1933 Act File No. 33-44737
1940 Act File No. 811-6511
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 7 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 8 X
FIRST PRIORITY FUNDS
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
on _________________ pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule 485.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on _January 15, 1993__; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant
to Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin, L.L.P.
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of FIRST PRIORITY FUNDS,
which is comprised of six portfolios: (1) First Priority Equity Fund,
(a) Trust Shares and (b) Investment Shares; (2) First Priority Fixed Income
Fund, (a) Trust Shares and (b) Investment Shares; (3) First Priority
Limited Maturity Government Fund; (4) First Priority Treasury Money Market
Fund, (a) Trust Shares and (b) Investment Shares; (5) First Priority Equity
Income Fund; and (6) First Priority Balanced Funds, relates only to the
First Priority Equity Income Fund and the First Priority Balanced Fund, and
is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404 (c) Cross Reference)
Item 1. Cover Page (1-6) Cover Page.
Item 2. Synopsis (1-6) Summary of Fund Expenses.
Item 3. Condensed Financial
Information. (1-4) Financial Highlights.
Item 4. General Description
of Registrant (1-6) General Information; Investment
Information; (1-6) Investment
Objective; (1-6) Investment Policies;
(1-6) Investment Limitations.
Item 5. Management of the Fund (1-6) First Priority Funds
Information; (1-6) Management of the
First Priority Funds; (1a, 2a, 4a)
Distribution of Trust Shares of the
Fund; (1b, 2b, 4b) Distribution of
Investment Shares of the Fund; (1b,
2b,3, 4b, 5) Distribution Plan; (5-6)
Distribution and Shareholder Services
Plans; (1-6) Administration of the
Fund; (1-6) Expenses of the Fund (and
Trust or Investment) Shares; (1, 5-6)
Brokerage Transactions.
Item 6. Capital Stock and
Other Securities (1-3, 5-6) Dividends and Capital
Gains; (4) Dividends; (4) Capital
Gains; (1-6) Shareholder Information;
(1-6) Voting Rights; (1-6)
Massachusetts Partnership Law; (1-6)
Effect of Banking Laws; (1-6) Tax
Information; (1-6) Federal Income Tax;
(1,2,4) Other Classes of Shares.
Item 7. Purchase of Securities
Being Offered (1-6) Net Asset Value; (1-6) Investing
in (Trust/Investment Shares, or the
Fund); (1-6) Minimum Investment
Required; (1-6) What Shares Cost; (1-
6) Share Purchases; (1b,2b,3)
Purchases at Net Asset Value; (3,5-6)
Conversion to Federal Funds;
(1b,2b,3,4b,5,6) Dealer Concessions;
(1b,2b,3,4b,5,6) Reducing the Sales
Charge; (1b,2b,3,4b,5,6) Systematic
Investment Plan; (1b,2b,3,4b,5,6)
Shareholder Accounts.
Item 8. Redemption or Repurchase (1-6) Exchange Privilege (3,5,6)
Exchanging Securities for Fund Shares;
(1-6) Redeeming (Trust or Investment)
Shares; (1-6) By Telephone;
(1b,2b,3,4b,5,6) By Mail;
(1b,2b,3,4b,5,6) Systematic Withdrawal
Plan; (1-6) Accounts with Low
Balances; (1-4) Redemption in Kind.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page (1-6) Cover Page.
Item 11. Table of Contents (1-6) Table of Contents
Item 12. General Information
and History (1-6) General Information about the
Fund.
Item 13. Investment Objectives and
Policies (1-6) Investment Objective; (1-6)
Investment Limitations.
Item 14. Management of the Fund (1-6) First Priority Funds Management.
Item 15. Control Persons and Principal
Holders of Securities Not Applicable.
Item 16. Investment Advisory and Other
Services (1-6) Investment Advisory Services;
(1-6) Administrative Services; (1-6)
Custodian.
Item 17. Brokerage Allocation (1-6) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities (1-6) Not Applicable.
Item 19. Purchase, Redemption and Pricing
of Securities being Offered (1-6) Purchasing Shares; (1-6)
Determining Net Asset Value; (1-6)
Redeeming Shares; (1-6) Exchange
Privilege.
Item 20. Tax Status (1-6) Tax Status.
Item 21. Underwriters (1b,2b,3,4b) Distribution Plan; (5-6)
Distribution and Shareholder Services
Plans.
Item 22. Calculation of Performance
Data (1-3,5,6) Total Return; (4) Effective
Yield; (1-6) Yield; (1-6) Performance
Comparisons.
Item 23. Financial Statements (1-4) Filed in Part A; (5-6) To be
filed with 4-6 month update.
PROSPECTUS
FIRST PRIORITY EQUITY INCOME FUND
(A Portfolio of the First Priority Funds)
The shares of First Priority Equity Income Fund (the "Fund") offered by
this prospectus represent interests in a diversified investment portfolio
of First Priority Funds (the "Trust"), an open-end management investment
company (a mutual fund).
The investment objective of the Fund is to provide income and growth of
capital. The Fund pursues this investment objective by investing primarily
in a diversified portfolio of income-producing equity securities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
FIRST ALABAMA BANK OR ANY REGIONS BANK, ARE NOT ENDORSED OR GUARANTEED BY
FIRST ALABAMA BANK OR ANY REGIONS BANK, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL .
This prospectus contains the information you should read and know before
you invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated
December ___, 1994, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information free of charge, obtain other
information, or make inquiries about the Fund by writing or calling toll-
free 1-800-433-2829.
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.
Prospectus dated December ____, 1994
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES
GENERAL INFORMATION
INVESTMENT INFORMATION
Investment Objective
Investment Policies
Acceptable Investments
Common and Preferred Stocks
Convertible Securities
Zero Coupon Convertible Securities
Other Corporate Securities
U.S. Government Securities
Temporary Investments
Repurchase Agreements
When-Issued and Delayed Delivery Transactions
Put and Call Options
Futures and Options on Futures
Risks
Investing in Securities of Other Investment Companies
Lending of Portfolio Securities
Restricted and Illiquid Securities
Securities of Foreign Issuers
Investment Limitations
FIRST PRIORITY FUNDS INFORMATION
Management of the First Priority Funds
Board of Trustees
Investment Adviser
Advisory Fees
Adviser's Background
Distribution of Fund Shares
Distribution and Shareholder Services Plans
Administration of the Fund
Administrative Services
Custodian
Transfer Agent, Dividend Disbursing Agent, and
Portfolio Accounting Services
Legal Counsel
Independent Auditors
Brokerage Transactions
Expenses of the Fund
NET ASSET VALUE
INVESTING IN THE FUND
Minimum Investment Required
What Shares Cost
Purchases at Net Asset Value
Dealer Concessions
Other Payments to Financial Institutions Share
Purchases
Conversion to Federal Funds
Reducing the Sales Charge
Quantity Discounts and Accumulated Purchases
Letter of Intent
Reinvestment Privilege
Purchases with Proceeds from Redemptions of Unaffiliated Mutual Fund
Shares
Systematic Investment Plan
Exchanging Securities for Fund Shares
Shareholder Accounts
Dividends and Capital Gains
EXCHANGE PRIVILEGE
REDEEMING SHARES
By Telephone
By Mail
Receiving Payment
Systematic Withdrawal Plan
Accounts with Low Balances
SHAREHOLDER INFORMATION
Voting Rights
Massachusetts Partnership Law
EFFECT OF BANKING LAWS
TAX INFORMATION
Federal Income Tax
PERFORMANCE INFORMATION
ADDRESSES Inside Back Cover
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
2.00%
Maximum Sales Load Imposed on Reinvested Dividends (as
a percentage of offering price) None
Deferred Sales Loads (as a percentage of original purchase price
or redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable)
None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fees (after waiver)(1)
12b-1 Fees (2) 0.00%
Total Other Expenses
Shareholder Services Fees (2) 0.00 %
Total Operating Expenses (3)
(1) The estimated management fee has been reduced to
reflect the anticipated voluntary waiver by the investment adviser.
The adviser can terminate this voluntary waiver at any time at its
sole discretion. The maximum management fee is 0.80% for the Fund.
(2) The Fund has no present intention of paying or
accruing 12b-1 fees or shareholder services fees during the fiscal
year ending November 30, 1995. If the Fund were paying or accruing
12b-1 fees or shareholder services fees, the Fund would be able to pay
up to 0.30% of its average daily net assets for 12b-1 fees and up to
0.25% of its average daily net assets for shareholder services fees.
See the section entitled "Distribution and Shareholder Services
Plans."
(3) Total Operating Expenses for the Fund are estimated to be ____%,
absent the anticipated voluntary waiver of the advisory fee, as well
as the payment of the shareholder services fee or the maximum 12b-1
fee as described in note 2 above.
*Annual Fund Operating Expenses are estimated based on average expenses
expected to be incurred during the fiscal year ending November 30, 1995.
During the course of this period, expenses may be more or less than the
average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "FIRST PRIORITY FUNDS INFORMATION" AND "INVESTING
IN THE FUND."
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return ; (2) redemption at the end of each
time period; and (3) payment of the maximum sales load of 2.00%.
The Fund charges no redemption fees $ $
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING NOVEMBER 30,
1995.
GENERAL INFORMATION
First Priority Funds was established as a Massachusetts business trust
under a Declaration of Trust dated October 15, 1991.
The Declaration of Trust permits First Priority Funds to offer separate
series of shares of beneficial interest representing interests in separate
portfolios of securities. The shares of beneficial interest in any one
portfolio may be offered in separate classes. This prospectus relates only
to First Priority Equity Income Fund.
The Fund is designed for investors seeking income and growth of capital
through a professionally managed, diversified portfolio of income-producing
equity securities. A minimum initial investment of $1,000 is required.
Except as otherwise noted in this prospectus, shares are sold at net asset
value plus an applicable sales charge and redeemed at net asset value.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide income and growth of
capital. This objective cannot be changed without approval of
shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
professionally managed, diversified portfolio of income-producing equity
securities. Equity securities include common stocks, preferred stocks, and
securities (including debt securities) that are convertible into common
stocks. The portion of the Fund's total assets invested in common stocks,
preferred stocks, and convertible securities will vary according to the
Fund's assessment of market and economic conditions and outlook, but income-
producing equity securities will, under normal market conditions, comprise
at least 65% of the Fund's assets.
Unless indicated otherwise, the investment policies of the Fund may be
changed by the Board of Trustees (the "Trustees") without the approval of
shareholders. Shareholders will be notified before any material change in
these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund's investment approach is based on the
conviction that over the long term the economy will continue to expand and
develop and that this economic growth will be reflected in the growth of
the revenues and earnings of major corporations.
COMMON AND PREFERRED STOCKS. The Fund invests primarily in common and
preferred stocks of companies selected by the Fund's investment
adviser on the basis of traditional research techniques and technical
factors, including assessment of earnings, dividend yield and dividend
growth prospects and of the risk and volatility of the company's
industry. Other factors, such as product position or market share,
will also be considered by the Fund's investment adviser. Common and
preferred stocks at the time of purchase will be expected to pay
income (dividends) and the issuing companies will have a market
capitalization of at least $1 billion, with the exception of common
stocks acquired through conversion of a convertible security, to which
no market capitalization threshold is applied.
CONVERTIBLE SECURITIES. Convertible securities are securities which
may be exchanged or converted into a predetermined number of the
issuer's underlying common stock at the option of the holder during a
specified time period. Convertible securities may take the form of
convertible preferred stock, convertible bonds, or debentures or
warrants or some combination of the features of several of these
securities. The Fund will generally purchase only those convertible
securities that were part of an issue that had a market value of
$50,000,000 at the time of issue. Convertible securities are not held
to a specific quality standard as other debt securities purchased by
the Fund (see "Other Corporate Securities"), but the investment
adviser will assess the quality of the convertible security before
purchase. Most convertible securities pay income at a fixed rate in
the form of interest or dividends. Some convertible securities pay
income at a rate which changes over time and some convertibles do not
pay current income. (See "Zero Coupon Convertible Securities" below.)
The investment characteristics of each convertible security vary
widely, which allows convertible securities to be employed for
different investment purposes. Convertible bonds and convertible
preferred stocks are fixed-income securities that generally retain the
investment characteristics of fixed-income securities until they have
been converted but also react to movements in the underlying equity
securities. The holder is entitled to receive the fixed income of a
bond or the dividend preference of a preferred stock until the holder
elects to exercise the conversion privilege. Convertible securities
are senior to equity securities and, therefore, have a claim to assets
of the corporation prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally
subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred
stocks provide a stable stream of income with generally higher yields
than common stocks, but lower than nonconvertible securities of
similar quality.
The Fund will exchange or convert the convertible securities held in
its portfolio into shares of the underlying common stock in instances
in which, in the adviser's opinion, the investment characteristics of
the underlying common stock will assist the Fund in achieving its
investment objective. Otherwise, the Fund will hold or trade the
convertible securities. In selecting convertible securities for the
Fund, the Fund's adviser evaluates the investment characteristics of
the convertible security as a fixed-income instrument and the
investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a
particular convertible security, the adviser considers numerous
factors, including the economic and market outlook, the value of the
security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and an assessment of the quality
of the security.
ZERO COUPON CONVERTIBLE SECURITIES. Zero coupon convertible
securities are securities which are issued at a discount to their face
amount and do not entitle the holder to any periodic payments of
interest prior to maturity. Rather, income earned on zero coupon
convertible securities accretes at a stated yield until the security
reaches its face amount at maturity. Zero coupon convertible
securities are convertible into the issuer's common stock. In
addition, zero coupon convertible securities usually have put features
that provide the holder with the opportunity to sell the bonds back to
the issuer at a stated price before maturity. Generally, the prices
of zero coupon convertible securities may be more sensitive to market
interest rate fluctuations than conventional convertible securities.
Federal income tax law requires the holders of a zero coupon
convertible security to recognize income from the security prior to
the receipt of cash payments. To maintain its qualification as a
regulated investment company and avoid liability for federal income
taxes, the Fund will be required to distribute income accrued from
zero coupon convertible securities which it owns, and may have to sell
portfolio securities (perhaps at disadvantageous times) in order to
generate cash to satisfy these distribution requirements.
OTHER CORPORATE SECURITIES. The Fund may invest in issues of
corporate debt obligations which are rated "A" or better by Moody's
Investors Service, Inc. ("Moody's"), Standard and Poor's Ratings Group
("S&P"), or Fitch Investors Service, Inc. ("Fitch"), at the time of
purchase, or which are of comparable quality in the judgment of the
investment adviser, and warrants of these companies. If a security's
rating is reduced below the required minimum after the Fund has
purchased it, the Fund is not required to sell the security, but may
consider doing so. The prices of fixed-income securities fluctuate
inversely to the direction of interest rates.
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which
the Fund invests are either issued or guaranteed by the U.S.
government, its agencies or instrumentalities. These securities
include, but are not limited to:
o direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes and bonds; and
o notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as Federal Home Loan Banks, Federal
National Mortgage Association, Government National Mortgage
Association, Banks for Cooperatives, Federal Farm Credit Banks,
Tennessee Valley Authority, Export-Import Bank of the United
States, Commodity Credit Corporation, Federal Financing Bank,
Student Loan Marketing Association, Federal Home Loan Mortgage
Corporation, or National Credit Union Administration.
Some obligations issued or guaranteed by agencies or instrumentalities
of the U.S. government, such as Government National Mortgage
Association participation certificates, are backed by the full faith
and credit of the U.S. Treasury. Others for which no assurances can
be given that the U.S. government will provide financial support to
the agencies or instrumentalities, since it is not obligated to do so,
are supported by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow an amount limited to a specific line
of credit from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of an agency or instrumentality; or
othe credit of the agency or instrumentality issuing the obligation.
TEMPORARY INVESTMENTS. For temporary defensive purposes (up to 100%
of its total assets) and to maintain liquidity (up to 35% of its total
assets), the Fund may invest in cash and cash items, including:
o short-term money market instruments;
o securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities;
and
o repurchase agreements.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in
which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities
to the Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Fund,
the Fund could receive less than the repurchase price on any sale
of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete
these transactions may cause the Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering
into these transactions, and the market values of the securities purchased
may vary from the purchase prices. Accordingly, the Fund may pay more/less
than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
PUT AND CALL OPTIONS. The Fund may write (i.e., sell) covered call and put
options to generate income for the Fund. By writing a call option, the
Fund becomes obligated during the term of the option to deliver the
securities underlying the option upon payment of the exercise price. By
writing a put option, the Fund becomes obligated during the term of the
option to purchase the securities underlying the option at the exercise
price if the option is exercised. The Fund may also write straddles
(combinations of covered puts and calls on the same underlying security).
The Fund may only write "covered" options. This means that, so long as the
Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option or have the right to obtain
such securities without payment of further consideration (or have
segregated cash in the amount of any additional consideration).
The Fund will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of the put option, it
deposits and maintains with its custodian in a segregated account liquid
assets having a value equal to or greater than the exercise price of the
option. The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return that would be
realized on the underlying securities alone. The Fund receives a premium
from writing a call or put option which it retains whether or not the
option is exercised. By writing a call option, the Fund might lose the
potential for gain on the underlying security while the option is open, and
by writing a put option, the Fund might become obligated to purchase the
underlying security for more than its current market price upon exercise.
The Fund may purchase call and put options for the purpose of offsetting
previously written call and put options of the same series. If the Fund is
unable to effect a closing purchase transaction with respect to covered
options it has written, the Fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the
options expire or are exercised. Put options may also be purchased to
protect against price movements in particular securities in the Fund's
portfolio. A put option gives the Fund, in return for a premium, the right
to sell the underlying security to the writer (seller) at a specified price
during the term of the option.
The Fund will purchase options only to the extent permitted by the policies
of state securities authorities in states where shares of the Fund are
qualified for offer and sale. The Fund will write put options only on
securities which the Fund wishes to have in its portfolio and where the
Fund has determined, as an investment consideration, that it is willing to
pay the exercise price of the option.
The Fund may generally purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the buyers or writers
of the options when options on the portfolio securities held by the Fund
are not traded on an exchange. The Fund purchases and writes options only
with investment dealers and other financial institutions (such as
commercial banks or savings associations) deemed creditworthy by the Fund's
adviser.
Over-the-counter options are two-party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third-party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options may
not.
The Fund may purchase put options and write call options using market index
options such as the S&P 500 for the purpose of hedging to attempt to
protect the value of the Fund or to generate income.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to hedge all or a portion of its portfolio against changes in
stock prices, interest rates, and market conditions. The Fund will not
engage in futures transactions for speculative purposes. Financial futures
contracts call for the delivery of particular debt instruments at a certain
time in the future. The seller of the contract agrees to make delivery of
the type of instrument called for in the contract, and the buyer agrees to
take delivery of the instrument at the specified future time.
Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index
futures contract is an agreement by which two parties agree to take or make
delivery of an amount of cash equal to the difference between the value of
the index at the close of the last trading day of the contract and the
price at which the index contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a
futures contract, it is undertaking the obligation of selling a futures
contract at a fixed price at any time during a specified period if the
option is exercised. Conversely, as purchaser of a put option on a futures
contract, the Fund is entitled (but not obligated) to sell a futures
contract at the fixed price during the life of the option.
The Fund may also write put options and purchase call options on futures
contracts as hedges against rising purchase prices of portfolio securities.
The Fund will use these transaction to attempt to protect its ability to
purchase portfolio securities in the future at price levels existing at the
time it enters into the transactions. When the Fund writes a put option on
a futures contract, it is undertaking to buy a particular futures contract
at a fixed price at any time during a specified period if the option is
exercised. As a purchaser of a call option on a futures contract, the Fund
is entitled (but not obligated) to purchase a futures contract at a fixed
price at any time during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases futures contracts, an amount of cash and cash equivalents,
equal to the underlying commodity value of the futures contracts (less any
related margin deposits), will be deposited in a segregated account with
the Fund's custodian (or the broker, if legally permitted) to collateralize
the position and thereby insure that the use of such futures contract is
unleveraged.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to
the futures contracts may not correlate perfectly with the prices of
the securities in the Fund's portfolio. This may cause the futures
contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Fund's
investment adviser could be incorrect in its expectations about the
direction or extent of market factors such as stock price movements.
In these events, the Fund may lose money on the futures contract or
option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the
investment adviser will consider liquidity before entering into these
transactions, there is no assurance that a liquid secondary market on
an exchange or otherwise will exist for any particular futures
contract or option at any particular time. The Fund's ability to
establish and close out futures and options depends on this secondary
market.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest
in securities of other investment companies, but it will not own more than
3% of the total outstanding voting stock of any investment company, invest
more than 5% of its total assets in any one investment company, or invest
more than 10% of its total assets in investment companies in general. The
Fund will invest in other investment companies primarily for the purpose of
investing short-term cash which has not yet been invested in other
portfolio instruments. The investment adviser will waive its investment
advisory fee on assets invested in securities of open-end investment
companies, although it should be noted that investment companies incur
certain expenses such as custodian and transfer agency fees and, therefore,
any investment by the Fund in shares of another investment company would be
subject to such expenses.
LENDING OF PORTFOLIO SECURITIES. Pursuant to a fundamental policy, in
order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
adviser has determined are creditworthy under guidelines established by the
Trustees and where the Fund will receive collateral in the form of cash or
U.S. government securities equal to at least 100% of the value of the
securities loaned at all times.
a
assets in restricted securities. Restricted securities are any securities
in which the Fund may otherwise invest pursuant to its investment objective
and policies but which are subject to restriction on resale under federal
securities law. However, the Fund will limit investments in illiquid
securities, including restricted securities not determined by the Trustees
to be liquid, non-negotiable time deposits, over-the-counter options, and
repurchase agreements providing for settlement in more than seven days
after notice, to 15% of its net assets.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest in the securities of
foreign issuers which are freely traded on United States securities
exchanges or in the over-the-counter market in the form of depository
receipts. Securities of a foreign issuer may present greater risks in the
form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of a foreign issuer if any such risk
appears to the investment adviser to be substantial.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets; or
o with respect to 75% of the value of its total assets, invest more
than 5% in securities of any one issuer other than cash, cash items, or
securities issued or guaranteed by the government of the United States,
its agencies or instrumentalities, and repurchase agreements
collateralized by such securities or acquire more than 10% of the
outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval. The following investment limitation, however, may be changed by
the Trustees without shareholder approval. Shareholders will be notified
before any material change in this investment limitation becomes effective.
The Fund will not:
o invest more than 5% of the value of its total assets in securities of
issuers that have records of less than three years of continuous
operations, including the operation of any predecessor.
FIRST PRIORITY FUNDS INFORMATION
MANAGEMENT OF THE FIRST PRIORITY FUNDS
BOARD OF TRUSTEES. The Board of Trustees is responsible for managing the
business affairs of the Trust and for exercising all of the powers of the
Trust except those reserved for the shareholders. The Executive Committee
of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the
Trust, investment decisions for the Fund are made by First Alabama Bank
("First Alabama" or "adviser"), as the Fund's investment adviser, subject
to direction by the Trustees. The adviser continually conducts investment
research and supervision for the Fund and is responsible for the purchase
or sale of portfolio instruments, for which it receives an annual fee from
the assets of the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment
advisory fee equal to 0.80% of the Fund's average daily net assets.
The adviser has undertaken to reimburse the Fund, up to the amount of
the advisory fee, for operating expenses in excess of limitations
established by certain states. The adviser may voluntarily choose to
waive a portion of its fee or reimburse other expenses of the Fund.
The adviser can terminate such waiver or reimbursement policy at any
time at its sole discretion.
ADVISER'S BACKGROUND. The adviser is a wholly-owned subsidiary of
Regions Financial Corp., a bank holding company organized during 1971
under the laws of the State of Delaware, and is a member of the
Regions Bank organization. Operating out of more than 250 offices, it
provides a wide range of banking and fiduciary services to its
customers. As of June 30, 1994, Regions Financial Corp. was one of
the 100 largest bank holding companies in the United States with total
assets in excess of $10 billion. First Alabama is one of only 13
banks to receive an "A" rating by Thomson BankWatch. First Alabama is
also ranked in the top ten in overall soundness by U.S. Banker
Magazine. First Alabama's common stock is currently included among
those in the Dow Jones Equity Market Index as well as Standard &
Poor's Midcap Index.
As fiduciary, First Alabama managed over $2.5 billion in discretionary
assets as of December 31, 1993. It manages seven common trust funds
and collective investment funds having a market value in excess of
$190 million as of August 31, 1994. First Alabama has been adviser to
the First Priority Funds since inception with a market value in excess
of $450 million as of June 30, 1994.
As part of their regular banking operations, First Alabama and its
affiliates may grant loans to public companies. Thus, it may be
possible, from time to time, for the Fund to hold or acquire the
securities of issuers which are also lending clients of First Alabama
or its affiliates. The lending relationship will not be a factor in
the selection of securities. Because of the internal controls
maintained by the companies to restrict the flow of information, Fund
investments are typically made without any knowledge of First Alabama
or its affiliates' lending relationships with an issuer.
J. Kenneth Alderman has been the Fund's portfolio manager since its
inception. Mr. Alderman is Vice President and Trust Investment
Officer of First Alabama Bank and serves as an active member of the
Trust Investment Group in the capacity of a portfolio manager,
strategist, and analyst. He has ten years of investment experience,
including seven years of investment experience with the Trust
Department of First Alabama Bank. Mr. Alderman received his B.S. from
Auburn University in 1973 and his M.B.A. from Florida State University
in 1976. He became a Certified Public Accountant in 1975 and a
Chartered Financial Analyst in 1989.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the distributor for shares of the Fund. It
is a Pennsylvania corporation organized on November 14, 1969, and is the
distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
"Distribut
"Distribution Plan"), the Fund may pay to the distributor an amount
computed at an annual rate of 0.30% of the average daily net asset value of
the Fund to finance any activity which is principally intended to result in
the sale of shares subject to the Distribution Plan. The distributor may
select financial institutions such as banks, fiduciaries, custodians for
public funds, investment advisers, and broker/dealers to provide sales
support services as agents for their clients or customers.
The Fund will not accrue or pay any distribution expenses pursuant to the
Distribution Plan until a separate class of shares has been created for
certain institutional investors.
The Distribution Plan is a compensation-type plan. As such, the Fund makes
no payments to the distributor except as described above. Therefore, the
Fund does not pay for unreimbursed expenses of the distributor, including
amounts expended by the distributor in excess of amounts received by it
from the Fund, interest, carrying, or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by the Fund under the Distribution Plan.
In addition, the Trust has adopted a Shareholder Services Plan (the
"Services Plan") on behalf of the Fund under which it may make payments up
to 0.25% of the average daily net asset value of the Fund to obtain certain
personal services for shareholders and the maintenance of shareholder
accounts ("shareholder services"). The Trust has entered into a
Shareholder Services Agreement with Federated Shareholder Services, a
subsidiary of Federated Investors, on behalf of the Fund under which
Federated Shareholder Services will either perform shareholder services
directly or will select financial institutions to perform shareholder
services. Financial institutions will receive fees based upon shares owned
by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by
the Trust and Federated Shareholder Services. The Fund has no present
intention, however, to charge a shareholder services fee.
The Glass-Steagall Act limits the ability of a depository institution (such
as a commercial bank or a savings and loan association) to become an
underwriter or distributor of securities. In the event the Glass-Steagall
Act is deemed to prohibit depository institutions from acting in the
capacities described above or should Congress relax current restrictions on
depository institutions, the Trustees will consider appropriate changes in
the services.
State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to
state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with
certain administrative personnel and services (including certain legal and
accounting services) necessary to operate the Fund. Federated
Administrative Services provides these at an annual rate as follows:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Trust
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. Federated Administrative Services may voluntarily waive
a portion of its fee.
CUSTODIAN. First Alabama Bank, Birmingham, Alabama, serves as custodian
for the securities and cash of the Fund for which it receives a fee for
that service.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING
SERVICES. Federated Services Company, Pittsburgh, Pennsylvania, a
subsidiary of Federated Investors, is transfer agent and dividend
disbursing agent for the Fund. It also provides certain accounting and
recordkeeping services with respect to the Fund's portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P.,
Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
adviser may give consideration to those firms which have sold or are
selling shares of the Fund. The adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of Trust
expenses. These expenses include, but are not limited to, the cost of:
Trustees' fees; investment advisory and administrative services; printing
prospectuses and other Fund documents for shareholders; registering the
Trust, the Fund, and shares of the Fund with federal and state securities
commissions; taxes and commissions; issuing, purchasing, repurchasing, and
redeeming shares; fees for custodians, transfer agents, dividend disbursing
agents, shareholder servicing agents, and registrars; printing, mailing,
auditing, accounting, and legal expenses; reports to shareholders and
governmental agencies; meetings of Trustees and shareholders and proxy
solicitations therefor; distribution fees; insurance premiums; association
membership dues; and such nonrecurring and extraordinary items as may
arise. However, the adviser may voluntarily reimburse some expenses and
has, in addition, undertaken to reimburse the Fund, up to the amount of the
advisory fee, the amount by which operating expenses exceed limitations
imposed by certain states.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is determined by
dividing the sum of the market value of all securities and other assets,
less liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of the Fund by an investor is
$1,000. Subsequent investments may be in any amounts. The Fund may waive
the initial minimum investment from time to time. For further information,
please call First Priority Mutual Funds at 1-800-433-2829.
Officers, directors, employees, and retired employees of First Alabama and
other Regions Banks, or their affiliates, and their spouses and their
dependent children may purchase shares of the Fund with a minimum initial
investment of $500, unless they choose to participate in the systematic
investment plan, in which case the minimum initial investment is $100.
WHAT SHARES COST
Shares of the Fund are sold at their net asset value next determined after
an order is received, plus a sales charge as follows:
Sales Charge as Sales Charge as
a Percentage of a Percentage of
Amount of Transaction Public Offering Price Net Amount Invested
Less than $100,000 2.00% 2.04%
$100,000 but less than $250,000 1.50% 1.52%
$250,000 but less than $500,000 1.00% 1.01%
$500,000 but less than $750,000 0.50% 0.50%
$750,000 but less than $1 million 0.25% 0.25%
$1 million or more 0.00% 0.00%
The net asset value is determined at 4:00 p.m. (Eastern time), Monday
through Friday, except on: (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net asset
value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; or
(iii) the following holidays: New Year's Day, Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
PURCHASES AT NET ASSET VALUE. Fund shares may be purchased at net asset
value, without a sales charge, by officers, directors, employees and
retired employees of First Alabama and other Regions Banks, or their
affiliates, and their spouses and dependent children. Additionally, shares
are available at net asset value without a sales charge to trust customers
purchasing through the Trust Departments of First Alabama and other Regions
Banks. The Trust Departments, however, may charge fees for services
provided, which may be related to the ownership of Fund shares. This
prospectus should, therefore, be read together with any agreement between
the Trust customer and the Trust Department with regard to services
provided and the fees charged for these services.
DEALER CONCESSIONS. For sales of shares of the Fund, a dealer will
normally receive up to 85% of the applicable sales charge. Any portion of
the sales charge which is not paid to a dealer will be retained by the
distributor. However, from time to time, and at the sole discretion of the
distributor, all or part of that portion may be paid to a dealer. If
accepted by the dealer, such additional payments will be predicated upon
the amount of Fund shares sold. Such payments may take the form of cash or
promotional incentives, such as payment of certain expenses of qualified
employees and their spouses to attend informational meetings about the Fund
or other special events at recreational facilities, or items of material
value. In some instances, these incentives will be made available only to
dealers whose employees have sold or may sell significant amounts of shares
of the Fund.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, the adviser, or
their affiliates may offer to pay a fee from their own assets to financial
institutions as financial assistance for providing substantial marketing
and sales support. The support may include initiating customer accounts,
providing sales literature, or participating in sales, education, and
training seminars (including those held at recreational facilities). Such
assistance will be predicated upon the amount of shares the financial
institution sells or may sell and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments
made by the distributor will be reimbursed by the adviser or its affiliates
and are in addition to any payments made under the Fund's Distribution or
Services Plans.
SHARE PURCHASES. Fund shares are sold on days on which the New York Stock
Exchange and the Federal Reserve Wire System are open for business. Trust
customers may purchase shares through the Trust Departments of First
Alabama and other Regions Banks. Other customers may purchase shares
through First Alabama Investments, Inc. ("FAII"). Texas residents must
purchase shares through Federated Securities Corp. at 1-800-356-2805. In
connection with the sale of Fund shares, the distributor may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request.
Trust customers may place an order to purchase shares by contacting their
local Trust Administrator or by calling First Alabama. Other customers may
purchase shares by contacting their local FAII office or telephone FAII at
1-800-456-3244.
Payment may be made by either check or federal funds or by debiting a
customer's account at First Alabama or another Regions Bank. Purchase
orders must be received by 3:00 p.m. (Central time) in order to be credited
on the same day. For settlement of an order, payment must be received
within five business days of receipt of the order.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must
be in federal funds or be converted into federal funds before shareholders
begin to earn dividends. Federated Services Company or its agent acts as
the shareholder's agent in depositing checks and converting them to federal
funds.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Fund shares through:
o quantity discounts and accumulated purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated mutual fund
shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Fund will combine
purchases of shares made on the same day by the investor, his spouse, and
his dependent children when it calculates the sales charge.
If an additional purchase of shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a
shareholder already owns shares having a current value at the public
offering price of $90,000 and purchases $10,000 more at the current public
offering price, the sales charge on the additional purchase according to
the schedule now in effect would be 1.50%, not 2.00%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing at the time the purchase is made
that shares are already owned or that purchases are being combined. The
Fund will reduce the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000
of shares in the First Priority Funds over the next 13 months, the sales
charge may be reduced by signing a letter of intent to that effect. This
letter of intent includes a provision for a sales charge adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 2.00% of the total amount
intended to be purchased in escrow until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at
the end of the 13-month period unless the amount specified in the letter of
intent is not purchased. In this event, an appropriate number of escrowed
shares may be redeemed in order to realize the difference in the sales
charge.
This letter of intent will not obligate the shareholder to purchase shares,
but if he does, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past
90 days toward the dollar fulfillment of the letter of intent. Prior trade
prices will not be adjusted.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within thirty days, to reinvest the
redemption proceeds at the next-determined net asset value without any
sales charge. Federated Securities Corp. must be notified by the
shareholder in writing or by his financial institution of the reinvestment
in order to eliminate a sales charge. If the shareholder redeems shares in
the Fund, there may be tax consequences, and exercise of the reinvestment
privilege may result in additional tax considerations. Shareholders
contemplating such transactions should consult their own tax advisers.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED MUTUAL FUND
SHARES. Investors may purchase shares of the Fund at net asset value,
without a sales charge, with the proceeds from the redemption of shares of
a mutual fund which was sold with a sales charge or commission. The
purchase must be made within 60 days of the redemption, and FAII must be
notified by the investor in writing or by his financial institution at the
time the purchase is made. The adviser will offer to pay broker/dealers an
amount equal to 0.50% of
the net asset value of shares of the Fund purchased by their clients or
customers in this manner. This offer is not available for the redemption
of mutual fund shares that were or would be subject to a contingent
deferred sales charge upon redemption.
SYSTEMATIC INVESTMENT PLAN
Holders of shares may arrange for systematic monthly investments in their
accounts in amounts of $100 or more. Officers, directors, employees, and
retired employees of First Alabama and other Regions Banks, or their
affiliates, and their spouses and their dependent children, may arrange for
systematic monthly investments in their accounts in amounts of $25 or more.
Once proper authorization is given, a shareholder's bank account will be
debited to purchase shares in the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of certain
securities and cash for Fund shares. The Fund reserves the right to
determine the acceptability of securities to be exchanged. On the day
securities are accepted by a Fund, they are valued in the same manner as
the Fund values its assets. Investors wishing to exchange securities
should first contact First Alabama or another Regions Bank. The market
value of any securities exchanged in an initial investment, plus any cash,
must be at least $1,000,000.
SHAREHOLDER ACCOUNTS
As transfer agent for the Fund, Federated Services Company maintains a
share account for each shareholder of record. Share certificates are not
usually issued.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared and paid quarterly. Dividends are declared just
prior to determining net asset value. Capital gains realized by the Fund,
if any, will be distributed at least once every twelve months. Dividends
and capital gains will be reinvested in additional shares of the Fund on
payment dates at the ex-dividend date net asset value unless cash payments
are requested by shareholders by writing to the Fund, First Alabama, or
another Regions Bank, as appropriate.
EXCHANGE PRIVILEGE
A shareholder may exchange shares of one fund for the appropriate class of
shares of any other fund in the First Priority Funds by calling or by
writing to First Alabama, another Regions Bank, or FAII, as appropriate.
Texas residents must telephone Federated Securities Corp. at 1-800-356-2805
to exchange shares. In addition, shareholders of the Trust may have the
ability to exchange shares of certain funds distributed by Federated
Securities Corp. For further information, contact First Alabama or another
Regions Bank. Shares purchased by check are not eligible for exchange
until the purchase check has cleared, which could take up to seven calendar
days. The exchange feature applies to shares of each fund as of the
effective offering date of each fund's shares. Telephone exchange
instructions may be recorded.
Orders to exchange shares of one fund for shares of any of the other First
Priority Funds will be executed by redeeming the shares owned at net asset
value and purchasing shares of any of the other First Priority Funds at the
offering price determined after the proceeds from such redemption become
available. Orders for exchanges received by the Fund prior to 3:00 p.m.
(Central time) on any day the funds are open for business will be executed
as of the close of business that day. Orders for exchanges received after
3:00 p.m. (Central time) on any business day will be executed at the close
of the next business day.
Shares of funds with a sales charge may be exchanged at net asset value for
shares of other funds with an equal sales charge or no sales charge.
Shares of funds with a sales charge may be exchanged for shares of funds
with a higher sales charge at net asset value, plus the additional sales
charge. Shares of funds with no sales charge, whether acquired by direct
purchase, reinvestment of dividends on such shares, or otherwise, may be
exchanged for shares of funds with a sales charge at net asset value, plus
the applicable sales charge.
When an exchange is made from a fund with a sales charge to a fund with no
sales charge, the shares exchanged and additional shares which have been
purchased by reinvesting dividends or capital gains on such shares retain
the character of the exchanged shares for purposes of exercising further
exchange privileges.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange,
reserves the right to terminate the exchange privilege of any shareholder
who makes more than five exchanges of shares of the funds in a year or
three in a calendar quarter.
An exchange order must comply with the requirements for a redemption and
purchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase
requirements of each fund being acquired. An exchange constitutes a sale
for federal income tax purposes.
The exchange privilege is only available in states where shares of the fund
being acquired may legally be sold. Before the exchange, a shareholder
must receive a prospectus of the fund for which the exchange is being made.
REDEEMING SHARES
The Fund redeems shares at its net asset value next determined after the
Fund receives the redemption request. Redemptions will be made on days on
which the Fund computes the net asset value of shares. Redemption requests
cannot be executed on days on which the New York Stock Exchange is closed
or on federal holidays when wire transfers are restricted. Requests for
redemption can be made in person, by telephone, or by mail.
BY TELEPHONE
Trust customers may redeem shares of the Fund by contacting their Trust
Administrator. Other shareholders may redeem shares by telephoning their
local FAII office. For calls received by First Alabama and other Regions
Banks before 3:00 p.m. (Central time), proceeds will normally be wired
within five business days to the shareholder's account at First Alabama or
another Regions Bank or a check will be sent to the address of record.
Those shares will be entitled to the dividend declared on the day the
redemption request was received. In no event will proceeds be wired more
than seven days after a proper request for redemption has been received.
are
are available from First Alabama and other Regions Banks. Telephone
redemption instructions may be recorded.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as a written request to Federated
Services Company, First Alabama, or another Regions Bank, should be
considered.
If, at any time, the Fund shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
BY MAIL
A shareholder may redeem shares by sending a written request to FAII. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested. Shareholders
should call FAII for assistance in redeeming by mail.
Shareholders requesting a redemption of $50,000 or more, a redemption of
any amount to be sent to an address other than that on record with the
Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
o a trust company or
commercial bank whose deposits are insured by the Bank Insurance
Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
o a member of the New York,
American, Boston, Midwest, or Pacific Stock Exchange;
o a savings bank or savings
and loan association whose deposits are insured by the Savings
Association Insurance Fund, which is administered by the FDIC; or
o any other "eligible
guarantor institution" as defined in the Securities Exchange Act of
1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in
the future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within
five business days, but in no event more than seven days, after receipt of
a proper written redemption request, provided that the transfer agent has
received payment for shares from the shareholder.
SYSTEMATIC WITHDRAWAL PLAN
Under a Systematic Withdrawal Plan, accounts having a value of at least
$10,000 may arrange for regular monthly or quarterly fixed withdrawal
payments. Each payment must be at least $100 and may be as much as 1.5%
per month or 4.5% per quarter of the total net asset value of the shares in
the account when the Systematic Withdrawal Plan is opened. Excessive
withdrawals may deplete or decrease the value of an account. For this
reason, payments under this Systematic Withdrawal Plan should not be
considered as yield or income on the shareholder's investment in the Fund.
Due to the fact that shares are sold with a sales charge, it is not
advisable for shareholders to be purchasing shares of the Fund while
participating in this Systematic Withdrawal Plan.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem shares in any account and pay the proceeds to the shareholder if
the account balance falls below the required minimum value of $1,000. This
requirement does not apply, however, if the balance falls below $1,000
because of changes in the Fund's net asset value. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of all
classes of each portfolio in the Trust have equal voting rights, except
that, in matters affecting only a particular fund or class, only
shareholders of that fund or class are entitled to vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of
Trustees under certain circumstances.
Trustees may be removed by Trustees or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Trustees
upon the written request of shareholders owning at least 10% of the Trust's
outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for acts or obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required to use its property to protect
or compensate the shareholder. On request, the Trust will defend any claim
made and pay any judgment against a shareholder for any act or obligation
of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit a bank holding company registered under the Bank Holding Company
Act of 1956 or any affiliate thereof from sponsoring, organizing,
controlling, or distributing the shares of a registered, open-end
investment company continuously engaged in the issuance of its shares, and
prohibit banks generally from issuing, underwriting, selling, or
distributing securities. However, such laws and regulations do not
prohibit such a holding company affiliate or banks generally from acting as
investment adviser, transfer agent, or custodian to such an investment
company or from purchasing shares of such a company as agent for and upon
the order of their customer. First Alabama is subject to such banking laws
and regulations.
First Alabama believes, based on the advice of its counsel, that First
Alabama may perform the services for the Fund contemplated by its advisory
agreement with the Trust without violation of the Glass-Steagall Act or
other applicable banking laws or regulations. Changes in either federal or
state statutes and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of such or future statutes and
regulations, could prevent the adviser from continuing to perform all or a
part of the above services for its customers and/or the Fund. If it were
prohibited from engaging in these customer-related activities, the Trustees
would consider alternative advisers and means of continuing available
investment services. In such event, changes in the operation of the Fund
may occur, including possible termination of any automatic or other Fund
share investment and redemption services that are being provided by First
Alabama. It is not expected that existing shareholders would suffer any
adverse financial consequences (if another adviser with equivalent
abilities to First Alabama is found) as a result of any of these
occurrences.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated
investment companies and to receive the special tax treatment afforded to
such companies.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized
by the Trust's other portfolios will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income
tax on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions
are received in cash or as additional shares.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share
of the Fund on the last day of the period. This number is then annualized
using semi-annual compounding. The yield does not necessarily reflect
income actually earned by the Fund and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The performance information described above reflects the effect of the
maximum sales load which, if excluded, would increase the total return and
yield.
From time to time the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
ADDRESSES
First Priority Equity Income Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-
3779
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-
3779
Investment Adviser
First Alabama Bank P.O. Box 10247
Mutual Funds Group Birmingham, Alabama 35202
Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting
Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-
3779
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
Independent Auditors
Deloitte & Touche 2100 One PPG Place
Pittsburgh, Pennsylvania 15222-
5401
FIRST PRIORITY EQUITY INCOME FUND
Prospectus
December ____, 1994
FEDERATED SECURITIES CORP.
Distributor
ETP--10/05/94--FPEIFSAI.v3
FIRST PRIORITY EQUITY INCOME FUND
(A Portfolio of First Priority Funds)
Statement of Additional Information
This Statement of Additional Information should be read with the prospectus
for First Priority Equity Income Fund (the "Fund") dated December ___,
1994. This Statement is not a prospectus itself. To receive a copy of the
prospectus, write the Fund or call 1-800-433-2829.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December _______, 1994
[LOGO]
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND
INVESTMENT OBJECTIVE AND POLICIES
Types of Investments
Warrants
Money Market Instruments
Repurchase Agreements
When-Issued and Delayed Delivery Transactions
Futures and Options Transactions
Lending of Portfolio Securities
Restricted Securities
Reverse Repurchase Agreements
Portfolio Turnover
Investment Limitations
FIRST PRIORITY FUNDS MANAGEMENT
Officers and Trustees
The Funds
Fund Ownership
Trustee Liability
INVESTMENT ADVISORY SERVICES
Adviser to the Fund
Advisory Fees
ADMINISTRATIVE SERVICES
CUSTODIAN
BROKERAGE TRANSACTIONS
PURCHASING SHARES
Distribution and Shareholder Services Plans
EXCHANGING SECURITIES FOR FUND SHARES
DETERMINING NET ASSET VALUE
Determining Market Value of Securities
EXCHANGE PRIVILEGE
Requirements for Exchange
Making an Exchange
REDEEMING SHARES
Redemption in Kind
TAX STATUS
The Fund's Tax Status
Shares' Tax Status
TOTAL RETURN
YIELD
PERFORMANCE COMPARISONS
APPENDIX
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in First Priority Funds (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust
dated October 15, 1991.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide income and growth of capital.
The investment objective cannot be changed without approval of
shareholders. Unless indicated otherwise, the policies described below may
be changed by the Board of Trustees ("Trustees") without shareholder
approval. Shareholders will be notified before any material change in
these policies becomes effective.
TYPES OF INVESTMENTS
The Fund invests primarily in a diversified portfolio of income-producing
equity securities. The portion of the Fund's total assets invested in
common stocks, preferred stocks, and convertible securities will vary
according to the Fund's assessment of market and economic conditions and
outlook, but income-producing equity securities will, under normal market
conditions, comprise at least 65% of the Fund's assets.
WARRANTS
The Fund may invest in warrants. Warrants are basically options to
purchase common stock at a specific price (usually at a premium above the
market value of the optioned common stock at issuance) valid for a specific
period of time. Warrants may have a life ranging from less than a year to
twenty years or may be perpetual. However, most warrants have expiration
dates after which they are worthless. In addition, if the market price of
the common stock does not exceed the warrant's exercise price during the
life of the warrant, the warrant will expire as worthless. Warrants have
no voting rights, pay no dividends, and have no rights with respect to the
assets of the corporation issuing them. The percentage increase or
decrease in the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the optioned common
stock. The Fund will not invest more than 5% of the value of its total
assets in warrants. No more than 2% of this 5% may be in warrants which
are not listed on the New York or American Stock Exchanges. Warrants
required in units or attached to securities may be deemed to be without
value for purposes of this policy.
MONEY MARKET INSTRUMENTS
The Fund may invest in the following money market instruments:
o instruments of domestic and foreign banks and savings and loans if they
have capital, surplus, and undivided profits of over $100,000,000 or if
the principal amount of the instrument is insured in full by the Bank
Insurance Fund or the Savings Association Insurance Fund, both of which
are administered by the Federal Deposit Insurance Corporation; and
o prime commercial paper (rated "A-1" by Standard and Poor's Ratings
Group, "Prime-1" by Moody's Investors Service, Inc., or "F-1" by Fitch
Investors Service, Inc.).
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. In the event that a defaulting
seller files for bankruptcy or becomes insolvent, disposition of securities
by the Fund might be delayed pending court action. The Fund believes that
under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price and yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid assets
of the Fund sufficient to make payment for the securities to be purchased
are segregated on the Fund's records at the trade date. These securities
are marked to market daily and are maintained until the transaction has
been settled. The Fund does not intend to engage in when-issued and
delayed delivery transactions to an extent that would cause the segregation
of more than 20% of the total value of its assets.
FUTURES AND OPTIONS TRANSACTIONS
The Fund will maintain its positions in securities, options rights, and
segregated cash subject to puts and calls until the options are exercised,
closed, or have expired. An option position on futures contracts may be
closed out over-the-counter or on a nationally recognized exchange which
provides a secondary market for options of the same series.
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in the
contract ("going short") and the buyer who agrees to take delivery of the
security ("going long") at a certain time in the future.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract.
Rather, the Fund is required to deposit an amount of "initial margin"
in cash or U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that initial margin in futures transactions does not
involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond
or good-faith deposit on the contract which is returned to the Fund
upon termination of the futures contract, assuming all contractual
obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known
as "marking to market." Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.
PUT OPTIONS ON FUTURES CONTRACTS
The Fund may purchase listed put options on futures contracts. Unlike
entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles
(but does not obligate) its purchaser to decide on or before a future
date whether to assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In such an
event, the Fund will normally close out its option by selling an
identical option. If the hedge is successful, the proceeds received
by the Fund upon the sales of the second option will be large enough
to offset both the premium paid by the Fund for the original option
plus the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures
contract of the type underlying the option (for a price less than the
strike price of the option) and exercise the option. The Fund would
then deliver the futures contract in return for payment of the strike
price. If the Fund neither closes out nor exercises an option, the
option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.
CALL OPTIONS ON FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed and over-the-counter call options on futures contracts to hedge
its portfolio. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of assuming a short futures
position (selling a futures contract) at the fixed strike price at any
time during the life of the option if the option is exercised. As
stock prices fall or market interest rates rise, causing the prices of
futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the
value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the
call, so that the Fund keeps the premium received for the option.
This premium can substantially offset the drop in value of the Fund's
portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of
it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the second
option will be less than the premium received by the Fund for the
initial option. The net premium income of the Fund will then
substantially offset the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A
stock index fluctuates with changes in the market value of the stocks
included in the index.
The effectiveness of purchasing stock index options will depend upon
the extent to which price movements in the Fund's portfolio correlate
with price movements of the stock index selected. Because the value
of an index option depends upon movements in the level of the index
rather than the price of a particular stock, whether the Fund will
realize a gain or loss from the purchase of the option on an index
depends upon movements in the level of stock prices in the stock
market generally or, in the case of certain indices, in an industry or
market segment, rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on stock
indices will be subject to the availability of the Fund's adviser to
predict correctly movements in the directions of the stock market
generally or of a particular industry. This requires different skills
and techniques than predicting changes in the prices of individual
stocks.
LENDING OF PORTFOLIO SECURITIES
As a fundamental policy of the Fund, the Fund may lend portfolio
securities. The collateral received when the Fund lends portfolio
securities must be valued daily and, should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The Fund
may pay reasonable administrative and custodial fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund would
not have the right to vote securities on loan, but would terminate the loan
and regain the right to vote if that were considered important with respect
to the investment.
RESTRICTED SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Fund through
or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity. The
Fund believes that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established by
the Trustees are quite liquid. The Fund intends, therefore, to treat the
restricted securities which meet the criteria for liquidity established by
the Trustees, including Section 4(2) commercial paper, as determined by the
Fund's investment adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because
Section 4(2) commercial paper is liquid, the Fund intends to not subject
such paper to the limitation applicable to restricted securities.
The ability of the Trustees to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange
Commission (the "SEC") staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a non-
exclusive safe-harbor for certain secondary market transactions involving
registration for resales of otherwise restricted securities to qualified
institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under
the Rule. The Fund believes that the staff of the SEC has left the
question of determining the liquidity of all restricted securities to the
Trustees. The Trustees may consider the following criteria in determining
the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements pursuant to a
fundamental policy. These transactions are similar to borrowing cash. In
a reverse repurchase agreement, the Fund transfers possession of a
portfolio instrument to another person, such as a financial institution,
broker, or dealer, in return for a percentage of the instrument's market
value in cash, and agrees that on a stipulated date in the future the Fund
will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but
the ability to enter into reverse repurchase agreements does not ensure
that the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund in
a dollar amount sufficient to make payment for the obligations to be
purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
Fund's investment adviser believes it is appropriate to do so in light of
the Fund's investment objective, without regard to the length of time a
particular security may have been held. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities. The deposit
or payment by the Fund of initial or variation margin in connection
with futures contracts or related options transactions is not
considered as a purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including
the amounts borrowed. The Fund will not borrow money except as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. For purposes of this limitation, the
following are not deemed to be pledges: margin deposits for the
purchase and sale of financial future contracts and related options
and the segregation or collateral arrangements made in connection with
options activities or the purchase of securities on a when-issued
basis.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities
and repurchase agreements collateralized by such securities) if, as a
result, more than 5% of the value of its total assets would be
invested in the securities of that issuer or if it would own more than
10% of the outstanding voting securities of that issuer. For these
purposes, the Fund considers common stock and all preferred stock of
an issuer each as a single class, regardless of priorities, series,
designations, or other differences.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities which the Fund may purchase
pursuant to its investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate
or in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts except to the extent that the Fund may
engage in transactions involving futures contracts or options on
futures contracts with respect to financial instruments, securities,
or securities indices.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding U.S.
government obligations, money market instruments, variable rate demand
notes, bonds, debentures, notes, certificates of indebtedness, or
other debt securities, entering into repurchase agreements, or
engaging in other transactions where permitted by the Fund's
investment objective, policies, and limitations or the Trust's
Declaration of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of its total assets in securities
of issuers having their principal business activities in the same
industry (other than securities issued by the U.S. government, its
agencies or instrumentalities).
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 15% of the value of its total
assets in securities subject to restrictions on resale under federal
securities laws, except for commercial paper issued under Section 4(2)
of the Securities Act of 1933 and certain other restricted securities
which meet the criteria for liquidity as established by the Board of
Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
securities, including repurchase agreements providing for settlement
in more than seven days after notice, non-negotiable fixed time
deposits with maturities over seven days, over-the-counter options,
and certain securities not determined under guidelines established by
the Trustees to be liquid.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any one
investment company, or invest more than 10% of its total assets in
investment companies in general. The Fund will purchase securities of
closed-end investment companies only in open market transactions
involving only customary broker's commissions. However, these
limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization or acquisition of assets; nor
are they applicable with respect to securities of investment companies
that have been exempted from registration under the Investment Company
Act of 1940.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in securities of issuers which have records of less than three years
of continuous operations, including the operation of any predecessor.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase
the securities of issuers which invest in or sponsor such programs.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
TRUSTEES OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if
the officers and Trustees of the Trust or the Fund's investment
adviser owning individually more than 1/2 of 1% of the issuer's
securities together own more than 5% of the issuer's securities.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of the value of its net assets
in warrants. No more than 2% of this 5% may be warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities unless the
securities are held in the Fund's portfolio and not more than 5% of
the value of the Fund's total assets would be invested in premiums on
put option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.
ARBITRAGE TRANSACTIONS
The Fund will not enter into transactions for the purpose of engaging
in arbitrage.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund has no present intent to borrow money, pledge securities or invest
in reverse repurchase agreements in excess of 5% of the value of its net
assets in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan association having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
To comply with registration requirements in certain states, the Fund will
(1) limit the aggregate value of the assets underlying covered call options
or put options written by the Fund to not more than 25% of its net assets;
(2) will limit the premiums paid for options purchased by the Fund to 20%
of its net assets; and (3) will limit the margin deposits on futures
contracts entered into by the Fund to 5% of its net assets. If state
requirements change, these restrictions may be revised without shareholder
notification.
FIRST PRIORITY FUNDS MANAGEMENT
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, present positions
with the Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and
Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of
J. Christopher Donahue, Vice President of the Trust
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director, Trustee, or Managing General Partner of the
Funds; formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director,
Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Trustee
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Professor of Medicine and Trustee, University of Pittsburgh;
Director of Corporate Health, University of Pittsburgh Medical Center;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA
President, Treasurer, and Trustee
Vice President, Treasurer, and Trustee, Federated Investors; Vice President
and Treasurer, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., and Passport Research, Ltd.; Executive
Vice President, Treasurer, and Director, Federated Securities Corp.;
Trustee, Federated Services Company and Federated Shareholder Services;
Chairman, Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and Treasurer of
the Funds.
Peter E. Madden
225 Franklin Street
Boston, MA
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State Street Bank and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
General Partner of the Funds; formerly, Vice Chairman, Horizon Financial,
F.A.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp.; President, Passport Research, Ltd.; Trustee, Federated
Administrative Services, Federated Services Company, and Federated
Shareholder Services; President or Vice President of the Funds; Director,
Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and Secretary,
Federated Research Corp. and Passport Research, Ltd.; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Trustee,
Federated Administrative Services; Secretary and Trustee, Federated
Shareholder Services; Executive Vice President and Director, Federated
Securities Corp.; Vice President and Secretary of the Funds.
Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Funds; formerly, Associate Corporate
Counsel, Federated Investors.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of
Trustees between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management
Trust; Automated Government Money Trust; California Municipal Cash Trust;
Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward
D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund;
First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.;
Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust; Insight
Institutional Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High
Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark
Twain Funds; The Medalist Funds; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds;
Short-Term Municipal Trust; Star Funds; The Starburst Funds; The Starburst
Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial
Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; and World
Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is First Alabama Bank ("First Alabama" or
"adviser"), which is a wholly-owned subsidiary of Regions Financial Corp.
Because of internal controls maintained by First Alabama to restrict the
flow of non-public information, Fund investments are typically made without
any knowledge of First Alabama's or its affiliates' lending relationships
with an issuer.
The adviser shall not be liable to the Trust, the Fund or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding,
or sale of any security, or for anything done or omitted by it, except acts
or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
ADVISORY FEES
For its advisory services, First Alabama receives an annual investment
advisory fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2-1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average net assets,
and 1-1/2% per year of the remaining average net assets, the adviser
will reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus.
CUSTODIAN
First Alabama Bank, Birmingham, Alabama, is custodian for the securities
and cash of the Fund. Under the custodian agreement, First Alabama Bank
holds the Fund's portfolio securities and keeps all necessary records and
documents relating to its duties. First Alabama Bank's fees for custody
services are based upon the market value of Fund securities held in custody
plus certain securities transaction charges.
BROKERAGE TRANSACTIONS
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determines in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided.
Research services provided by brokers and dealers may be used by the
adviser in advising the Fund and other accounts. To the extent that
receipt of these services may supplant services for which the adviser or
its affiliates might otherwise have paid, it would tend to reduce their
expenses.
PURCHASING SHARES
Shares are sold at their net asset value with a sales charge on days the
New York Stock Exchange is open for business. The procedure for purchasing
shares of the Fund is explained in the prospectus under "Investing in the
Fund." As used in the prospectus, the term "dependent children" means all
children under the age of 19 and full-time students under the age of 23.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Trustees expect that the Fund will
be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objective. By
identifying potential investors whose needs are served by the Fund's
objective and properly servicing these accounts, it may be possible to curb
sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
EXCHANGING SECURITIES FOR FUND SHARES
Any securities to be exchanged must meet the investment objective and
policies of the Fund, must have a readily ascertainable market value, must
be liquid, and must not be subject to restrictions on resale. An investor
should forward the securities in negotiable form with an authorized letter
of transmittal to First Alabama Bank or any Regions Bank. The Fund will
notify the investor of its acceptances and valuation of the securities
within five business days of their receipt by Federated Services Company.
The basis of the exchange will depend upon the net asset value of Fund
shares on the day the securities are valued. One share of the Fund will be
issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to exchange will be considered
in valuing the securities. All interest, dividends, subscriptions,
conversion, or other rights attached to the securities become the property
of the Fund, along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is currently treated as a sale for
federal income tax purposes. Depending upon the cost basis of the
securities exchanged for Fund shares, a gain or loss may be realized
by the investor.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which the net
asset value is calculated by the Fund are described in the Fund's
prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a national
securities exchange, if applicable;
o in the absence of recorded sales for listed equity securities, according
to the mean between the last closing bid and asked prices;
o for unlisted equity securities, latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of 60 days or less at the time of
purchase, at amortized cost; or
o for all other securities, at fair value as determined in good faith by
the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics, and other market data.
The Fund will value options at their market values established by the
exchanges at the close of options trading on such exchanges unless the
Trustees determine in good faith that another method of valuing option
positions is necessary.
Over-the-counter put options will be valued at the mean between the bid and
the asked prices. Covered call options will be valued at the last sale
price on the national exchange on which such option is traded. Unlisted
call options will be valued at the latest bid price as provided by brokers.
EXCHANGE PRIVILEGE
REQUIREMENTS FOR EXCHANGING SHARES
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the fund shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, shares submitted for
exchange are redeemed and the proceeds invested in shares of the other
fund.
Further information on the exchange privilege and prospectuses may be
obtained by calling First Alabama or any Regions Bank.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing. Written instructions
may require a signature guarantee.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in
the respective prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the respective Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Trust is obligated to redeem shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. The dividends received
deduction for corporations will apply to ordinary income distributions to
the extent the distribution represents amounts that would qualify for the
dividends received deduction to the Fund if the Fund were a regular
corporation and to the extent designated by the Fund as so qualifying.
These dividends and any short-term capital gains are taxable as ordinary
income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have
held the Fund shares.
TOTAL RETURN
The average annual total return of the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the maximum offering price per share at the end of the
period. The number of shares owned at the end of the period is based on
the number of shares purchased at the beginning of the period with $1,000,
less any applicable sales load, adjusted over the period by any additional
shares, assuming the quarterly reinvestment of all dividends and
distributions.
YIELD
The yield for shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by the Fund over a thirty-day period by the maximum
offering price per share on the last day of the period. This number is
then annualized using semi-annual compounding. This means that the amount
of income generated during the thirty-day period is assumed to be generated
each month over a twelve-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by shares
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, the performance will be reduced for shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of Fund shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and the maximum offering price per share fluctuate daily. Both
net earnings and offering price per share are factors in the computation of
yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its
Lipper ranking in an appropriate category in advertising and sale
literature.
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, can be used to compare to the
total returns of funds whose portfolios are invested primarily in common
stocks. In addition, the Standard & Poor's Index assumes reinvestments
of all dividends paid by stocks listed on its index. Taxes due on any
of these distributions are not included, nor are brokerage or other fees
calculated in Standard & Poor's figures.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
the Fund based on quarterly reinvestment of dividends over a specified
period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-):--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities 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 which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
NR--Not rated by Moody's.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
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 adverse changes in economic
conditions and circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. The issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
MOODY'S INVESTORS SERVICES, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (for related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: 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.
P-2--Issuers rated PRIME-2 (for related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM RATINGS
F-1+--(Exceptionally Strong Credit Quality). Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1--(Very Strong Credit Quality). Issues assigned to this rating reflect
an assurance of timely payment only slightly less in degree than issues
rated F-1+.
F-2--(Good Credit Quality). Issues carrying 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.
ETP--10/05/94--FPBFPROS.v3
PROSPECTUS
FIRST PRIORITY BALANCED FUND
(A Portfolio of the First Priority Funds)
The shares of First Priority Balanced Fund (the "Fund") offered by this
prospectus represent interests in a diversified investment portfolio of
First Priority Funds (the "Trust"), an open-end management investment
company (a mutual fund).
The investment objective of the Fund is to provide total return through
capital appreciation, dividends, and interest. The Fund pursues this
investment objective by investing primarily in a diversified portfolio of
common stocks, preferred stocks, and debt securities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
FIRST ALABAMA BANK OR ANY REGIONS BANK, ARE NOT ENDORSED OR GUARANTEED BY
FIRST ALABAMA BANK OR ANY REGIONS BANK, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL .
This prospectus contains the information you should read and know before
you invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated
December ___, 1994, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information free of charge, obtain other
information, or make inquiries about the Fund by writing or calling toll-
free 1-800-433-2829.
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.
Prospectus dated December ____, 1994
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES
GENERAL INFORMATION
INVESTMENT INFORMATION
Investment Objective
Investment Policies
Acceptable Investments
Common and Preferred Stocks
Convertible Securities
Zero Coupon Convertible Securities
Debt Securities
Asset-Backed Securities
Non-Mortgage Related Asset-Backed Securities
Mortgage-Related Asset-Backed Securities
Adjustable Rate Mortgage Securities
Collateralized Mortgage Obligations
Real Estate Mortgage Investment Conduits
Considerations for Mortgage-Backed and Asset-Backed Securities
U.S. Government Securities
Repurchase Agreements
When-Issued and Delayed Delivery Transactions
Put and Call Options
Futures and Options on Futures
Risks
Investing in Securities of Other Investment Companies
Lending of Portfolio Securities
Restricted and Illiquid Securities
Securities of Foreign Issuers
Investment Limitations
FIRST PRIORITY FUNDS INFORMATION
Management of the First Priority Funds
Board of Trustees
Investment Adviser
Advisory Fees
Adviser's Background
Distribution of Fund Shares
Distribution and Shareholder Services Plans
Administration of the Fund
Administrative Services
Custodian
Transfer Agent, Dividend Disbursing Agent, and
Portfolio Accounting Services
Legal Counsel
Independent Auditors
Brokerage Transactions
Expenses of the Fund
NET ASSET VALUE
INVESTING IN THE FUND
Minimum Investment Required
What Shares Cost
Purchases at Net Asset Value
Dealer Concessions
Other Payments to Financial Institutions Share
Purchases
Conversion to Federal Funds
Reducing the Sales Charge
Quantity Discounts and Accumulated Purchases
Letter of Intent
Reinvestment Privilege
Purchases with Proceeds from Redemptions of Unaffiliated Mutual Fund
Shares
Systematic Investment Plan
Exchanging Securities for Fund Shares
Shareholder Accounts
Dividends and Capital Gains
EXCHANGE PRIVILEGE
REDEEMING SHARES
By Telephone
By Mail
Receiving Payment
Systematic Withdrawal Plan
Accounts with Low Balances
SHAREHOLDER INFORMATION
Voting Rights
Massachusetts Partnership Law
EFFECT OF BANKING LAWS
TAX INFORMATION
Federal Income Tax
PERFORMANCE INFORMATION
ADDRESSES Inside Back Cover
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
2.00%
Maximum Sales Load Imposed on Reinvested Dividends (as
a percentage of offering price) None
Deferred Sales Loads (as a percentage of original purchase price
or redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable)
None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fees (after waiver)(1)
12b-1 Fees (2) 0.00%
Total Other Expenses
Shareholder Services Fees (2) 0.00 %
Total Operating Expenses (3)
(1) The estimated management fee has been reduced to
reflect the anticipated voluntary waiver by the investment adviser.
The adviser can terminate this voluntary waiver at any time at its
sole discretion. The maximum management fee is 0.80% for the Fund.
(2) The Fund has no present intention of paying or
accruing 12b-1 fees or shareholder services fees during the fiscal
year ending November 30, 1995. If the Fund were paying or accruing
12b-1 fees or shareholder services fees, the Fund would be able to pay
up to 0.30% of its average daily net assets for 12b-1 fees and up to
0.25% of its average daily net assets for shareholder services fees.
See the section entitled "Distribution and Shareholder Services
Plans."
(3) Total Operating Expenses for the Fund are estimated to be ____%,
absent the anticipated voluntary waiver of the advisory fee, as well
as the payment of the shareholder services fee or the maximum 12b-1
fee as described in note 2 above.
*Annual Fund Operating Expenses are estimated based on average expenses
expected to be incurred during the fiscal year ending November 30, 1995.
During the course of this period, expenses may be more or less than the
average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "FIRST PRIORITY FUNDS INFORMATION" AND "INVESTING
IN THE FUND."
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return ; (2) redemption at the end of each
time period; and (3) payment of the maximum sales load of 2.00%.
The Fund charges no redemption fees $ $
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING NOVEMBER 30,
1995.
GENERAL INFORMATION
First Priority Funds was established as a Massachusetts business trust
under a Declaration of Trust dated October 15, 1991.
The Declaration of Trust permits First Priority Funds to offer separate
series of shares of beneficial interest representing interests in separate
portfolios of securities. The shares of beneficial interest in any one
portfolio may be offered in separate classes. This prospectus relates only
to First Priority Balanced Fund.
The Fund is designed for investors seeking total return through capital
appreciation, dividends, and interest through a professionally managed,
diversified portfolio invested primarily in common stocks, preferred
stocks, and debt securities. A minimum initial investment of $1,000 is
required.
Except as otherwise noted in this prospectus, shares are sold at net asset
value plus an applicable sales charge and redeemed at net asset value.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide total return through
capital appreciation, dividends, and interest. This objective cannot be
changed without approval of shareholders. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
professionally managed, diversified portfolio of common stocks, preferred
stocks, debt securities, convertible securities, and other investments as
more fully described below. Under normal market conditions, the Fund will
maintain at least 25% of its assets in debt securities and at least 25% of
its assets in common stocks. The remaining 50% may be invested in debt
securities, common stocks, or other investments as described below under
"Acceptable Investments" as determined by the Fund's investment adviser
based on the adviser's assessment of the economy and the markets. The
investment adviser may shift between types of investments to attempt to
maximize returns or reduce risk to the Fund.
Unless indicated otherwise, the investment policies of the Fund may be
changed by the Board of Trustees (the "Trustees") without the approval of
shareholders. Shareholders will be notified before any material change in
these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund's acceptable investments are as follows:
COMMON AND PREFERRED STOCKS. The Fund will invest primarily in common and
preferred stocks of companies selected by the Fund's investment adviser on
the basis of traditional research techniques and technical factors,
including assessment of earnings, dividend yield and dividend growth
prospects and of the risk and volatility of the company's industry. Other
factors, such as product position or market share, will also be considered
by the Fund's investment adviser. Issuers of the common and preferred
stocks purchased by the Fund will have a market capitalization of at least
$250 million at the time of purchase, with the exception of common stocks
acquired through conversion of a convertible security, to which no market
capitalization threshold is applied.
CONVERTIBLE SECURITIES. Convertible securities are securities which may be
exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred
stock, convertible bonds, or debentures or warrants or some combination of
the features of several of these securities. The Fund will generally
purchase only those convertible securities that were part of an issue that
had a market value of $50,000,000 at the time of issue. Convertible
securities are not held to a specific quality standard as other debt
securities purchased by the Fund (see "Debt Securities"), but the
investment adviser will assess the quality of the convertible security
before purchase. Most convertible securities pay income at a fixed rate in
the form of interest or dividends. Some convertible securities pay income
at a rate which changes over time and some convertibles do not pay current
income. (See "Zero Coupon Convertible Securities" below.)
The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for different investment
purposes. Convertible bonds and convertible preferred stocks are fixed-
income securities that generally retain the investment characteristics of
fixed-income securities until they have been converted but also react to
movements in the underlying equity securities. The holder is entitled to
receive the fixed income of a bond or the dividend preference of a
preferred stock until the holder elects to exercise the conversion
privilege. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders
of common stock in the case of liquidation. However, convertible
securities are generally subordinated to similar nonconvertible securities
of the same company. The interest income and dividends from convertible
bonds and preferred stocks provide a stable stream of income with generally
higher yields than common stocks, but lower than nonconvertible securities
of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which,
in the adviser's opinion, the investment characteristics of the underlying
common stock will assist the Fund in achieving its investment objective.
Otherwise, the Fund will hold or trade the convertible securities. In
selecting convertible securities for the Fund, the Fund's adviser evaluates
the investment characteristics of the convertible security as a fixed-
income instrument and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, the adviser considers
numerous factors, including the economic and market outlook, the value of
the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and an assessment of the quality of
the security.
ZERO COUPON CONVERTIBLE SECURITIES. Zero coupon convertible securities are
securities which are issued at a discount to their face amount and do not
entitle the holder to any periodic payments of interest prior to maturity.
Rather, income earned on zero coupon convertible securities accretes at a
stated yield until the security reaches its face amount at maturity. Zero
coupon convertible securities are convertible into the issuer's common
stock. In addition, zero coupon convertible securities usually have put
features that provide the holder with the opportunity to sell the bonds
back to the issuer at a stated price before maturity. Generally, the
prices of zero coupon convertible securities may be more sensitive to
market interest rate fluctuations than conventional convertible securities.
Federal income tax law requires the holders of a zero coupon convertible
security to recognize income from the security prior to the receipt of cash
payments. To maintain its qualification as a regulated investment company
and avoid liability for federal income taxes, the Fund will be required to
distribute income accrued from zero coupon convertible securities which it
owns, and may have to sell portfolio securities (perhaps at disadvantageous
times) in order to generate cash to satisfy these distribution
requirements.
DEBT SECURITIES. The Fund will only invest in debt securities which are
rated "A" or better, at the time of purchase, by a nationally recognized
statistical rating organization ("NRSRO") [i.e., Moody's Investors Service,
Inc. ("Moody's"), Standard and Poor's Ratings Group ("S&P"), or Fitch
Investors Service, Inc. ("Fitch")], or which, if unrated, are deemed to be
of comparable quality by the Fund's investment adviser.
The Fund's debt securities may include fixed rate, adjustable rate or
stripped bonds, debentures, notes, U.S. government securities, and asset-
backed securities. The prices of fixed-income securities fluctuate
inversely to the direction of interest rates. The Fund may also invest in
preferred stocks and units, which are debt securities with stock or
warrants to buy stock attached.
When the adviser selects debt securities for the Fund, it will consider the
ratings of Moody's, S&P, or Fitch assigned to various debt securities. In
making its investment decisions, the adviser will also consider many
factors other than current yield, including the preservation of capital,
the potential for realizing capital appreciation, maturity, and yield to
maturity. The adviser will adjust its investments in particular securities
or in types of debt securities in response to its appraisal of changing
economic conditions and trends. The Fund may sell one security and
purchase another security of comparable quality and maturity to take
advantage of what it believes to be short-term differentials in market
values or yield disparities.
The permitted investments include, but are not limited to:
o domestic issuers of corporate debt obligations having floating or fixed
rates of interest;
o asset-backed securities rated "A" or better by an NRSRO;
o notes, bonds, and discount notes of the U.S. government or its agencies
or instrumentalities;
o commercial paper which matures in 270 days or less that has received
high-quality ratings by at least two NRSROs (i.e., Prime-1 or Prime-2 by
Moody's, A-1 or A-2 by S&P, or F-1 or F-2 by Fitch);
o time and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the Bank
Insurance Fund ("BIF") or the Savings Association Insurance Fund
("SAIF"), both of which are administered by the Federal Deposit
Insurance Corporation ("FDIC"), including certificates of deposit and
other time deposits issued by foreign branches of FDIC-insured banks,
and banker's acceptances; and
o repurchase agreements collateralized by eligible investments.
ASSET-BACKED SECURITIES. Asset-backed securities are created by the
grouping of certain governmental, government-related and private
loans, receivables and other lender assets into pools. Interests in
these pools are sold as individual securities. These securities
differ from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal paid at
maturity or specified call dates. Asset-backed securities, however,
provide periodic payments which generally consist of both interest and
principal payments. The estimated life of an asset-backed security
and the average maturity of a portfolio including such assets vary
with the prepayment experience with respect to the underlying debt
instruments. The credit characteristics of asset-backed securities
also differ in a number of respects from those of traditional debt
securities.
The credit quality of most asset-backed securities depends primarily
upon the credit quality of the assets underlying such securities, how
well the entity issuing the securities is insulated from the credit
risk of the originator or any other affiliated entities, and the
amount and quality of any credit support provided to such securities.
NON-MORTGAGE RELATED ASSET-BACKED SECURITIES. The Fund may invest in
non-mortgage related asset-backed securities including, but not
limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. These
securities may be in the form of pass-through instruments or asset-
backed bonds. The securities, all of which are issued by non-
governmental entities and carry no direct or indirect government
guarantee, are structurally similar to collateralized mortgage
obligations and mortgage pass-through securities, which are described
below.
MORTGAGE-RELATED ASSET-BACKED SECURITIES. The Fund may also invest in
various mortgage-related asset-backed securities. These types of
investments may include adjustable rate mortgage securities,
collateralized mortgage obligations ("CMOs"), real estate mortgage
investment conduits, or other securities collateralized by or
representing an interest in real estate mortgages (collectively,
"mortgage securities"). The mortgage securities may have interest
rates which reset at least annually and generally will be issued or
guaranteed by government agencies.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are pass-through
mortgage securities with adjustable rather than fixed interest rates.
The ARMS in which the Fund invests are issued by the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), and the Federal Home Loan Mortgage Corporation
("FHLMC") and are actively traded. The underlying mortgages which
collateralized ARMS issued by GNMA are fully guaranteed by the Federal
Housing Administration or Veterans Administration, while those
collateralized ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and
maturity constraints.
Unlike conventional bonds, ARMS pay back principal over the life of
the ARMS rather than at maturity. Thus, a holder of the ARMS, such as
the Fund, would receive monthly scheduled payments of principal and
interest, and may receive unscheduled principal payments representing
prepayments on the underlying mortgages. At the time that a holder of
the ARMS reinvests the payments and any unscheduled prepayments of
principal that it receives, the holder may receive a rate of interest
which is actually lower than the rate of interest paid on the existing
ARMS. As a consequence, ARMS may be a less effective means of
"locking in" long-term interest rates than other types of U.S.
government securities.
Like other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus,
the market value of ARMS generally declines when interest rates rise
and generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g. investments with
comparable maturities) because as interest rates decline, the
likelihood increases that mortgages will be prepaid. Furthermore, if
ARMS are purchased at a premium, mortgage foreclosures and unscheduled
principal payments may result in some loss of a holder's principal
investment to the extent of the premium paid. Conversely, if ARMS are
purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total
returns and would accelerate the recognition of income, which would be
taxed as ordinary income when distributed to shareholders.
COLLATERLIZED MORTGAGE OBLIGATIONS. Collateralized mortgage
obligations ("CMOs") are a form of asset-backed security issued by
single-purpose, stand-alone finance subsidiaries or trusts of
financial institutions, government agencies, investment bankers, or
companies related to the construction industry.
The Fund will invest only in CMOs which are rated AAA by an NRSRO and
which may be: (a) collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal and interest by an
agency or instrumentality of the U.S. government; (b) collateralized
by pools of mortgages in which payment of principal and interest is
guaranteed by the issuer and such guarantee is collateralized by U.S.
government securities; or (c) securities in which the proceeds of the
issuance are invested in mortgage securities and payment of the
principal and interest are supported by the credit of any agency or
instrumentality of the U.S. government.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS. Real estate mortgage
investment conduits ("REMICs") are offerings of multiple class real
estate mortgage-backed securities which qualify and elect treatment as
such under provisions of the Internal Revenue Code. Issuers of REMICs
may take several forms, such as trusts, partnerships, corporations,
associations, or a segregated pool of mortgages. Once REMIC status is
elected and obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and is taxed
to the person or persons who hold interest in the REMIC. A REMIC
interest must consist of one or more classes of "regular interests,"
some of which may offer adjustable rates, and a single class of
"residual interests." To qualify as a REMIC, substantially all of the
assets of the entity must be in assets directly or indirectly secured
principally by real property.
CONSIDERATIONS FOR MORTGAGE-BACKED AND ASSET-BACKED SECURITIES.
Mortgage-backed and asset-backed securities generally pay back
principal and interest over the life of the security. At the time
the Fund reinvests the payments and any unscheduled prepayments of
principal received, the Fund may receive a rate of interest which
is actually lower than the rate of interest paid on these
securities ("prepayment risks"). Mortgage-backed and asset-backed
securities are subject to higher prepayment risks than most other
types of debt instruments with prepayment risks because the
underlying mortgage loans or the collateral supporting asset-
backed securities may be prepaid without penalty or premium.
Prepayment risks on mortgage-backed securities are also affected
by other factors, such as the frequency with which people sell
their homes or elect to make unscheduled payments on their
mortgages. Although asset-backed securities generally are less
likely to experience substantial prepayments than are mortgage-
backed securities, certain of the factors that affect the rate of
prepayments on mortgage-backed securities also affect the rate of
prepayments on asset-backed securities.
Asset-backed securities present certain risks that are not
presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of the same security interest
in the related collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by motor vehicle installment
purchase obligations permit the servicer of such receivables to
retain possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a
vehicle is registered in one state, and is then reregistered
because the owner and obligor moves to another state, such could
defeat the original security interest in the vehicle in certain
cases. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under
state laws, the trustee for the holders of asset-backed securities
backed by automobile receivables may not have a proper security
interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support
payments on these securities.
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which
the Fund invests are either issued or guaranteed by the U.S.
government, its agencies or instrumentalities. These securities
include, but are not limited to:
o direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes and bonds; and
o notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as Federal Home Loan Banks, Federal
National Mortgage Association, Government National Mortgage
Association, Banks for Cooperatives, Federal Farm Credit Banks,
Tennessee Valley Authority, Export-Import Bank of the United
States, Commodity Credit Corporation, Federal Financing Bank,
Student Loan Marketing Association, Federal Home Loan Mortgage
Corporation, or National Credit Union Administration.
Some obligations issued or guaranteed by agencies or instrumentalities
of the U.S. government, such as Government National Mortgage
Association participation certificates, are backed by the full faith
and credit of the U.S. Treasury. Others for which no assurances can
be given that the U.S. government will provide financial support to
the agencies or instrumentalities, since it is not obligated to do so,
are supported by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow an amount limited to a specific line
of credit from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of an agency or instrumentality; or
othe credit of the agency or instrumentality issuing the obligation.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and price.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete
these transactions may cause the Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering
into these transactions, and the market values of the securities purchased
may vary from the purchase prices. Accordingly, the Fund may pay more/less
than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
PUT AND CALL OPTIONS. The Fund may write (i.e., sell) covered call and put
options to generate income for the Fund. By writing a call option, the
Fund becomes obligated during the term of the option to deliver the
securities underlying the option upon payment of the exercise price. By
writing a put option, the Fund becomes obligated during the term of the
option to purchase the securities underlying the option at the exercise
price if the option is exercised. The Fund may also write straddles
(combinations of covered puts and calls on the same underlying security).
The Fund may only write "covered" options. This means that, so long as the
Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option or have the right to obtain
such securities without payment of further consideration (or have
segregated cash in the amount of any additional consideration).
The Fund will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of the put option, it
deposits and maintains with its custodian in a segregated account liquid
assets having a value equal to or greater than the exercise price of the
option. The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return that would be
realized on the underlying securities alone. The Fund receives a premium
from writing a call or put option which it retains whether or not the
option is exercised. By writing a call option, the Fund might lose the
potential for gain on the underlying security while the option is open, and
by writing a put option, the Fund might become obligated to purchase the
underlying security for more than its current market price upon exercise.
The Fund may purchase call and put options for the purpose of offsetting
previously written call and put options of the same series. If the Fund is
unable to effect a closing purchase transaction with respect to covered
options it has written, the Fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the
options expire or are exercised. Put options may also be purchased to
protect against price movements in particular securities in the Fund's
portfolio. A put option gives the Fund, in return for a premium, the right
to sell the underlying security to the writer (seller) at a specified price
during the term of the option.
The Fund will purchase options only to the extent permitted by the policies
of state securities authorities in states where shares of the Fund are
qualified for offer and sale. The Fund will write put options only on
securities which the Fund wishes to have in its portfolio and where the
Fund has determined, as an investment consideration, that it is willing to
pay the exercise price of the option.
The Fund may generally purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the buyers or writers
of the options when options on the portfolio securities held by the Fund
are not traded on an exchange. The Fund purchases and writes options only
with investment dealers and other financial institutions (such as
commercial banks or savings associations) deemed creditworthy by the Fund's
adviser.
Over-the-counter options are two-party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third-party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options may
not.
The Fund may purchase put options and write call options using market index
options such as the S&P 500 for the purpose of hedging to attempt to
protect the value of the Fund or to generate income.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to hedge all or a portion of its portfolio against changes in
stock prices, interest rates, and market conditions. The Fund will not
engage in futures transactions for speculative purposes. Financial futures
contracts call for the delivery of particular debt instruments at a certain
time in the future. The seller of the contract agrees to make delivery of
the type of instrument called for in the contract, and the buyer agrees to
take delivery of the instrument at the specified future time.
Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index
futures contract is an agreement by which two parties agree to take or make
delivery of an amount of cash equal to the difference between the value of
the index at the close of the last trading day of the contract and the
price at which the index contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a
futures contract, it is undertaking the obligation of selling a futures
contract at a fixed price at any time during a specified period if the
option is exercised. Conversely, as purchaser of a put option on a futures
contract, the Fund is entitled (but not obligated) to sell a futures
contract at the fixed price during the life of the option.
The Fund may also write put options and purchase call options on futures
contracts as hedges against rising purchase prices of portfolio securities.
The Fund will use these transaction to attempt to protect its ability to
purchase portfolio securities in the future at price levels existing at the
time it enters into the transactions. When the Fund writes a put option on
a futures contract, it is undertaking to buy a particular futures contract
at a fixed price at any time during a specified period if the option is
exercised. As a purchaser of a call option on a futures contract, the Fund
is entitled (but not obligated) to purchase a futures contract at a fixed
price at any time during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases futures contracts, an amount of cash and cash equivalents,
equal to the underlying commodity value of the futures contracts (less any
related margin deposits), will be deposited in a segregated account with
the Fund's custodian (or the broker, if legally permitted) to collateralize
the position and thereby insure that the use of such futures contract is
unleveraged.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to
the futures contracts may not correlate perfectly with the prices of
the securities in the Fund's portfolio. This may cause the futures
contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Fund's
investment adviser could be incorrect in its expectations about the
direction or extent of market factors such as stock price movements.
In these events, the Fund may lose money on the futures contract or
option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the
investment adviser will consider liquidity before entering into these
transactions, there is no assurance that a liquid secondary market on
an exchange or otherwise will exist for any particular futures
contract or option at any particular time. The Fund's ability to
establish and close out futures and options depends on this secondary
market.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest
in securities of other investment companies, but it will not own more than
3% of the total outstanding voting stock of any investment company, invest
more than 5% of its total assets in any one investment company, or invest
more than 10% of its total assets in investment companies in general. The
Fund will invest in other investment companies primarily for the purpose of
investing short-term cash which has not yet been invested in other
portfolio instruments. The investment adviser will waive its investment
advisory fee on assets invested in securities of open-end investment
companies, although it should be noted that investment companies incur
certain expenses such as custodian and transfer agency fees and, therefore,
any investment by the Fund in shares of another investment company would be
subject to such expenses.
LENDING OF PORTFOLIO SECURITIES. Pursuant to a fundamental policy, in
order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
adviser has determined are creditworthy under guidelines established by the
Trustees and where the Fund will receive collateral in the form of cash or
U.S. government securities equal to at least 100% of the value of the
securities loaned at all times.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest 15% of its total
assets in restricted securities. Restricted securities are any securities
in which the Fund may otherwise invest pursuant to its investment objective
and policies but which are subject to restriction on resale under federal
securities law. However, the Fund will limit investments in illiquid
securities, including restricted securities not determined by the Trustees
to be liquid, non-negotiable time deposits, over-the-counter options, and
repurchase agreements providing for settlement in more than seven days
after notice, to 15% of its net assets.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest in the securities of
foreign issuers which are freely traded on United States securities
exchanges or in the over-the-counter market in the form of depository
receipts. Securities of a foreign issuer may present greater risks in the
form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of a foreign issuer if any such risk
appears to the investment adviser to be substantial.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets; or
o with respect to 75% of the value of its total assets, invest more
than 5% in securities of any one issuer other than cash, cash items, or
securities issued or guaranteed by the government of the United States,
its agencies or instrumentalities, and repurchase agreements
collateralized by such securities or acquire more than 10% of the
outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval. The following investment limitation, however, may be changed by
the Trustees without shareholder approval. Shareholders will be notified
before any material change in this investment limitation becomes effective.
The Fund will not:
o invest more than 5% of the value of its total assets in securities of
issuers that have records of less than three years of continuous
operations, including the operation of any predecessor.
FIRST PRIORITY FUNDS INFORMATION
MANAGEMENT OF THE FIRST PRIORITY FUNDS
BOARD OF TRUSTEES. The Board of Trustees is responsible for managing the
business affairs of the Trust and for exercising all of the powers of the
Trust except those reserved for the shareholders. The Executive Committee
of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the
Trust, investment decisions for the Fund are made by First Alabama Bank
("First Alabama" or "adviser"), as the Fund's investment adviser, subject
to direction by the Trustees. The adviser continually conducts investment
research and supervision for the Fund and is responsible for the purchase
or sale of portfolio instruments, for which it receives an annual fee from
the assets of the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment
advisory fee equal to 0.80% of the Fund's average daily net assets.
The adviser has undertaken to reimburse the Fund, up to the amount of
the advisory fee, for operating expenses in excess of limitations
established by certain states. The adviser may voluntarily choose to
waive a portion of its fee or reimburse other expenses of the Fund.
The adviser can terminate such waiver or reimbursement policy at any
time at its sole discretion.
ADVISER'S BACKGROUND. The adviser is a wholly-owned subsidiary of
Regions Financial Corp., a bank holding company organized during 1971
under the laws of the State of Delaware, and is a member of the
Regions Bank organization. Operating out of more than 250 offices, it
provides a wide range of banking and fiduciary services to its
customers. As of June 30, 1994, Regions Financial Corp. was one of
the 100 largest bank holding companies in the United States with total
assets in excess of $10 billion. First Alabama is one of only 13
banks to receive an "A" rating by Thomson BankWatch. First Alabama is
also ranked in the top ten in overall soundness by U.S. Banker
Magazine. First Alabama's common stock is currently included among
those in the Dow Jones Equity Market Index as well as Standard &
Poor's Midcap Index.
As fiduciary, First Alabama managed over $2.5 billion in discretionary
assets as of December 31, 1993. It manages seven common trust funds
and collective investment funds having a market value in excess of
$190 million as of August 31, 1994. First Alabama has been adviser to
the First Priority Funds since inception with a market value in excess
of $450 million as of June 30, 1994.
As part of their regular banking operations, First Alabama and its
affiliates may grant loans to public companies. Thus, it may be
possible, from time to time, for the Fund to hold or acquire the
securities of issuers which are also lending clients of First Alabama
or its affiliates. The lending relationship will not be a factor in
the selection of securities. Because of the internal controls
maintained by the companies to restrict the flow of information, Fund
investments are typically made without any knowledge of First Alabama
or its affiliates' lending relationships with an issuer.
Charles A. Murray, CFA, Vice President and Trust Investment Officer,
is responsible for the equity funds portfolio management of the Trust
Investment Group, and contributes to the formation of equity and fixed
income strategies for First Alabama Bank. Mr. Murray serves as an
active member of the Trust Investment Group in the capacity of a
portfolio manager and analyst, and has been primarily responsible for
the equity securities portion of the Fund since its inception. He has
18 years of investment analysis and portfolio management experience;
21 years with First Alabama Bank. Mr. Murray received his B.S. in
Marketing from the University of Alabama in 1970 and graduated from
Southern Trust School in 1982. He went on to become a Chartered
Financial Analyst in 1993.
T. Jerry Harris, Vice President and Trust Investment Officer, is
responsible for the fixed income strategy for First Alabama Bank and
the management of the fixed income common trust funds. Mr. Harris has
been primarily responsible for the debt securities portion of the Fund
since its inception, and also serves as a member of the Trust
Investment Group as a portfolio manager. He has 17 years of
investment experience, specifically investment analysis; seven years
with First Alabama Bank. Mr. Harris received his B.S. from Western
Kentucky University in 1971. He later became a Chartered Financial
Planner in 1986 and a Chartered Financial Analyst in 1991.
eq
equity securities portion of the Fund since its inception.
Mr. Alderman is Vice President and Trust Investment Officer of First
Alabama Bank and serves as an active member of the Trust Investment
Group in the capacity of a portfolio manager, strategist, and analyst.
He has ten years of investment experience, including seven years of
investment experience with the Trust Department of First Alabama Bank.
Mr. Alderman received his B.S. from Auburn University in 1973 and his
M.B.A. from Florida State University in 1976. He became a Certified
Public Accountant in 1975 and a Chartered Financial Analyst in 1989.
John M. Haigler has assisted Mr. Harris in the management of the debt
securities portion of the Fund since its inception. Mr. Haigler is
Vice President and Trust Investment Officer of First Alabama Bank,
where he has 16 years of investment experience with the Trust
Department. Mr. Haigler is enrolled in the Chartered Financial
Analyst Program (Level II) and received his B.A. from Huntingdon
College.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the distributor for shares of the Fund. It
is a Pennsylvania corporation organized on November 14, 1969, and is the
distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan
adopted in accordance with Investment Company Act Rule 12b-1 (the
"Distribution Plan"), the Fund may pay to the distributor an amount
computed at an annual rate of 0.30% of the average daily net asset value of
the Fund to finance any activity which is principally intended to result in
the sale of shares subject to the Distribution Plan. The distributor may
select financial institutions such as banks, fiduciaries, custodians for
public funds, investment advisers, and broker/dealers to provide sales
support services as agents for their clients or customers.
The Fund will not accrue or pay any distribution expenses pursuant to the
Distribution Plan until a separate class of shares has been created for
certain institutional investors.
The Distribution Plan is a compensation-type plan. As such, the Fund makes
no payments to the distributor except as described above. Therefore, the
Fund does not pay for unreimbursed expenses of the distributor, including
amounts expended by the distributor in excess of amounts received by it
from the Fund, interest, carrying, or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by the Fund under the Distribution Plan.
In addition, the Trust has adopted a Shareholder Services Plan (the
"Services Plan") on behalf of the Fund under which it may make payments up
to 0.25% of the average daily net asset value of the Fund to obtain certain
personal services for shareholders and the maintenance of shareholder
accounts ("shareholder services"). The Trust has entered into a
Shareholder Services Agreement with Federated Shareholder Services, a
subsidiary of Federated Investors, on behalf of the Fund under which
Federated Shareholder Services will either perform shareholder services
directly or will select financial institutions to perform shareholder
services. Financial institutions will receive fees based upon shares owned
by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by
the Trust and Federated Shareholder Services. The Fund has no present
intention, however, to charge a shareholder services fee.
The Glass-Steagall Act limits the ability of a depository institution (such
as a commercial bank or a savings and loan association) to become an
underwriter or distributor of securities. In the event the Glass-Steagall
Act is deemed to prohibit depository institutions from acting in the
capacities described above or should Congress relax current restrictions on
depository institutions, the Trustees will consider appropriate changes in
the services.
State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to
state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with
certain administrative personnel and services (including certain legal and
accounting services) necessary to operate the Fund. Federated
Administrative Services provides these at an annual rate as follows:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Trust
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. Federated Administrative Services may voluntarily waive
a portion of its fee.
CUSTODIAN. First Alabama Bank, Birmingham, Alabama, serves as custodian
for the securities and cash of the Fund for which it receives a fee for
that service.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING
SERVICES. Federated Services Company, Pittsburgh, Pennsylvania, a
subsidiary of Federated Investors, is transfer agent and dividend
disbursing agent for the Fund. It also provides certain accounting and
recordkeeping services with respect to the Fund's portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P.,
Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
adviser may give consideration to those firms which have sold or are
selling shares of the Fund. The adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of Trust
expenses. These expenses include, but are not limited to, the cost of:
Trustees' fees; investment advisory and administrative services; printing
prospectuses and other Fund documents for shareholders; registering the
Trust, the Fund, and shares of the Fund with federal and state securities
commissions; taxes and commissions; issuing, purchasing, repurchasing, and
redeeming shares; fees for custodians, transfer agents, dividend disbursing
agents, shareholder servicing agents, and registrars; printing, mailing,
auditing, accounting, and legal expenses; reports to shareholders and
governmental agencies; meetings of Trustees and shareholders and proxy
solicitations therefor; distribution fees; insurance premiums; association
membership dues; and such nonrecurring and extraordinary items as may
arise. However, the adviser may voluntarily reimburse some expenses and
has, in addition, undertaken to reimburse the Fund, up to the amount of the
advisory fee, the amount by which operating expenses exceed limitations
imposed by certain states.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is determined by
dividing the sum of the market value of all securities and other assets,
less liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of the Fund by an investor is
$1,000. Subsequent investments may be in any amounts. The Fund may waive
the initial minimum investment from time to time. For further information,
please call First Priority Mutual Funds at 1-800-433-2829.
Officers, directors, employees, and retired employees of First Alabama and
other Regions Banks, or their affiliates, and their spouses and their
dependent children may purchase shares of the Fund with a minimum initial
investment of $500, unless they choose to participate in the systematic
investment plan, in which case the minimum initial investment is $100.
WHAT SHARES COST
Shares of the Fund are sold at their net asset value next determined after
an order is received, plus a sales charge as follows:
Sales Charge as Sales Charge as
a Percentage of a Percentage of
Amount of Transaction Public Offering Price Net Amount Invested
Less than $100,000 2.00% 2.04%
$100,000 but less than $250,000 1.50% 1.52%
$250,000 but less than $500,000 1.00% 1.01%
$500,000 but less than $750,000 0.50% 0.50%
$750,000 but less than $1 million 0.25% 0.25%
$1 million or more 0.00% 0.00%
v
value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; or
(iii) the following holidays: New Year's Day, Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
PURCHASES AT NET ASSET VALUE. Fund shares may be purchased at net asset
value, without a sales charge, by officers, directors, employees and
retired employees of First Alabama and other Regions Banks, or their
affiliates, and their spouses and dependent children. Additionally, shares
are available at net asset value without a sales charge to trust customers
purchasing through the Trust Departments of First Alabama and other Regions
Banks. The Trust Departments, however, may charge fees for services
provided, which may be related to the ownership of Fund shares. This
prospectus should, therefore, be read together with any agreement between
the Trust customer and the Trust Department with regard to services
provided and the fees charged for these services.
DEALER CONCESSIONS. For sales of shares of the Fund, a dealer will
normally receive up to 85% of the applicable sales charge. Any portion of
the sales charge which is not paid to a dealer will be retained by the
distributor. However, from time to time, and at the sole discretion of the
distributor, all or part of that portion may be paid to a dealer. If
accepted by the dealer, such additional payments will be predicated upon
the amount of Fund shares sold. Such payments may take the form of cash or
promotional incentives, such as payment of certain expenses of qualified
employees and their spouses to attend informational meetings about the Fund
or other special events at recreational facilities, or items of material
value. In some instances, these incentives will be made available only to
dealers whose employees have sold or may sell significant amounts of shares
of the Fund.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, the adviser, or
their affiliates may offer to pay a fee from their own assets to financial
institutions as financial assistance for providing substantial marketing
and sales support. The support may include initiating customer accounts,
providing sales literature, or participating in sales, education, and
training seminars (including those held at recreational facilities). Such
assistance will be predicated upon the amount of shares the financial
institution sells or may sell and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments
made by the distributor will be reimbursed by the adviser or its affiliates
and are in addition to any payments made under the Fund's Distribution or
Services Plans.
SHARE PURCHASES. Fund shares are sold on days on which the New York Stock
Exchange and the Federal Reserve Wire System are open for business. Trust
customers may purchase shares through the Trust Departments of First
Alabama and other Regions Banks. Other customers may purchase shares
through First Alabama Investments, Inc. ("FAII"). Texas residents must
purchase shares through Federated Securities Corp. at 1-800-356-2805. In
connection with the sale of Fund shares, the distributor may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request.
Trust customers may place an order to purchase shares by contacting their
local Trust Administrator or by calling First Alabama. Other customers may
purchase shares by contacting their local FAII office or telephone FAII at
1-800-456-3244.
Payment may be made by either check or federal funds or by debiting a
customer's account at First Alabama or another Regions Bank. Purchase
orders must be received by 3:00 p.m. (Central time) in order to be credited
on the same day. For settlement of an order, payment must be received
within five business days of receipt of the order.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must
be in federal funds or be converted into federal funds before shareholders
begin to earn dividends. Federated Services Company or its agent acts as
the shareholder's agent in depositing checks and converting them to federal
funds.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Fund shares through:
o quantity discounts and accumulated purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated mutual fund
shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Fund will combine
purchases of shares made on the same day by the investor, his spouse, and
his dependent children when it calculates the sales charge.
If an additional purchase of shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a
shareholder already owns shares having a current value at the public
offering price of $90,000 and purchases $10,000 more at the current public
offering price, the sales charge on the additional purchase according to
the schedule now in effect would be 1.50%, not 2.00%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing at the time the purchase is made
that shares are already owned or that purchases are being combined. The
Fund will reduce the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000
of shares in the First Priority Funds over the next 13 months, the sales
charge may be reduced by signing a letter of intent to that effect. This
letter of intent includes a provision for a sales charge adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 2.00% of the total amount
intended to be purchased in escrow until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at
the end of the 13-month period unless the amount specified in the letter of
intent is not purchased. In this event, an appropriate number of escrowed
shares may be redeemed in order to realize the difference in the sales
charge.
This letter of intent will not obligate the shareholder to purchase shares,
but if he does, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past
90 days toward the dollar fulfillment of the letter of intent. Prior trade
prices will not be adjusted.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within thirty days, to reinvest the
redemption proceeds at the next-determined net asset value without any
sales charge. Federated Securities Corp. must be notified by the
shareholder in writing or by his financial institution of the reinvestment
in order to eliminate a sales charge. If the shareholder redeems shares in
the Fund, there may be tax consequences, and exercise of the reinvestment
privilege may result in additional tax considerations. Shareholders
contemplating such transactions should consult their own tax advisers.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED MUTUAL FUND
SHARES. Investors may purchase shares of the Fund at net asset value,
without a sales charge, with the proceeds from the redemption of shares of
a mutual fund which was sold with a sales charge or commission. The
purchase must be made within 60 days of the redemption, and FAII must be
notified by the investor in writing or by his financial institution at the
time the purchase is made. The adviser will offer to pay broker/dealers an
amount equal to 0.50% of the net asset value of shares of the Fund
purchased by their clients or customers in this manner. This offer is not
available for the redemption of mutual fund shares that were or would be
subject to a contingent deferred sales charge upon redemption.
SYSTEMATIC INVESTMENT PLAN
Holders of shares may arrange for systematic monthly investments in their
accounts in amounts of $100 or more. Officers, directors, employees, and
retired employees of First Alabama and other Regions Banks, or their
affiliates, and their spouses and their dependent children, may arrange for
systematic monthly investments in their accounts in amounts of $25 or more.
Once proper authorization is given, a shareholder's bank account will be
debited to purchase shares in the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of certain
securities and cash for Fund shares. The Fund reserves the right to
determine the acceptability of securities to be exchanged. On the day
securities are accepted by a Fund, they are valued in the same manner as
the Fund values its assets. Investors wishing to exchange securities
should first contact First Alabama or another Regions Bank. The market
value of any securities exchanged in an initial investment, plus any cash,
must be at least $1,000,000.
SHAREHOLDER ACCOUNTS
As transfer agent for the Fund, Federated Services Company maintains a
share account for each shareholder of record. Share certificates are not
usually issued.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared and paid quarterly. Dividends are declared just
prior to determining net asset value. Capital gains realized by the Fund,
if any, will be distributed at least once every twelve months. Dividends
and capital gains will be reinvested in additional shares of the Fund on
payment dates at the ex-dividend date net asset value unless cash payments
are requested by shareholders by writing to the Fund, First Alabama, or
another Regions Bank, as appropriate.
EXCHANGE PRIVILEGE
A shareholder may exchange shares of one fund for the appropriate class of
shares of any other fund in the First Priority Funds by calling or by
writing to First Alabama, another Regions Bank, or FAII, as appropriate.
Texas residents must telephone Federated Securities Corp. at 1-800-356-2805
to exchange shares. In addition, shareholders of the Trust may have the
ability to exchange shares of certain funds distributed by Federated
Securities Corp. For further information, contact First Alabama or another
Regions Bank. Shares purchased by check are not eligible for exchange
until the purchase check has cleared, which could take up to seven calendar
days. The exchange feature applies to shares of each fund as of the
effective offering date of each fund's shares. Telephone exchange
instructions may be recorded.
Orders to exchange shares of one fund for shares of any of the other First
Priority Funds will be executed by redeeming the shares owned at net asset
value and purchasing shares of any of the other First Priority Funds at the
offering price determined after the proceeds from such redemption become
available. Orders for exchanges received by the Fund prior to 3:00 p.m.
(Central time) on any day the funds are open for business will be executed
as of the close of business that day. Orders for exchanges received after
3:00 p.m. (Central time) on any business day will be executed at the close
of the next business day.
Shares of funds with a sales charge may be exchanged at net asset value for
shares of other funds with an equal sales charge or no sales charge.
Shares of funds with a sales charge may be exchanged for shares of funds
with a higher sales charge at net asset value, plus the additional sales
charge. Shares of funds with no sales charge, whether acquired by direct
purchase, reinvestment of dividends on such shares, or otherwise, may be
exchanged for shares of funds with a sales charge at net asset value, plus
the applicable sales charge.
When an exchange is made from a fund with a sales charge to a fund with no
sales charge, the shares exchanged and additional shares which have been
purchased by reinvesting dividends or capital gains on such shares retain
the character of the exchanged shares for purposes of exercising further
exchange privileges.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange,
reserves the right to terminate the exchange privilege of any shareholder
who makes more than five exchanges of shares of the funds in a year or
three in a calendar quarter.
An exchange order must comply with the requirements for a redemption and
purchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase
requirements of each fund being acquired. An exchange constitutes a sale
for federal income tax purposes.
The exchange privilege is only available in states where shares of the fund
being acquired may legally be sold. Before the exchange, a shareholder
must receive a prospectus of the fund for which the exchange is being made.
REDEEMING SHARES
or
or on federal holidays when wire transfers are restricted. Requests for
redemption can be made in person, by telephone, or by mail.
BY TELEPHONE
Trust customers may redeem shares of the Fund by contacting their Trust
Administrator. Other shareholders may redeem shares by telephoning their
local FAII office. For calls received by First Alabama and other Regions
Banks before 3:00 p.m. (Central time), proceeds will normally be wired
within five business days to the shareholder's account at First Alabama or
another Regions Bank or a check will be sent to the address of record.
Those shares will be entitled to the dividend declared on the day the
redemption request was received. In no event will proceeds be wired more
than seven days after a proper request for redemption has been received.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service
are available from First Alabama and other Regions Banks. Telephone
redemption instructions may be recorded.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as a written request to Federated
Services Company, First Alabama, or another Regions Bank, should be
considered.
If, at any time, the Fund shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
BY MAIL
A shareholder may redeem shares by sending a written request to FAII. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested. Shareholders
should call FAII for assistance in redeeming by mail.
Shareholders requesting a redemption of $50,000 or more, a redemption of
any amount to be sent to an address other than that on record with the
Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
o a trust company or
commercial bank whose deposits are insured by BIF;
o a member of the New York,
American, Boston, Midwest, or Pacific Stock Exchange;
o a savings bank or savings
and loan association whose deposits are insured by SAIF; or
o any other "eligible
guarantor institution" as defined in the Securities Exchange Act of
1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in
the future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within
five business days, but in no event more than seven days, after receipt of
a proper written redemption request, provided that the transfer agent has
received payment for shares from the shareholder.
SYSTEMATIC WITHDRAWAL PLAN
Under a Systematic Withdrawal Plan, accounts having a value of at least
$10,000 may arrange for regular monthly or quarterly fixed withdrawal
payments. Each payment must be at least $100 and may be as much as 1.5%
per month or 4.5% per quarter of the total net asset value of the shares in
the account when the Systematic Withdrawal Plan is opened. Excessive
withdrawals may deplete or decrease the value of an account. For this
reason, payments under this Systematic Withdrawal Plan should not be
considered as yield or income on the shareholder's investment in the Fund.
Due to the fact that shares are sold with a sales charge, it is not
advisable for shareholders to be purchasing shares of the Fund while
participating in this Systematic Withdrawal Plan.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem shares in any account and pay the proceeds to the shareholder if
the account balance falls below the required minimum value of $1,000. This
requirement does not apply, however, if the balance falls below $1,000
because of changes in the Fund's net asset value. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of all
classes of each portfolio in the Trust have equal voting rights, except
that, in matters affecting only a particular fund or class, only
shareholders of that fund or class are entitled to vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of
Trustees under certain circumstances.
Trustees may be removed by Trustees or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Trustees
upon the written request of shareholders owning at least 10% of the Trust's
outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for acts or obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument the
Trust or its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required to use its property to protect
or compensate the shareholder. On request, the Trust will defend any claim
made and pay any judgment against a shareholder for any act or obligation
of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit a bank holding company registered under the Bank Holding Company
Act of 1956 or any affiliate thereof from sponsoring, organizing,
controlling, or distributing the shares of a registered, open-end
investment company continuously engaged in the issuance of its shares, and
prohibit banks generally from issuing, underwriting, selling, or
distributing securities. However, such laws and regulations do not
prohibit such a holding company affiliate or banks generally from acting as
investment adviser, transfer agent, or custodian to such an investment
company or from purchasing shares of such a company as agent for and upon
the order of their customer. First Alabama is subject to such banking laws
and regulations.
First Alabama believes, based on the advice of its counsel, that First
Alabama may perform the services for the Fund contemplated by its advisory
agreement with the Trust without violation of the Glass-Steagall Act or
other applicable banking laws or regulations. Changes in either federal or
state statutes and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of such or future statutes and
regulations, could prevent the adviser from continuing to perform all or a
part of the above services for its customers and/or the Fund. If it were
prohibited from engaging in these customer-related activities, the Trustees
would consider alternative advisers and means of continuing available
investment services. In such event, changes in the operation of the Fund
may occur, including possible termination of any automatic or other Fund
share investment and redemption services that are being provided by First
Alabama. It is not expected that existing shareholders would suffer any
adverse financial consequences (if another adviser with equivalent
abilities to First Alabama is found) as a result of any of these
occurrences.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated
investment companies and to receive the special tax treatment afforded to
such companies.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized
by the Trust's other portfolios will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income
tax on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions
are received in cash or as additional shares.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share
of the Fund on the last day of the period. This number is then annualized
using semi-annual compounding. The yield does not necessarily reflect
income actually earned by the Fund and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The performance information described above reflects the effect of the
maximum sales load which, if excluded, would increase the total return and
yield.
From time to time the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
ADDRESSES
First Priority Balanced Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-
3779
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-
3779
Investment Adviser
First Alabama Bank P.O. Box 10247
Mutual Funds Group Birmingham, Alabama 35202
Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting
Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-
3779
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
Independent Auditors
Deloitte & Touche 2100 One PPG Place
Pittsburgh, Pennsylvania 15222-
5401
FIRST PRIORITY BALANCED FUND
Prospectus
December ____, 1994
FEDERATED SECURITIES CORP.
Distributor
ETP--10/05/94--FPBFSAI.v3
FIRST PRIORITY BALANCED FUND
(A Portfolio of First Priority Funds)
Statement of Additional Information
This Statement of Additional Information should be read with the prospectus
for First Priority Balanced Fund (the "Fund") dated December ___, 1994.
This Statement is not a prospectus itself. To receive a copy of the
prospectus, write the Fund or call 1-800-433-2829.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December _______, 1994
[LOGO]
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND
INVESTMENT OBJECTIVE AND POLICIES
Types of Investments
Warrants
Collateralized Mortgage Obligations ("CMOs")
Resets of Interest
Caps and Floors
Repurchase Agreements
When-Issued and Delayed Delivery Transactions
Futures and Options Transactions
Lending of Portfolio Securities
Restricted Securities
Reverse Repurchase Agreements
Portfolio Turnover
Investment Limitations
FIRST PRIORITY FUNDS MANAGEMENT
Officers and Trustees
The Funds
Fund Ownership
Trustee Liability
INVESTMENT ADVISORY SERVICES
Adviser to the Fund
Advisory Fees
ADMINISTRATIVE SERVICES
CUSTODIAN
BROKERAGE TRANSACTIONS
PURCHASING SHARES
Distribution and Shareholder Services Plans
EXCHANGING SECURITIES FOR FUND SHARES
DETERMINING NET ASSET VALUE
Determining Market Value of Securities
EXCHANGE PRIVILEGE
Requirements for Exchange
Making an Exchange
REDEEMING SHARES
Redemption in Kind
TAX STATUS
The Fund's Tax Status
Shares' Tax Status
TOTAL RETURN
YIELD
PERFORMANCE COMPARISONS
APPENDIX
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in First Priority Funds (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust
dated October 15, 1991.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide total return through capital
appreciation, dividends, and interest. The investment objective cannot be
changed without approval of shareholders. Unless indicated otherwise, the
policies described below may be changed by the Board of Trustees
("Trustees") without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
TYPES OF INVESTMENTS
The Fund invests primarily in a diversified portfolio of common stocks,
preferred stocks, and debt securities. Additionally, the Fund may invest
in convertible securities and other investments as more fully set forth in
the prospectus and described below.
WARRANTS
The Fund may invest in warrants. Warrants are basically options to
purchase common stock at a specific price (usually at a premium above the
market value of the optioned common stock at issuance) valid for a specific
period of time. Warrants may have a life ranging from less than a year to
twenty years or may be perpetual. However, most warrants have expiration
dates after which they are worthless. In addition, if the market price of
the common stock does not exceed the warrant's exercise price during the
life of the warrant, the warrant will expire as worthless. Warrants have
no voting rights, pay no dividends, and have no rights with respect to the
assets of the corporation issuing them. The percentage increase or
decrease in the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the optioned common
stock. The Fund will not invest more than 5% of the value of its total
assets in warrants. No more than 2% of this 5% may be in warrants which
are not listed on the New York or American Stock Exchanges. Warrants
required in units or attached to securities may be deemed to be without
value for purposes of this policy.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs")
The following example illustrates how mortgage cash flows are prioritized
in the case of CMOs--most of the CMOs in which the Fund invests use the
same basic structure:
(1) Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four tranches of
securities: the first three (A, B, and C bonds) pay interest at their
stated rates beginning with the issue date and the final tranche (Z
bonds) typically receives any excess income from the underlying
investments after payments are made to the other tranches and receives
no principal or interest payments until the shorter maturity tranches
have been retired, but then receives all remaining principal and
interest payments.
(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.
(3) The tranches of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity tranche (or A
bonds). When those securities are completely retired, all principal
payments are then directed to the next-shortest-maturity tranche (or B
bonds). This process continues until all of the tranches have been
paid off.
Because the cash flow is distributed sequentially instead of pro rata, as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns. One or more
of the tranches often bear interest at an adjustable rate. The interest
portion of these payments is distributed by the Fund as income, and the
principal portion is reinvested.
RESETS OF INTEREST
The interest rates paid on the mortgage securities in which the Fund
invests may be readjusted at intervals of one year or less to an increment
over some predetermined interest rate index. There are two main categories
of indices: those based on U.S. Treasury securities and those derived from
a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-
year constant maturity Treasury Note rates, the three-month Treasury Bill
rate, the 180-day Treasury Bill rate, rates on longer-term Treasury
securities, the National Median Cost of Funds, the one-month or three-month
London Interbank Offered Rate (LIBOR), the prime rate of a specific bank,
or commercial paper rates. Some indices, such as the one-year constant
maturity Treasury Note rate, closely mirror changes in market interest rate
levels. Others tend to lag behind changes in market rate levels and tend
to be somewhat less volatile.
CAPS AND FLOORS
The underlying mortgages which collateralize the adjustable rate mortgage
securities ("ARMS") and CMOs in which the Fund invests will frequently have
caps and floors which limit the maximum amount by which the loan rate
to the residential borrower may change up or down: (1) per reset or
adjustment interval, and (2) the life of the loan. Some residential
mortgage loans restrict periodic adjustments by limiting changes in the
borrower's monthly principal and interest payments rather than limiting
interest rate changes. These payment caps may result in negative
amortization.
The value of mortgage securities in which the Fund invests may be affected
if market interest rates rise or fall faster and farther than the allowable
caps or floors on the underlying residential mortgage loans. Additionally,
even though the interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby causing the
effective maturities of the mortgage securities in which the Fund invests
to be shorter than the maturities stated in the underlying mortgages.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. In the event that a defaulting
seller files for bankruptcy or becomes insolvent, disposition of securities
by the Fund might be delayed pending court action. The Fund believes that
under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price and yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid assets
of the Fund sufficient to make payment for the securities to be purchased
are segregated on the Fund's records at the trade date. These securities
are marked to market daily and are maintained until the transaction has
been settled. The Fund does not intend to engage in when-issued and
delayed delivery transactions to an extent that would cause the segregation
of more than 20% of the total value of its assets.
FUTURES AND OPTIONS TRANSACTIONS
The Fund will maintain its positions in securities, options rights, and
segregated cash subject to puts and calls until the options are exercised,
closed, or have expired. An option position on futures contracts may be
closed out over-the-counter or on a nationally recognized exchange which
provides a secondary market for options of the same series.
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in the
contract ("going short") and the buyer who agrees to take delivery of the
security ("going long") at a certain time in the future.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract.
Rather, the Fund is required to deposit an amount of "initial margin"
in cash or U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that initial margin in futures transactions does not
involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond
or good-faith deposit on the contract which is returned to the Fund
upon termination of the futures contract, assuming all contractual
obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known
as "marking to market." Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.
PUT OPTIONS ON FUTURES CONTRACTS
The Fund may purchase listed put options on futures contracts. Unlike
entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles
(but does not obligate) its purchaser to decide on or before a future
date whether to assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In such an
event, the Fund will normally close out its option by selling an
identical option. If the hedge is successful, the proceeds received
by the Fund upon the sales of the second option will be large enough
to offset both the premium paid by the Fund for the original option
plus the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures
contract of the type underlying the option (for a price less than the
strike price of the option) and exercise the option. The Fund would
then deliver the futures contract in return for payment of the strike
price. If the Fund neither closes out nor exercises an option, the
option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.
CALL OPTIONS ON FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed and over-the-counter call options on futures contracts to hedge
its portfolio. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of assuming a short futures
position (selling a futures contract) at the fixed strike price at any
time during the life of the option if the option is exercised. As
stock prices fall or market interest rates rise, causing the prices of
futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the
value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the
call, so that the Fund keeps the premium received for the option.
This premium can substantially offset the drop in value of the Fund's
portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of
it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the second
option will be less than the premium received by the Fund for the
initial option. The net premium income of the Fund will then
substantially offset the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A
stock index fluctuates with changes in the market value of the stocks
included in the index.
The effectiveness of purchasing stock index options will depend upon
the extent to which price movements in the Fund's portfolio correlate
with price movements of the stock index selected. Because the value
of an index option depends upon movements in the level of the index
rather than the price of a particular stock, whether the Fund will
realize a gain or loss from the purchase of the option on an index
depends upon movements in the level of stock prices in the stock
market generally or, in the case of certain indices, in an industry or
market segment, rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on stock
indices will be subject to the availability of the Fund's adviser to
predict correctly movements in the directions of the stock market
generally or of a particular industry. This requires different skills
and techniques than predicting changes in the prices of individual
stocks.
LENDING OF PORTFOLIO SECURITIES
As a fundamental policy of the Fund, the Fund may lend portfolio
securities. The collateral received when the Fund lends portfolio
securities must be valued daily and, should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The Fund
may pay reasonable administrative and custodial fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund would
not have the right to vote securities on loan, but would terminate the loan
and regain the right to vote if that were considered important with respect
to the investment.
RESTRICTED SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Fund through
or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity. The
Fund believes that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established by
the Trustees are quite liquid. The Fund intends, therefore, to treat the
restricted securities which meet the criteria for liquidity established by
the Trustees, including Section 4(2) commercial paper, as determined by the
Fund's investment adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because
Section 4(2) commercial paper is liquid, the Fund intends to not subject
such paper to the limitation applicable to restricted securities.
ins
institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under
the Rule. The Fund believes that the staff of the SEC has left the
question of determining the liquidity of all restricted securities to the
Trustees. The Trustees may consider the following criteria in determining
the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements pursuant to a
fundamental policy. These transactions are similar to borrowing cash. In
a reverse repurchase agreement, the Fund transfers possession of a
portfolio instrument to another person, such as a financial institution,
broker, or dealer, in return for a percentage of the instrument's market
value in cash, and agrees that on a stipulated date in the future the Fund
will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but
the ability to enter into reverse repurchase agreements does not ensure
that the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund in
a dollar amount sufficient to make payment for the obligations to be
purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities. The deposit
or payment by the Fund of initial or variation margin in connection
with futures contracts or related options transactions is not
considered as a purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including
the amounts borrowed. The Fund will not borrow money except as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. For purposes of this limitation, the
following are not deemed to be pledges: margin deposits for the
purchase and sale of financial future contracts and related options
and the segregation or collateral arrangements made in connection with
options activities or the purchase of securities on a when-issued
basis.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities
and repurchase agreements collateralized by such securities) if, as a
result, more than 5% of the value of its total assets would be
invested in the securities of that issuer or if it would own more than
10% of the outstanding voting securities of that issuer. For these
purposes, the Fund considers common stock and all preferred stock of
an issuer each as a single class, regardless of priorities, series,
designations, or other differences.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities which the Fund may purchase
pursuant to its investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate
or in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts except to the extent that the Fund may
engage in transactions involving futures contracts or options on
futures contracts with respect to financial instruments, securities,
or securities indices.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding U.S.
government obligations, money market instruments, variable rate demand
notes, bonds, debentures, notes, certificates of indebtedness, or
other debt securities, entering into repurchase agreements, or
engaging in other transactions where permitted by the Fund's
investment objective, policies, and limitations or the Trust's
Declaration of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of its total assets in securities
of issuers having their principal business activities in the same
industry (other than securities issued by the U.S. government, its
agencies or instrumentalities).
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 15% of the value of its total
assets in securities subject to restrictions on resale under federal
securities laws, except for commercial paper issued under Section 4(2)
of the Securities Act of 1933 and certain other restricted securities
which meet the criteria for liquidity as established by the Board of
Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
securities, including repurchase agreements providing for settlement
in more than seven days after notice, non-negotiable fixed time
deposits with maturities over seven days, over-the-counter options,
and certain securities not determined under guidelines established by
the Trustees to be liquid.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any one
investment company, or invest more than 10% of its total assets in
investment companies in general. The Fund will purchase securities of
closed-end investment companies only in open market transactions
involving only customary broker's commissions. However, these
limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization or acquisition of assets; nor
are they applicable with respect to securities of investment companies
that have been exempted from registration under the Investment Company
Act of 1940.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in securities of issuers which have records of less than three years
of continuous operations, including the operation of any predecessor.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase
the securities of issuers which invest in or sponsor such programs.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
TRUSTEES OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if
the officers and Trustees of the Trust or the Fund's investment
adviser owning individually more than 1/2 of 1% of the issuer's
securities together own more than 5% of the issuer's securities.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of the value of its net assets
in warrants. No more than 2% of this 5% may be warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities unless the
securities are held in the Fund's portfolio and not more than 5% of
the value of the Fund's total assets would be invested in premiums on
put option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.
ARBITRAGE TRANSACTIONS
The Fund will not enter into transactions for the purpose of engaging
in arbitrage.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund has no present intent to borrow money, pledge securities or invest
in reverse repurchase agreements in excess of 5% of the value of its net
assets in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan association having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
To comply with registration requirements in certain states, the Fund will
(1) limit the aggregate value of the assets underlying covered call options
or put options written by the Fund to not more than 25% of its net assets;
(2) will limit the premiums paid for options purchased by the Fund to 20%
of its net assets; and (3) will limit the margin deposits on futures
contracts entered into by the Fund to 5% of its net assets. If state
requirements change, these restrictions may be revised without shareholder
notification.
FIRST PRIORITY FUNDS MANAGEMENT
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, present positions
with the Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and
Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of
J. Christopher Donahue, Vice President of the Trust
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director, Trustee, or Managing General Partner of the
Funds; formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director,
Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Trustee
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Professor of Medicine and Trustee, University of Pittsburgh;
Director of Corporate Health, University of Pittsburgh Medical Center;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA
President, Treasurer, and Trustee
Vice President, Treasurer, and Trustee, Federated Investors; Vice President
and Treasurer, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., and Passport Research, Ltd.; Executive
Vice President, Treasurer, and Director, Federated Securities Corp.;
Trustee, Federated Services Company and Federated Shareholder Services;
Chairman, Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and Treasurer of
the Funds.
Peter E. Madden
225 Franklin Street
Boston, MA
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State Street Bank and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
General Partner of the Funds; formerly, Vice Chairman, Horizon Financial,
F.A.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp.; President, Passport Research, Ltd.; Trustee, Federated
Administrative Services, Federated Services Company, and Federated
Shareholder Services; President or Vice President of the Funds; Director,
Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and Secretary,
Federated Research Corp. and Passport Research, Ltd.; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Trustee,
Federated Administrative Services; Secretary and Trustee, Federated
Shareholder Services; Executive Vice President and Director, Federated
Securities Corp.; Vice President and Secretary of the Funds.
Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Funds; formerly, Associate Corporate
Counsel, Federated Investors.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of
Trustees between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management
Trust; Automated Government Money Trust; California Municipal Cash Trust;
Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward
D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund;
First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.;
Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust; Insight
Institutional Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High
Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark
Twain Funds; The Medalist Funds; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds;
Short-Term Municipal Trust; Star Funds; The Starburst Funds; The Starburst
Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial
Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; and World
Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is First Alabama Bank ("First Alabama" or
"adviser"), which is a wholly-owned subsidiary of Regions Financial Corp.
Because of internal controls maintained by First Alabama to restrict the
flow of non-public information, Fund investments are typically made without
any knowledge of First Alabama's or its affiliates' lending relationships
with an issuer.
The adviser shall not be liable to the Trust, the Fund or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding,
or sale of any security, or for anything done or omitted by it, except acts
or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
ADVISORY FEES
For its advisory services, First Alabama receives an annual investment
advisory fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2-1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average net assets,
and 1-1/2% per year of the remaining average net assets, the adviser
will reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus.
CUSTODIAN
First Alabama Bank, Birmingham, Alabama, is custodian for the securities
and cash of the Fund. Under the custodian agreement, First Alabama Bank
holds the Fund's portfolio securities and keeps all necessary records and
documents relating to its duties. First Alabama Bank's fees for custody
services are based upon the market value of Fund securities held in custody
plus certain securities transaction charges.
BROKERAGE TRANSACTIONS
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determines in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided.
Research services provided by brokers and dealers may be used by the
adviser in advising the Fund and other accounts. To the extent that
receipt of these services may supplant services for which the adviser or
its affiliates might otherwise have paid, it would tend to reduce their
expenses.
PURCHASING SHARES
Shares are sold at their net asset value with a sales charge on days the
New York Stock Exchange is open for business. The procedure for purchasing
shares of the Fund is explained in the prospectus under "Investing in the
Fund." As used in the prospectus, the term "dependent children" means all
children under the age of 19 and full-time students under the age of 23.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Trustees expect that the Fund will
be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objective. By
identifying potential investors whose needs are served by the Fund's
objective and properly servicing these accounts, it may be possible to curb
sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
EXCHANGING SECURITIES FOR FUND SHARES
Any securities to be exchanged must meet the investment objective and
policies of the Fund, must have a readily ascertainable market value, must
be liquid, and must not be subject to restrictions on resale. An investor
should forward the securities in negotiable form with an authorized letter
of transmittal to First Alabama Bank or any Regions Bank. The Fund will
notify the investor of its acceptances and valuation of the securities
within five business days of their receipt by Federated Services Company.
The basis of the exchange will depend upon the net asset value of Fund
shares on the day the securities are valued. One share of the Fund will be
issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to exchange will be considered
in valuing the securities. All interest, dividends, subscriptions,
conversion, or other rights attached to the securities become the property
of the Fund, along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is currently treated as a sale for
federal income tax purposes. Depending upon the cost basis of the
securities exchanged for Fund shares, a gain or loss may be realized
by the investor.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which the net
asset value is calculated by the Fund are described in the Fund's
prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a national
securities exchange, if applicable;
o in the absence of recorded sales for listed equity securities, according
to the mean between the last closing bid and asked prices;
o for unlisted equity securities, latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of 60 days or less at the time of
purchase, at amortized cost; or
o for all other securities, at fair value as determined in good faith by
the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics, and other market data.
The Fund will value options at their market values established by the
exchanges at the close of options trading on such exchanges unless the
Trustees determine in good faith that another method of valuing option
positions is necessary.
Over-the-counter put options will be valued at the mean between the bid and
the asked prices. Covered call options will be valued at the last sale
price on the national exchange on which such option is traded. Unlisted
call options will be valued at the latest bid price as provided by brokers.
EXCHANGE PRIVILEGE
REQUIREMENTS FOR EXCHANGING SHARES
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the fund shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, shares submitted for
exchange are redeemed and the proceeds invested in shares of the other
fund.
Further information on the exchange privilege and prospectuses may be
obtained by calling First Alabama or any Regions Bank.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing. Written instructions
may require a signature guarantee.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in
the respective prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the respective Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Trust is obligated to redeem shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. The dividends received
deduction for corporations will apply to ordinary income distributions to
the extent the distribution represents amounts that would qualify for the
dividends received deduction to the Fund if the Fund were a regular
corporation and to the extent designated by the Fund as so qualifying.
These dividends and any short-term capital gains are taxable as ordinary
income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have
held the Fund shares.
TOTAL RETURN
The average annual total return of the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the maximum offering price per share at the end of the
period. The number of shares owned at the end of the period is based on
the number of shares purchased at the beginning of the period with $1,000,
less any applicable sales load, adjusted over the period by any additional
shares, assuming the quarterly reinvestment of all dividends and
distributions.
YIELD
The yield for shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by the Fund over a thirty-day period by the maximum
offering price per share on the last day of the period. This number is
then annualized using semi-annual compounding. This means that the amount
of income generated during the thirty-day period is assumed to be generated
each month over a twelve-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by shares
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, the performance will be reduced for shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of Fund shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and the maximum offering price per share fluctuate daily. Both
net earnings and offering price per share are factors in the computation of
yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its
Lipper ranking in an appropriate category in advertising and sale
literature.
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, can be used to compare to the
total returns of funds whose portfolios are invested primarily in common
stocks. In addition, the Standard & Poor's Index assumes reinvestments
of all dividends paid by stocks listed on its index. Taxes due on any
of these distributions are not included, nor are brokerage or other fees
calculated in Standard & Poor's figures.
o Lehman Brothers Government/Corporate Total Index is comprised of
approximately 5,000 issues which include non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds
guaranteed by the U.S. government and quasi-federal corporations; and
publicly issued, fixed-rate, nonconvertible domestic bonds of companies
in industry, public utilities, and finance. Tracked by Lehman Brothers,
the index has an average maturity of nine years. It calculates total
return for one-month, three-month, twelve-month, and ten-year periods,
and year-to-date.
o S&P 500/Lehman Brothers Government/Corporate (Weighted Index) and the
S&P 500/Lehman Government (Weighted Index) combine the components of a
stock-oriented index and a bond-oriented index to obtain results which
can be compared to the performance of a managed fund. The indices'
total returns will be assigned various weights depending upon the Fund's
current asset allocation.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
the Fund based on quarterly reinvestment of dividends over a specified
period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-):--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities 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 which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
NR--Not rated by Moody's.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
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 adverse changes in economic
conditions and circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. The issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
MOODY'S INVESTORS SERVICES, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (for related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: 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.
P-2--Issuers rated PRIME-2 (for related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM RATINGS
F-1+--(Exceptionally Strong Credit Quality). Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1--(Very Strong Credit Quality). Issues assigned to this rating reflect
an assurance of timely payment only slightly less in degree than issues
rated F-1+.
F-2--(Good Credit Quality). Issues carrying 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.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements: (1-4) Filed in Part A (Supplement to
Prospectus, Portfolio 3); (5-6) To be
filed with 4-6 month update.
(b) Exhibits:
(1) (i) Conformed copy of Declaration of Trust of
the Registrant, including conformed copy of
Amendment No. 1;+
(ii) Conformed copy of Amendment No. 2 to Declaration
of Trust (4);
(2) Copy of By-Laws of the Registrant (1);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (4);
(5) (i) Conformed copy of Investment Advisory
Contract of the Registrant, through and
including conformed copies of Exhibits A, B,
C, and D;+
(ii) Forms of Exhibits E and F to the Investment
Advisory Contract of the Registrant to add First
Priority Equity Income Fund and First Priority
Balanced Fund, respectively, to the Investment
Advisory Contract;+
(6) (i) Conformed copy of Distributor's Contract of
the Registrant, through and including
conformed copies of Exhibits A, B, and C;+
(ii) Form of Exhibit D to the Distributor's Contract to
add First Priority Equity Income Fund and First
Priority Balanced Fund, respectively, to the
Distributor's Contract;+
(7) Not applicable;
(8) (i) Conformed copy of Custodian Contract
of the Registrant between First Priority Funds
and State Street Bank and Trust Company (5);
(ii) Conformed copy of Custodian Contract
of the Registrant between First Priority Funds
and First Alabama Bank (4);
+ All exhibits have been filed electronically.
(1) Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed December 23, 1991. (File Nos. 33-44737 and
811-6511)
(2) Response is incorporated by reference to Pre-Effective Amendment No. 1 on
Form N-1A filed February 21, 1992. (File Nos. 33-44737 and 811-6511)
(3) Response is incorporated by reference to Post-Effective Amendment
No. 3 on Form N-1A filed October 8, 1993. (File Nos. 33-44737 and 811-
6511)
(4) Response is incorporated by reference to Post-Effective Amendment
No. 5 on Form N-1A filed January 24, 1994. (File Nos. 33-44737 and 811-
6511)
(5) Response is incorporated by reference to Post-Effective Amendment
No. 6 on Form N-1A filed June 29, 1994 (File Nos. 33-44737 and 811-6511).
(6) Response is incorporated by reference to Post-Effective Amendment
No. 1 on Form N-1A Filed July 24, 1992 (File Nos. 33-44737 and 811-6511).
(9) (i) Conformed copy of Fund Accounting and Shareholder
Recordkeeping Agreement (5);
(ii) Form of Shareholder Services Plan of the
Registrant;+
(iii) Copy of Shareholder Services Agreement of the
Registrant;+
(10) Paper copy of Opinion and Consent of Counsel as to
legality of shares being registered (2);
(11) Not applicable;
(12) Not applicable;
(13) Paper copy of Initial Capital Understanding (2);
(14) Not applicable;
(15) (i) Conformed copy of Distribution Plan of the
Registrant, through and including conformed
copies of Exhibits A and B;+
(ii) Form of Exhibit C to the Distribution Plan of the
Registrant to add First Priority Equity Income
Fund and First Priority Balanced Fund,
respectively, to the Distribution Plan;+
(iii) Copy of Rule 12b-1 Agreement (1);
(16) (i) Paper copy of Schedules for Computation of
Fund Performance Data for First Priority
Equity Fund, First Priority Treasury Money
Market Fund, and First Priority Fixed Income
Fund (6);
(ii) Copy of Schedule for Computation of Fund
Performance Data for First Priority Limited
Maturity Government Fund (5);
(17) Not applicable;
(18) Not applicable;
(19) Conformed copy of Power of Attorney;+
+ All exhibits have been filed electronically.
(1) Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed December 23, 1991. (File Nos. 33-44737 and
811-6511)
(2) Response is incorporated by reference to Pre-Effective Amendment No. 1 on
Form N-1A filed February 21, 1992. (File Nos. 33-44737 and 811-6511)
(3) Response is incorporated by reference to Post-Effective Amendment
No. 3 on Form N-1A filed October 8, 1993. (File Nos. 33-44737 and 811-
6511)
(4) Response is incorporated by reference to Post-Effective Amendment
No. 5 on Form N-1A filed January 24, 1994. (File Nos. 33-44737 and 811-
6511)
(5) Response is incorporated by reference to Post-Effective Amendment
No. 6 on Form N-1A filed June 29, 1994 (File Nos. 33-44737 and 811-6511).
(6) Response is incorporated by reference to Post-Effective Amendment
No. 1 on Form N-1A Filed July 24, 1992 (File Nos. 33-44737 and 811-6511).
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of September 30, 1994
Shares of Beneficial Interest
(no par value)
First Priority Equity Fund
Trust Shares 3
Investment Shares 631
First Priority Fixed Income Fund
Trust Shares 3
Investment Shares 513
First Priority Limited
Maturity Government Fund 34
First Priority Treasury Money Market Fund
Trust Shares 4
Investment Shares 310
First Priority Equity Income Fund 0
First Priority Balanced Fund 0
Item 27. Indemnification: (1)
Item 28. Business and Other Connections of Investment Adviser:
(a) The adviser is a wholly-owned subsidiary of Regions Financial
Corp., a bank holding company organized during 1971 under the
laws of the State of Delaware. Operating out of more than 250
offices, it provides a wide range of banking and fiduciary
services to its customers. As of June 30, 1994, Regions
Financial Corp. was one of the 100 largest bank holding
companies in the United States with total assets in excess of
$10 billion. First Alabama Bank is one of only 13 banks to
receive an "A" rating by Thomson BankWatch. First Alabama Bank
is also ranked in the top ten in overall soundness by U.S.
Banker Magazine. First Alabama's common stock is currently
included among those in the Dow Jones Equity Market Index as
well as Standard & Poor's Midcap Index.
(1) Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed December 23, 1991. (File Nos. 33-44737 and
811-6511)
As fiduciary, First Alabama managed over $2.5 billion in
discretionary assets as of December 31, 1993. It manages seven
common trust funds and collective investment funds having a
market value in excess of $190 million as of August 31, 1994.
First Alabama has been adviser to First Priority Funds since
inception. As of June 30, 1994, the market value of First
Priority Funds was in excess of $450 million.
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
J. Stanley Mackin Chairman of the Board
and Chief Executive
Officer
Richard D. Horsley Vice Chairman of the
Board and Executive
Financial Officer
Sam P. Faucett President/Western Region
President/Florida Region
Joe M. Hinds, Jr. President/Northern Region
President/Tennessee Region
Wilbur B. Hufham President/Southeastern
Region
William E. Jordan President/Central Region
Carl E. Jones, Jr. President/Southern Region
William E. Askew Executive Vice President/
Retail Banking
Delmar F. Epton Executive Vice President/
Operations Group
Robert P. Houston Executive Vice President
and Comptroller
E.C. Stone Executive Vice President
Corporate Banking
Richard E. Wambsganss Executive Vice President/
Trust Group
Will G. Fisher Senior Vice President/
International Banking
Douglas W. Graham Senior Vice President/
Personnel
Other Substantial
Position with Business, Profession,
Name the Adviser_ Vocation or Employment
Charles S. Northern,III Senior Vice President/
Corporate Investment
Officer
Jackie D. Oliver Senior Vice President/
Revolving Credit
Edward A. Solomon Senior Vice President/
Operations
Vernon R. Wilson Senior Vice President/
Compliance
L. Burton Barnes, III General Counsel and
Secretary
E. Eldridge, Jr. Corporate Auditor
Sheila S. Blair Director Executive Director
Leadership Birmingham
James B. Boone, Jr. Director Chairman of the Board
Boone Newspapers, Inc.
Albert P. Brewer Director Professor of Law &
Government
Samford University
James S.M. French Director Chairman and President
Dunn Investment Company
W.L. Halsey, Jr. Director President
W.L. Halsey Grocery
Company
Richard D. Horsley Director Vice Chairman of the Board
and Executive Financial
Officer
First Alabama Bancshares,
Inc.
Catesby AP C. Jones Director Proprietor
Mabry Securities Company
Olin B. King Director Chairman of the Board and
Chief Executive Officer
SCI Systems, Inc.
Other Substantial
Position with Business, Profession,
Name the Adviser_ Vocation or Employment
Norman F. McGowin, Jr. Director President
Edgefield Aviation
Corporation
H. Manning McPhillips, Jr. Director Chairman and Chief
Executive Officer
McPhillips Manufacturing
Company, Inc.
J. Stanley Mackin Director Chairman of the Board and
Chief Executive Officer
First Alabama Bancshares,
Inc.
W. Wyatt Shorter Director President
MacMillan Bloedel, Inc.
Henry E. Simpson Director Attorney
Lange, Simpson, Robinson &
Somerville
Robert E. Steiner, III Director Attorney
Steiner, Crum & Baker
Lee J. Styslinger, Jr. Director Chairman
ALTEC Industries, Inc.
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for
shares of the Registrant, also acts as principal underwriter for the
following open-end investment companies: Alexander Hamilton Funds;
American Leaders Fund, Inc.; Annuity Management Series; Automated Cash
Management Trust; Automated Government Money Trust; BayFunds; The
Biltmore Funds; The Biltmore Municipal Funds; California Municipal Cash
Trust; Cash Trust Series, Inc.; Cash Trust Series II; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund;
Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government
Trust; Federated Growth Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Intermediate Government Trust;
Federated Master Trust; Federated Municipal Trust; Federated Short-
Intermediate Government Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government
Bond Fund; First Union Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fountain Square Funds; Fund for
U.S. Government Securities, Inc.; Government Income Securities, Inc.; High
Yield Cash Trust; Independence One Mutual Funds; Insight Institutional
Series, Inc.; Insurance Management Series; Intermediate Municipal Trust;
International Series Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond
Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S.
Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash
Trust; Managed Series Trust; Mark Twain Funds; Marshall Funds, Inc.; Money
Market Management, Inc.; The Medalist Funds; Money Market Obligations
Trust; Money Market Trust; The Monitor Funds; Municipal Securities Income
Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut
Funds; Short-Term Municipal Trust; SouthTrust Vulcan Funds; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Tower
Mutual Funds; Trademark Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities;
Trust for U.S. Treasury Obligations; Vision Fiduciary Funds, Inc.; Vision
Group of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal
underwriter for the following closed-end investment company: Liberty Term
Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice President, Federated
Investors Tower President, and Treasurer, Treasurer, and
Pittsburgh, PA 15222-3779 Federated Securities Trustee
Corp.
John W. McGonigle Director, Executive Vice Vice President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John A. Staley, IV Executive Vice President --
Federated Investors Tower and Assistant Secretary,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James R. Ball Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent)
Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
First Alabama Bank
Mutual Funds Group P.O. Box 10247
("Advisor and Custodian") Birmingham, Alabama 35202
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
Registrant hereby undertakes to file a post-effective amendment on
behalf of First Priority Equity Income Fund and First Priority
Balanced Fund, using financial statements for First Priority
Equity Income Fund and First Priority Balanced Fund, which need
not be certified, within four to six months from the effective
date of this Post-Effective Amendment No. 7.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FIRST PRIORITY FUNDS, has
duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, all in the City
of Pittsburgh and Commonwealth of Pennsylvania, on the 6th day of October,
1994.
FIRST PRIORITY FUDNS
BY: /s/ Jay S. Neuman
Jay S. Neuman, Assistant Secretary
Attorney in Fact for John F. Donahue
October 6, 1994
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Jay S. Neuman
Jay S. Neuman Attorney In Fact October 6, 1994
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Edward C. Gonzales* Vice President, Treasurer,
and Trustee
(Principal Financial and
Accounting Officer)
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of FIRST PRIORITY
FUNDS________ and the Assistant General Counsel of Federated Investors,
and each of them, their true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution for them and in their
names, place and stead, in any and all capacities, to sign any and all
documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of
1934 and the Investment Company Act of 1940, by means of the Securities
and Exchange Commission's electronic disclosure system known as EDGAR;
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to sign and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as each of them might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Chairman and
Trustee 12/31/91
John F. Donahue (Chief Executive Officer)
/s/ E. C. Gonzales President
and Treasurer
Edward C. Gonzales (Principal Financial and
Accounting Officer) and
Trustee
/s/ William J. Copeland Trustee
William J. Copeland
/s/ James E. Dowd Trustee
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Trustee
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Trustee
Edward L. Flaherty, Jr.
SIGNATURES TITLE DATE
/s/ Gregor F. Meyer Trustee 12/31/91
Gregor F. Meyer
/s/ Wesley W. Posvar Trustee
Wesley W. Posvar
/s/ Marjorie P. Smuts Trustee
Marjorie P. Smuts
/s/ Peter E. Madden Trustee
Peter E. Madden
/s/ John T. Conroy, Jr. Trustee
John T. Conroy, Jr.
Sworn to and subscribed before me this _13th day of __December_____,
1991.
(SEAL)
/s/ Elaine T. Polens ____________________________________________
Notary Public
Notarial Seal
Elaine T. Polens, Notary Public
Pittsburgh, Allegheny County
My Commission Expires March 28, 1994
Member, Pennsylvania Association of
Notaries
- 1 -
Exhibit 1 under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
DECLARATION OF TRUST
FIRST PRIORITY FUNDS
Dated October 15, 1991
DECLARATION OF TRUST made October 15, 1991 by John F. Donahue, Edward
C. Gonzales, John T. Conroy, Jr., William J. Copeland, James E. Dowd,
Lawrence D. Ellis, M.D., Edward L. Flaherty, Jr., Peter E. Madden, Gregor F.
Meyer, Wesley W. Posvar, and Marjorie P. Smuts.
WHEREAS, the Trustees desire to establish a trust fund for the
investment and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed under this
Declaration of Trust IN TRUST as herein set forth below.
ARTICLE I
NAMES AND DEFINITIONS
Section 1. Name.
This Trust shall be known as First Priority Funds.
Section 2. Definitions.
Wherever used herein, unless otherwise required by the context or
specifically provided:
(a) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Majority Shareholder Vote" (the 67% or 50%
requirement of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Principal Underwriter" shall have the meanings
given them in the 1940 Act, as amended from time to time;
(b) The "Trust" refers to First Priority Funds;
(c) "Class" refers to a class of Shares established and designated
under or in accordance with the provisions of Article III;
(d) "Series" refers to a series of Shares established and
designated under or in accordance with the provisions of Article
III;
(e) "Series Company" refers to the form of a registered open-end
investment company described in Section 18(f)(2) of the 1940 Act or
in any successor statutory provision;
(f) "Shareholder" means a record owner of Shares of any Series or
Class;
(g) The "Trustees" refer to the individual Trustees in their
capacity as Trustees hereunder of the Trust and their successor or
successors for the time being in office as such Trustees;
(h) "Shares" means the equal proportionate units of interest into
which the beneficial interest in the Trust shall be divided from
time to time, or if more than one Series or Class of Shares is
authorized by the Trustees, the equal proportionate units into
which each Series or Class of Shares shall be divided from time to
time and includes fractions of Shares as well as whole Shares; and
(i) The "1940 Act" refers to the Investment Company Act of 1940,
and the Rules and Regulations thereunder, (including any exemptions
granted thereunder) as amended from time to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to provide investors a continuous source
of managed investments by investing primarily in securities (including
options) and also in debt instruments, commodities, commodity contracts and
options thereon.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest.
The beneficial interest in the Trust shall at all times be divided into
transferable Shares, without par value. Subject to the provisions of
Section 5 of this Article III, each Share shall have voting rights as
provided in Article VIII hereof, and holders of the Shares of any Series
shall be entitled to receive dividends, when and as declared with
respect thereto in the manner provided in Article X, Section 1 hereof.
The Shares of any Series may be issued in two or more Classes, as the
Trustees may authorize pursuant to Article XII, Section 8 hereof.
Unless the Trustees have authorized the issuance of Shares of a Series
in two or more Classes, each Share of a Series shall represent an equal
proportionate interest in the assets and liabilities of the Series with
each other Share of the same Series, none having priority or preference
over another. If the Trustees have authorized the issuance of Shares of
a Series in two or more Classes, then the Classes may have such
variations as to dividend, redemption, and voting rights, net asset
values, expenses borne by the Classes, and other matters as the Trustees
have authorized provided that each Share of a Class shall represent an
equal proportionate interest in the assets and liabilities of the Class
with each other Share of the same Class, none having priority or
preference over another. The number of Shares authorized shall be
unlimited. The Trustees may from time to time divide or combine the
Shares of any Series or Class into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Series or
Class.
Section 2. Ownership of Shares.
The ownership of Shares shall be recorded in the books of the Trust or a
transfer agent which books shall be maintained separately for the Shares
of each Series or Class. The Trustees may make such rules as they
consider appropriate for the transfer of Shares and similar matters.
The record books of the Trust or any transfer agent, as the case may be,
shall be conclusive as to who are the Shareholders of each Series or
Class and as to the number of Shares of each Series or Class held from
time to time by each.
Section 3. Investment in the Trust.
The Trustees shall accept investments in the Trust from such persons and
on such terms as they may from time to time authorize. After the date
of the initial contribution of capital (which shall occur prior to the
initial public offering of Shares), the number of Shares to represent
the initial contribution shall be considered as outstanding and the
amount received by the Trustees on account of the contribution shall be
treated as an asset of the Trust to be allocated among any Series or
Classes in the manner described in Section 5(a) of this Article.
Subsequent to such initial contribution of capital, Shares (including
Shares which may have been redeemed or repurchased by the Trust) may be
issued or sold at a price which will net the relevant Series or Class,
as the case may be, before paying any taxes in connection with such
issue or sale, not less than the net asset value (as defined in Article
X, Section 3) thereof; provided, however, that the Trustees may in their
discretion impose a sales charge upon investments in the Trust.
Section 4. No Pre-emptive Rights.
Shareholders shall have no pre-emptive or other right to subscribe to
any additional Shares or other securities issued by the Trust.
Section 5. Establishment and Designation of Series or Class.
Without limiting the authority of the Trustees set forth in Article XII,
Section 8, inter alia, to establish and designate any additional series
or class or to modify the rights and preferences of any existing Series
or Class, the initial series shall be, and is established and designated
as, First Priority Equity Fund, First Priority Fixed Income Fund, and
First Priority Treasury Money Market Fund.
Shares of any Series or Class established in this Section 5 shall have
the following relative rights and preferences:
(a) Assets belonging to Series or Class. All consideration
received by the Trust for the issue or sale of Shares of a
particular Series or Class, together with all assets in which such
consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof from whatever source derived,
including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to that Series or Class for
all purposes, subject only to the rights of creditors, and shall be
so recorded upon the books of account of the Trust. Such
consideration, assets, income, earnings, profits and proceeds
thereof, from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds, in whatever form the same may be,
are herein referred to as "assets belonging to" that Series or
Class. In the event that there are any assets, income, earnings,
profits and proceeds thereof, funds or payments which are not
readily identifiable as belonging to any particular Series or Class
(collectively "General Assets"), the Trustees shall allocate such
General Assets to, between or among any one or more of the Series or
Classes established and designated from time to time in such manner
and on such basis as they, in their sole discretion, deem fair and
equitable, and any General Assets so allocated to a particular
Series or Class shall belong to that Series or Class. Each such
allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series or Classes for all purposes.
(b) Liabilities Belonging to Series or Class. The assets belonging
to each particular Series or Class shall be charged with the
liabilities of the Trust in respect to that Series or Class and all
expenses, costs, charges and reserves attributable to that Series or
Class, and any general liabilities of the Trust which are not
readily identifiable as belonging to any particular Series or Class
shall be allocated and charged by the Trustees to and among any one
or more of the Series or Classes established and designated from
time to time in such manner and on such basis as the Trustees in
their sole discretion deem fair and equitable. The liabilities,
expenses, costs, charges and reserves so charged to a Series or
Class are herein referred to as "liabilities belonging to" that
Series or Class. Each allocation of liabilities belonging to a
Series or class by the Trustees shall be conclusive and binding upon
the Shareholders of all Series or Classes for all purposes.
(c) Dividends, Distributions, Redemptions, Repurchases
and_Indemnification. Notwithstanding any other provisions of this
Declaration, including, without limitation, Article X, no dividend
or distribution (including, without limitation, any distribution
paid upon termination of the Trust or of any Series or Class) with
respect to, nor any redemption or repurchase of the Shares of any
Series or Class shall be effected by the Trust other than from the
assets belonging to such Series or Class, nor except as specifically
provided in Section 1 of Article XI hereof, shall any Shareholder of
any particular Series or Class otherwise have any right or claim
against the assets belonging to any other Series or Class except to
the extent that such Shareholder has such a right or claim hereunder
as a Shareholder of such other Series or Class.
(d) Voting. Notwithstanding any of the other provisions of this
Declaration, including, without limitation, Section 1 of Article
VIII, only Shareholders of a particular Series or Class shall be
entitled to vote on any matters affecting such Series or Class.
Except with respect to matters as to which any particular Series or
Class is affected, all of the Shares of each Series or Class shall,
on matters as to which such Series or Class is entitled to vote,
vote with other Series or Classes so entitled as a single class.
Notwithstanding the foregoing, with respect to matters which would
otherwise be voted on by two or more Series or Classes as a single
class, the Trustees may, in their sole discretion, submit such
matters to the Shareholders of any or all such Series or Classes,
separately.
(e) Fraction. Any fractional Share of a Series or Class shall
carry proportionately all the rights and obligations of a whole
Share of that Series or Class, including rights with respect to
voting, receipt of dividends and distributions, redemption of Shares
and termination of the Trust or of any Series or Class.
(f) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series or Class shall have
the right to exchange said Shares for Shares of one or more other
Series or Classes in accordance with such requirements and
procedures as may be established by the Trustees.
(g) Combination of Series or Classes. The Trustees shall have the
authority, without the approval of the Shareholders of any Series or
Class, unless otherwise required by applicable law, to combine the
assets and liabilities belonging to a single Series or Class with
the assets and liabilities of one or more other Series or Classes.
(h) Elimination of Series or Classes. At any time that there are
no Shares outstanding of any particular Series or Class previously
established and designated, the Trustees may amend this Declaration
of Trust to abolish that Series or Class and to rescind the
establishment and designation thereof.
ARTICLE IV
THE TRUSTEES
Section 1. Management of the Trust.
The business and affairs of the Trust shall be managed by the Trustees,
and they shall have all powers necessary and desirable to carry out that
responsibility. The Trustees who shall serve until the election of
Trustees at the Meeting of Shareholders subsequent to the initial public
offering of Shares shall be John F. Donahue, Edward C. Gonzales, John T.
Conroy, Jr., William J. Copeland, James E. Dowd, Lawrence D. Ellis,
M.D., Edward L. Flaherty, Jr., Peter E. Madden, Gregor F. Meyer, Wesley
W. Posvar, and Marjorie P. Smuts.
Section 2. Election of Trustees at Meeting of Shareholders.
On a date fixed by the Trustees, which shall be subsequent to the
initial public offering of Shares, the Shareholders shall elect
Trustees. The number of Trustees shall be determined by the Trustees
pursuant to Article IV, Section 5.
Section 3. Term of Office of Trustees.
The Trustees shall hold office during the lifetime of this Trust, and
until its termination as hereinafter provided; except (a) that any
Trustee may resign his office at any time by written instrument signed
by him and delivered to the other Trustees, which shall take effect upon
such delivery or upon such later date as is specified therein; (b) that
any Trustee may be removed at any time by written instrument signed by
at least two-thirds of the number of Trustees prior to such removal,
specifying the date when such removal shall become effective; (c) that
any Trustee who requests in writing to be retired or who has become
mentally or physically incapacitated may be retired by written
instrument signed by a majority of the other Trustees, specifying the
date of his retirement; and (d) a Trustee may be removed at any special
meeting of Shareholders of the Trust by a vote of two-thirds of the
outstanding Shares.
Section 4. Termination of Service and Appointment of Trustees.
In case of the death, resignation, retirement, removal or mental or
physical incapacity of any of the Trustees, or in case a vacancy shall,
by reason of an increase in number, or for any other reason, exist, the
remaining Trustees shall fill such vacancy by appointing such other
person as they in their discretion shall see fit. Such appointment
shall be effected by the signing of a written instrument by a majority
of the Trustees in office. An appointment of a Trustee may be made by
the Trustees then in office in anticipation of a vacancy to occur by
reason of retirement, resignation or increase in number of Trustees
effective at a later date, provided that said appointment shall become
effective only at or after the effective date of said retirement,
resignation or increase in number of Trustees. As soon as any Trustee
so appointed shall have accepted this Trust, the trust estate shall vest
in the new Trustee or Trustees, together with the continuing Trustees,
without any further act or conveyance, and he shall be deemed a Trustee
hereunder. Any appointment authorized by this Section 4 is subject to
the provisions of Section 16(a) of the 1940 Act.
Section 5. Number of Trustees.
The number of Trustees, not less than three (3) nor more than twenty
(20) serving hereunder at any time, shall be determined by the Trustees
themselves.
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled or while any Trustee is physically or mentally
incapacitated, the other Trustees shall have all the powers hereunder
and the certificate signed by a majority of the other Trustees of such
vacancy, absence or incapacity, shall be conclusive, provided, however,
that no vacancy which reduces the number of Trustees below three (3)
shall remain unfilled for a period longer than six calendar months.
Section 6. Effect of Death, Resignation, etc. of a Trustee.
The death, resignation, retirement, removal, or mental or physical
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.
Section 7. Ownership of Assets.
The assets belonging to each Series or Class shall be held separate and
apart from any assets now or hereafter held in any capacity other than
as Trustee hereunder by the Trustees or any successor Trustee. All of
the assets belonging to each Series or Class or owned by the Trust shall
at all times be considered as vested in the Trustees. No Shareholder
shall be deemed to have a severable ownership interest in any individual
asset belonging to any Series or Class or owned by the Trust or any
right of partition or possession thereof, but each Shareholder shall
have a proportionate undivided beneficial interest in a Series or Class.
ARTICLE V
POWERS OF THE TRUSTEES
Section 1. 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 appropriate in connection with the management of the Trust or a
Series or Class. 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, the Trustees
shall have the following specific powers and authority, subject to any
applicable limitation in this Declaration of Trust or in the By-Laws of
the Trust:
(a) To buy, and invest funds in their hands in securities
including, but not limited to, common stocks, preferred stocks,
bonds, debentures, warrants and rights to purchase securities,
options, certificates of beneficial interest, money market
instruments, notes or other evidences of indebtedness issued by any
corporation, trust or association, domestic or foreign, or issued or
guaranteed by the United States of America or any agency or
instrumentality thereof, by the government of any foreign country,
by any State of the United States, or by any political subdivision
or agency or instrumentality of any State or foreign country, or in
"when-issued" or "delayed-delivery" contracts for any such
securities, or in any repurchase agreement or reverse repurchase
agreement, or in debt instruments, commodities, commodity contracts
and options thereon, or to retain assets belonging to each and every
Series or Class in cash, and from time to time to change the
investments of the assets belonging to each Series or Class;
(b) To adopt By-Laws of the Trust not inconsistent with the
Declaration of Trust providing for the conduct of the business of
the Trust and to amend and repeal them to the extent that they do
not reserve that right to the Shareholders;
(c) To Elect and remove such officers of the Trust and appoint and
terminate such agents of the Trust as they consider appropriate;
(d) To appoint or otherwise engage a bank or trust company as
custodian of any assets belonging to any Series or Class subject to
any conditions set forth in this Declaration of Trust or in the By-
Laws;
(e) To appoint or otherwise engage transfer agents, dividend
disbursing agents, Shareholder servicing agents, investment
advisers, sub-investment advisers, principal underwriters,
administrative service agents, and such other agents as the Trustees
may from time to time appoint or otherwise engage;
(f) To provide for the distribution of any Shares of any Series or
Class either through a principal underwriter in the manner
hereinafter provided for or by the Trust itself, or both;
(g) To set record dates in the manner hereinafter provided for;
(h) To delegate such authority as they consider desirable to a
committee or committees composed of Trustees, including without
limitation, an Executive Committee, or to any officers of the Trust
and to any agent, custodian or underwriter;
(i) To sell or exchange any or all of the assets belonging to one
or more Series or Classes, subject to the provisions of Article XII,
Section 4(b) hereof;
(j) 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 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;
(k) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(l) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or
either in its own name or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to
the usual practice of Massachusetts trust companies or investment
companies;
(m) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
concern, any security of which belongs to any Series or Class; to
consent to any contract, lease, mortgage, purchase, or sale of
property by such corporation or concern, and to pay calls or
subscriptions with respect to any security which belongs to any
Series or Class;
(n) To engage in and to prosecute, compound, compromise, abandon,
or adjust, by arbitration, or otherwise, any actions, suits,
proceedings, disputes, claims, demands, and things relating to the
Trust, and out of the assets belonging to any Series or Class to
pay, or to satisfy, any debts, claims or expenses incurred in
connection therewith, including those of litigation, upon any
evidence that the Trustees may deem sufficient (such powers shall
include without limitation any actions, suits, proceedings,
disputes, claims, demands and things relating to the Trust wherein
any of the Trustees may be named individually and the subject matter
of which arises by reason of business for or on behalf of the
Trust);
(o) To make distributions of income and of capital gains to
Shareholders;
(p) To borrow money;
(q) From time to time to issue and sell the Shares of any Series or
Class either for cash or for property whenever and in such amounts
as the Trustees may deem desirable, but subject to the limitation
set forth in Section 3 of Article III.
(r) To purchase insurance of any kind, including, without
limitation, insurance on behalf of any person who is or was a
Trustee, Officer, employee or agent of the Trust, or is or was
serving at the request of the Trust as a Trustee, Director, Officer,
agent or employee of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity or arising out
of his status as such.
(s) To sell, exchange, lend, pledge, mortgage, hypothecate, lease,
or write options with respect to or otherwise deal in any property
rights relating to any or all of the assets belonging to any Series
or Class.
The Trustees shall have all of the powers set forth in this Section 1
with respect to all assets and liabilities of each Series and Class.
Section 2. Principal Transactions.
The Trustees shall not cause the Trust on behalf of any Series or Class
to buy any securities (other than Shares) from or sell any securities
(other than Shares) to, or lend any assets belonging to any Series or
Class to any Trustee or officer or employee of the Trust or any firm of
which any such Trustee or officer is a member acting as principal unless
permitted by the 1940 Act, but the Trust may employ any such other party
or any such person or firm or company in which any such person is an
interested person in any capacity not prohibited by the 1940 Act.
Section 3. Trustees and Officers as Shareholders.
Any Trustee, officer or other agent of the Trust or any Series or Class
may acquire, own and dispose of Shares of any Series or Class to the
same extent as if he were not a Trustee, officer or agent; and the
Trustees may issue and sell or cause to be issued or sold Shares of any
Series or Class to and buy such Shares from any such person or any firm
or company in which he is an interested person subject only to the
general limitations herein contained as to the sale and purchase of such
Shares; and all subject to any restrictions which may be contained in
the By-Laws.
Section 4. Parties to Contract.
The Trustees may enter into any contract of the character described in
Article VII or in Article IX hereof or any other capacity not prohibited
by the 1940 Act with any corporation, firm, trust or association,
although one or more of the shareholders, Trustees, officers, employees
or agents of the Trust or any Series or Class or their affiliates may be
an officer, director, trustee, shareholder or interested person of such
other party to the contract, and no such contract shall be invalidated
or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable
merely by reason of such relationship for any loss or expense to the
Trust or any Series or Class under or by reason of said contract or
accountable for any profit realized directly or indirectly therefrom, in
the absence of actual fraud. The same person (including a firm,
corporation, trust or association) may be the other party to contracts
entered into pursuant to Article VII or Article IX or any other capacity
not prohibited by the 1940 Act, and any individual may be financially
interested or otherwise an interested person of persons who are parties
to any or all of the contracts mentioned in this Section 4.
ARTICLE VI
TRUSTEES' EXPENSES AND COMPENSATION
Section 1. Trustee Reimbursement.
The Trustees shall be reimbursed from the assets belonging to each
particular Series or Class for all of such Trustees' expenses as such
expenses are allocated to and among any one or more of the Series or
Classes pursuant to Article III, Section 5(b), including, without
limitation, expenses of organizing the Trust or any Series or Class and
continuing its or their existence; fees and expenses of Trustees and
Officers of the Trust; fees for investment advisory services,
administrative services and principal underwriting services provided for
in Article VII, Sections 1, 2 and 3; fees and expenses of preparing and
printing Registration Statements under the Securities Act of 1933 and
the 1940 Act and any amendments thereto; expenses of registering and
qualifying the Trust and any Series or Class and the Shares of any
Series or Class under federal and state laws and regulations; expenses
of preparing, printing and distributing prospectuses and any amendments
thereto sent to shareholders, underwriters, broker-dealers and to
investors who may be considering the purchase of Shares; expenses of
registering, licensing or other authorization of the Trust or any Series
or Class as a broker-dealer and of its or their officers as agents and
salesmen under federal and state laws and regulations; interest
expenses, taxes, fees and commissions of every kind; expenses of issue
(including cost of share certificates), purchases, repurchases and
redemptions of Shares, including expenses attributable to a program of
periodic issue; charges and expenses of custodians, transfer agents,
dividend disbursing agents, Shareholder servicing agents and registrars;
printing and mailing costs; auditing, accounting and legal expenses;
reports to Shareholders and governmental officers and commissions;
expenses of meetings of Shareholders and proxy solicitations therefor;
insurance expenses; association membership dues and nonrecurring items
as may arise, including all losses and liabilities by them incurred in
administering the Trust and any Series or Class, including expenses
incurred in connection with litigation, proceedings and claims and the
obligations of the Trust under Article XI hereof and the By-Laws to
indemnify its Trustees, Officers, employees, shareholders and agents,
and any contract obligation to indemnify principal underwriters under
Section 3 of Article VII; and for the payment of such expenses,
disbursements, losses and liabilities, the Trustees shall have a lien on
the assets belonging to each Series or Class prior to any rights or
interests of the Shareholders of any Series or Class. This section
shall not preclude the Trust from directly paying any of the
aforementioned fees and expenses.
Section 2. Trustee Compensation.
The Trustees shall be entitled to compensation from the Trust from the
assets belonging to any Series or Class for their respective services as
Trustees, to be determined from time to time by vote of the Trustees,
and the Trustees shall also determine the compensation of all Officers,
consultants and agents whom they may elect or appoint. The Trust may
pay out of the assets belonging to any Series or Class any Trustee or
any corporation, firm, trust or other entity of which a Trustee is an
interested person for services rendered in any capacity not prohibited
by the 1940 Act, and such payments shall not be deemed compensation for
services as a Trustee under the first sentence of this Section 2 of
Article VI.
ARTICLE VII
INVESTMENT ADVISER, ADMINISTRATIVE SERVICES,
PRINCIPAL UNDERWRITER AND TRANSFER_AGENT
Section 1. Investment Adviser.
Subject to a Majority Shareholder Vote by the relevant Series or Class,
the Trustees may in their discretion from time to time enter into an
investment advisory contract whereby the other party to such contract
shall undertake to furnish the Trustees investment advisory services for
such Series or Class upon such terms and conditions and for such
compensation as the Trustees may in their discretion determine. Subject
to a Majority Shareholder Vote by the relevant Series or Class, the
investment adviser may enter into a sub-investment advisory contract to
receive investment advice and/or statistical and factual information
from the sub-investment adviser for such Series or Class upon such terms
and conditions and for such compensation as the Trustees, in their
discretion, may agree. Notwithstanding any provisions of this
Declaration of Trust, the Trustees may authorize the investment adviser
or sub-investment adviser or any person furnishing administrative
personnel and services as set forth in Article VII, Section 2 (subject
to such general or specific instructions as the Trustees may from time
to time adopt) to effect purchases, sales or exchanges of portfolio
securities belonging to a Series or Class on behalf of the Trustees or
may authorize any officer or Trustee to effect such purchases, sales, or
exchanges pursuant to recommendations of the investment adviser (and all
without further action by the Trustees). Any such purchases, sales and
exchanges shall be deemed to have been authorized by the Trustees. The
Trustees may also authorize the investment adviser to determine what
firms shall be employed to effect transactions in securities for the
account of a Series or Class and to determine what firms shall
participate in any such transactions or shall share in commissions or
fees charged in connection with such transactions.
Section 2. Administrative Services.
The Trustees may in their discretion from time to time contract for
administrative personnel and services whereby the other party shall
agree to provide the Trustees administrative personnel and services to
operate the Trust or a Series or Class on a daily basis, on such terms
and conditions as the Trustees may in their discretion determine. Such
services may be provided by one or more entities.
Section 3. Principal Underwriter.
The Trustees may in their discretion from time to time enter into an
exclusive or nonexclusive contract or contracts providing for the sale
of the Shares of a Series or Class to net such Series or Class not less
than the amount provided in Article III, Section 3 hereof, whereby a
Series or Class may either agree to sell the Shares to the other party
to the contract or appoint such other party its sales agent for such
shares. In either case, the contract shall be on such terms and
conditions (including indemnification of principal underwriters
allowable under applicable law and regulation) as the Trustees may in
their discretion determine not inconsistent with the provisions of this
Article VII; and such contract may also provide for the repurchase or
sale of Shares of a Series or Class by such other party as principal or
as agent of the Trust and may provide that the other party may maintain
a market for shares of a Series or Class.
Section 4. Transfer Agent.
The Trustees may in their discretion from time to time enter into
transfer agency and shareholder services contracts whereby the other
party shall undertake to furnish a transfer agency and shareholder
services. The contracts shall be on such terms and conditions as the
Trustees may in their discretion determine not inconsistent with the
provisions of this Declaration of Trust or of the By-Laws. Such
services may be provided by one or more entities.
ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers.
Subject to the provisions set forth in Article III, Section 5(d), the
shareholders shall have power to vote, (i) for the election of Trustees
as provided in Article IV, Section 2; (ii) for the removal of Trustees
as provided in Article IV, Section 3(d); (iii) with respect to any
investment adviser or sub-investment adviser as provided in Article VII,
Section 1; (iv) with respect to the amendment of this Declaration of
Trust as provided in Article XII, Section 7; (v) to the same extent as
the shareholders of a Massachusetts business corporation as to whether
or not a court action, proceeding or claim should be brought or
maintained derivatively or as a class action on behalf of the Trust or
the Shareholders; and (vi) with respect to such additional matters
relating to the Trust as may be required by law, by this Declaration of
Trust, or the By-Laws of the Trust or any regulation of the Trust or the
Commission or any State, or as the Trustees may consider desirable.
Each whole Share shall be entitled to one vote as to any matter on which
it is entitled to vote, and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in
the election of Trustees. Shares may be voted in person or by proxy.
Until Shares of a Series or Class are issued, the Trustees may exercise
all rights of Shareholders of such Series or Class with respect to
matters affecting such Series or Class, and may take any action with
respect to the Trust or such Series or Class required or permitted by
law, this Declaration of Trust or any By-Laws of the Trust to be taken
by Shareholders.
Section 2. Meetings.
A Shareholders meeting shall be held as specified in Section 2 of
Article IV at the principal office of the Trust or such other place as
the Trustees may designate. Special meetings of the Shareholders may be
called by the Trustees or the Chief Executive Officer of the Trust and
shall be called by the Trustees upon the written request of Shareholders
owning at least one-tenth of the outstanding Shares of all Series and
Classes entitled to vote. Shareholders shall be entitled to at least
fifteen days' notice of any meeting.
Section 3. Quorum and Required Vote.
Except as otherwise provided by law, to constitute a quorum for the
transaction of any business at any meeting of Shareholders there must be
present, in person or by proxy, holders of more than fifty percent of
the total number of outstanding Shares of all Series and Classes
entitled to vote at such meeting. When any one or more Series or
Classes is entitled to vote as a single Series or Class, more than fifty
percent of the shares of each such Series or Class entitled to vote
shall constitute a quorum at a Shareholder's meeting of that Series or
Class. If a quorum shall not be present for the purpose of any vote
that may properly come before the meeting, the Shares present in person
or by proxy and entitled to vote at such meeting on such matter may, by
plurality vote, adjourn the meeting from time to time to such place and
time without further notice than by announcement to be given at the
meeting until a quorum entitled to vote on such matter shall be present,
whereupon any such matter may be voted upon at the meeting as though
held when originally convened. Subject to any applicable requirement of
law or of this Declaration of Trust or the By-Laws, a plurality of the
votes cast shall elect a Trustee, and all other matters shall be decided
by a majority of the votes cast and entitled to vote thereon.
Section 4. Additional Provisions.
The By-Laws may include further provisions for Shareholders' votes and
meetings and related matters.
ARTICLE IX
CUSTODIAN
The Trustees may, in their discretion, from time to time enter into
contracts providing for custodial and accounting services to the Trust or any
Series or Class. The contracts shall be on the terms and conditions as the
Trustees may in their discretion determine not inconsistent with the
provisions of this Declaration of Trust or of the By-Laws. Such services may
be provided by one or more entities, including one or more sub-custodians.
ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions.
(a) The Trustees may from time to time declare and pay dividends to
the Shareholders of any Series or Class, and the amount of such
dividends and the payment of them shall be wholly in the discretion
of the Trustees. Such dividends may be accrued and automatically
reinvested in additional Shares (or fractions thereof) of the
relevant Series or Class or paid in cash or additional Shares of
such Series or Class, all upon such terms and conditions as the
Trustees may prescribe.
(b) The Trustees may distribute in respect of any fiscal year as
dividends and as capital gains distributions, respectively, amounts
sufficient to enable any Series or Class to qualify as a regulated
investment company to avoid any liability for federal income taxes
in respect of that year.
(c) The decision of the Trustees as to what constitutes income and
what constitutes principal shall be final, and except as
specifically provided herein the decision of the Trustees as to what
expenses and charges of any Series or Class shall be charged against
principal and what against the income shall be final. Any income
not distributed in any year may be permitted to accumulate and as
long as not distributed may be invested from time to time in the
same manner as the principal funds of any Series or Class.
(d) All dividends and distributions on Shares of a particular
Series or Class shall be distributed pro rata to the holders of that
Series or Class in proportion to the number of Shares of that Series
or Class held by such holders and recorded on the books of the Trust
or its transfer agent at the date and time of record established for
that payment.
Section 2. Redemptions and Repurchases.
(a) In case any Shareholder of record of any Series or Class at any
time desires to dispose of Shares of such Series or Class recorded
in his name, he may deposit a written request (or such other form of
request as the Trustees may from time to time authorize) requesting
that the Trust purchase his Shares, together with such other
instruments or authorizations to effect the transfer as the Trustees
may from time to time require, at the office of the Transfer Agent,
and the Trust shall purchase his Shares out of assets belonging to
such Series or Class. The purchase price shall be the net asset
value of his shares reduced by any redemption charge as the Trustees
from time to time may determine.
Payment for such Shares shall be made by the Trust to the
Shareholder of record within that time period required under the
1940 Act after the request (and, if required, such other instruments
or authorizations of transfer) is deposited, subject to the right of
the Trustees to postpone the date of payment pursuant to Section 4
of this Article X. If the redemption is postponed beyond the date
on which it would normally occur by reason of a declaration by the
Trustees suspending the right of redemption pursuant to Section 4 of
this Article X, the right of the Shareholder to have his Shares
purchased by the Trust shall be similarly suspended, and he may
withdraw his request (or such other instruments or authorizations of
transfer) from deposit if he so elects; or, if he does not so elect,
the purchase price shall be the net asset value of his Shares
determined next after termination of such suspension (reduced by any
redemption charge), and payment therefor shall be made within the
time period required under the 1940 Act.
(b) The Trust may purchase Shares of a Series or Class by agreement
with the owner thereof at a purchase price not exceeding the net
asset value per Share (reduced by any redemption charge) determined
(1) next after the purchase or contract of purchase is made or (2)
at some later time.
(c) The Trust may pay the purchase price (reduced by any redemption
charge) in whole or in part by a distribution in kind of securities
from the portfolio of the relevant Series or Class, taking such
securities at the same value employed in determining net asset
value, and selecting the securities in such manner as the Trustees
may deem fair and equitable.
Section 3. Net Asset Value of Shares.
The net asset value of each Share of a Series or Class outstanding shall
be determined at such time or times as may be determined by or on behalf
of the Trustees. The power and duty to determine net asset value may be
delegated by the Trustees from time to time to one or more of the
Trustees or Officers of the Trust, to the other party to any contract
entered into pursuant to Section 1 or 2 of Article VII or to the
custodian or to a transfer agent or other person designated by the
Trustees.
The net asset value of each Share of a Series or Class as of any
particular time shall be the quotient (adjusted to the nearer cent)
obtained by dividing the value, as of such time, of the net assets
belonging to such Series or Class (i.e., the value of the assets
belonging to such Series or Class less the liabilities belonging to such
Series or Class exclusive of capital and surplus) by the total number of
Shares outstanding of the Series or Class at such time in accordance
with the requirements of the 1940 Act and applicable provisions of the
By-Laws of the Trust in conformity with generally accepted accounting
practices and principles.
The Trustees may declare a suspension of the determination of net asset
value for the whole or any part of any period in accordance with the
1940 Act.
Section 4. Suspension of the Right of Redemption.
The Trustees may declare a suspension of the right of redemption or
postpone the date of payment for the whole or any part of any period in
accordance with the 1940 Act.
Section 5. Trust's Right to Redeem Shares.
The Trust shall have the right to cause the redemption of Shares of any
Series or Class in any Shareholder's account for their then current net
asset value and promptly make payment to the shareholder (which payment
may be reduced by any applicable redemption charge), if at any time the
total investment in the account does not have a minimum dollar value
determined from time to time by the Trustees in their sole discretion.
ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Personal Liability and Indemnification of
Shareholders.
The Trustees, officers, employees or agents of the Trust shall have no
power to bind any Shareholder of any Series or Class personally or to
call upon such Shareholder for the payment of any sum of money or
assessment whatsoever, other than such as the Shareholder may at any
time agree to pay by way of subscription to any Shares or otherwise.
No Shareholder or former Shareholder of any Series or Class shall be
liable solely by reason of his being or having been a Shareholder for
any debt, claim, action, demand, suit, proceeding, judgment, decree,
liability or obligation of any kind, against, or with respect to the
Trust or any Series or Class arising out of any action taken or omitted
for or on behalf of the Trust or such Series or Class, and the Trust or
such Series or Class shall be solely liable therefor and resort shall be
had solely to the property of the relevant Series or Class of the Trust
for the payment or performance thereof.
Each Shareholder or former Shareholder of any Series or Class (or their
heirs, executors, administrators or other legal representatives or, in
case of a corporate entity, its corporate or general successor) shall be
entitled to be indemnified and reimbursed by the Trust to the full
extent of such liability and the costs of any litigation or other
proceedings in which such liability shall have been determined,
including, without limitation, the fees and disbursements of counsel if,
contrary to the provisions hereof, such Shareholder or former
Shareholder of such Series or Class shall be held to be personally
liable. Such indemnification and reimbursement shall come exclusively
from the assets of the relevant Series or Class.
The Trust shall, upon request by a Shareholder or former Shareholder,
assume the defense of any claim made against any Shareholder for any act
or obligation of the Trust or any Series or Class and satisfy any
judgment thereon.
Section 2. Limitation of Personal Liability of Trustees,
Officers, Employees or Agents of the
Trust.
No Trustee, officer, employee or agent of the Trust shall have the power
to bind any other Trustee, officer, employee or agent of the Trust
personally. The Trustees, officers, employees or agents of the Trust
incurring any debts, liabilities or obligations, or in taking or
omitting any other actions for or in connection with the Trust are, and
each shall be deemed to be, acting as Trustee, officer, employee or
agent of the Trust and not in his own individual capacity.
Trustees and officers of the Trust shall be liable for their willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee or officer, as
the case may be, and for nothing else.
Section 3. Express Exculpatory Clauses and Instruments.
The Trustees shall use every reasonable means to assure that all persons
having dealings with the Trust or any Series or Class shall be informed
that the property of the Shareholders and the Trustees, officers,
employees and agents of the Trust or any Series or Class shall not be
subject to claims against or obligations of the Trust or any other
Series or Class to any extent whatsoever. The Trustees shall cause to
be inserted in any written agreement, undertaking or obligation made or
issued on behalf of the Trust or any Series or Class (including
certificates for Shares of any Series or Class) an appropriate reference
to the provisions of this Declaration, providing that neither the
Shareholders, the Trustees, the officers, the employees nor any agent of
the Trust or any Series or Class shall be liable thereunder, and that
the other parties to such instrument shall look solely to the assets
belonging to the relevant Series or Class for the payment of any claim
thereunder or for the performance thereof; but the omission of such
provisions from any such instrument shall not render any Shareholder,
Trustee, officer, employee or agent liable, nor shall the Trustee, or
any officer, agent or employee of the Trust or any Series or Class be
liable to anyone for such omission. If, notwithstanding this provision,
any Shareholder, Trustee, officer, employee or agent shall be held
liable to any other person by reason of the omission of such provision
from any such agreement, undertaking or obligation, the Shareholder,
Trustee, officer, employee or agent shall be indemnified and reimbursed
by the Trust.
ARTICLE XII
MISCELLANEOUS
Section 1. Trust is not a Partnership.
It is hereby expressly declared that a trust and not a partnership is
created hereby.
Section 2. Trustee Action Binding, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to the provisions of
Article XI, the Trustees shall not be liable for errors of judgment or
mistakes of fact or law. The Trustees may take advice of counsel or
other experts with respect to the meaning and operation of this
Declaration of Trust, and subject to the provisions of Article XI, shall
be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall not be
required to give any bond as such, nor any surety if a bond is required.
Section 3. Establishment of Record Dates.
The Trustees may close the Share transfer books of the Trust maintained
with respect to any Series or Class for a period not exceeding sixty
(60) days preceding the date of any meeting of Shareholders of the Trust
or any Series or Class, or the date for the payment of any dividend or
the making of any distribution to Shareholders, or the date for the
allotment of rights, or the date when any change or conversion or
exchange of Shares of any Series or Class shall go into effect; or in
lieu of closing the Share transfer books as aforesaid, the Trustees may
fix in advance a date, not exceeding sixty (60) days preceding the date
of any meeting of Shareholders of the Trust or any Series or Class, or
the date for the payment of any dividend or the making of any
distribution to Shareholders of any Series or Class, or the date for the
allotment of rights, or the date when any change or conversion or
exchange of Shares of any Series or Class shall go into effect, or the
last day on which the consent or dissent of Shareholders of any Series
or Class may be effectively expressed for any purpose, as a record date
for the determination of the Shareholders entitled to notice of, and, to
vote at, any such meeting and any adjournment thereof, or entitled to
receive payment of any such dividend or distribution, or to any such
allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of shares, or to exercise the right to
give such consent or dissent, and in such case such Shareholders and
only such Shareholders as shall be Shareholders of record on the date so
fixed shall be entitled to such notice of, and to vote at, such meeting,
or to receive payment of such dividend or distribution, or to receive
such allotment or rights, or to exercise such rights, as the case may
be, notwithstanding, after such date fixed aforesaid, any transfer of
any Shares on the books of the Trust maintained with respect to any
Series or Class. Nothing in the foregoing sentence shall be construed
as precluding the Trustees from setting different record dates for
different Series or Classes.
Section 4. Termination of Trust.
(a) This Trust shall continue without limitation of time but
subject to the provisions of paragraphs (b), (c) and (d) of this
Section 4.
(b) The Trustees may, by majority action, with the approval of the
holders of more than fifty percent of the outstanding Shares of each
Series or Class entitled to vote and voting separately by Series or
Class, sell and convey the assets of the Trust or any Series or
Class to another trust or corporation. Upon making provision for
the payment of all liabilities, by assumption or otherwise, the
Trustees shall distribute the remaining proceeds belonging to each
Series or Class ratably among the holders of the Shares of that
Series or Class then outstanding.
(c) Subject to a Majority Shareholder Vote by such Series or Class,
the Trustees may at any time sell and convert into money all the
assets of the Trust or any Series or Class. Upon making provision
for the payment of all outstanding obligations, taxes and other
liabilities, accrued or contingent, belonging to each Series or
Class, the Trustees shall distribute the remaining assets belonging
to each Series or Class ratably among the holders of the outstanding
Shares of that Series or Class.
(d) Upon completion of the distribution of the remaining proceeds
of the remaining assets as provided in paragraphs (b) and (c), the
Trust or the applicable Series or Class shall terminate and the
Trustees shall be discharged of any and all further liabilities and
duties hereunder or with respect thereto and the right, title and
interest of all parties shall be canceled and discharged.
Section 5. Offices of the Trust, Filing of Copies,
Headings, Counterparts.
The Trust shall maintain a usual place of business in Massachusetts,
which, initially, shall be 176 Federal Street, Boston, Massachusetts,
and shall continue to maintain an office at such address unless changed
by the Trustees to another location in Massachusetts. The Trust may
maintain other offices as the Trustees may from time to time determine.
The original or a copy of this instrument and of each declaration of
trust supplemental hereto shall be kept at the office of the Trust where
it may be inspected by any Shareholder. A copy of this instrument and
of each supplemental declaration of trust shall be filed by the Trustees
with the Massachusetts Secretary of State and the Boston City Clerk, as
well as any other governmental office where such filing may from time to
time be required. Headings are placed herein for convenience of
reference only and in 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.
Section 6. Applicable Law.
The Trust set forth in this instrument is created under and is to be
governed by and construed and administered according to the laws of The
Commonwealth of Massachusetts. The Trust shall be of the type commonly
called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are
ordinarily exercised by such a trust.
Section 7. Amendments -- General.
Prior to the initial issuance of Shares pursuant to Section 3 of Article
III, a majority of the Trustees then in office may amend or otherwise
supplement this instrument by making a Declaration of Trust supplemental
hereto, which thereafter shall form a part hereof. Subsequent to such
initial issuance of Shares, amendments or supplements to this instrument
may be authorized by a majority of the Trustees then in office and by
the holders of a majority of the Shares of all Series and classes then
outstanding and entitled to vote thereon (except that any amendments or
supplements changing the name of the Trust or pursuant to Section 8
hereunder may be made without shareholder approval), or by any larger
vote which may be required by applicable law or this Declaration of
Trust in any particular case, which amendment or supplement thereafter
shall form a part hereof. Any such amendment or supplement (which may
be in the form of a complete restatement) may be evidenced by either (i)
a supplemental Declaration of Trust signed by at least a majority of the
Trustees then in office or (ii) by a certificate of the President and
Secretary of the Trust setting forth such amendment or supplement and
certifying that such amendment or supplement has been duly authorized by
the Trustees, and if required, by the shareholders. Copies of the
supplemental Declaration of Trust or the certificate of the President
and Secretary, as the case may be, shall be filed as specified in
Section 5 of this Article XII.
Section 8. Amendments -- Series.
The establishment and designation of any series or class of Shares in
addition to those established and designated in Section 5 of Article
III hereof shall be effective upon the execution by a majority of the
then Trustees of an amendment to this Declaration of Trust, taking the
form of a complete restatement or otherwise, setting forth such
establishment and designation and the relative rights and preferences
of any such Series or Class, or as otherwise provided in such
instrument.
Without limiting the generality of the foregoing, the Declaration of
the Trust may be amended to:
(a) create one or more Series or Classes of Shares (in addition to
any Series or Classes already existing or otherwise) with such
rights and preferences and such eligibility requirements for
investment therein as the Trustees shall determine and reclassify
any or all outstanding Shares as Shares of particular Series or
Classes in accordance with such eligibility requirements;
(b) combine two or more Series or Classes of Shares into a single
Series or Class on such terms and conditions as the Trustees shall
determine;
(c) change or eliminate any eligibility requirements for investment
in Shares of any Series or Class, including without limitation the
power to provide for the issue of Shares of any Series or Class in
connection with any merger or consolidation of the Trust with
another trust or company or any acquisition by the Trust of part or
all of the assets of another trust or company;
(d) change the designation of any Series or Class of Shares;
(e) change the method of allocating dividends among the various
Series and Classes of Shares;
(f) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more
Series and Classes of Shares;
(g) specifically allocate assets to any or all Series or Classes of
Shares or create one or more additional Series or Classes of Shares
which are preferred over all other Series or Classes of Shares in
respect of assets specifically allocated thereto or any dividends
paid by the Trust with respect to any net income, however
determined, earned from the investment and reinvestment of any
assets so allocated or otherwise and provide for any special voting
or other rights with respect to such Series or Classes.
Section 9. Use of Name.
The Trust acknowledges that First Alabama Bank has reserved the right to
grant the non-exclusive use of the name "First Priority" or any
derivative thereof to any other investment company, investment company
portfolio, investment adviser, distributor, or other business
enterprise, and to withdraw from the Trust or one or more Series or
Classes any right to the use of the name "First Priority".
IN WITNESS WHEREOF, the undersigned have executed this instrument the
day and year first above written.
/s/ John F. Donahue /s/ Edward C. Gonzales
John F. Donahue Edward C. Gonzales
/s/ John T. Conroy, Jr. /s/ William J. Copeland
John T. Conroy, Jr. William J. Copeland
/s/ James E. Dowd /s/ Lawrence D. Ellis, M.D.
James E. Dowd Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. /s/ Peter E. Madden
Edward L. Flaherty, Jr. Peter E. Madden
/s/ Gregor F. Meyer /s/ Wesley W. Posvar
Gregor F. Meyer Wesley W. Posvar
/s/ Marjorie P. Smuts
Marjorie P. Smuts
COMMONWEALTH OF PENNSYLVANIA )
: ss:
COUNTY OF ALLEGHENY )
I hereby certify that on October 15, 1991, before me, the subscriber, a
Notary Public of the Commonwealth of Pennsylvania, in for the County of
Allegheny, personally appeared John F. Donahue, Edward C. Gonzales, John T.
Conroy, Jr., William J. Copeland, James E. Dowd, Lawrence D. Ellis, M.D.,
Edward L. Flaherty, Jr., Peter E. Madden, Gregor F. Meyer, Wesley W. Posvar
and Marjorie P. Smuts, who acknowledged the foregoing Declaration of Trust to
be their act.
/s/ Mary Jo Wagner
Notary Public
FIRST PRIORITY FUNDS
Amendment No. 1
to
DECLARATION OF TRUST
Dated October 15, 1991
THIS Declaration of Trust is amended as follows:
A. Strike the first paragraph of Section 5 of Article III from the
Declaration of Trust and substitute in its place the following:
"Section 5. Establishment and Designation of Series or Class.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, inter alia, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes of the Trust shall be and are established and designated
as:
First Priority Equity Fund -
Investment Shares
Trust Shares
First Priority Fixed Income Fund -
Investment Shares
Trust Shares
First Priority Treasury Money Market Fund -
Investment Shares
Trust Shares"
The undersigned Assistant Secretary of First Priority Funds hereby
certifies that the above-stated amendment is a true and correct Amendment to
the Declaration of Trust, as adopted by the Trustees of the Trust by
Unanimous Consent on the 1st day of November, 1991.
WITNESS the due execution hereof this 1st day of November, 1991.
/s/ Jay S. Neuman
Jay S. Neuman
Assistant Secretary
-1-
Exhibit 5(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FIRST PRIORITY FUNDS
INVESTMENT ADVISORY CONTRACT
This Contract is made this 26th day of February, 1992, between First
Alabama Bank, an Alabama state bank having its principal place of business in
Birmingham, Alabama (the "Adviser"), and First Priority Funds, a Massachusetts
business trust having its principal place of business in Pittsburgh,
Pennsylvania (the "Trust").
WHEREAS, the Trust is an open-end management investment company as that
term is defined in the Investment Company Act of 1940 and is registered as
such with the Securities and Exchange Commission; and
WHEREAS, the Adviser is engaged in the business of rendering investment
advisory and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree
as follows:
1. The Trust hereby appoints Adviser as Investment Adviser for each of
the portfolios ("Funds") of the Trust which executes an exhibit to this
Contract, and Adviser accepts the appointments. Subject to the direction of
the Trustees of the Trust, Adviser shall provide investment research and
supervision of the investments of each of the Funds and conduct a continuous
program of investment evaluation and of appropriate sale or other disposition
and reinvestment of each Fund's assets.
2. Adviser, in its supervision of the investments of each of the Funds
will be guided by each of the Fund's investment objective and policies and the
provisions and restrictions contained in the Declaration of Trust and By-Laws
of the Trust and as set forth in the Registration Statement and exhibits as
may be on file with the Securities and Exchange Commission.
3. Each Fund shall pay or cause to be paid all of its own expenses and
its allocable share of Trust expenses, including without limitation, the
expenses of organizing the Trust and continuing its existence; fees and
expenses of Trustees and officers of the Trust; fees for investment advisory
services and administrative personnel and services; fees and expenses of
preparing and its Registration Statements under the Securities Act of 1933 and
the Investment Company Act of 1940 and any amendments thereto; expenses of
registering and qualifying the Trust, the Funds and shares ("Shares") of the
Funds under Federal and state laws and regulations; expenses of preparing,
printing and distributing prospectuses (and any amendments thereto); interest
expense, taxes, fees and commissions of every kind; expenses of issue
(including cost of Share certificates), purchase, repurchase and redemption of
Shares, including expenses attributable to a program of periodic issue;
charges and expenses of custodians, transfer agents, dividend disbursing
agents, shareholder servicing agents, and registrars; printing and mailing
costs, auditing, accounting and legal expenses; reports to shareholders and
governmental officers and commissions; expenses of meetings of Trustees and
shareholders and proxy solicitations therefor; insurance expenses; association
membership dues; and such nonrecurring items as may arise, including all
losses and liabilities incurred in administering the Trust and the Funds.
Each Fund will also pay its allocable share of such extraordinary expenses as
may arise including expenses incurred in connection with litigation,
proceedings, and claims and the legal obligations of the Trust to indemnify
its officers and Trustees and agents with respect thereto.
4. Each of the Funds shall pay to Adviser, for all services rendered to
such Fund by Adviser hereunder, the fees set forth in the exhibits attached
hereto.
5. The net asset value of each Fund's Shares as used herein will be
calculated to the nearest 1/10th of one cent.
6. The Adviser may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of
one or more of the Funds or classes thereof) to the extent the expenses of any
Fund or a class thereof exceed such lower expense limitation as the Adviser
may, by notice to the Fund, voluntarily declare to be effective.
7. This Contract shall begin for each Fund as of the date of execution
of the applicable exhibit and shall continue in effect with respect to each
Fund presently set forth on as exhibit (and any subsequent Funds added
pursuant to an exhibit during the initial term of this contract) for two years
from the date of this contract set forth above and thereafter for successive
periods of one year, subject to the provisions for termination and all of the
other terms and conditions hereof if: (a) such continuation shall be
specifically approved at least annually by the vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are not
parties to this Contract or interested persons of any such party (other than
as Trustees of the Trust) cast in person at a meeting called for that purpose;
and (b) Adviser shall not have notified a Fund in writing at least sixty (60)
days prior to the anniversary date of this Contract in any year thereafter
that it does not desire such continuation with respect to that Fund. If a
Fund is added after the first approval by the Trustees as described above,
this Contract will be effective as to that Fund upon execution of the
applicable exhibit and will continue in effect until the next annual approval
of this Contract by the Trustees and thereafter for successive periods of one
year, subject to approval as described above.
8. Notwithstanding any provision in this Contract, it may be terminated
at any time with respect to any Fund, without the payment of any penalty, by
the Trustees of the Trust or by a vote of a majority of the shareholders of
that Fund on sixty (60) days' written notice to Adviser.
9. This Contract may not be assigned by Adviser and shall automatically
terminate in the event of any assignment. Adviser may employ or contract with
such other person, persons, corporation, or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out this
Contract.
10. In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties under this Contract on the part
of Adviser, Adviser shall not be liable to the Trust or to any of the Funds or
to any shareholder for any act or omission in the course of or connected in
any way with rendering services or for any losses that may be sustained in the
purchase, holding, or sale of any security.
11. This Contract may be amended at any time by agreement of the parties
provided that the amendment shall be approved both by the vote of a majority
of the Trustees of the Trust, including a majority of Trustees who are not
parties to this Contract or interested persons of any such party to this
Contract (other than as Trustees of the Trust), cast in person at a meeting
called for that purpose, and on behalf of a Fund by a majority of the
outstanding voting securities of such Fund.
12. Adviser is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust and agrees
that the obligations pursuant to this Contract of a particular Fund and of the
Trust with respect to that particular Fund be limited solely to the assets of
that particular Fund, and Adviser shall not seek satisfaction of any such
obligation from any other Fund, the shareholders of any Fund, the Trustees,
officers, employees or agents of the Trust, or any of them.
13. This Contract shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
14. This Contract will become binding on the parties hereto upon their
execution of the attached exhibits to this Contract.
EXHIBIT A
First Priority Equity Fund
For all services rendered by Adviser hereunder, the above-named Fund of
the Trust shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment
advisory fee equal to .80 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of .80 of 1% applied to the
daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 26th day of February, 1992.
Attest: FIRST ALABAMA BANK
By: /s/ By: /s/ Kenneth Alt
Secretary Vice President
Attest: FIRST PRIORITY FUNDS
By: /s/ John W. McGonigle By: /s/ E. C. Gonzales
Secretary President
EXHIBIT B
First Priority Fixed Income Fund
For all services rendered by Adviser hereunder, the above-named Fund of
the Trust shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment
advisory fee equal to 0.75 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.75 of 1% applied to the
daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 26th day of February, 1992.
Attest: FIRST ALABAMA BANK
By: /s/ By: /s/ Kenneth Alt
Secretary Vice President
Attest: FIRST PRIORITY FUNDS
By: /s/ John W. McGonigle By: /s/ E. C. Gonzales
Secretary President
EXHIBIT C
First Priority Treasury Money Market Fund
For all services rendered by Adviser hereunder, the above-named Fund of
the Trust shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment
advisory fee equal to 0.50 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.50 of 1% applied to the
daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 26th day of February, 1992.
Attest: FIRST ALABAMA BANK
By: /s/ By: /s/ Kenneth Alt
Secretary Vice President
Attest: FIRST PRIORITY FUNDS
By: /s/ John W. McGonigle By: /s/ E. C. Gonzales
Secretary President
EXHIBIT D
to the
Investment Advisory Contract
FIRST PRIORITY FUNDS
First Priority Limited Maturity Government Fund
For all services rendered by Adviser hereunder, the above-named Fund of
the Trust shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment
advisory fee equal to 0.70 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.70 of 1% applied to the
daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 1st day of December, 1993.
Attest: FIRST ALABAMA BANK
By: /s/Virginia L. Martin By: /s/ Richard E. Wambsganss
Assistant Secretary Executive Vice President
Attest: FIRST PRIORITY FUNDS
By: /s/ John W. McGonigle By: /s/ J. F. Donahue
Secretary President
Exhibit 5(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
EXHIBIT E
to the
Investment Advisory Contract
FIRST PRIORITY FUNDS
First Priority Equity Income Fund
For all services rendered by Adviser hereunder, the above-named Fund of
the Trust shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment
advisory fee equal to 0.80 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.80 of 1% applied to the
daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this day of
, 1994.
Attest: FIRST ALABAMA BANK
By: By:
Assistant Secretary Executive Vice President
Attest: FIRST PRIORITY FUNDS
By: By:
Secretary President
EXHIBIT F
to the
Investment Advisory Contract
FIRST PRIORITY FUNDS
First Priority Balanced Fund
For all services rendered by Adviser hereunder, the above-named Fund of
the Trust shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment
advisory fee equal to 0.80 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.80 of 1% applied to the
daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this day of
, 1994.
Attest: FIRST ALABAMA BANK
By: By:
Assistant Secretary Executive Vice President
Attest: FIRST PRIORITY FUNDS
By: By:
Secretary President
- 1 -
Exhibit 6(i) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
FIRST PRIORITY FUNDS
DISTRIBUTOR'S CONTRACT
AGREEMENT made this 26th day of February, 1992, by and between
FIRST PRIORITY FUNDS (the "Trust"), a Massachusetts business trust, and
FEDERATED SECURITIES CORP. ("FSC"), a Pennsylvania Corporation.
In consideration of the mutual covenants hereinafter contained, it
is hereby agreed by and between the parties hereto as follows:
1. The Trust hereby appoints FSC as its agent to sell and
distribute shares of the Trust which may be offered in one or more
series (the "Funds") consisting of one or more classes (the "Classes")
of shares (the "Shares") as described and set forth on one or more
exhibits to this Agreement at the current offering price thereof as
described and set forth in the current Prospectuses of the Trust. FSC
hereby accepts such appointment and agrees to provide such other
services for the Trust, if any, and accept such compensation from the
Trust, if any, as set forth in the applicable exhibit to this Agreement.
2. The sale of any Shares may be suspended without prior notice
whenever in the judgment of the Trust it is in its best interest to do
so.
3. Neither FSC nor any other person is authorized by the Trust
to give any information or to make any representation relative to any
Shares other than those contained in the Registration Statement,
Prospectuses, or Statements of Additional Information ("SAIs") filed
with the Securities and Exchange Commission, as the same may be amended
from time to time, or in any supplemental information to said
Prospectuses or SAIs approved by the Trust. FSC agrees that any other
information or representations other than those specified above which it
or any dealer or other person who purchases Shares through FSC may make
in connection with the offer or sale of Shares, shall be made entirely
without liability on the part of the Trust. No person or dealer, other
than FSC, is authorized to act as agent for the Trust for any purpose.
FSC agrees that in offering or selling Shares as agent of the Trust, it
will, in all respects, duly conform to all applicable state and federal
laws and the rules and regulations of the National Association of
Securities Dealers, Inc., including its Rules of Fair Practice. FSC
will submit to the Trust copies of all sales literature before using the
same and will not use such sales literature if disapproved by the Trust.
4. This Agreement is effective with respect to each Class as of
the date of execution of the applicable exhibit and shall continue in
effect with respect to each Class presently set forth on an exhibit and
any subsequent Classes added pursuant to an exhibit during the initial
term of this Agreement for one year from the date set forth above, and
thereafter for successive periods of one year if such continuance is
approved at least annually by the Trustees of the Trust including a
majority of the members of the Board of Trustees of the Trust who are
not interested persons of the Trust and have no direct or indirect
financial interest in the operation of any Distribution Plan relating to
the Trust or in any related documents to such Plan ("Disinterested
Trustees") cast in person at a meeting called for that purpose. If a
Class is added after the first annual approval by the Trustees as
described above, this Agreement will be effective as to that Class upon
execution of the applicable exhibit and will continue in effect until
the next annual approval of this Agreement by the Trustees and
thereafter for successive periods of one year, subject to approval as
described above.
5. This Agreement may be terminated with regard to a particular
Fund or Class at any time, without the payment of any penalty, by the
vote of a majority of the Disinterested Trustees or by a majority of the
outstanding voting securities of the particular Fund or Class on not
more than sixty (60) days' written notice to any other party to this
Agreement. This Agreement may be terminated with regard to a particular
Fund or Class by FSC on sixty (60) days' written notice to the Trust.
6. This Agreement may not be assigned by FSC and shall
automatically terminate in the event of an assignment by FSC as defined
in the Investment Company Act of 1940, provided, however, that FSC may
employ such other person, persons, corporation or corporations as it
shall determine in order to assist it in carrying out its duties under
this Agreement.
7. FSC shall not be liable to the Trust for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed
by this Agreement.
8. This Agreement may be amended at any time by mutual agreement
in writing of all the parties hereto, provided that such amendment is
approved by the Trustees of the Trust including a majority of the
Disinterested Trustees of the Trust cast in person at a meeting called
for that purpose.
9. This Agreement shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania.
10. (a) Subject to the conditions set forth below, the Trust
agrees to indemnify and hold harmless FSC and each person, if any, who
controls FSC within the meaning of Section 15 of the Securities Act of
1933 and Section 20 of the Securities Act of 1934, as amended, against
any and all loss, liability, claim, damage and expense whatsoever
(including but not limited to any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever) arising
out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, any
Prospectuses or SAI's (as from time to time amended and supplemented) or
the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading, unless such statement or omission was made in reliance upon
and in conformity with written information furnished to the Trust about
FSC by or on behalf of FSC expressly for use in the Registration
Statement, any Prospectuses and SAIs or any amendment or supplement
thereof.
If any action is brought against FSC or any controlling person
thereof with respect to which indemnity may be sought against the Trust
pursuant to the foregoing paragraph, FSC shall promptly notify the Trust
in writing of the institution of such action and the Trust shall assume
the defense of such action, including the employment of counsel selected
by the Trust and payment of expenses. FSC or any such controlling
person thereof shall have the right to employ separate counsel in any
such case, but the fees and expenses of such counsel shall be at the
expense of FSC or such controlling person unless the employment of such
counsel shall have been authorized in writing by the Trust in connection
with the defense of such action or the Trust shall not have employed
counsel to have charge of the defense of such action, in any of which
events such fees and expenses shall be borne by the Trust. Anything in
this paragraph to the contrary notwithstanding, the Trust shall not be
liable for any settlement of any such claim of action effected without
its written consent. The Trust agrees promptly to notify FSC of the
commencement of any litigation or proceedings against the Trust or any
of its officers or Trustees or controlling persons in connection with
the issue and sale of Shares or in connection with the Registration
Statement, Prospectuses, or SAI's.
(b) FSC agrees to indemnify and hold harmless the Trust, each of
its Trustees, each of its officers who have signed the Registration
Statement and each other person, if any, who controls the Trust within
the meaning of Section 15 of the Securities Act of 1933, but only with
respect to statements or omissions, if any, made in the Registration
Statement or any Prospectus, SAI, or any amendment or supplement thereof
in reliance upon, and in conformity with, information furnished to the
Trust about FSC by or on behalf of FSC expressly for use in the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof. In case any action shall be brought against the
Trust or any other person so indemnified based on the Registration
Statement or any Prospectus, SAI, or any amendment or supplement
thereof, and with respect to which indemnity may be sought against FSC,
FSC shall have the rights and duties given to the Trust, and the Trust
and each other person so indemnified shall have the rights and duties
given to FSC by the provisions of subsection (a) above.
(c) Nothing herein contained shall be deemed to protect any
person against liability to the Trust or its shareholders to which such
person would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of the duties of such
person or by reason of the reckless disregard by such person of the
obligations and duties of such person under this Agreement.
(d) Insofar as indemnification for liabilities may be permitted
pursuant to Section 17 of the Investment Company Act of 1940 for
Trustees, officers, FSC and controlling persons of the Trust by the
Trust pursuant to this Agreement, the Trust is aware of the position of
the Securities and Exchange Commission as set forth in the Investment
Company Act Release No. IC-11330. Therefore, the Trust undertakes that
in addition to complying with the applicable provisions of this
Agreement, in the absence of a final decision on the merits by a court
or other body before which the proceeding was brought, that an
indemnification payment will not be made unless in the absence of such a
decision, a reasonable determination based upon factual review has been
made (i) by a majority vote of a quorum of non-party Disinterested
Trustees, or (ii) by independent legal counsel in a written opinion that
the indemnitee was not liable for an act of willful misfeasance, bad
faith, gross negligence or reckless disregard of duties. The Trust
further undertakes that advancement of expenses incurred in the defense
of a proceeding (upon undertaking for repayment unless it is ultimately
determined that indemnification is appropriate) against an officer,
Trustee, FSC or controlling person of the Trust will not be made absent
the fulfillment of at least one of the following conditions: (i) the
indemnitee provides security for his undertaking; (ii) the Trust is
insured against losses arising by reason of any lawful advances; or
(iii) a majority of a quorum of non-party Disinterested Trustees or
independent legal counsel in a written opinion makes a factual
determination that there is reason to believe the indemnitee will be
entitled to indemnification.
11. FSC is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust and
agrees that the obligations assumed by the Trust pursuant to this
agreement shall be limited in any case to the Trust and its assets and
FSC shall not seek satisfaction of any such obligation from the
shareholders of the Trust, the Trustees, officers, employees or agents
of the Trust, or any of them.
12. If at any time the Shares of any Fund are offered in two or
more Classes, FSC agrees to adopt compliance standards as to when a
class of shares may be sold to particular investors.
13. This Agreement will become binding on the parties hereto upon
the execution of the attached exhibits to the Agreement.
Exhibit A
FIRST PRIORITY FUNDS
First Priority Equity Fund
Trust Shares
First Priority Fixed Income Fund
Trust Shares
First Priority Treasury Money Market Fund
Trust Shares
In consideration of the mutual covenants set forth in the
Distributor's Contract dated February 26, 1992 between FIRST PRIORITY
FUNDS and Federated Securities Corp., FIRST PRIORITY FUNDS executes and
delivers this Exhibit on behalf of the Funds, and with respect to the
separate Classes of Shares thereof, first set forth in this Exhibit.
Witness the due execution hereof this 26th day of February, 1992
ATTEST: FIRST PRIORITY FUNDS
/s/ John W. McGonigle By:/s/ E. C. Gonzales
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By:/s/ Richard B.
Fisher
Secretary President
(SEAL)
Exhibit B
FIRST PRIORITY FUNDS
First Priority Equity Fund
Investment Shares
First Priority Fixed Income Fund
Investment Shares
First Priority Treasury Money Market Fund
Investment Shares
The following provisions are hereby incorporated and made part of
the Distributor's Contract dated the 26th day of February, 1992, between
FIRST PRIORITY FUNDS and Federated Securities Corp. with respect to
Classes of the Funds set forth above.
1. The Trust hereby appoints FSC to engage in activities
principally intended to result in the sale of Shares of the Classes.
Pursuant to this appointment FSC is authorized to to select a group of
brokers ("Brokers") to sell shares of the above-listed Classes
("Shares"), at the current offering price thereof as described and set
forth in the respective prospectuses of the Trust, and to render
administrative support services to the Trust and its shareholders.
In addition, FSC is authorized to select a group of Administrators
("Administrators") to render administrative support services to the
Trust and its shareholders.
2. Administrative support services may include, but are not
limited to, the following eleven functions: (1) account openings: the
Broker or Administrator communicates account openings via computer
terminals located on the Broker or Administrator's premises; 2) account
closings: the Broker or Administrator communicates account closings via
computer terminals; 3) enter purchase transactions: purchase
transactions are entered through the Broker or Administrator's own
personal computer or through the use of a toll-free telephone number; 4)
enter redemption transactions: Broker or Administrator enters
redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide
accounting support for all transactions. Broker or Administrator also
wires funds and receives funds for Trust share purchases and
redemptions, confirms and reconciles all transactions, reviews the
activity in the Trust's accounts, and provides training and supervision
of its personnel; 6) interest posting: Broker or Administrator posts
and reinvests dividends to the Trust's accounts; 7) prospectus and
shareholder reports: Broker or Administrator maintains and distributes
current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously advertises the
availability of its services and products; 9) customer lists: the Broker
or Administrator continuously provides names of potential customers; 10)
design services: the Broker or Administrator continuously designs
material to send to customers and develops methods of making such
materials accessible to customers; and 11) consultation services: the
Broker or Administrator continuously provides information about the
product needs of customers.
3. During the term of this Agreement, the Trust will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of .30% of the average aggregate net asset value of the
Investment Shares of the First Priority Equity Fund and the First
Priority Fixed Income Fund, and .40% of the average aggregate net asset
value of the Investment Shares of the First Priority Treasury Money
Market Fund held during the month. For the month in which this
Agreement becomes effective or terminates, there shall be an appropriate
proration of any fee payable on the basis of the number of days that the
Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any classes expenses
exceed such lower expense limitation as FSC may, by notice to the Trust,
voluntarily declare to be effective.
5. FSC will enter into separate written agreements with various
firms to provide certain of the services set forth in Paragraph 1
herein. FSC, in its sole discretion, may pay Brokers and Administrators
a periodic fee in respect of Shares owned from time to time by their
clients or customers. The schedules of such fees and the basis upon
which such fees will be paid shall be determined from time to time by
FSC in its sole discretion.
6. FSC will prepare reports to the Board of Trustees of the
Trust on a quarterly basis showing amounts expended hereunder including
amounts paid to Brokers and Administrators and the purpose for such
payments.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated February 26, 1992 between FIRST PRIORITY
FUNDS and Federated Securities Corp., FIRST PRIORITY FUNDS executes and
delivers this Exhibit on behalf of the Funds, and with respect to the
separate Classes of Shares thereof, first set forth in this Exhibit.
Witness the due execution hereof this 26th day of February, 1992.
ATTEST: FIRST PRIORITY FUNDS
/s/ John W. McGonigle By:/s/ E. C. Gonzales
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By:/s/ Richard B.
Fisher
Secretary President
(SEAL)
Exhibit C
to the
Distributor's Contract
FIRST PRIORITY FUNDS
First Priority Limited Maturity Government Fund
In consideration of the mutual covenants set forth in the
Distributor's Contract dated
February 26, 1992 between First Priority Funds and Federated Securities
Corp., First Priority Funds executes and delivers this Exhibit on behalf
of the Fund first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1993
Attest: First Priority Funds
/s/ John W. McGonigle /s/ E. C. Gonzales
Secretary President
Attest: Federated Securities Corp.
/s/ S. Elliott Cohan /s/ John A. Staley IV
Secretary Executive Vice President
Exhibit 6(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit D
to the
Distributor's Contract
FIRST PRIORITY FUNDS
First Priority Equity Income Fund
First Priority Balanced Fund
In consideration of the mutual covenants set forth in the
Distributor's Contract dated
February 26, 1992 between First Priority Funds and Federated Securities
Corp., First Priority Funds executes and delivers this Exhibit on behalf
of the Funds first set forth in this Exhibit.
Witness the due execution hereof this day of
, 1994
Attest: First Priority Funds
Secretary President
Attest: Federated Securities Corp.
Secretary Executive Vice President
-1-
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES PLAN
This Shareholder Services Plan ("Plan") is adopted as of this 1st
day of March, 1994, by the Boards of Directors or Trustees, as
applicable (the "Boards"), of those investment companies listed on
Exhibit 1 hereto as may be amended from time to time, having their
principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (individually referred to herein as a "Fund"
and collectively as "Funds").
1. This Plan is adopted to allow the Funds to make payments as
contemplated herein to obtain certain personal services for shareholders
and/or the maintenance of shareholder accounts ("Services").
2. This Plan is designed to compensate Federated Shareholder
Services ("FSS") for providing personal services and/or the maintenance
of shareholder accounts to the Funds and their shareholders. In
compensation for the services provided pursuant to this Plan, FSS may be
paid a monthly fee computed at the annual rate not to exceed .25 of 1%
of the average aggregate net asset value of the shares of each Fund held
during the month.
3. Any payments made by the Funds to FSS pursuant to this Plan
will be made pursuant to a "Shareholder Services Agreement" between FSS
and each of the Funds.
4. Quarterly in each year that this Plan remains in effect, FSS
shall prepare and furnish to the Boards of the Funds, and the Boards
shall review, a written report of the amounts expended under the Plan.
5. This Plan shall become effective with regard to each Fund
(i) after approval by majority votes of: (a) such Fund's Board; and (b)
the members of the Board of such Fund who are not interested persons of
such Fund and have no direct or indirect financial interest in the
operation of such Fund's Plan or in any related documents to the Plan
("Independent Trustees or Directors"), cast in person at a meeting
called for the purpose of voting on the Plan.
6. This Plan shall remain in effect with respect to each Fund
presently set forth on an exhibit and any subsequent Fund added pursuant
to an exhibit during the initial year of this Plan for the period of one
year from the date set forth above and may be continued thereafter if
this Plan is approved with respect to each Fund at least annually by a
majority of the relevant Fund's Board and a majority of the Independent
Trustees or
Directors, of such Fund as applicable, cast in person at a meeting
called for the purpose of voting on the renewal of such Plan. If this
Plan is adopted with respect to a Fund after the first annual approval
by the Trustees or Directors as described above, this Plan will be
effective as to that Fund at such time as Exhibit 1 hereto is amended to
add such Fund and will continue in effect until the next annual approval
of this Plan by the Funds' Boards and thereafter for successive periods
of one year subject to approval as described above.
7. All material amendments to this Plan must be approved by a
vote of the Board of each Fund and of the Independent Directors or
Trustees of such Fund, cast in person at a meeting called for such
purpose.
8. This Plan may be terminated as follows:
(a) at any time, without the payment of any penalty,
with respect to any Fund by the vote of a majority of the
Independent Board Members of such Fund or by a vote of a
majority of the outstanding voting securities of such Fund as
defined in the Investment Company Act of 1940 on sixty (60)
days' written notice to the parties to this Agreement; or
(b) by any party to the Agreement without cause by
giving the other party at least sixty (60) days' written notice
of its intention to terminate.
9. While this Plan shall be in effect, the selection and
nomination of Independent Directors or Trustees of each Fund shall be
committed to the discretion of the Independent Directors or Trustees
then in office.
10. All agreements with any person relating to the
implementation of this Plan shall be in writing and any agreement
related to this Plan shall be subject to termination, without penalty,
pursuant to the provisions of Paragraph 8 herein.
11. This Plan shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.
Witness the due execution hereof this as of the date set forth
above.
Investment Companies (listed
on Exhibit 1)
By:
Attest:
Federated Shareholder Services
By:
Title:
Attest:
Exhibit 1
First Priority Funds
-1-
Exhibit 9(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES AGREEMENT
AGREEMENT made as of the first day of March, 1994, by and between
those investment companies listed on Exhibit 1, as may be amended from
time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 and who have
approved a Shareholder Services Plan (the "Plan") and this form of
Agreement (individually referred to herein as a "Fund" and collectively
as "Funds") and Federated Shareholder Services, a Delaware business
trust, having its principal office and place of business at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779 ("FSS").
1. The Funds hereby appoint FSS to render or cause to be
rendered personal services to shareholders of the Funds and/or the
maintenance of accounts of shareholders of the Funds ("Services"). In
addition to providing Services directly to shareholders of the Funds,
FSS is hereby appointed the Funds' agent to select, negotiate and
subcontract for the performance of Services. FSS hereby accepts such
appointments. FSS agrees to provide or cause to be provided Services
which, in its best judgment (subject to supervision and control of the
Funds' Boards of Trustees or Directors, as applicable ("Board")), are
necessary or desirable for shareholders of the Funds. FSS further
agrees to provide the Funds, upon request, a written description of the
Services which FSS is providing hereunder.
2. During the term of this Agreement, each Fund will pay FSS
and FSS agrees to accept as full compensation for its services rendered
hereunder a fee at an annual rate, calculated daily and payable monthly,
up to 0.25% of 1% of average net assets of each Fund.
For the payment period in which this Agreement becomes effective
or terminates with respect to any Fund, there shall be an appropriate
proration of the monthly fee on the basis of the number of days that
this Agreement is in effect with respect to such Fund during the month.
To enable the Funds to comply with an applicable exemptive order, FSS
represents that the fees received pursuant to this Agreement will be
disclosed to and authorized by any person or entity receiving Services,
and will not result in an excessive fee to FSS.
3. This Agreement shall continue in effect for one year from
the date of its execution, and thereafter for successive periods of one
year only if the form of this Agreement is approved at least annually by
the Board of each Fund, including a majority of the members of the Board
of the Fund who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Funds'
Plan or in any related documents to the Plan ("Independent Board
Members") cast in person at a meeting called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be
terminated as follows:
(a) at any time, without the payment of any penalty,
with respect to any Fund by the vote of a majority of the
Independent Board Members of such Fund or by a vote of a
majority of the outstanding voting securities of such Fund as
defined in the Investment Company Act of 1940 on sixty (60)
days' written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's
assignment as defined in the Investment Company Act of 1940; and
(c) by any party to the Agreement without cause by
giving the other party at least sixty (60) days' written notice
of its intention to terminate.
5. FSS agrees to obtain any taxpayer identification number
certification from each shareholder of the Funds to which it provides
Services that is required under Section 3406 of the Internal Revenue
Code, and any applicable Treasury regulations, and to provide each Fund
or its designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
6. FSS 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
matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. FSS shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for such
Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. Any person, even
though also an officer, trustee, partner, employee or agent of FSS, who
may be or become a member of such Fund's Board, officer, employee or
agent of any Fund, shall be deemed, when rendering services to such Fund
or acting on any business of such Fund (other than services or business
in connection with the duties of FSS hereunder) to be rendering such
services to or acting solely for such Fund and not as an officer,
trustee, partner, employee or agent or one under the control or
direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which an enforcement of the change, waiver,
discharge or termination is sought.
8. FSS is expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust of each Fund that is
a Massachusetts business trust and agrees that the obligations assumed
by each such Fund pursuant to this Agreement shall be limited in any
case to such Fund and its assets and that FSS shall not seek
satisfaction of any such obligations from the shareholders of such Fund,
the Trustees, Officers, Employees or Agents of such Fund, or any of
them.
9. The execution and delivery of this Agreement have been
authorized by the Trustees of FSS and signed by an authorized officer of
FSS, acting as such, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of
them personally, and the obligations of this Agreement are not binding
upon any of the Trustees or shareholders of FSS, but bind only the trust
property of FSS as provided in the Declaration of Trust of FSS.
10. Notices of any kind to be given hereunder shall be in
writing (including facsimile communication) and shall be duly given if
delivered to any Fund and to such Fund at the following address:
Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President and if delivered to FSS at Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President.
11. This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the
subject hereof whether oral or written. If any provision of this
Agreement shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. Subject to the provisions of Sections 3
and 4, hereof, 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 Pennsylvania law; provided, however, that nothing
herein shall be construed in a manner inconsistent with the Investment
Company Act of 1940 or any rule or regulation promulgated by the
Securities and Exchange Commission thereunder.
12. This Agreement may be executed by different parties on
separate counterparts, each of which, when so executed and delivered,
shall be an original, and all such counterparts shall together
constitute one and the same instrument.
13. This Agreement shall not be assigned by any party without
the prior written consent of FSS in the case of assignment by any Fund,
or of the Funds in the case of assignment by FSS, except that any party
may assign to a successor all of or a substantial portion of its
business to a party controlling, controlled by, or under common control
with such party. Nothing in this Section 14 shall prevent FSS from
delegating its responsibilities to another entity to the extent provided
herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year
first above written.
Investment Companies (listed
on Exhibit 1)
By:
Attest:
Federated Shareholder Services
By:
Title:
Attest:
Exhibit 1
First Priority Funds
- 1 -
Exhibit 15(i) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
FIRST PRIORITY FUNDS
PLAN
This Plan ("Plan") is adopted as of this 26th day of February, 1992, by
the Board of Trustees of First Priority Funds (the "Trust"), a Massachusetts
business trust with respect to certain classes of shares ("Classes") of the
portfolios of the Trust (the "Funds") set forth in exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 ("Act") so as to allow the Trust to make payments as
contemplated herein, in conjunction with the distribution of Classes of the
Funds ("Shares").
2. This Plan is designed to finance activities of Federated Securities
Corporation ("FSC") principally intended to result in the sale of Shares to
include: (a) providing incentive to broker/dealers ("Brokers") to sell Shares
and to provide administrative support services to the Funds and their
shareholders; (b) compensating other participating financial institutions and
other persons ("Administrators") for providing administrative support
services to the Funds and their shareholders; (c) paying for the costs
incurred in conjunction with advertising and marketing of Shares to include
expenses of preparing, printing and distributing prospectuses and sales
literature to prospective shareholders, Brokers or Administrators, and; (d)
other costs incurred in the implementation and operation of the Plan. In
compensation for services provided pursuant to this Plan, FSC will be paid a
fee in respect of the following Classes set forth on the applicable exhibit.
3. Any payment to FSC in accordance with this Plan will be made
pursuant to the "Distributor's Contract" entered into by the Trust and FSC.
Any payments made by FSC to Brokers and Administrators with funds received as
compensation under this Plan will be made pursuant to the "Rule 12b-1
Agreement" entered into by FSC and the Broker or Administrator.
4. FSC has the right (i) to select, in its sole discretion, the
Brokers and Administrators to participate in the Plan and (ii) to terminate
without cause and in its sole discretion any Rule 12b-1 Agreement.
5. Quarterly in each year that this Plan remains in effect, FSC shall
prepare and furnish to the Board of Trustees of the Trust, and the Board of
Trustees shall review, a written report of the amounts expended under the
Plan and the purpose for which such expenditures were made.
6. This Plan shall become effective with respect to each Class
(i) after approval by majority votes of: (a) the Trust's Board of Trustees;
(b) the Disinterested Trustees of the Trust, cast in person at a meeting
called for the purpose of voting on the Plan; and (c) the outstanding voting
securities of the particular Class, as defined in Section 2(a)(42) of the Act
and (ii) upon execution of an exhibit adopting this Plan with respect to such
Class.
7. This Plan shall remain in effect with respect to each Class
presently set forth on an exhibit and any subsequent Classes added pursuant
to an exhibit during the initial year of this Plan for the period of one year
from the date set forth above and may be continued thereafter if this Plan is
approved with respect to each Class at least annually by a majority of the
Trust's Board of Trustees and a majority of the Disinterested Trustees, cast
in person at a meeting called for the purpose of voting on such Plan. If
this Plan is adopted with respect to a Class after the first annual approval
by the Trustees as described above, this Plan will be effective as to that
Class upon execution of the applicable exhibit pursuant to the provisions of
paragraph 6(ii) above and will continue in effect until the next annual
approval of this Plan by the Trustees and thereafter for successive periods
of one year subject to approval as described above.
8. All material amendments to this Plan must be approved by a vote of
the Board of Trustees of the Trust and of the Disinterested Trustees, cast in
person at a meeting called for the purpose of voting on it.
9. This Plan may not be amended in order to increase materially the
costs which the Classes may bear for distribution pursuant to the Plan
without being approved by a majority vote of the outstanding voting
securities of the Classes as defined in Section 2(a)(42) of the Act.
10. This Plan may be terminated with respect to a particular Class at
any time by: (a) a majority vote of the Disinterested Trustees; or (b) a vote
of a majority of the outstanding voting securities of the particular Class as
defined in Section 2(a)(42) of the Act; or (c) by FSC on 60 days notice to
the Trust.
11. While this Plan shall be in effect, the selection and nomination
of Disinterested Trustees of the Trust shall be committed to the discretion
of the Disinterested Trustees then in office.
12. All agreements with any person relating to the implementation of
this Plan shall be in writing and any agreement related to this Plan shall be
subject to termination, without penalty, pursuant to the provisions of
Paragraph 10 herein.
13. This Plan shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
EXHIBIT A
to the
Plan
FIRST PRIORITY FUNDS
First Priority Equity Fund
Investment Shares
First Priority Fixed Income Fund
Investment Shares
First Priority Treasury Money Market Fund
Investment Shares
This Plan is adopted by First Priority Funds with respect to the Class
of Shares of the portfolio(s) of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of .30 of 1% of the
average aggregate net asset value of the Investment Shares of First Priority
Equity Fund and First Priority Fixed Income Fund; and at the annual rate of
.40% of 1% of the average aggregate net asset value of the Investment Shares
of First Priority Treasury Money Market Fund held during the month.
Witness the due execution hereof this 26th day of February, 1992.
FIRST PRIORITY FUNDS
By: /s/ E. C. Gonzales
President
EXHIBIT B
to the
Plan
FIRST PRIORITY FUNDS
First Priority Limited Maturity Government Fund
This Plan is adopted by First Priority Funds with respect to the Class
of Shares of the portfolio of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of .25 of 1% of the
average aggregate net asset value of the First Priority Limited Maturity
Government Fund held during the month.
Witness the due execution hereof this 1st day of December , 1993.
FIRST PRIORITY FUNDS
By: /s/ E. C. Gonzales
President
Exhibit 15(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
EXHIBIT C
to the
Plan
FIRST PRIORITY FUNDS
First Priority Equity Income Fund
First Priority Balanced Fund
This Plan is adopted by First Priority Funds with respect to the Shares
of the portfolios of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of .30 of 1% of the
average aggregate net asset value of the First Priority Equity Income Fund
and First Priority Balanced Fund held during the month.
Witness the due execution hereof this day of
, 1994.
FIRST PRIORITY FUNDS
By:
President
