, as well as any
other reports or filings that may be required by law.
2. FEE.
2.1 In consideration of the services and facilities provided by
the Participating Organization hereunder, the Distributor will
pay to the Participating Organization, and the Participating
Organization will accept as full payment therefor, a fee
calculated at the applicable annual rate set forth on Schedule
A hereto with respect to the average daily net assets of each
Fund's Shares which are owned of record by the Participating
Organization as nominee for Customers or which are owned by
Customers whose records, as maintained by such Fund or its
agent, designate the Participating Organization as the
Customer's dealer of record, which fee will be computed daily
and paid monthly. The fee will not be paid to the
Participating Organization with respect to (i) Shares of a
Fund sold by it and redeemed or repurchased by the Company or
the Distributor within seven business days of receipt of
confirmation of such sale, or (ii) a Customer if the amount of
such fee on an annual basis with respect to such Customer
shall be less than $1.00. For purposes of determining the
amounts payable hereunder, the value of a Fund's net assets
shall be computed in the manner specified in the Fund's
current Prospectus.
2.2 The Participating Organization hereby agrees to waive all or
such portion of any fees payable under this Section 2 as is
necessary to assure that the amount of such fee and other
operating expenses that are accrued on any day with respect to
any Fund does not exceed the
<PAGE> 20
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 5
gross income accrued with respect to such Fund on that day.
2.3 The fee rate with respect to any Fund stated on Schedule A
hereto may be prospectively increased or decreased by the
Distributor, in its sole discretion, at any time upon notice
to the Participating Organization.
3. OTHER AGREEMENTS.
3.1 By written acceptance of this Agreement, the Participating
Organization represents, warrants, and agrees that the
compensation payable to it hereunder will be disclosed to its
Customers as required, and will not be excessive or
unreasonable, under the laws and instruments governing the
Participating Organization or its relationship with the Trust.
The Participating Organization may be subject to provisions of
the Glass-Steagall Act and other laws governing among other
things the conduct of activities by federally chartered and
supervised banks and other banking organizations. As such,
the Participating Organization is restricted in the activities
which it may undertake and for which it may be paid. The
Participating Organization therefore agrees that it will
perform only those activities that are consistent with its
statutory and regulatory obligations and agrees to comply with
all applicable requirements, including federal and state
securities laws, the Rules and Regulations of the SEC
(including, without limitation, all applicable requirements of
the Securities Act of 1933). The Distributor has furnished
the Participating Organization a list of the states or other
jurisdictions in which the Distributor believes the Shares may
lawfully be sold, and the Participating Organization agrees
that it will not offer Shares to persons in any jurisdiction
in which it may not lawfully make such offer. The
Participating Organization further agrees that it will
maintain all records required by applicable law or otherwise
reasonably requested by the Distributor relating to
transactions that it has executed pursuant to this Agreement.
3.2 The Distributor shall not be liable to the Participating
Organization and the Participating
<PAGE> 21
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 6
Organization shall not be liable to the Distributor except for
acts or failures to act which constitute lack of good faith or
gross negligence and for breach of obligations expressly
assumed by either party hereunder.
3.3 The Participating Organization will indemnify the Distributor
and hold it harmless from any claims or assertions relating to
the lawfulness of the Participating Organization's
participation in this Agreement and the transactions
contemplated hereby or relating to any activities of any
persons or entities affiliated with the Participating
Organization performed in connection with the discharge of its
responsibilities under this Agreement. If any such claims are
asserted, the Distributor shall have the right to manage its
own defense, including the selection and engagement of legal
counsel of its choosing, and all costs of such defense shall
be borne by the Participating Organization.
4. EFFECTIVE DATE; TERMINATION.
4.1 The Agreement will become effective with respect to each Fund
on the date a fully executed copy of this Agreement is
received by the Distributor or its designee. Unless sooner
terminated with respect to any Fund, this Agreement will
continue with respect to a Fund for one year, and thereafter
will continue automatically for successive annual periods
provided such continuance is specifically approved at least
annually by the vote of a majority of the trustees of the
Company who are not interested persons (as such term is
defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Plan or any
agreement relating to such Plan, including this Agreement (the
"Disinterested Trustees"), cast in person at a meeting called
for the purpose of voting on such approval.
4.2 This Agreement will automatically terminate with respect to a
Fund in the event of its assignment (as such term is defined
in the 1940 Act) with respect to such Fund. This Agreement
may be terminated with respect to any Fund by the Distributor
or by the Participating Organization, without penalty, upon
ten days' prior written notice to the other party. This
<PAGE> 22
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 7
Agreement may also be terminated with respect to any Fund at
any time on ten days' written notice without penalty by the
vote of a majority of the Disinterested Trustees or of the
Shares of such Fund.
5. GENERAL.
5.1 All notices and other communications to either the
Participating Organization or the Distributor will be duly
given if mailed, telegraphed or telecopied to the appropriate
address set forth on page 1 hereof, or to such other address
as either party may provide in writing to the other party.
5.2 The Distributor may enter into other agreements for the
provision of distribution assistance and/or shareholder
services with any other person or persons without the
participating Organization's consent.
5.3 This Agreement supersedes any other agreement between the
Distributor and the Participating Organization relating to the
subject matter of this Agreement. All covenants, agreements,
representations, and warranties made herein shall be deemed to
have been material and relied on by each party,
notwithstanding any investigation made by either party or on
behalf of either party, and shall survive the execution and
delivery of this Agreement. The invalidity or
unenforceability of any term or provision hereof shall not
affect the validity or enforceability of any other term or
provision hereof. The headings in this Agreement are for
convenience of reference only and shall not alter or otherwise
affect the meaning hereof. This Agreement may be executed in
any number of counterparts which together shall constitute one
instrument and shall be governed by and construed in
accordance with the laws (other than the conflict of laws
rules) of the STATE OF OHIO and shall bind and inure to the
benefit of the parties hereto and their respective successors
and assigns.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below
indicated.
<PAGE> 23
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 8
AGREED AND ACCEPTED:
SEI FINANCIAL SERVICES COMPANY
---------------------
By: By:
------------------------ ------------------
Chairman
Title:
---------------
Date: Date:
--------------------- ----------------
<PAGE> 24
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 9
SCHEDULE A
TO THE SERVICING AGREEMENT FOR
SHAREHOLDER ADMINISTRATIVE SUPPORT SERVICES
BETWEEN SEI FINANCIAL SERVICES COMPANY
AND CONESTOGA FAMILY OF FUNDS
<TABLE>
<CAPTION>
NAME OF
CONESTOGA FUND COMPENSATION*
-------------- ---------------------------------------------------------------------------
<S> <C>
U.S. Treasury Annual rate up to .___% of the average daily net assets of Shares from time
Securities Fund to time of Customers (as described in the Agreement) of the Participating
Organization.
Cash Management Annual rate up to .___% of the average daily net assets of Shares from time
Fund to time of Customers (as described in the agreement) of the Participating
Organization.
Equity Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
Intermediate Annual rate up to .___% of the average daily net assets of Shares from time
Income Fund to time of Customers (as described in the agreement) of the Participating
Organization.
Bond Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
Tax-Free Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
Pennsylvania Annual rate up to .___% of the average daily net assets of Shares from time
Tax-Free Bond to time of Customers (as described in the agreement) of the Participating
Fund Organization.
Special Equity Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
</TABLE>
<PAGE> 25
SERVICING AGREEMENT
PARTICIPATING ORGANIZATION
PAGE 10
<TABLE>
<S> <C>
International Equity Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
Balanced Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
Short-Term Income Fund Annual rate up to .___% of the average daily net assets of Shares from time
to time of Customers (as described in the agreement) of the Participating
Organization.
</TABLE>
- ----------------------
* ALL FEES ARE COMPUTED DAILY AND PAID MONTHLY.
<PAGE> 1
EXHIBIT (16)(a)
CONESTOGA FAMILY OF FUNDS
EXHIBIT 16
TOTAL RETURN
VARIABLE FUNDS
LOAD CALCULATIONS
SPECIAL EQUITY FUND
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 2.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF
THE PERIOD OF A HYPOTHETICAL $1,000
INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 03/15/94 TO 07/31/94 ):
( 876.9/1,000) - 1 = -12.31%
YEAR TO DATE: ( 01/01/94 TO 07/31/94 ):
( 876.9/1,000) - 1 = -12.31%
QUARTERLY: ( 05/01/94 TO 07/31/94 ):
( 945.2/1,000) - 1 = -5.48%
MONTHLY: ( 07/01/94 TO 07/31/94 ):
( 1,018.5/1,000) - 1 = 1.85%
<PAGE> 2
CONESTOGA FAMILY OF FUNDS
EXHIBIT 16
TOTAL RETURN
VARIABLE FUNDS
NO LOAD CALCULATIONS
SPECIAL EQUITY FUND
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF
THE PERIOD OF A HYPOTHETICAL $1,000
INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 03/15/94 TO 07/31/94 ):
( 894.5/1,000) - 1 = -10.55%
YEAR TO DATE: ( 01/01/94 TO 07/31/94 ):
( 894.5/1,000) - 1 = -10.55%
QUARTERLY: ( 05/01/94 TO 07/31/94 ):
( 964.6/1,000) - 1 = -3.54%
MONTHLY: ( 07/01/94 TO 07/31/94 ):
( 1,039.9/1,000) - 1 = 3.99%
<PAGE> 3
CONESTOGA FAMILY OF FUNDS
EXHIBIT 16
30-DAY S.E.C. YIELD CALCULATIONS
SPECIAL EQUITY FUND
(a-b) 6
30-Day S.E.C. Yield Quotation = 2*{[} ----------------------- +1) ]-1} =
(cd)
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 = The maximum offering price (NAV for No Load) per
share on the last day of the period
WITH 2.00% LOAD:
( 8,884.57 - 21,838.04 ) 6
= 2 *{[( ------------------------------ +1) ]-1} = -1.68%
(1,014,663.234 * 9.09 )
WITHOUT 2.00% LOAD:
( 8,884.57 - 21,838.04 ) 6
= 2 *{[( ------------------------------ +1) ]-1} = -1.71%
(1,014,663.234 * 8.91 )
The performance was computed based on the thirty day period ending
July 31, 1994.
<PAGE> 1
EXHIBIT (16)(b)
EXHIBIT 16
TOTAL RETURN CALCULATION EXAMPLE
1/n
TOTAL RETURN: T = [(ERV/P) - 1]
Where: P = A hypothetical investment of $1,000
ERV = The ending redeemable value of the
$1,000 initial investment
T = Total Return
n = Number of periods
Aggregate total return calculations for the Institutional Class of the
Conestoga International Equity Balanced, and Short-term Income Funds.
<TABLE>
<CAPTION>
International Equity Balanced Short-term Income
<S> <C> <C> <C>
P 1,000.00 1,000.00 1,000.00
n 1 1 1
ERV 1,129.00 1,049.20 1,022.00
T 12.90% 4.92% 2.20%
</TABLE>
Aggregate total return calculations with a sales load of 2.00% for the Retail
Class of the Conestoga International Equity, Balanced, and Short-term Income
Funds.
<TABLE>
<CAPTION>
International Equity Balanced Short-term Income
<S> <C> <C> <C>
P 1,000.00 1,000.00 1,000.00
n 1 1 1
ERV 1,105.90 1,028.60 1,000.20
T 10.59% 2.86% 0.02%
</TABLE>
<PAGE> 2
EXHIBIT 16, CONTINUED
SEC 30 DAY YIELD CALCULATION EXAMPLE
6
SEC YIELD = 2[((A-B/CD) + 1) - 1]
Where: a = Total gross income for the period
b = Total net expenses for the period
c = Average daily number of shares
outstanding during the period.
d = Maximum offering price per share
on the last day of the period.
<TABLE>
<CAPTION>
Balanced
------------------------------------------
Institutional Retail
<S> <C> <C>
a - Total Income 137,221.71 263.37
b - Expenses 23,835.81 58.83
c - Shares 3,478,193.230 6,646.314
d - Maximum offering price 10.44 10.65
Yield 3.78% 3.49%
</TABLE>
<TABLE>
<CAPTION>
Short-term Income
-----------------------------------------
Institutional Retail
<S> <C> <C>
a - Total Income 192,589.56 55.47
b - Expenses 19,015.56 7.53
c - Shares 3,896,720.712 1,119.504
d - Maximum offering price 10.02 10.21
Yield 5.39% 5.09%
</TABLE>
<PAGE> 1
EXHIBIT (18)
CONESTOGA FAMILY OF FUNDS
(THE "COMPANY")
PLAN PURSUANT TO RULE 18f-3 FOR OPERATION OF
A MULTI-CLASS SYSTEM
I. INTRODUCTION
On February 23, 1995, the Securities and Exchange Commission
(the "Commission") promulgated Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act"), which permits the creation and operation of
a multi-class distribution structure without the need for an exemptive order
under Section 18 of the 1940 Act. Rule 18f-3, which became effective on April
3, 1995, requires an investment company to have a written plan setting forth
the separate arrangements for shareholder services and distribution for each
class, methods for allocating expenses to each class and any conversion
features or exchange privileges. Prior to the effective date hereof, the
Company operated a multi-class distribution structure pursuant to an exemptive
order granted by the Commission. The effective date of this Plan is May 1,
1995.
II. ATTRIBUTES OF CLASSES
A. General
The Company offers two classes of shares--Institutional Shares
and Retail Shares. The Institutional Shares and Retail Shares of an investment
portfolio (a "Fund") of the Company shall have different arrangements for
shareholder services and distribution as set forth herein. The Retail Shares
shall bear a fee pursuant to a Distribution and Service Plan (the "12b-1 Plan")
and may bear additional retail transfer agency expenses. Each class has
separate exchange privileges.
B. Distribution and Shareholder Services and Expenses
RETAIL SHARES
Retail Shares of the Cash Management, U.S. Treasury Securities
and Tax-Free Funds (the "Money Market Funds") shall be offered to the general
public without a sales charge. Retail Shares of the Funds of the Company which
are not Money Market Funds (the "Non-Money Market Funds") shall be offered to
the general public and shall be subject to a sales charge as described more
fully from time to time in the Company's current Retail Shares Prospectus, and
shall be subject to a fee payable to SEI Financial Services Company (the
"Distributor") under the 12b-1 Plan in an amount not to exceed on an annual
basis .40% of
<PAGE> 2
the average daily net assets of the Retail Class of such Fund (the "Fee") to
compensate the Distributor for the following: (i) payments the Distributor
makes to banks and other institutions and industry professionals,
broker-dealers, including the Company's investment advisor or sub-advisor,
Distributor, and their affiliates or subsidiaries (collectively referred to as
"Participating Organizations"), pursuant to an agreement in connection with
providing administrative support services to the holders of a Fund's Retail
Shares; or (ii) payments to financial institutions and industry professionals
such as insurance companies, investment counselors, accountants and estate
planning firms (but not including banks and savings and loan associations),
broker-dealers, and the Distributor's affiliates and subsidiaries in
consideration for distribution services provided and expenses assumed in
connection with distribution assistance, including but not limited to printing
and distributing Prospectuses to persons other than current shareholders of a
Fund, printing and distributing advertising and sales literature and reports to
shareholders used in connection with the sale of a Fund's Retail Shares, and
personnel and communication equipment used in servicing shareholder accounts
and prospective shareholder inquiries.
INSTITUTIONAL SHARES
Institutional Shares shall be offered in connection with the
requirements of qualified accounts maintained by or on behalf of customers by
the Company's investment advisor, its related companies or their
correspondents. Institutional Shares shall be offered without a sales charge
and shall not be subject to a fee payable pursuant to the 12b-1 Plan.
C. Shareholder Services
1. Exchange Privileges
RETAIL SHARES
Shareholders who have paid a sales charge on purchases of
Retail Shares of the Non-Money Market Funds are entitled to exchange those
Retail Shares for Retail Shares of another Non-Money Market Fund at the net
asset value per Share. Shareholders may also exchange Retail Shares of the
Money Market Funds for Retail Shares of another Money Market Fund at the net
asset value per Share without payment of a sales charge. In addition, Retail
Shares of a Money Market Fund that were acquired by a previous exchange from
Retail Shares of a Non-Money Market Fund may be exchanged for Retail Shares of
a Non-Money Market Fund without payment of any additional sales charge. Retail
Shares exchanged must have a current value of at least $1,000.
INSTITUTIONAL SHARES
<PAGE> 3
Holders of Institutional Shares may exchange those shares for
Institutional Shares of any Fund at respective net asset values, provided that
the Institutional Shares exchanged have a current value of at least $1,000.
2. Directed Dividend Option
RETAIL SHARES
Holders of Retail Shares shall have a directed dividend option
as described more fully from time to time in the Company's current Retail
Shares Prospectus whereby a shareholder may elect to have all income dividends
and capital gains distributions from a Fund paid by check, reinvested in shares
of the Fund or, if eligible, reinvested in shares of another Fund, without the
payment of a sales charge.
INSTITUTIONAL SHARES
A directed dividend option is not available to holders of
Institutional Shares.
3. Conestoga IRAs
RETAIL SHARES
Individual retirement accounts are offered to holders of
Retail Shares as described more fully from time to time in the Company's
current Retail Shares Prospectus.
INSTITUTIONAL SHARES
Individual retirement accounts are not offered to holders of
Institutional Shares.
4. Auto Invest Plan
RETAIL SHARES
Holders of Retail Shares may make regular monthly or quarterly
purchases of Retail Shares through automatic deductions from their bank
accounts as described more fully from time to time in the Company's current
Retail Shares Prospectus.
INSTITUTIONAL SHARES
An automatic investment plan is not available to holders of
Institutional Shares.
- 3 -
<PAGE> 4
5. Redemption by Telephone
RETAIL SHARES
Retail Shares may be redeemed by telephone as
described from time to time in the Company's current Retail Shares Prospectus.
INSTITUTIONAL SHARES
Institutional Shares may not be redeemed by
telephone.
6. Redemption by Check
RETAIL SHARES
Shares in the Money Market Funds may be redeemed by
check as described from time to time in the Company's current Retail Shares
Prospectus.
INSTITUTIONAL SHARES
Institutional Shares may not be redeemed by check.
7. Automatic Withdrawal Plan
RETAIL SHARES
Holders of Retail Shares shall have an automatic
withdrawal plan whereby a shareholder generally may make regular monthly or
quarterly redemptions of Retail Shares as described from time to time in the
Company's current Retail Shares Prospectus.
INSTITUTIONAL SHARES
An automatic withdrawal plan is not available to
holders of Institutional Shares.
D. Methodology for Allocating Expenses Between Classes
On a daily basis, expenses are attributable to each class of
shares depending on the nature of the expenditures. Expenses fall into three
categories:
(1) Expenses incurred by the Company (e.g., trustee fees,
custodian fees, etc.) not attributable to a particular Fund or a particular
class thereof ("Company Expenses");
- 4 -
<PAGE> 5
(2) Expenses incurred by a Fund but not attributable to a
particular class of the Fund's shares (e.g., investment advisory fees) ("Fund
Expenses"); and
(3) Expenses specifically attributable to a particular
class ("Class Expenses"), which will be limited to: (a) fees payable pursuant
to the 12b-1 Plan; and (b) transfer agent expenses as identified by the
Transfer Agent as being attributable to a specific class.
Prior to determining the day's net asset value and any
distributions to shareholders, the following expense items shall be calculated
as indicated;
1. Company Expenses are allocated to each class of
shares of the Company based upon the relative net assets of such classes of
shares.
2. Fund Expenses are allocated to each class of shares
of the Fund based upon the relative net assets of such classes.
3. Class Expenses are allocated to the Class to which
they are attributable.
- 5 -
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000854127
<NAME> CONESTOGA FAMILY OF FUNDS
<SERIES>
<NUMBER> 041
<NAME> EQUITY INSTITUTIONAL CLASS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 368840
<INVESTMENTS-AT-VALUE> 385182
<RECEIVABLES> 8311
<ASSETS-OTHER> 31
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 393524
<PAYABLE-FOR-SECURITIES> 8073
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 508
<TOTAL-LIABILITIES> 8581
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 339568
<SHARES-COMMON-STOCK> 22160
<SHARES-COMMON-PRIOR> 3007
<ACCUMULATED-NII-CURRENT> 101
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28932
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16342
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