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. 10 ......... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 11 ......................... 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)
X on January 31, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) 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 16, 1996; 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.
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of FIRST PRIORITY FUNDS, which
is comprised of six portfolios: (1) First Priority Equity Fund; (2) First
Priority Fixed Income Fund; (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 Fund, 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. .............(1-6) Financial Highlights.
Item 4. General Description
of Registrant ............(1-6) Synopsis; Objective of Each Fund;
Portfolio Investments and Strategies.
Item 5. Management of the Fund ....(1-6) First Priority Funds Information; (1-
6) Management of the First Priority Funds;
Distribution of Fund Shares; Administration
of the Funds; Brokerage Transactions.
Item 6. Capital Stock and
Other Securities ..........(1-6) Dividends and Capital Gains;
Dividends; Capital Gains; Shareholder
Information; Voting Rights; Effect of
Banking Laws; Tax Information; Federal
Income Tax.
Item 7. Purchase of Securities
Being Offered ............(1-6) Net Asset Value; Investing in the
Funds; Minimum Investment Required; What
Shares Cost; Share Purchases; Purchases at
Net Asset Value; Conversion to Federal
Funds; Dealer Concessions; Reducing the
Sales Charge; Systematic Investment Plan;
Shareholder Accounts.
Item 8. Redemption or Repurchase ..(1-6) Exchange Privilege Redeeming Shares;
By Telephone; By Mail; Systematic Withdrawal
Plan; Accounts with Low Balances.
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 Trust.
Item 13............................Investment Objectives and
Policies .................(1-6) Investment Objective and Policies of
the Funds;
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; Fund
Administrative; Custodian; Transfer Agent,
Dividend Disbursing Agent, and Portfolio
Accounting Services; Independent Auditors.
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; Determining
Net Asset Value; Redeeming Shares; Exchange
Privilege.
Item 20............................Tax Status (1-6) Tax Status.
Item 21............................Underwriters (1-6) Distribution Plan.
Item 22............................Calculation of Performance
Data .....................(1-6) Total Return; Effective Yield; Yield;
Performance Comparisons.
Item 23............................Financial Statements (1-6) Incorporated
by reference to Annual Report of Registrant
dated November 30, 1995, filed January 25,
1996.(File Nos. 33-44737 and 811-6511).
FIRST PRIORITY
FAMILY OF FUNDS
COMBINED
PROSPECTUS
DATED JANUARY 31, 1996
Diversified Portfolios of the First Priority Funds,
an Open-End, Management Investment Company
COMBINED PROSPECTUS
- --------------------------------------------------------------------------------
FIRST PRIORITY FAMILY OF FUNDS
- --------------------------------------------------------------------------------
First Priority Funds (the "Trust"), an open-end management investment company (a
mutual fund), offers investors interests in the following six investment
portfolios (collectively referred to as the "Funds" and individually as the
"Fund"), each having a distinct investment objective and policies:
First Priority Treasury Money Market Fund
Trust Shares
Investment Shares
First Priority Limited Maturity Government Fund
First Priority Fixed Income Fund
First Priority Balanced Fund
First Priority Value Fund
First Priority Growth Fund
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.
THE TREASURY MONEY MARKET FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO
SO.
This Prospectus contains the information you should read and know before you
invest in any of the Funds of the Trust. Keep this Prospectus for future
reference.
Additional information about the Trust is contained in the Trust's Statement of
Additional Information dated January 31, 1996 ("SAI"), which has also been filed
with the Securities and Exchange Commission. The information contained in the
SAI is incorporated by reference into this Prospectus. You may request a copy of
the SAI free of charge, obtain other information, or make inquiries about any of
these Funds by writing to the Trust or by calling 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 January 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 1
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES 3
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
OBJECTIVE OF EACH FUND 10
- ------------------------------------------------------
Treasury Money Market Fund 10
Investment Objective and Policies 10
Acceptable Investments 10
Investment Limitations 10
Limited Maturity Government Fund 10
Investment Objective and Policies 10
Acceptable Investments 11
Investment Limitations 11
Fixed Income Fund 11
Investment Objective and Policies 11
Acceptable Investments 11
Investment Limitations 12
Balanced Fund 12
Investment Objective and Policies 12
Acceptable Investments 12
Common and Preferred Stocks 12
Debt Securities 13
Investment Limitations 13
Value Fund 13
Investment Objective and Policies 13
Acceptable Investments 13
Common and Preferred Stocks 14
Investment Limitations 14
Growth Fund 14
Investment Objective and Policies 14
Acceptable Investments 15
Common Stocks 15
Other Corporate Securities 15
Investment Limitations 15
PORTFOLIO INVESTMENTS AND STRATEGIES 15
- ------------------------------------------------------
Debt Securities--Ratings and Investment
Considerations 15
Asset-Backed Securities 16
Non-Mortgage Related Asset-Backed Securities 16
Mortgage Related Asset-Backed Securities 16
Adjustable Rated Mortgage Securities ("ARMS") 16
Collateralized Mortgage Obligations ("CMOs") 17
Real Estate Mortgage Investment
Conduits ("REMICs") 17
Considerations for Mortgage-Backed
and Asset-Backed Securities 18
Stripped Bonds 18
U.S. Government Securities 19
Bank Instruments 19
Equity Investment Considerations 19
Securities of Foreign Issuers 20
Convertible Securities 20
Zero Coupon Convertible Securities 21
Put and Call Options 22
Futures and Options on Futures Risks 23
Risks 24
Investing in Securities of New Issuers 24
Investing in Securities of Other Investment
Companies 24
Derivative Contracts and Securities 24
When-Issued and Delayed Delivery Transactions 25
Lending of Portfolio Securities 25
Repurchase Agreements 25
Temporary Investments 26
Borrowing Money 26
Diversification 26
Restricted and Illiquid Securities 26
FIRST PRIORITY FUNDS INFORMATION 27
- ------------------------------------------------------
Management of First Priority Funds 27
Board of Trustees 27
Investment Adviser 27
Advisory Fees 27
Adviser's Background 27
Distribution of Fund Shares 30
Distribution Plan 30
Administration of the Funds 31
Administrative Services 31
BROKERAGE TRANSACTIONS 32
- ------------------------------------------------------
NET ASSET VALUE 32
- ------------------------------------------------------
INVESTING IN THE FUNDS 33
- ------------------------------------------------------
Minimum Investment Required 33
What Shares Cost 33
Purchases at Net Asset Value 34
Dealer Concessions 34
Other Payments to Financial Institutions 34
Share Purchases 35
Conversion to Federal Funds 35
Reducing the Sales Charge 35
Quantity Discounts and Accumulated Purchases 35
Letter of Intent 36
Reinvestment Privilege 36
Purchases with Proceeds from Redemptions
of Unaffiliated Mutual Fund Shares 36
Systematic Investment Plan 36
Exchanging Securities for Fund Shares 37
Shareholder Accounts 37
Dividends and Capital Gains 37
EXCHANGE PRIVILEGE 37
- ------------------------------------------------------
REDEEMING SHARES 38
- ------------------------------------------------------
By Telephone 39
By Mail 39
Signatures 39
Receiving Payment 40
Checkwriting 40
Systematic Withdrawal Plan 40
Accounts with Low Balances 40
SHAREHOLDER INFORMATION 40
- ------------------------------------------------------
Voting Rights 40
EFFECT OF BANKING LAWS 41
- ------------------------------------------------------
TAX INFORMATION 41
- ------------------------------------------------------
Federal Income Tax 41
PERFORMANCE INFORMATION 42
- ------------------------------------------------------
ADDRESSES 43
- ------------------------------------------------------
SYNOPSIS
- --------------------------------------------------------------------------------
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.
As of the date of this prospectus, shares are offered in the following six
Funds:
FIRST PRIORITY TREASURY MONEY MARKET FUND (TRUST SHARES AND INVESTMENT
SHARES) ("TREASURY MONEY MARKET FUND")--seeks to provide current income
consistent with stability of principal and liquidity by investing
primarily in a diversified portfolio limited to short-term U.S. Treasury
obligations;
FIRST PRIORITY LIMITED MATURITY GOVERNMENT FUND ("LIMITED MATURITY
GOVERNMENT FUND")-- seeks to provide current income by investing in a
diversified portfolio consisting primarily of securities which are
guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities;
FIRST PRIORITY FIXED INCOME FUND ("FIXED INCOME FUND")--seeks to achieve
current income with a secondary objective of capital appreciation by
investing primarily in a broad range of high grade debt securities;
FIRST PRIORITY BALANCED FUND ("BALANCED FUND")--seeks to provide total
return through capital appreciation, dividends, and interest by
investing primarily in a diversified portfolio of common stocks,
preferred stocks, fixed-income senior securities, and convertible
securities.
FIRST PRIORITY VALUE FUND ("VALUE FUND" FORMERLY FIRST PRIORITY EQUITY
INCOME FUND)--seeks to provide income and growth of capital by investing
primarily in a diversified portfolio of income-producing equity
securities, including convertible securities; and
FIRST PRIORITY GROWTH FUND ("GROWTH FUND" FORMERLY FIRST PRIORITY EQUITY
FUND)--seeks to provide growth of capital and income by investing
principally in a diversified portfolio of common stocks of companies
with market capitalization of at least $250 million;
The new names more accurately reflect the management styles of the Growth Fund
and the Value Fund.
Each Fund is designed for institutions and individuals as a convenient means of
accumulating an interest in a professionally managed portfolio. A minimum
initial investment of $1,000 generally is required for each of the Funds; a
$25,000 minimum initial investment is required for Trust Shares of Treasury
Money Market Fund. First Alabama Bank ("Adviser") is the investment adviser to
the Funds.
Treasury Money Market Fund attempts to stabilize the value of its shares at
$1.00, and shares are sold and redeemed at that price. Shares of the other Funds
are sold at net asset value plus an
applicable sales charge (except as otherwise noted in this prospectus) and
redeemed at net asset value, which will fluctuate.
RISK FACTORS. Investors should be aware of the following general
considerations. The market value of fixed-income securities, which constitute a
major part of the investments of several Funds, may vary inversely in response
to changes in prevailing interest rates. The market value of the equity
securities in which some of the Funds invest will also fluctuate, and the
possibility exists that the value of common stocks could decline over short or
even extended periods of time. The Value Fund and the Balanced Fund each may
invest significantly in convertible securities that are rated below investment
grade and thus may carry additional risks. The foreign securities in which
several Funds may invest may be subject to certain risks in addition to those
inherent in domestic investments. One or more Funds may make certain investments
and employ certain investment techniques that involve other risks, including
entering into repurchase agreements, lending portfolio securities and entering
into futures contracts and related options as hedges. These risks and those
associated with investing in mortgage-backed securities, when-issued securities,
options and variable rate securities are described under "Objective of Each
Fund" and "Portfolio Investments and Strategies," and the SAI.
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
TREASURY MONEY LIMITED
MARKET FUND MATURITY
TRUST INVESTMENT GOVERNMENT
SHARES SHARES FUND
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)....................................... None None 3.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)....................................... None None None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable).................................... None None None
Redemption Fees (as a percentage of amount redeemed,
if applicable)............................................................ None None None
Exchange Fee................................................................ None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)*
Management Fee (after waiver)............................................... 0.25%(1) 0.25%(1) 0.70%
12b-1 Fee (2)............................................................... None 0.40% 0.00%
Total Other Expenses........................................................ 0.32% 0.32% 0.38%
Total Annual Fund Operating Expenses................................ 0.57%(3) 0.97%(3) 1.08%
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
FIXED
INCOME GROWTH VALUE BALANCED
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................... 4.75% 4.75% 4.75% 4.75%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................... None None None None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)........................... None None None None
Redemption Fees (as a percentage of amount redeemed, if applicable)...... None None None None
Exchange Fee............................................................. None None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)*
Management Fee (after waiver)............................................ 0.75% 0.80% 0.80% 0.80%
12b-1 Fee (2)............................................................ 0.00% 0.00% 0.00% 0.00%
Total Other Expenses..................................................... 0.27% 0.27% 0.46% 0.41%
Total Annual Fund Operating Expenses................................. 1.02% 1.07% 1.26% 1.21%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of all
or of a portion of the management fee. The adviser may terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.50% for the Treasury Money Market Fund--Trust Shares and Investment
Shares.
(2) The Limited Maturity Government Fund, Fixed Income Fund, Growth Fund, Value
Fund, and Balanced Fund have no intention of paying or accruing 12b-1 fees
during the fiscal year ending November 30, 1996. If these Funds were paying
or accruing 12b-1 fees, the Limited Maturity Government Fund would be able
to pay up to 0.25% of its daily net assets, and the Fixed Income Fund, the
Growth Fund, the Value Fund, and the Balanced Fund would be able to pay up
to 0.30% of their daily net assets for 12b-1 fees.
(3) Absent the voluntary waiver as described in footnote number one above, the
Annual Fund Operating Expenses would be 0.82% for the Treasury Money Market
Fund--Trust Shares and 1.22% for the Treasury Money Market Fund--Investment
Shares.
* The Annual Fund Operating Expenses for the fiscal year ended November 30,
1995 were: 0.33% for the Treasury Money Market Fund--Trust Shares; 0.73% for
the Treasury Market Fund--Investment Shares; 0.61% for the Limited Maturity
Government Fund; 1.02% for the Fixed Income Fund; 1.03% for the Growth Fund;
0.69% for the Value Fund; and 0.61% for the Balanced Fund. The Annual Fund
Operating Expenses in the table above reflect an anticipated reduction in the
voluntary waiver of the management fee for the fiscal year ending November
30, 1996. During the course of this period expenses may be more or less than
the average amounts shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN THE FUNDS WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "FIRST PRIORITY FUNDS INFORMATION", "INVESTING IN THE FUNDS", AND
THE SAI.
LONG-TERM INVESTORS IN INVESTMENT SHARES OF THE TREASURY MONEY MARKET FUND
MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGE
PERMITTED UNDER THE RULES OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS,
INC. ("NASD"). HOWEVER, IN ORDER FOR A FUND INVESTOR TO EXCEED THE NASD'S
MAXIMUM FRONT-END SALES CHARGE OF 6.25%, A CONTINUOUS INVESTMENT IN THE FUND FOR
42 YEARS WOULD BE REQUIRED.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
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 a maximum sales load of 3.50% or 4.75%, if applicable. The Funds
charge no redemption fees.
Treasury Money Market Fund--Trust Shares.................................. $ 6 $ 18 $ 32 $ 71
Treasury Money Market Fund--Investment Shares............................. $ 10 $ 31 $ 54 $ 119
Limited Maturity Government Fund.......................................... $ 46 $ 68 $ 92 $ 162
Fixed Income Fund......................................................... $ 57 $ 78 $ 101 $ 166
Growth Fund............................................................... $ 58 $ 80 $ 103 $ 170
Value Fund................................................................ $ 60 $ 85 $ 113 $ 191
Balanced Fund............................................................. $ 59 $ 84 $ 110 $ 185
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
[THIS PAGE INTENTIONALLY LEFT BLANK]
FIRST PRIORITY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche LLP, the Trust's
independent auditors. Their report dated January 12, 1996 on the Trust's
Financial Statements for the year ended November 30, 1995 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Trust's Financial Statements and notes thereto,
which may be obtained free of charge from the Trust.
<TABLE>
<CAPTION>
NET REALIZED DISTRIBUTIONS
AND DISTRIBUTIONS TO SHAREHOLDERS DISTRIBUTIONS
NET ASSET UNREALIZED TO SHAREHOLDERS FROM NET TO SHAREHOLDERS
VALUE, NET GAIN/(LOSS) TOTAL FROM FROM NET REALIZED GAIN IN EXCESS OF
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT ON INVESTMENT NET INVESTMENT
YEAR ENDED NOVEMBER 30, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME TRANSACTIONS INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND--
TRUST SHARES
1992(a) 1.00 0.02 -- 0.02 (0.02) -- --
1993 1.00 0.03 -- 0.03 (0.03) -- --
1994 1.00 0.04 -- 0.04 (0.04) -- --
1995 1.00 0.05 -- 0.05 (0.05) -- --
TREASURY MONEY MARKET FUND--
INVESTMENT SHARES
1992(a) 1.00 0.01 -- 0.01 (0.01) -- --
1993 1.00 0.02 -- 0.02 (0.02) -- --
1994 1.00 0.03 -- 0.03 (0.03) -- --
1995 1.00 0.04 -- 0.04 (0.04) -- --
LIMITED MATURITY GOVERNMENT FUND
1994(b) 10.00 0.42 (0.40) 0.02 (0.42) -- --
1995 9.60 0.51 0.44 0.95 (0.51) -- --
FIXED INCOME FUND--
TRUST SHARES
1992(c) 9.90 0.38 0.37 0.75 (0.38) -- --
1993 10.27 0.51 0.50 1.01 (0.51) (0.10) --
1994 10.67 0.54 (1.01) (0.47 ) (0.53) (0.20) (0.01)(h)
1995(d) 9.46 0.09 0.11 0.20 (0.09) -- --
FIXED INCOME FUND--
INVESTMENT SHARES
1992(c) 9.90 0.37 0.37 0.74 (0.37) -- --
1993 10.27 0.48 0.50 0.98 (0.48) (0.10) --
1994 10.67 0.51 (1.01) (0.50) (0.50) (0.20) (0.01)(h)
1995 9.46 0.52 0.90 1.42 (0.54) -- --
</TABLE>
(a) Reflects operations for the period from April 14, 1992 (date of initial
public investment) to November 30, 1992.
(b) Reflects operations for the period from December 12, 1993 (date of initial
public investment) to November 30, 1994.
(c) Reflects operations for the period from April 20, 1992 (date of initial
public investment) to November 30, 1992.
(d) Reflects operations for the two month period ended January 31, 1995. Prior
to February 1, 1995, Fixed Income Fund and Equity Fund were offered in two
classes of shares: Trust Shares and Investment Shares. On February 1, 1995,
all outstanding Trust Shares of Fixed Income Fund and Equity Fund were
converted to Investment Shares and these Funds no longer offer Trust Shares.
(e) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(f) Computed on an annualized basis.
(g) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(h) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
Further information about the Funds' performance is contained in the Trust's
Combined Annual Report dated November 30, 1995, which can be obtained free of
charge.
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS NET ASSETS,
NET ASSET NET END OF
TOTAL VALUE, END TOTAL INVESTMENT EXPENSE PERIOD (000 PORTFOLIO
DISTRIBUTIONS OF PERIOD RETURN (E) EXPENSES INCOME WAIVER (G) OMITTED) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
(0.02) 1.00 2.06% 0.29%(f) 3.20%(f) 0.53%(f) $ 86,616 --
(0.03) 1.00 2.75% 0.38% 2.72% 0.46% $ 88,510 --
(0.04) 1.00 3.59% 0.32% 3.49% 0.50% $ 91,008 --
(0.05) 1.00 5.48% 0.33% 5.35% 0.50% $109,368 --
(0.01) 1.00 1.83% 0.74%(f) 2.58%(f) 0.53%(f) $ 23,578 --
(0.02) 1.00 2.34% 0.78% 2.33% 0.46% $ 23,795 --
(0.03) 1.00 3.18% 0.72% 3.09% 0.50% $ 16,571 --
(0.04) 1.00 5.06% 0.73% 4.98% 0.50% $ 28,930 --
(0.42) 9.60 0.19% 0.38%(f) 4.45%(f) 0.70%(f) $ 48,526 3%
(0.51) 10.04 10.12% 0.61% 5.26% 0.49% $ 63,078 26%
(0.38) 10.27 7.66% 0.77%(f) 6.02%(f) 0.29%(f) $ 96,354 44%
(0.61) 10.67 10.14% 0.84% 4.80% 0.25% $169,881 83%
(0.74) 9.46 (4.55%) 0.79% 5.44% 0.25% $153,289 24%
(0.09) 9.57 2.11% 0.82%(f) 5.79%(f) 0.25%(f) -- --
(0.37) 10.27 7.48% 1.07%(f) 5.33%(f) 0.29%(f) $ 5,457 44%
(0.58) 10.67 9.81% 1.14% 4.40% 0.25% $ 12,519 83%
(0.71) 9.46 (4.83%) 1.09% 5.14% 0.25% $ 9,645 24%
(0.54) 10.34 15.37% 1.02% 5.25% -- $160,286 45%
</TABLE>
FIRST PRIORITY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche LLP, the Trust's
independent auditors. Their report dated January 12, 1996 on the Trust's
Financial Statements for the year ended November 30, 1995 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Trust's Financial Statements and notes thereto,
which may be obtained free of charge from the Trust.
<TABLE>
<CAPTION>
NET REALIZED DISTRIBUTIONS
AND DISTRIBUTIONS TO SHAREHOLDERS
NET ASSET UNREALIZED TO SHAREHOLDERS FROM NET
VALUE, NET GAIN/(LOSS) TOTAL FROM FROM NET REALIZED GAIN
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT ON INVESTMENT
YEAR ENDED NOVEMBER 30, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME TRANSACTIONS
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
GROWTH FUND--
TRUST SHARES
1992(a) 9.86 0.14 0.77 0.91 (0.11) --
1993 10.66 0.18 (0.03) 0.15 (0.18) (0.12)
1994 10.51 0.25 (0.10) 0.15 (0.23) (0.07)
1995(b) 10.36 0.08 0.02 0.10 (0.08) (0.33)
GROWTH FUND--
INVESTMENT SHARES
1992(a) 9.86 0.10 0.79 0.89 (0.09) --
1993 10.66 0.16 (0.04) 0.12 (0.15) (0.12)
1994 10.51 0.21 (0.09) 0.12 (0.20) (0.07)
1995 10.36 0.18 2.10 2.28 (0.21) (0.33)
VALUE FUND
1995(c) 10.00 0.40 1.98 2.38 (0.34) --
BALANCED FUND
1995(c) 10.00 0.44 1.38 1.82 (0.36) --
</TABLE>
(a) Reflects operations for the period from April 20, 1992 (date of initial
public investment) to November 30, 1992.
(b) Reflects operations for the two month period ended January 31, 1995. Prior
to February 1, 1995, Fixed Income Fund and Equity Fund were offered in two
classes of shares: Trust Shares and Investment Shares. On February 1, 1995,
all outstanding Trust Shares of Fixed Income Fund and Equity Fund were
converted to Investment Shares and these Funds no longer offer Trust
Shares.
(c) Reflects operations for the period from December 19, 1994 (date of initial
public investment) to November 30, 1995.
(d) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(e) Computed on an annualized basis.
(f) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Funds' performance is contained in the Trust's
Combined Annual Report dated November 30, 1995, which can be obtained free of
charge.
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS NET ASSETS,
NET ASSET NET END OF
TOTAL VALUE, END TOTAL INVESTMENT EXPENSE PERIOD (000 PORTFOLIO
DISTRIBUTIONS OF PERIOD RETURN (D) EXPENSES INCOME WAIVER (F) OMITTED) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
(0.11) 10.66 9.28% 0.76%(e) 2.28%(e) 0.35%(e) $102,822 30%
(0.30) 10.51 1.43% 0.84% 1.85% 0.30% $154,185 74%
(0.30) 10.36 1.42% 0.79% 2.32% 0.30% $143,876 66%
(0.41) 10.05 1.00% 0.83%(e) 2.76%(e) 0.30%(e) -- --
(0.09) 10.66 9.14% 1.07%(e) 1.85%(e) 0.35%(e) $ 3,132 30%
(0.27) 10.51 1.13% 1.14% 1.59% 0.30% $ 7,004 74%
(0.27) 10.36 1.11% 1.09% 2.02% 0.30% $ 6,131 66%
(0.54) 12.10 23.01% 1.03% 1.61% 0.05% $154,297 110%
(0.34) 12.04 24.14% 0.69%(e) 3.93%(e) 0.55%(e) $ 45,424 76%
(0.36) 11.46 18.50% 0.61%(e) 4.34%(e) 0.56%(e) $ 51,197 49%
</TABLE>
OBJECTIVE OF EACH FUND
- --------------------------------------------------------------------------------
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
Unless indicated otherwise, the investment policies of a Fund may be changed by
the Board of Trustees ("Trustees") without approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
Additional information about acceptable investments, investment limitations,
strategies that one or more Funds may employ, and certain investment policies
mentioned below appears in the "Portfolio Investments and Strategies" section of
this prospectus and in the SAI.
TREASURY MONEY MARKET FUND
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of Treasury Money
Market Fund is to provide current income consistent with stability of principal
and liquidity. The Fund attempts to achieve its investment objective by
investing primarily in a portfolio of short-term U.S. Treasury Obligations which
are issued by the U.S. government and are fully guaranteed as to payment of
principal and interest by the United States.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in U.S. Treasury obligations
maturing in thirteen months or less. The average maturity of the U.S. Treasury
obligations in the Fund's portfolio, computed on a dollar-weighted basis, will
be 90 days or less.
The Fund will primarily limit its investments to U.S. Treasury obligations, the
interest on which is exempt from personal income tax in the various states if
owned directly. The Fund may also invest in securities of other investment
companies and engage in when-issued and delayed delivery transactions. See
"Portfolio Investments and Strategies."
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," and "Restricted and Illiquid Securities," and in the
SAI.
LIMITED MATURITY GOVERNMENT FUND
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of Limited Maturity
Government Fund is to achieve current income. The Fund pursues its investment
objective by investing primarily in securities which are guaranteed as to
payment of principal and interest by the U.S. government or U.S. government
agencies or instrumentalities. Under normal circumstances, the Fund will invest
at least 65% of the value of its total assets in U.S. government securities. The
Fund may also invest in other types of securities, as noted below. As stated in
the Fund's name, the Fund has a policy of limiting its dollar-weighted average
portfolio maturity. Specifically, the Fund intends to maintain a dollar-weighted
average portfolio maturity between two and five years, although the Fund may
purchase individual securities with longer maturities.
The net asset value of the Fund is expected to fluctuate with changes in
interest rates and bond market conditions. However, due to the limitation on the
Fund's average maturity, this fluctuation should be more moderate than that of a
mutual fund with a longer average portfolio maturity. The Adviser will attempt
to minimize principal fluctuation through, among other things, diversification,
careful credit analysis and security selection, and adjustments of the Fund's
average portfolio maturity.
ACCEPTABLE INVESTMENTS. In addition to U.S. government securities, the
permitted investments include, but are not limited to the following: corporate
debt obligations, municipal debt obligations, asset-backed securities,
mortgage-backed securities (including ARMS, CMOs, and REMICs) and bank
instruments, all of which are described below under "Portfolio Investments and
Strategies."
In addition, the Fund may engage in when-issued and delayed delivery
transactions, and invest in repurchase agreements, restricted and illiquid
securities, securities of other investment companies, securities of foreign
issuers, and may lend portfolio securities on a short-term or long-term basis.
See "Portfolio Investments and Strategies."
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," "Restricted and Illiquid Securities"
and "Investing in Securities of New Issuers," and in the SAI.
FIXED INCOME FUND
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of Fixed Income
Fund is to achieve current income with a secondary objective of capital
appreciation by investing in a broad range of high grade debt securities. Under
normal circumstances, at least 65% of the value of the Fund's total assets will
be invested in fixed-rate bonds and debentures. The Fund intends to maintain a
dollar-weighted average portfolio maturity of between three and twelve years
under normal market conditions.
ACCEPTABLE INVESTMENTS. The Fund will only invest its assets in securities
which are rated at the time of purchase "A" or higher by Moody's Investors
Service, Inc. ("Moody's"), Standard & 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 Adviser.
The Fund's debt securities may include fixed rate, adjustable rate or stripped
bonds, debentures, notes, U.S. government securities, asset-backed (including
various mortgage-related) securities, debt securities convertible into, or
exchangeable for, preferred or common stock and municipal debt obligations.
The Fund may also invest in preferred stock and units, which are debt securities
with stock or warrants to buy stock attached. In addition, the Fund may write
covered call options and put options and may purchase call and put options. The
Fund will not invest in securities judged to be speculative or of poor quality,
but may invest in high grade securities as described herein.
The permitted investments include, but are not limited to:
domestic issues of corporate debt obligations having floating or fixed
rates of interest and rated at the time of purchase in one of the three
highest categories by a nationally recognized
statistical rating organization (a "NRSRO") (rated Aaa, Aa, or A by
Moody's; AAA, AA, or A by S&P; or AAA, AA, or A by Fitch) or which, if
unrated, are of comparable quality in the judgment of the Adviser;
asset-backed securities, rated in one of the three highest categories by
a NRSRO, or which are of comparable quality in the judgment of the
Adviser;
notes, bonds, and discount notes of the U.S. government or its agencies
or instrumentalities;
commercial paper which matures in 270 days or less that has received high
quality ratings by at least two NRSROs. Such ratings would include:
Prime-1 or Prime-2 by Moody's, A-1 or A-2 by S&P, or F-1 or F-2 by Fitch;
and
bank instruments.
In addition, the Fund may engage in when-issued and delayed delivery
transactions, purchase put options on its portfolio securities as a hedge to
attempt to protect those securities against decreases in value, write covered
call options and put options on all or any portion of its portfolio to generate
income, write call options and purchase put options on futures, invest in
financial futures, restricted and illiquid securities, repurchase agreements,
securities of other investment companies, and may lend portfolio securities on a
short-term or long-term basis. See "Portfolio Investments and Strategies."
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Lending of Portfolio Securities," "Diversification,"
"Restricted and Illiquid Securities" and "Investing in Securities of New
Issuers," and in the SAI.
BALANCED FUND
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of Balanced Fund is
-
to provide total return through capital appreciation, dividends, and interest.
The Fund pursues its investment objective by investing primarily in a
professionally managed and diversified portfolio of common stocks, preferred
stocks, fixed-income senior 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 fixed-income senior securities
and at least 25% of its assets in common stocks. The remaining 50% may be
invested in debt securities, common stocks, warrants, or other investments as
described below under "Acceptable Investments" as determined by the Adviser
based on the Adviser's assessment of the economy and the markets. The Adviser
may shift between types of investments to attempt to maximize returns or reduce
risk to the Fund.
ACCEPTABLE INVESTMENTS. The Fund's acceptable investments are as follows:
-
COMMON AND PREFERRED STOCKS. The Fund will invest in common and preferred
-
stocks of companies selected by the 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 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.
DEBT SECURITIES. The Fund will only invest in debt securities which are
-
rated "A" or better, at the time of purchase, by Moody's, S&P, or Fitch, or
which, if unrated, are deemed to be of comparable quality by the Adviser.
The Fund's debt securities may include fixed rate or adjustable rate bonds,
debentures, notes, U.S. government securities, municipal debt obligations
and asset-backed (including various mortgage-related) securities. The Fund
may also invest in preferred stocks and units, which are debt securities
with stock or warrants to buy stock attached.
The permitted investments include, but are not limited to:
domestic issuers of corporate debt obligations having floating or
fixed rates of interest;
asset-backed (including various mortgage-related) securities rated
"A" or better by an NRSRO;
notes, bonds, and discount notes of the U.S. government or its
agencies or instrumentalities;
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);
bank instruments; and
stripped bonds.
The Fund may engage in lending of portfolio securities and when-issued and
delayed delivery transactions. In addition, the Fund may invest in securities of
other investment companies, put and call options, financial futures and options
on futures, securities of foreign issuers, and repurchase agreements. See
"Portfolio Investments and Strategies."
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
-
under "Borrowing Money," "Diversification," "Restricted and Illiquid Securities"
and "Investing in Securities of New Issuers," and in the SAI.
VALUE FUND
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of Value Fund is to
-
provide income and growth of capital. 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, warrants, 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 Adviser'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.
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 Value Fund invests in common and
-
preferred stocks in those sectors of the economy that the Adviser has
identified as showing the best potential for investment given the current
phase of the business cycle and the expected behavior of the economy. In
selecting investments for the Fund, sector weighting takes precedence over
individual security selection, and current and predicted valuation levels
take precedence over earnings growth prospects. Research is done to
identify those sectors of the economy which will likely underperform or
outperform based on the current and expected behavior of the economy and
valuation levels for industry groups or sectors. Companies selected are
expected to have an increase in earnings or some other event to cause
expected value to be realized. Stocks selected for investment will tend to
have financial ratios (such as price-to-earnings and price-to-book values)
below the broad market. Dividend yields will generally be high relative to
the broader market.
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 $500 million, with the exception of common
stocks acquired through the conversion of a convertible security, to which
no market capitalization threshold is applied.
As a general matter, the Adviser will look to invest in companies that
exhibit some or all of the following factors: operate in understandable
businesses; have recurring revenue streams (due to established customer
bases); dominate or enjoy significant market share in their industry; have
some ability to control the prices of their goods or services; have cash
flow available for distribution to shareholders or to reduce corporate
debt; have rising or stable operating margins; have good management; are
expected to benefit from increased earnings; and enjoy growth in sales.
When stocks are purchased, the Adviser will consider future expected value.
As holdings approach these values they will be re-evaluated and sold unless
there is justification to change the valuation level. The Adviser also
considers these factors when making investment decisions for the Growth
Fund, which is described below.
The Fund may also engage in lending of portfolio securities and when-issued and
delayed delivery transactions. In addition, the Fund may invest in zero coupon
convertible securities, corporate debt securities, financial futures and options
on futures, temporary investments, put and call options (including market index
options and writing straddles), securities of other investment companies,
securities of foreign issuers, U.S. government securities, and repurchase
agreements. See "Portfolio Investments and Strategies."
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," "Restricted and Illiquid Securities"
and "Investing in Securities of New Issuers," and in the SAI.
GROWTH FUND
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of Growth Fund is
to provide growth of capital and income. The Fund pursues its investment
objective by investing principally in a professionally managed and diversified
portfolio of common stock of companies with market capitalization of at least
$250 million. Under normal market conditions, the Fund intends to invest at
least 65% of its assets in equity securities. As a general matter, the Fund
expects these investments to generate income.
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 STOCKS. The Growth Fund invests in stocks in those sectors of the
-
economy where it is expected that growth in earnings will cause the stocks
to perform favorably. Research is done to identify those sectors that will
exhibit favorable earnings growth given the current phase and expected
behavior of the economy and business cycle. Future growth prospects take
precedence over current valuation levels in the stock selection process,
with an emphasis on sector weightings rather than individual stock
selection. Stocks selected for investment will tend to have relatively
large market capitalizations and exhibit financial ratios (including
price-to-earnings, price-to-book values, return on assets values, and
growth in earnings) greater than those of the general U.S. equity market,
although their actual dividend yields may be below those of the broader
market. Dividend yield will be used as a selection criteria for stocks held
in the Growth Fund. As a general matter, the Adviser will look to invest in
companies that exhibit the same factors discussed above with respect to the
Value Fund.
OTHER CORPORATE SECURITIES. The Fund may invest in preferred stocks,
-
convertible securities, notes rated "A" or better by Moody's, S&P, or Fitch, and
warrants of these companies.
The Fund may also engage in lending of portfolio securities and when-issued and
delayed delivery transactions. The Fund may purchase put options on its
portfolio securities as a hedge to attempt to protect those securities against
decreases in value. The Fund may also write covered call options on all or any
portion of its portfolio to generate income. In addition, the Fund may also
invest in U.S. government securities, financial futures and options on futures,
temporary investments, securities of other investment companies, securities of
foreign issuers, and repurchase agreements. See "Portfolio Investments and
Strategies."
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
-
under "Borrowing Money," "Lending of Portfolio Securities," "Diversification,"
"Investing in Securities of New Issuers," and "Restricted and Illiquid
Securities," and in the SAI.
PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------
DEBT SECURITIES--RATINGS AND INVESTMENT CONSIDERATIONS
Unless noted otherwise, the Funds 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, S&P, or Fitch), or
which, if unrated, are deemed to be of comparable quality by the Adviser. If a
debt security's rating falls below "A" after a Fund has purchased it, the Fund
is not required to drop the debt security from its portfolio, but will consider
appropriate action. Debt securities may include fixed rate or adjustable rate
bonds, debentures, and notes of U.S. or foreign
corporations; U.S. government securities; and asset-backed (including various
mortgage-related) securities. The prices of fixed-income securities fluctuate
inversely to the direction of interest rates.
When the Adviser selects debt securities for a Fund, it will consider the
ratings of a NRSRO 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
investments in particular securities or in types of debt securities in response
to its appraisal of changing economic conditions and trends. The Funds may sell
one security and purchase another security of comparable quality and maturity to
take advantage of what the Adviser believes to be short-term differentials in
market values or yield disparities.
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. Non-mortgage related
asset-backed securities include, but are 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 CMOs and
mortgage pass-through securities, which are described below.
MORTGAGE-RELATED ASSET-BACKED SECURITIES. A number of the Funds may also
invest in various mortgage-related asset-backed securities. These types of
investments may include ARMS, CMOs, REMICs, 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 a Fund may invest 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 collateralize 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 a 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.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). 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 Funds 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 ("REMICS"). 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 a 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.
STRIPPED BONDS
Fixed Income Fund and Balanced Fund may purchase debt obligations that have been
stripped of their unmatured interest coupons by the holder and the stripped
coupons are sold separately. The principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a
future fixed payment on the security and does not receive any rights to periodic
cash interest payments. Once stripped or separated, the corpus and coupons may
be sold separately. Typically, the coupons are sold separately or grouped with
other coupons with like maturity dates and sold in such bundled form. Purchasers
of stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero-coupon securities issued directly by the
obligor.
U.S. GOVERNMENT SECURITIES
The U.S. government securities in which the Funds invest (except for the
Treasury Money Market Fund, which invests primarily in direct obligations of the
U.S. Treasury) are either issued or guaranteed by the U.S. government, its
agencies or instrumentalities. These securities include, but are not limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds; and
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; the Farm
Credit system including the National Bank for Cooperatives, Farm Credit
Banks, and Banks for Cooperatives; 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 GNMA 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:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality issuing the obligation.
BANK INSTRUMENTS
The bank instruments in which the Funds may invest include, but are not limited
to: 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, 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.
EQUITY INVESTMENT CONSIDERATIONS
The Growth Fund, Value Fund, and Balanced Fund, as with other mutual funds that
invest in equity securities, are subject to market risks. Since equity markets
tend to be cyclical, the possibility exists that common stocks could decline
over short or even extended periods of time. There are some additional risk
factors associated with investments in these Funds because these Funds may
invest
in small-to-medium capitalization stocks. In particular, although their
potential for growth may be greater, stocks in the small-to-medium
capitalization sector of the United States equity market tend to be slightly
more volatile in price than larger capitalization stocks, such as those included
in the S&P 500 Index. This is because, among other things, small-to-medium-sized
companies have less certain growth prospects than larger companies, have a lower
degree of liquidity in the equity market, and tend to have a greater sensitivity
to changing market conditions. Further, in addition to exhibiting slightly
higher volatility, the stocks of small-to-medium-sized companies may, to some
degree, fluctuate independently of the stocks of larger companies. That is, the
stocks of small-to-medium-sized companies may decline in price as the price of
large company stocks rises or vice versa. Therefore, investors should expect
that these Funds will be slightly more volatile than, and may fluctuate
independently of, broad stock market indices such as the S&P 500 Index. While
these Funds may invest in stocks of small-to-medium-sized companies, the Funds'
portfolio managers have no present intention of emphasizing investment in such
stocks.
SECURITIES OF FOREIGN ISSUERS
The Growth Fund, Value Fund, and Balanced 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. These Funds,
along with the Limited Maturity Government Fund and Fixed Income Fund, may also
invest in debt securities of foreign issuers. 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, a Fund will not invest in the securities of a foreign issuer if any
such risk appears to the Adviser to be substantial.
CONVERTIBLE SECURITIES
Convertible securities (which may be purchased only by the Fixed Income Fund,
Growth Fund, Value Fund, and Balanced Fund) 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. A 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 a Fund except as
mentioned below, but the 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.
A 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 a Fund in achieving its investment objective. Otherwise, a Fund will
hold or trade the convertible securities. In selecting convertible securities
for a Fund, the 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.
The Value Fund and Balanced Fund may each invest up to 25% of the value of its
total assets in convertible securities rated below investment grade. These Funds
will not invest in convertible securities rated below "B" by S&P or Moody's at
the time of investment or, if unrated, of comparable quality. Securities rated
"B" by S&P or Moody's either have speculative characteristics or are
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. If a convertible
security rating falls below "B" after a Fund has purchased it, the Fund is not
required to drop the convertible security from its portfolio, but will consider
appropriate action. Obligations that are not determined to be investment grade
are typically subject to greater market fluctuations and securities in the
lowest rating category may be in danger of loss of income and principal due to
an issuer's default. To a greater extent than investment grade securities, the
value of lower-rated securities tends to reflect short-term corporate, economic,
and market developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower-rated securities may be more difficult to dispose of
or to value than investment grade securities.
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, a 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.
PUT AND CALL OPTIONS
The Fixed Income Fund, Growth Fund, Value Fund, and Balanced Fund may write
(i.e., sell) covered call and put options on all or any portion of their
portfolios to generate income. By writing a call option, a Fund becomes
obligated during the term of the option to deliver the securities underlying the
option upon payment of the exercise price. By writing a put option, a Fund
becomes obligated during the term of the option to purchase the securities
underlying the option at the exercise price if the option is exercised. These
Funds may also write straddles (combinations of covered puts and calls on the
same underlying security).
The Funds may only write "covered" options. This means that, so long as a 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).
A 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 Funds 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 Funds will purchase options only to the extent permitted by the policies of
state securities authorities in states where shares of the Funds are qualified
for offer and sale. A 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 Funds 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 Funds purchase and write options only with investment
dealers and other financial institutions (such as commercial banks or savings
associations) deemed creditworthy by the 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 Funds 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
Each Fund (except Treasury Money Market Fund and Limited Maturity Government
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 Funds 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 Funds 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 a 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 Value Fund and Balanced Fund may also write put options and purchase call
options on futures contracts as hedges against rising purchase prices of
portfolio securities. These Funds will use these transactions to attempt to
protect their ability to purchase portfolio securities in the future at price
levels existing at the time they enter into the transactions. When these Funds
write a put option on a futures contract, they are 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, these Funds are entitled (but not obligated) to purchase a futures
contract at a fixed price at any time during the life of the option.
A 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 a 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 a 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 Adviser could be incorrect in its expectations
about the direction or extent of market factors such as stock price
movements. In these events, a 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 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. A Fund's ability
to establish and close out futures and options depends on this secondary market.
INVESTING IN SECURITIES OF NEW ISSUERS
The Funds will not invest more than 5% of their respective total assets in
securities of issuers that have records of less than three years of continuous
operations, including the operation of any predecessor. (This limitation will be
applied with respect to issuers of CMOs, or other asset-backed securities,
rather than with reference to the CMO or other asset-backed security itself.)
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds may invest in securities of other investment companies, but a Fund
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 Funds 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 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
Funds in shares of another investment company would be subject to such expenses.
DERIVATIVE CONTRACTS AND SECURITIES
The term "derivative" has traditionally been applied to certain contracts
(including, futures, forward, option and swap contracts) that "derive" their
value from changes in the value of an underlying security, currency, commodity
or index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives". The
term has also been applied to securities "derived" from the cash flows from
underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response of
certain derivative contracts and securities to market changes may differ from
traditional investments, such as stock and bonds, derivatives do
not necessarily present greater market risks than traditional investments. The
Funds will only use derivative contracts for the purpose disclosed in the
applicable sections above. To the extent that the Funds invest in securities
that could be characterized as derivatives, such as futures, asset-backed
securities, and mortgage-backed securities, including CMOs, they will only do so
in a manner consistent with their investment objectives, policies and
limitations.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which a Fund purchases securities with
payment and delivery scheduled for a future time. In when-issued and delayed
delivery transactions, the Funds rely on the seller to complete the transaction.
The seller's failure to complete these transactions may cause a 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 Funds
may pay more/less than the market value of the securities on the settlement
date.
The Funds may dispose of a commitment prior to settlement if the Adviser deems
it appropriate to do so. In addition, the Funds 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. A Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate income, each of the Funds (except the Treasury Money Market
Fund) may lend portfolio securities on a short-term or long-term basis, up to
one-third of the value of its respective total assets to broker/dealers, banks,
or other institutional borrowers of securities. The Funds 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
Board of Trustees and 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. This policy cannot be changed without the approval of
holders of a majority of a Fund's shares. There is the risk that when lending
portfolio securities, the securities may not be available to a Fund on a timely
basis and the Fund may, therefore, lose the opportunity to sell the securities
at a desirable price. In addition, in the event that a borrower of securities
would file for bankruptcy or become insolvent, disposition of the securities may
be delayed pending court action.
REPURCHASE AGREEMENTS
Each Fund (except the Treasury Money Market Fund) may invest in 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 a 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 a Fund, the Fund could
receive less than the repurchase price on any sale of such securities.
TEMPORARY INVESTMENTS
With respect to the Value Fund, for temporary defensive purposes (up to 100% of
its total assets) and to maintain liquidity (up to 35% of its total assets),
and, with respect to the Growth Fund, for temporary defensive purposes in such
proportions as, in the judgment of the Adviser, prevailing market conditions
warrant, the Growth Fund and Value Fund may invest in cash and cash items,
including:
short-term money market instruments;
securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities; and
repurchase agreements.
BORROWING MONEY
The Funds will not borrow money directly or through reverse repurchase
agreements (arrangements in which a Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date) or
pledge securities except, under certain circumstances, a Fund may borrow up to
one-third of the value of its total assets. (The Treasury Money Market Fund and
Growth Fund will not borrow through the use of reverse repurchase agreements.)
The Funds cannot pledge securities except to secure permitted borrowings. In
this regard, the Treasury Money Market Fund, Limited Maturity Government Fund,
Fixed Income Fund, and Growth Fund are limited to pledging up to 10% of the
value of their respective total assets to secure such borrowings. This policy
cannot be changed without the approval of holders of a majority of a Fund's
shares.
DIVERSIFICATION
Each Fund will not, 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. In addition, each Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer. This policy cannot be changed
without the approval of holders of a majority of a Fund's shares.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund (except the Treasury Money Market Fund) may invest in restricted
securities. This restriction is not applicable to commercial paper issued under
Section 4(2) of the Securities Act of 1933. The Limited Maturity Government
Fund, Fixed Income Fund, Growth Fund, Value Fund and Balanced Fund may invest up
to 10% of their total assets in such securities. Restricted securities are any
securities in which a Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restriction on resale under
federal securities law.
Each of the Funds (except the Treasury Money Market Fund and Growth Fund) will
limit investments in illiquid securities including, as applicable, certain
restricted securities not determined by the Trustees to be liquid,
non-negotiable time deposits, repurchase agreements providing for settlement in
more than seven days after notice, and over-the-counter options to 15% of their
respective net assets. The Treasury Money Market Fund and Growth Fund will limit
investments in illiquid obligations to 10% of their respective net assets.
Each of the Funds (except the Treasury Money Market 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 Funds, 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 Funds through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) commercial paper, thus
providing liquidity.
FIRST PRIORITY FUNDS INFORMATION
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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 Funds are made by First Alabama Bank ("First
Alabama" or the "Adviser"), as the Funds' Adviser, subject to direction by the
Trustees. The Adviser continually conducts investment research and supervision
for the Funds and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the assets of each Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to a Fund's average daily net assets as follows: Treasury Money
Market Fund--0.50%; Limited Maturity Government Fund--0.70%; Fixed Income
Fund--0.75%; Growth Fund, Value Fund and Balanced Fund--0.80%. The fees for
Fixed Income Fund, Growth Fund, Value Fund and Balanced Fund, while higher
than the advisory fees paid by other mutual funds in general, are
comparable to fees paid by many mutual funds with similar investment
objectives and policies. The Adviser has undertaken to reimburse each Fund,
up to the amount of their respective 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 waivers 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 284 offices, Regions provides a
wide range of banking and fiduciary services to its customers. As of
December 31, 1995, Regions Financial Corp. was one of the 100 largest bank
holding companies in the United States with total assets in excess of $13.7
billion.
Regions is one of only nine banking companies in the nation to be named to
Keefe, Bruyette & Woods, Inc.'s 1995 Bank Honor Roll, which recognizes
companies that continually report annual increases in their earnings per
share. Also, Thomson BankWatch has given Regions Financial Corporation its
highest rating of "A", a distinction earned by less than 1% of U.S.
financial institutions. In addition, Veribanc, Inc. has designated Regions'
flagship bank, First Alabama Bank, as a Blue Ribbon Bank. The Blue Ribbon
rating symbol symbolizes excellence in asset quality, capital strength,
liquidity, and profitability, as well as other key financial thresholds. No
Blue Ribbon Bank has ever failed.
Regions Financial Corp.'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, 1995. It manages seven common trust funds and
collective investment funds having a market value in excess of $100 million
as of December 31, 1995. First Alabama has been Adviser to each of the
First Priority Funds since their inception with a market value in excess of
$610 million as of December 31, 1995.
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 a 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.
J. Kenneth Alderman, CFA, Age 43
Senior Trust Investment Officer
Manager of the Trust Investment Group; responsible for the comprehensive
investment policy of the group and the First Priority Family of Mutual
Funds. Experience: 12 years investment experience, including seven years of
investment experience with the Trust Department of First Alabama Bank; two
years commercial bank experience. Education: B.S., Accounting, Auburn
University, 1973 ; M.B.A., Florida State University, 1976; Certified Public
Accountant, 1975; National Graduate Trust School, 1985; Chartered Financial
Analyst, 1989. Affiliations: Member, Institute of Chartered Financial
Analysts, Association for Investment Management and Research, and American
Institute of Certified Public Accountants.
T. Jerry Harris, CFA, Age 47
Vice President and Trust Investment Officer
Responsible for the fixed income strategy for the Trust Investment Division
and management of the Fixed Income Common Trust Funds. He is responsible
for the day-to-day management of the First Priority Fixed Income Fund
(April, 1992). Also serves as a member of the Trust Investment Group as
portfolio manager. Experience: 19 years investment experience, specifically
investment analysis; nine years with First Alabama Bank, Education: B.S.,
Western Kentucky University, 1971; Certified Financial Planner, 1986;
Chartered Financial Analyst, 1991. Affiliations: Member, Institute for
Chartered Financial Analysts, Alabama Society of Financial
Analysts, Association for Investment Management & Research, and The
Institute of Certified Financial Planners.
Martha Davis Kelly, CFA, Age 46
Vice President and Trust Investment Officer
Responsible for equity strategy for the Trust Investment Division and is
responsible for the day-to-day management of the First Priority Growth Fund
(January, 1996). Also serves as an active member of the Trust Investment
Group as portfolio manager and analyst. Experience: 24 years investment
analysis and portfolio management. Joined First Alabama (January, 1996) to
bring additional expertise to Trust Investment Division. Previously had
been an institutional senior portfolio manager for a large national bank
headquartered in the Midwest and was responsible for the large
capitalization growth equity investment process. Education: B.A.,
Economics, Connecticut College, 1971; M.B.A., Finance, New York University
Graduate School of Business, 1982; Chartered Financial Analyst, 1985.
Affiliations: Member, Dallas Association of Investment Analysts and
Association of Investment Management and Research.
John M. Haigler, Age 55
Vice President & Trust Investment Officer
Responsible for management of Trust Departments' short-term income funds
and the First Priority Limited Maturity Government Fund (December, 1993).
Served as manager of the First Priority Treasury Money Market Fund from
inception (April, 1992) until taking over the new Limited Maturity
Government Fund in December, 1993. Also responsible for maintaining an
"Approved List" for Commercial Paper and Certificates of Deposits. Serves
as an active member of the Trust Investment Group as portfolio manager and
analyst. Experience: 19 years investment experience, 26 years with First
Alabama Bank. Education: B.A. Huntingdon College, 1963; Chartered Financial
Analyst (Level II). Affiliations: Member, Alabama Society of Financial
Analysts, and Association of Investment Management and Research.
John E. Steiner, Age 38
Vice President and Trust Investment Officer
Serves as an analyst and Director of Research for the Trust Investment
Division. Responsible for equity valuation discipline and day-to-day
management of the First Priority Balanced Fund. Served as portfolio manager
of the First Priority Treasury Money Market Fund from December, 1993 until
taking over the Balanced Fund. He actively manages employee benefit and
personal trust accounts as well as contributes to the formulation of equity
and fixed income strategies. Experience: ten years investment experience,
specifically Employee Benefits, Personal Trust, and Endowments; 12 years
with First Alabama Bank. Education: B.S., Industrial Management, Auburn
University, 1981: Level III candidate, Chartered Financial Analyst program.
Affiliations: Member, Alabama Society of Financial Analyst, and the
Association of Investment Management and Research.
B. Todd Golden, Age 26
Trust Investment Officer
Responsible for the day-to-day management of the First Priority Treasury
Money Market Fund (July, 1995). Also serves as "Office" and "Electrical
Equipment" industry analyst and is chairman of the Technology committee for
the Trust Investment Division. Experience: two years investment experience,
specifically equity evaluation, quantitative analysis, and research. Other
qualifications include money marker operations and personal trust
experience. Two years with First Alabama Bank. Education: B.S., Finance,
Auburn University, 1992; Level II Candidate, Chartered Financial Analyst
program.
James L. Savage, CFA, Age 30
Trust Investment Officer
Serves as portfolio manager for the Trust Investment Division and is
responsible for the day-to-day management of the First Priority Value Fund
(January, 1996). Also serves as an active member of the Trust Investment
Group as portfolio manager and analyst. Experience: six years investment
analysis and portfolio management. Joined First Alabama (November, 1995) to
bring further expertise to investment team. Previously had been a trust
portfolio manager for a large regional bank in the Southeast which utilized
a value style of equity management. Education: B.S., Finance, Auburn
University, 1987; M.S., Finance, Georgia State University, 1991; Chartered
Financial Analyst, 1995. Affiliations: Member, Alabama Society of Financial
Analysts, Association of Investment Management and Research.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the distributor for shares of the Funds. 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 PLAN. Under a distribution plan adopted in accordance with
Investment Company Act Rule 12b-1 (the "Distribution Plan"), each Fund (except
Trust Shares of the Treasury Money Market Fund) may pay to the distributor an
amount computed at an annual rate 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 in the following amounts: Treasury
Money Market Fund-- Investment Shares 0.40%; Limited Maturity Government
Fund--0.25%; Fixed Income Fund, Growth Fund, Value Fund and Balanced
Fund--0.30%.
The Funds (other than the Investment Shares of the Treasury Money Market 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.
Federated Securities Corp. may from time to time and for such periods as it
deems appropriate, voluntarily reduce its compensation under the Distribution
Plan to the extent the expenses attributable to the Funds exceed such lower
expense limitation as the distributor may, by notice to the Trust, voluntarily
declare to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales and/or administrative support services as agents for their clients or
customers who beneficially own shares of the Funds (except Trust Shares of the
Treasury Money Market Fund). Administrative services may include, but are not
limited to, the following functions: providing office space, equipment,
telephone facilities, and various personnel, including clerical, supervisory,
and computer, 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 regarding a Fund; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Funds may reasonably request.
Financial institutions will receive fees from the distributor 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
distributor.
The Distribution Plan is a compensation-type plan. As such, the Funds make no
payments to the distributor except as described above. Therefore, the Funds do
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Funds, 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 Funds
under the Distribution Plan.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings 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 FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Funds with
certain administrative personnel and services (including certain legal and
accounting services) necessary to operate the Funds. Federated Administrative
Services provides these at an annual rate as follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<S> <C>
.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
</TABLE>
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.
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 use 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 Funds and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Treasury Money Market Fund attempts to stabilize the net asset value of its
shares at $1.00 by valuing the portfolio securities using the amortized cost
method. The net asset value for each class of shares of Treasury Money Market
Fund is determined by adding the interest of that class of shares in the value
of all securities and other assets of the Fund, subtracting the interest of that
class of shares in the liabilities of the Fund and those attributable to that
class of shares, and dividing the remainder by the total number of that class of
shares outstanding. The Treasury Money Market Fund, of course, cannot guarantee
that its net asset value will always remain at $1.00 per share.
The net asset value per share of the other Funds fluctuates, and 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.
The net asset value of the Treasury Money Market Fund is determined 12:00 noon
and as of the close of trading (normally 4:00 p.m., Eastern time) on the New
York Stock Exchange, Monday through Friday, except on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
The net asset value of the other Funds is determined as of the close of trading
(normally 4:00 p.m., Eastern time) on the New York Stock Exchange, 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, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Trust Shares of the Treasury Money Market Fund
is $25,000. Subsequent investments may be made in any amounts. Trust Shares are
sold to trust accounts for which First Alabama or another financial institution
acts in a fiduciary or agency capacity. An institutional investor's minimum
investment will be calculated by combining all accounts it maintains with the
Trust Shares of the Fund.
The minimum initial investment in shares of the other Funds (including
Investment Shares of the Treasury Money Market Fund) by an investor is $1,000.
Subsequent investments in any Fund or class may be in any amounts. The Funds 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 any Fund (except for Trust Shares of the
Treasury Money Market 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
Trust Shares and Investment Shares of the Treasury Money Market Fund are sold at
their net asset value next determined after an order is received. There is no
sales charge imposed by the Fund.
Shares of the other Funds are sold at their net asset value next determined
after an order is received, plus a sales charge as follows:
Fixed Income Fund, Growth Fund, Value Fund, and Balanced Fund:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE SALES CHARGE AS A PERCENTAGE
AMOUNT OF TRANSACTION OF PUBLIC OFFERING PRICE OF NET AMOUNT INVESTED
<S> <C> <C>
Less than $100,000 4.75% 4.99%
$100,000 but less than $250,000 4.00% 4.17%
$250,000 but less than $500,000 3.00% 3.09%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million but less than $2 million 0.25% 0.25%
$2 million or more 0.00% 0.00%
</TABLE>
Limited Maturity Government Fund:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE SALES CHARGE AS A PERCENTAGE
AMOUNT OF TRANSACTION OF PUBLIC OFFERING PRICE OF NET AMOUNT INVESTED
<S> <C> <C>
Less than $100,000 3.50% 3.63%
$100,000 but less than $250,000 3.00% 3.09%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million but less than $2 million 0.25% 0.25%
$2 million or more 0.00% 0.00%
</TABLE>
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 and by First Priority Management Account customers.
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 Funds other than the Treasury Money
Market 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 a 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 a Fund.
The sales charge for shares sold other than through registered broker/dealers
will be retained by the distributor. The distributor may pay fees to banks out
of the sales charge in exchange for sales and/or administrative services
performed on behalf of the bank's customers in connection with the initiation of
customer accounts and purchases of shares.
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 a Fund's Distribution Plan.
SHARE PURCHASES. Fund shares are sold on days on which both 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 Regions
Investment Company, Inc. ("RICI"). 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. Each 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 at 1-800-433-2829. Other
customers may purchase shares by contacting their local RICI office or telephone
RICI 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. With respect to Treasury Money
Market Fund, purchase orders must be received by 11:00 a.m. (Central time) in
order to be credited on the same day. Payment is normally required on the same
business day. With respect to the other Funds, 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. (However, effective June 1, 1995, payment must be received
within three business days of receipt of the order).
CONVERSION TO FEDERAL FUNDS
It is the Funds' 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 acts as the shareholder's agent in
depositing checks and converting them to federal funds.
REDUCING THE SALES CHARGE
The sales charge, if applicable, can be reduced on the purchase of Fund shares
through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
purchases with proceeds from redemptions of unaffiliated mutual fund
shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce and can eliminate the sales charge paid. The Funds 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, a Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
shares of the Fixed Income Fund 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 4.00%, not 4.75%.
To receive the sales charge reduction, RICI 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, if
applicable, 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 4.75% 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 a 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. RICI 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 a 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 a 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 RICI 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 a 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 Investment Shares of Treasury Money Market Fund and shares of the
other Funds 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 shares of the Funds. Each 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 Funds, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not usually
issued.
DIVIDENDS AND CAPITAL GAINS
With respect to the Treasury Money Market Fund, dividends are declared daily and
paid monthly. Dividends will be reinvested in additional Fund shares on payment
dates unless cash payments are requested by writing to the Fund or RICI as
appropriate. Purchase orders received by 11:00 a.m. (Central time) with share
purchase settlements received by First Alabama Bank before 2:00 p.m. (Central
time), earn dividends that day. The amount of dividends payable to holders of
Investment Shares will be less than those payable to holders of Trust Shares due
to the difference between Class Expenses and distribution expenses borne by each
respective class. Capital gains, if any, could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, the Fund realizes net long-term capital gains, it will
distribute them at least once every twelve months.
With respect to the Limited Maturity Government Fund and Fixed Income Fund,
dividends are declared daily and paid monthly. With respect to the other Funds,
dividends are declared and paid quarterly. Dividends are declared just prior to
determining net asset value. Capital gains realized by a 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 RICI, 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 Funds 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 a 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
- --------------------------------------------------------------------------------
Each Fund redeems shares at its net asset value next determined after the Fund
receives the redemption request. 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 through RICI.
BY TELEPHONE
Trust customers may redeem shares of a Fund by contacting their Trust
Administrator. Other shareholders may redeem shares by telephoning their local
RICI office. For calls received by First Alabama and other Regions Banks before
3:00 p.m. (Central time) (or 11:00 a.m. (Central time) with respect to Treasury
Money Market Fund), 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, a 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 a 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 RICI. 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 RICI for assistance in redeeming by mail.
SIGNATURES. 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:
a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the FDIC;
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings association whose deposits are insured by the
SAIF, which is administered by the FDIC; or
any other "eligible guarantor institution" as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and the transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Funds may elect in the future to
limit eligible signature guarantors to
institutions that are members of a signature guarantee program. The Funds and
the 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 (or one business day with respect to the Treasury Money Market
Fund), 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.
CHECKWRITING. For information on the availability of checkwriting with respect
to shareholders of Investment Shares of the Treasury Money Market Fund and
related matters, contact First Alabama at 1-800-433-2829.
SYSTEMATIC WITHDRAWAL PLAN
Under a Systematic Withdrawal Plan, with respect to Funds other than Trust
Shares of the Treasury Money Market Fund, 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. 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 some Funds' shares
are sold with a sales charge, it is not advisable for shareholders to be
purchasing shares of a Fund while participating in this Systematic Withdrawal
Plan.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Funds may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the applicable required minimum value. This
requirement does not apply, however, if the balance falls below the applicable
minimum because of changes in a 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 a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders of that Fund for vote. All shares of
each portfolio in the Trust and of all classes, if applicable, 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 a
Fund's operation and for the election of Trustees under certain circumstances.
As of January 10, 1996, HUBCO c/o First Alabama Bank may for certain purposes be
deemed to control the Funds because it is owner of record of certain shares of
the Funds.
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.
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 Funds contemplated by its advisory and custody
agreements 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 First Alabama from continuing to perform all or a part of the above
services for its customers and/or the Funds. 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 Funds 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 service provider
with equivalent abilities to First Alabama is found) as a result of any of these
occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Funds will pay no federal income tax because each Fund 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.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by a Fund
will not be combined for tax purposes with those realized by any of the other
Funds.
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 Funds advertise their total return and yield. The Treasury
Money Market Fund may also advertise effective yield.
Total return represents the change, over a specified period of time, in the
value of an investment in a 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 a Fund (other than the Treasury Money Market 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 yield of Trust Shares or Investment Shares of the Treasury Money Market Fund
represents the annualized rate of income earned on an investment in that class
of shares over a seven-day period. It is the annualized dividends earned during
the period on the investment, shown as a percentage of the investment. The
effective yield is calculated similarly to the yield, but, when annualized, the
income earned by an investment in a class of shares is assumed to be reinvested
daily. The effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. Yield and effective yield will
be calculated separately for Investment Shares and Trust Shares. Expense
differences between Investment Shares and Trust Shares may affect the
performance of each class.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the Funds
performance to certain indices.
The performance information described above reflects the effect of the maximum
sales load which, if excluded, would increase the total return and yield.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
First Priority Treasury Money Market Fund
Trust Shares
Investment Shares
First Priority Limited Maturity Government Fund Federated Investors Tower
First Priority Fixed Income Fund Pittsburgh, Pennsylvania 15222-3779
First Priority Growth Fund
First Priority Value Fund
First Priority Balanced Fund
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
Custodian
First Alabama Bank 417 North 20th Street
Birmingham, Alabama 35203
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
[logo]
FIRST
PRIORTY
FAMILY OF FUNDS
Cusip 335931887
Cusip 335931101
Cusip 335931804
Cusip 335931309
[BIRD LOGO]
Cusip 335931705
FEDERATED SECURITIES CORP.
Cusip 335931507
- --------------------------------------------------------------------------------
- ----------------------------------------
Distributor
007576 (1/96)
FIRST PRIORITY FUNDS
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the following six
portfolios (the "Funds") of First Priority Funds (the "Trust"):
First Priority Treasury Money Market Fund
Trust Shares
Investment Shares
First Priority Limited Maturity Government Fund
First Priority Fixed Income Fund
First Priority Growth Fund
First Priority Value Fund
First Priority Balanced Fund
This Statement of Additional Information should be read with the Prospectus of
First Priority Funds dated January 31, 1996 ("Prospectus"). This Statement is
not a prospectus itself. To receive a copy of the Prospectus, write the Trust
or call at 1-800-433-2829.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1996
FEDERATED SECURITIES
CORP.
Distributor
TABLE OF CONTENTS INVESTMENT LIMITATIONS 5
SELLING SHORT AND BUYING ON MARGIN
GENERAL INFORMATION ABOUT THE TRUST
5
1
ISSUING SENIOR SECURITIES AND
INVESTMENT OBJECTIVE AND POLICIES OF BORROWING MONEY 6
THE FUNDS 1 PLEDGING ASSETS 6
DIVERSIFICATION OF INVESTMENTS6
WARRANTS 1
UNDERWRITING 6
COLLATERALIZED MORTGAGE OBLIGATIONS
INVESTING IN REAL ESTATE 6
("CMOS") 1
INVESTING IN COMMODITIES 6
RESETS OF INTEREST 1
LENDING CASH OR SECURITIES 6
CAPS AND FLOORS 2
CONCENTRATION OF INVESTMENTS 7
INVESTMENT CONSIDERATIONS -
INVESTING IN RESTRICTED SECURITIES
MORTGAGE-BACKED AND ASSET-BACKED
7
SECURITIES 2
INVESTING IN ILLIQUID SECURITIES7
REPURCHASE AGREEMENTS 2
INVESTING IN SECURITIES OF OTHER
MONEY MARKET INSTRUMENTS 2
INVESTMENT COMPANIES 7
WHEN-ISSUED AND DELAYED DELIVERY
INVESTING IN NEW ISSUERS 7
TRANSACTIONS 3
INVESTING IN MINERALS 7
FUTURES AND OPTIONS TRANSACTIONS3
INVESTING IN ISSUERS WHOSE
"MARGIN" IN FUTURES TRANSACTIONS 3
SECURITIES ARE OWNED BY OFFICERS
PUT OPTIONS ON FUTURES CONTRACTS 3
AND TRUSTEES OF THE TRUST 7
CALL OPTIONS ON FUTURES CONTRACTS
PURCHASING SECURITIES TO EXERCISE
3
CONTROL 7
STOCK INDEX OPTIONS 4
INVESTING IN WARRANTS 8
LENDING OF PORTFOLIO SECURITIES 4
INVESTING IN PUT OPTIONS 8
RESTRICTED SECURITIES 5
WRITING COVERED CALL OPTIONS 8
REVERSE REPURCHASE AGREEMENTS 5
ARBITRAGE TRANSACTIONS 8
PORTFOLIO TURNOVER 5
FIRST PRIORITY FUNDS MANAGEMENT 8 EXCHANGING SECURITIES FOR FUND SHARES
16
THE FUNDS 12
FUND OWNERSHIP 12 TAX CONSEQUENCES 16
TRUSTEES COMPENSATION 13 DETERMINING NET ASSET VALUE 16
TRUSTEE LIABILITY 13
DETERMINING MARKET VALUE OF
SECURITIES 16
USE OF THE AMORTIZED COST METHOD
(TREASURY MONEY MARKET FUND ONLY)
17
MONITORING PROCEDURES 17
INVESTMENT RESTRICTIONS 17
INVESTMENT ADVISORY SERVICES 14
EXCHANGE PRIVILEGE 18
ADVISER TO THE FUNDS 14
REQUIREMENTS FOR EXCHANGING SHARES
ADVISORY FEES 14
18
STATE EXPENSE LIMITATIONS 14
MAKING AN EXCHANGE 18
OTHER SERVICES 14
REDEEMING SHARES 18
FUND ADMINISTRATION 15
REDEMPTION IN KIND 18
CUSTODIAN 15
MASSACHUSETTS PARTNERSHIP LAW 18
TRANSFER AGENT, DIVIDEND DISBURSING
AGENT, AND PORTFOLIO ACCOUNTING TAX STATUS 19
SERVICES 15
THE FUNDS' TAX STATUS 19
INDEPENDENT AUDITORS 15
SHAREHOLDERS' TAX STATUS 19
BROKERAGE TRANSACTIONS 15
CAPITAL GAINS 19
PURCHASING SHARES 15 TOTAL RETURN 19
DISTRIBUTION PLAN 15 YIELD 20
EFFECTIVE YIELD 20
PERFORMANCE COMPARISONS 20
TREASURY MONEY MARKET FUND: 21
LIMITED MATURITY GOVERNMENT FUND: 21
FIXED INCOME FUND: 21
BALANCED FUND: 22
VALUE FUND: 22
GROWTH FUND: 22
APPENDIX 24
GENERAL INFORMATION ABOUT THE TRUST
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated October 15, 1991. As of the date of this Statement, the Trust
consists of six separate portfolios of securities (the "Funds") which are as
follows: First Priority Treasury Money Market Fund ("Treasury Money Market
Fund"), which is offered in two classes of shares, Trust Shares and Investment
Shares; First Priority Limited Maturity Government Fund ("Limited Maturity
Government Fund"); First Priority Fixed Income Fund ("Fixed Income Fund"); First
Priority Growth Fund, ("Growth Fund," prior to January 31, 1996, the First
Priority Equity Fund); First Priority Value Fund, ("Value Fund," prior to
January 31, 1996, the First Priority Equity Income Fund); and First Priority
Balanced Fund ("Balanced Fund").
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS
The Prospectus discusses the objective of each Fund and the policies they employ
to achieve those objectives. The following discussion supplements the
description of the Funds' investment policies in the Prospectus. The Funds'
respective investment objectives cannot be changed without approval of
shareholders. The investment policies described below may be changed by the
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
WARRANTS
The Growth Fund, Value Fund, and Balanced 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.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
The Limited Maturity Government Fund, Fixed Income Fund, and Balanced Fund may
invest in CMOs. The following example illustrates how mortgage cash flows are
prioritized in the case of CMOs--most of the CMOs in which several of the Funds
invest 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 Funds as income, and the principal portion
is reinvested.
RESETS OF INTEREST
The interest rates paid on the mortgage securities in which several of the Funds
invest 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 several of the Funds invest 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 a 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 a Fund invests to be shorter than the
maturities stated in the underlying mortgages.
INVESTMENT CONSIDERATIONS - MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Unlike conventional bonds, mortgage-backed and other asset-backed securities may
pay back principal over the life of the security rather than at maturity, and a
holder of these securities may receive unscheduled principal payments
representing prepayments on the underlying mortgages or other assets. As a
consequence, these securities may be a less effective means of "locking in"
long-term interest rates than other similar investments (e.g., investments with
comparable maturities).
While these securities generally entail less risk of a decline during periods of
rapidly rising rates, they may also have less potential for capital appreciation
than other similar investments, because as interest rates decline, the
likelihood increases that the underlying obligations will be prepaid.
Furthermore, if these securities 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
these securities are purchased at a discount, both a scheduled payment of
principal and 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.
REPURCHASE AGREEMENTS
The Funds require the 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 a 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 a Fund might be delayed pending
court action. The Funds believe that under the regular procedures normally in
effect for custody of the Funds' portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of a Fund and
allow retention or disposition of such securities. The Funds will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Funds' Adviser to
be creditworthy pursuant to guidelines established by the Trustees.
MONEY MARKET INSTRUMENTS
The Growth Fund and Value Fund may invest in the following money market
instruments:
o instruments of domestic and foreign banks and savings associations 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 & Poor's Ratings Group,
"Prime-1" by Moody's Investors Service, or "F-1" by Fitch Investors
Service, Inc.).
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price and yield for the Funds. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of a Fund sufficient to
make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Funds do 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 their respective
assets.
FUTURES AND OPTIONS TRANSACTIONS
The Funds that may engage in futures and options transactions will maintain
their 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, a 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 a 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 a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day a 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 a Fund
but is instead settlement between a 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 Funds will mark to market their open futures
positions.
The Funds are also required to deposit and maintain margin when it writes
call options on futures contracts.
PUT OPTIONS ON FUTURES CONTRACTS
The Funds 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, a Fund will
normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by a Fund upon the sales of the
second option will be large enough to offset both the premium paid by a
Fund for the original option plus the decrease in value of the hedged
securities.
Alternatively, a 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 a 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 Funds may write
listed and over-the-counter call options on futures contracts to hedge its
portfolio. When a 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, a Fund's
obligation under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of a 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
a Fund keeps the premium received for the option. This premium can
substantially offset the drop in value of a Fund's portfolio securities.
Prior to the expiration of a call written by a Fund, or exercise of it by
the buyer, a 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 a Fund for the initial option. The net premium
income of a Fund will then substantially offset the decrease in value of
the hedged securities.
The Funds will not maintain open positions in futures contracts they have
sold or call options they have written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of a Fund's 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, a 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 Value Fund and Balanced 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 a 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 a 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 a Fund of
options on stock indices will be subject to the ability of the Funds'
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 the Funds (with the exception of Treasury Money Market
Fund) may lend portfolio securities. The collateral received when a 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 a
Fund. During the time portfolio securities are on loan, the borrower pays a
Fund any dividends or interest paid on such securities. Loans are subject to
termination at the option of a Fund or the borrower. The Funds 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 Funds 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 Funds (with the exception of Treasury Money Market 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 Funds, 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 Funds 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 Funds believe 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 Funds intend,
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 Funds' 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 Funds intend 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 Funds believe 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 Value Fund and Balanced 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, a 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 a 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 a 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
For the fiscal year ended November 30, 1995 and the period from December 12,
1993 (date of initial public investment) to November 30, 1994, Limited Maturity
Government Fund's portfolio turnover rate was 26% and 3%, respectively. For the
fiscal years ended November 30, 1995 and 1994, the portfolio turnover rates were
45% and 24% respectively, for the Fixed Income Fund; and 110% and 66%,
respectively, for the Growth Fund. For the period from December 19, 1994 to
November 30, 1995, the portfolio turnover rates 76% for the Value Fund and 49%
for the Balanced Fund.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Funds 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 a 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 Funds will not issue senior securities, except that a Fund may borrow
money directly (or with respect to the Value Fund and Balanced Fund,
through reverse repurchase agreements) in amounts up to one-third of the
value of their respective total assets, including the amounts borrowed.
The Funds will not borrow money except as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling a
Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Funds will
not purchase any securities while borrowings in excess of 5% of their
respective total assets are outstanding.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. However, the Treasury Money Market Fund,
Limited Maturity Government Fund, Fixed Income Fund, and Growth Fund may
pledge assets having a market value not exceeding the lesser of the dollar
amounts borrowed or 10% (15% with respect to the Limited Maturity
Government Fund) of the value of total assets at the time of the pledge.
(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 each Fund's total
assets, a 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 purposes of this limitation, the Growth
Fund, Value Fund, and Balanced Fund consider common stock and all preferred
stock of an issuer each as a single class, regardless of priorities,
series, designations, or other differences.)
UNDERWRITING
A Fund will not underwrite any issue of securities, except as a Fund may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities which the Funds may purchase pursuant to its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Funds will not purchase or sell real estate, including limited
partnership interests, although the Funds (except for Treasury Money Market
Fund) 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 Funds will not purchase or sell commodities, commodity contracts, or
commodity futures contracts (except to the extent that a Fund may engage in
transactions involving futures contracts or options on futures contracts
and related options with respect to financial instruments, securities, or
securities indices).
LENDING CASH OR SECURITIES
The Funds will not lend any of its assets, except, that each Fund, other
than Treasury Money Market Fund, portfolio securities (limited with respect
to Limited Maturity Government Fund, Fixed Income Fund, and Growth Fund to
one-third of the value of its respective total assets). This shall not
prevent a 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 each Fund's investment objective, policies, and limitations or
the Trust's Declaration of Trust.
The Treasury Money Market Fund will not lend any of its assets, except that
it may purchase or hold U.S. Treasury obligations permitted by its
investment objective, policies and limitations, or Declaration of Trust.
CONCENTRATION OF INVESTMENTS
A 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).
Due to the limited focus of its investment objective, this limitation has
no applicability to Treasury Money Market Fund.
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
A Fund will not invest more than 10% of the value of its respective 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
(except Treasury Money Market Fund, which will make no such investments).
INVESTING IN ILLIQUID SECURITIES
A Fund will not invest more than 15% (10% with respect to the Treasury
Money Market Fund and Growth Fund) of its respective 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
A 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 respective total assets in any one investment
company, or invest more than 10% of its respective total assets in
investment companies in general. The Treasury Money Market Fund will limit
its investments in the securities of other investment companies to those of
money market funds having investment objectives and policies similar to its
own. The Funds 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
A 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. The
Funds will apply this limitation by reference to the issuer of a CMO (or
other asset-backed security) rather than requiring the CMO (or other asset-
backed security) itself to have at least three years of continuous
operations.
INVESTING IN MINERALS
The Funds will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except to the extent that a
Fund may otherwise 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 Funds will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Funds' 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 Funds will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN WARRANTS
The Growth Fund, Value Fund, and Balanced Fund will not invest more than
5% of the value of their respective net assets in warrants. To comply with
certain state restrictions, 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. If state restrictions change, this latter restriction may be
revised without notice to shareholders. (For purposes of this limitation,
warrants will be valued at the lower of cost or market value, except that
warrants acquired by a Fund in units or attached to securities may be
deemed to be without value.) The Treasury Money Market Fund will not invest
in warrants.
INVESTING IN PUT OPTIONS
A 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 respective total assets would be invested in premiums on put option
positions.
WRITING COVERED CALL OPTIONS
A 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 Funds 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 Funds have no present intent to borrow money, pledge securities or, (1) with
respect to Value Fund and Balanced Fund, invest in reverse repurchase
agreements; (2) with respect to Limited Maturity Government Fund, invest in
credit card receivables; and (3) with respect to Fixed Income Fund and Growth
Fund, invest in restricted or illiquid securities, all in excess of 5% of the
value of each Fund's respective net assets in the coming fiscal year. In
addition, the Treasury Money Market Fund has no present intention to invest in
closed-end investment companies in the coming fiscal year.
For purposes of their policies and limitations, the Funds consider instruments
issued by a U.S. branch of a domestic bank or savings association having
capital, surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
The Funds do not consider the issuance of separate classes of shares or entering
into futures contracts to constitute an issue of "senior securities" within the
meaning of the investment limitations set forth above.
To comply with registration requirements in certain states, the Funds will, as
relevant, (1) limit the aggregate value of the assets underlying covered call
options or put options written by a Fund to not more than 25% of its net assets;
(2) will limit the premiums paid for options purchased by a Fund to 20% of its
net assets; and (3) will limit the margin deposits on futures contracts entered
into by a 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 are listed with their addresses, birthdates, present
positions with First Priority Funds, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
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
Birthdate: July 4, 1918
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
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, 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.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
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.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; President, Executive Vice
President and Treasurer of some of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Executive 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 of the Company.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and Secretary of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Executive Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and Assistant
Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
THE FUNDS
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FTI Funds;
Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term
U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 3-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; 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; 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; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; RIMCO Monument Funds; Star Funds; The Starburst Funds; The
Starburst Funds II; Stock and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free
Instruments Trust; Trust for Financial Institutions; Trust For Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; The Virtus Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
The following list indicates the beneficial ownership of shareholders who are
the beneficial owners of more than 5% of the outstanding shares of the following
portfolios as of January 10, 1996: HUBCO, c/o of First Alabama Bank of
Birmingham, Birmingham, Alabama, owned approximately 104,279,919 Trust Shares
(97.41%) of the Treasury Money Market Fund; approximately 6,216,816 shares
(99.30%) of the Limited Maturity Government Fund; approximately 14,017,992
shares (92.95%) of the Fixed Income Fund; approximately 12,083,254 shares
(94.04%) of the Equity Fund; approximately 3,888,329 shares (99.61%) of the
Equity Income Fund; and 4,416,642 shares (96%) of the Balanced Fund; Aronov
Realty Management, Inc., Montgomery, Alabama, owned approximately 3,042,965 of
the Investment shares (8.01%) of the Treasury Money Market Fund; SMA Inc.
Insurance, Birmingham, Alabama, owned approximately 2,504,525 shares of the
Investment shares (6.59%) of the Treasury Money Market Fund; Midtown Restaurant
Corporation, Mobile, Alabama, owned approximately 1,903,201 of the Investment
shares (5.01%) of the Treasury Money Market Fund.
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue, $0 $0 for the Trust and
Chairman and Trustee 59 investment companies
Thomas G. Bigley,++ $1472 $86,331 for the Trust and
Trustee 54 investment companies
John T. Conroy, Jr.,$1,593 $115,760 for the Trust and
Trustee 54 investment companies
William J. Copeland,$1,593 $115,760 for the Trust and
Trustee 54 investment companies
James E. Dowd, $1,593 $115,760 for the Trust and
Trustee 54 investment companies
Lawrence D. Ellis, M.D., $1,472 $104,898 for the Trust and
Trustee 54 investment companies
Edward L. Flaherty, Jr., $1,593 $115,760 for the Trust and
Trustee 54 investment companies
Edward C. Gonzales, $0 $0 for the Trust and
President and Trustee 1 investment company
Peter E. Madden, $1,472 $104,898 for the Trust and
Trustee 54 investment companies
Gregor F. Meyer, $1,472 $104,898 for the Trust and
Trustee 54 investment companies
John Murray, $1,472 $104,898 for the Trust and
Trustee 54 investment companies
Wesley W. Posvar, $1,472 $104,898 for the Trust and
Trustee 54 investment companies
Marjorie P. Smuts, $1,472 $104,898 for the Trust and
Trustee 54 investment companies
*Information is furnished for the fiscal year ended November 30, 1995.
#The aggregate compensation is provided for the Trust which is comprised of 6
portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1, 1995, he was appointed
a Trustee on 15 addional Federated Funds.
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 FUNDS
The Funds' 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 Funds or any shareholder of
the Funds 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, the Adviser receives an annual investment advisory
fee from each Fund as described in the Prospectus. For the fiscal years ended
November 30, 1995, 1994 and 1993, the Adviser earned fees from Treasury Money
Market Fund of $644,330, $573,103, and $602,115, respectively, of which
$644,330, $573,013, and $551,003, respectively, were waived. For the year ended
November 30, 1995 and the period from December 12, 1993, (date of initial public
investment) to November 30, 1994, the Adviser earned fees from Limited Maturity
Government Fund of $406,281 and $314,438, of which $282,157 and $314,438,
respectively, was waived. For the fiscal years ended November 30, 1995, 1994
and 1993, the Adviser earned fees from Fixed Income Fund of $1,167,748,
$1,334,608, and $1,057,968, respectively, of which $63,017, $444,869, and
$352,656, respectively, were waived. For the fiscal years ended November 30,
1995, 1994 and 1993, the Adviser earned fees from Equity Fund of $1,151,393,
$1,291,843, and $1,097,771, respectively, of which $129,440, $484,441, and
$411,664, respectively, were waived. For the period from December 19, 1994 to
November 30, 1995, the Adviser earned fees from Equity Income Fund and Balanced
Fund in the amount of $261,156 and $349,457, of which $180,915 and $242,832,
respectively, was waived.
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 a 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 a Fund for its
expenses over the limitation.
If a 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.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services ("FAS"), a subsidiary of Federated Investors,
provides administrative personnel and services to the Funds for a fee as
described in the Prospectus. For the years ended November 30, 1995, 1994 and
1993, FAS earned fees from Treasury Money Market Fund of $171,752, $157,664, and
$169,558, respectively. For the fiscal year ended November 30, 1995 and the
period from December 12, 1993 (date of initial public investment) to the
November, 30, 1994, FAS earned fees from Limited Maturity Government Fund of
$77,297 and $61,561, respectively. For the years ended November 30, 1995, 1994
and 1993, FAS earned fees from Fixed Income Fund of $207,570, $249,639, and
$198,298, respectively. For the years ended November 30, 1995, 1994 and 1993,
FAS earned fees from Equity Fund of $191,841, $222,156, and $193,025,
respectively. During the period from December 19, 1994 to November 30, 1995, FAS
earned fees from Equity Income Fund and Balanced Fund in the amount of $50,126
and $58,065, respectively.
CUSTODIAN
First Alabama Bank, Birmingham, Alabama, is custodian for the securities and
cash of the Funds. Under the custodian agreement, First Alabama Bank holds the
each 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.
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 Funds. It
also provides certain accounting and recordkeeping services with respect to the
Funds' portfolio investments.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Deloitte & Touche LLP, Pittsburgh,
Pennsylvania.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Funds or to the
Adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services provided by brokers and dealers may be used by the Adviser or its
affiliates in advising the Funds 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. The Adviser
and its affiliates exercise reasonable business judgment in selecting brokers
who offer brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided. During the fiscal years ended November 30, 1995, and 1994, the Equity
Fund paid total brokerage commissions of $442,047 and $278,680, respectively.
For the fiscal year ended November 30, 1995, Equity Income Fund and Balanced
Fund paid total brokerage commissions of $65,627 and $57,569, respectively.
Although investment decisions for a Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type a Fund may
make may also be made by those other accounts. When a Fund and one or more other
accounts managed by the Adviser are prepared to invest in, or desire to dispose
of, the same security, available investments or opportunities for sales will be
allocated in a manner believed by the Adviser to be equitable to each. In some
cases, this procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or disposed of by a Fund. In other cases,
however, it is believed that coordination and the ability to participate in
volume transactions will be to the benefit of the Fund.
PURCHASING SHARES
Shares are sold at their net asset value (with a sales charge with respect to
Funds other than the Treasury Money Market Fund) 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 PLAN
With respect to shares of the Funds, other than Trust Shares of Treasury Money
Market Fund, the Trust has adopted a Distribution Plan pursuant to Rule 12b-1
(the "Distribution Plan") which was promulgated by the SEC under the Investment
Company Act of 1940. The Distribution Plan provides for the payment of fees to
Federated Securities Corp. to finance any activity which is principally intended
to result in the sale of Fund shares. Such activities may include the
advertising and marketing of Fund shares; preparing, printing and distributing
prospectuses and sales literature to prospective shareholders, brokers or
administrators; and implementing and operating the Distribution Plan. Pursuant
to the Distribution Plan, the distributor may pay fees to brokers for
distribution and administrative services and to administrators for
administrative services as to Fund shares. The administrative services are
provided by a representative who has knowledge of the shareholder's particular
circumstances and goals, and include, but are not limited to: communicating
account openings and closings; entering purchase and redemption transactions;
providing or arranging to provide accounting support for all transactions;
wiring funds and receiving funds for Fund share purchases and redemptions;
confirming and reconciling all transactions; reviewing the activity in Fund
accounts; providing training and supervision of broker personnel; posting and
reinvesting dividends to Fund accounts or arranging for this service to be
performed by the Funds' transfer agent; and maintaining and distributing current
copies of prospectuses and shareholder reports to the beneficial owners of Fund
shares and prospective shareholders.
The Trustees expect that the adoption of the Distribution Plan will result in
the sale of a sufficient number of Fund shares so as to allow the Funds to
achieve economic viability. It is also anticipated that an increase in the size
of a Fund will facilitate more efficient portfolio management and assist the
Funds in seeking to achieve their respective investment objectives.
For the fiscal year ended November 30, 1995, brokers and administrators received
fees in the amount of $104,041 with respect to Treasury Money Market Fund, $4961
with respect to Fixed Income Fund, $3095 with respect to Equity Fund, pursuant
to the Distribution Plan.
EXCHANGING SECURITIES FOR FUND SHARES
With respect to Limited Maturity Government Fund, Value Fund, and Balanced Fund,
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. Securities will be acquired for
investment and not for resale.
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 a 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
The Treasury Money Market Fund attempts to stabilize the value of a share at
$1.00. Net asset value generally changes each day with respect to the other
Funds. The days on which the net asset value is calculated by the Funds are
described in the Prospectus.
DETERMINING MARKET VALUE OF SECURITIES
With the exception of Treasury Money Market Fund, market or fair values of each
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.
A Fund will value futures contracts and 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.
USE OF THE AMORTIZED COST METHOD (TREASURY MONEY MARKET FUND ONLY)
With respect to the Treasury Money Market Fund, the Trustees have decided that
the best method for determining the value of portfolio instruments is amortized
cost. Under this method, portfolio instruments are valued at the acquisition
cost as adjusted for amortization of premium or accumulation of discount rather
than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under that Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days notice, or (2) at
specified intervals not exceeding one year, on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument, plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based upon
available indications of market value. The Trustees will decide what, if
any, steps should be taken if there is a difference of more than 0.50%
between the two values. The Trustees will take any steps they consider
appropriate (such as redemption in kind or shortening the average portfolio
maturity) to minimize any material dilution or other unfair results arising
from differences between the two methods of determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments that,
in the opinion of the Trustees, present minimal credit risk and that, if
rated, meet minimum rating standards set forth in the Rule. If the
instruments are not rated, the Trustees must determine that they are of
comparable quality. Shares of investment companies purchased by the Fund
will meet these same criteria and will have investment policies consistent
with Rule 2a-7. The Rule also requires the Fund to maintain a dollar
weighted average portfolio maturity (not more than 90 days) appropriate to
the objective of maintaining a stable net asset value of $1.00 per share.
In addition, no instrument with a remaining maturity of more than thirteen
months can be purchased by the Fund.
Should the disposition of a portfolio security result in a dollar weighted
average portfolio maturity of more than 90 days, the Fund will invest its
available cash to reduce the average maturity to 90 days or less as soon as
possible.
The Money Market Fund may attempt to increase yield by trading portfolio
securities to take advantage of short-term market variations. This policy may,
from time to time, result in high portfolio turnover. Under the amortized cost
method of valuation, neither the amount of daily income nor the net asset value
is affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Money Market Fund, computed by dividing the annualized daily income on the
Fund's portfolio by the net asset value computed as above, may tend to be higher
than a similar computation made by using a method of valuation based upon market
prices and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Money Market Fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based up market prices and
estimates.
EXCHANGE PRIVILEGE
REQUIREMENTS FOR EXCHANGING SHARES
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least the minimum initial investment requirements of each Fund
as set forth in the Prospectus. Before the exchange, the shareholder must
receive a copy of the Prospectus.
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 or Trust Shares of the Treasury Money Market
Fund, respectively, of the other fund.
Further information on the exchange privilege and the Prospectus 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 Funds redeem shares at the next computed net asset value after receiving 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.
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.
TAX STATUS
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because they expect 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, each 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 a 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.
With respect to the Treasury Money Market Fund, capital gains experienced
by the Fund could result in an increase in dividends. Capital losses could
result in a decrease in dividends. If, for some extraordinary reason, the
Fund realizes net long-term capital gains, it will distribute them once
every twelve months.
TOTAL RETURN
The average annual total return of the Funds 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 or
monthly, as applicable, reinvestment of all dividends and distributions.
The Limited Maturity Government Fund's average annual total returns for the
fiscal year ended November 30, 1995 and the period from December 12, 1993 (date
of initial public investment) to November 30 ,1995 were 7.87% and 4.06%,
respectively. The average annual total returns the Fixed Income Fund for the
fiscal year ended November 30, 1995 and the period from April 20, 1992 (date of
initial public investment) to November 30, 1995 were 13.10 and 6.84,
respectively. The average annual total returns for the Equity Fund for the
fiscal year ended November 30, 1995 and the period from April 20, 1992 (date of
initial public investment) to November 30, 1995 were 20.57% and 8.56%,
respectively. The average annual total returns for Investment Shares and Trust
Shares of the Treasury Money Market Fund for the fiscal year ended November 30,
1995 were 5.06% and 5.48%, respectively. During the period from April 14, 1992
(date of initial public investment) to November 30, 1995, the average total
returns were 3.42% and 3.82%, respectively.
Cumulative total return reflects total performance over a specific period of
time. Total return assumes and is reduced by the payment of the maximum sales
charge and contingent deferred sales charge, if applicable. The cumulative total
returns for Equity Income Fund and Balanced Fund for the period between December
19, 1994 (effective date) to November 30, 1995, were 21.71% and 16.18%,
respectively.
YIELD
The yield for Fund shares (other than shares of the Treasury Money Market 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.
The yield for the 30-day period ended November 30, 1995 was: 5.36% for Limited
Maturity Government Fund; 5.27% for the Fixed Income Fund; 1.71% for the Equity
Fund; 3.45% for the Equity Income Fund; and 4.63% for the Balanced Fund.
The Treasury Money Market Fund calculates yield for Investment Shares and Trust
Shares daily, based upon the seven days ending on the day of the calculation,
called the "base period." This yield is computed by the following:
o determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
shares purchased with dividends earned from the original one share, and all
dividends declared on the original and any purchased shares;
o dividing the net change in the account's value by the value of the account
at the beginning of the base period return; and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
The yield for Investment Shares and Trust Shares of Treasury Money Market Fund
for the seven-day period ended November 30, 1995 was 4.78% and 5.18%,
respectively.
EFFECTIVE YIELD
The Treasury Money Market Fund's effective yield for both classes of shares is
computed by compounding the unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
The effective yield for Investment Shares for the seven-day period ended
November 30, 1995 was 4.90%. The effective yield for Trust Shares was 5.32% for
the same period.
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 a Fund's or class of share's expenses; and
o various other factors, including the relative amount of Fund cash flow.
With respect to Funds other than the Treasury Money Market Fund, 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 a 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 Funds use in advertising may include:
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, a Fund will quote its Lipper ranking in the appropriate category
in advertising and sales literature.
MORNINGSTAR, INC., an independent rating service, is the publisher of the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-
listed mutual funds of all types, according to their risk-adjusted returns. The
maximum rating is five stars, and ratings are effective for two weeks.
TREASURY MONEY MARKET FUND:
o SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S. Treasury,
maturing in 30 days.
o LEHMAN BROTHERS TREASURY BOND INDEX comprised entirely of U.S. Treasury
obligations. Flower bonds and foreign issues are excluded.
o IBC/DONOHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of
money market funds on a weekly basis and through its Money Market Insight
publication reports monthly reinvestment of dividends over a specified period
of time.
LIMITED MATURITY GOVERNMENT FUND:
o MERRILL LYNCH 1-3 YEAR TREASURY INDEX is an unmanaged index tracking short-
term U.S. government securities with maturities between 1 and 2.99 years.
The index is produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
o MERRILL LYNCH CORPORATE AND GOVERNMENT INDEX includes issues which must be in
the form of publicly placed, nonconvertible, coupon-bearing domestic debt
with maturities between 1 and 4.99 years. Par amounts outstanding must be no
less than $10 million at the start and at the close of the performance
measurement period. Corporate instruments must be rated by S&P or by Moody's
as investment grade issues (i.e., BBB/Baa or better).
o MERRILL LYNCH 1-10 YEAR GOVERNMENT INDEX is an unmanaged index comprised of
U.S. government securities with maturities between 1 and 10 years. Index
returns are calculated as total returns for periods of one, six and twelve
months, as well as year-to-date. The index is produced by Merrill Lynch,
Pierce, Fenner & Smith, Inc.
o LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX is an unmanaged index comprised
of all publicly issued, non-convertible domestic debt of the U.S. government.
Only notes and bonds with minimum outstanding principal of $1 million and
minimum maturity of one year and maximum maturity of ten years are included.
o MERRILL LYNCH 2-YEAR TREASURY CURVE INDEX is comprised of the most recently
issued 2-year U.S. Treasury notes. Index returns are calculated as total
returns for periods of one, three, six, and twelve months as well as year-to-
date.
o 2-YEAR TREASURY NOTE-Source: Wall Street Journal, Bloomberg Financial
Markets, and Telerate.
Investors may use such a reporting service or indices in addition to the Fund's
prospectus to obtain a more complete view of the Fund's performance before
investing.
FIXED INCOME FUND:
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, non-convertible domestic bonds of maturity of nine years. It
calculates total return for one month, three month, twelve month, and ten
year periods, and year-to-date.
o MERRILL LYNCH GOVERNMENT/CORPORATE INDEX is comprised of approximately 4,800
issues which include publicly placed, nonconvertible coupon-bearing domestic
debt carrying a term to maturity of at least one year, with par amounts
outstanding at no less than $10 million at the start and close of the
performance measurement period, and which must be rated by S&P or Moody's as
investment grade issues (i.e., BBB/Baa or better).
o MERRILL LYNCH 1-10 YEAR GOVERNMENT INDEX is an unmanaged index comprised of
U.S. Government securities with maturities between 1 and 10 years. Index
returns are calculated as total returns for periods of one, three, six and
twelve months as well as year-to-date. The index is produced by Merrill
Lynch, Pierce, Fenner & Smith, Inc.
o LEHMAN BROTHERS GOVERNMENT (LT) INDEX, for example, is an index composed of
bonds issued by the U.S. government or its agencies which have at least $1
million outstanding in principal and which have maturities of ten years or
longer. Index figures are total return figures calculated monthly.
BALANCED FUND:
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.
o MERRILL LYNCH 1-10 YEAR GOVERNMENT INDEX is an unmanaged index comprised of
U.S. government securities with maturities between 1 and 10 years. Index
returns are calculated as total returns for periods of one, six and twelve
months, as well as year-to-date. The index is produced by Merrill Lynch,
Pierce, Fenner & Smith, Inc.
VALUE FUND:
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 S&P/BARRA VALUE INDEX is a sub-index of the S&P 500 composite index of common
stocks. The index represents approximately fifty percent of the S&P 500
market capitalization and is comprised of those companies with lower price-
to-book ratios. The index is maintained by Standard & Poor's in conjunction
with Barra, an investment techology firm.
GROWTH FUND:
o LIPPER GROWTH AND INCOME FUND AVERAGE is an average of the total returns for
251 growth and income funds tracked by Lipper Analytical Services, inc., an
independent mutual fund rating service.
o LIPPER GROWTH AND INCOME FUND INDEX is an average of the net asset-valuated
total returns for the top 30 growth and income funds tracked by Lipper
Analytical Services, Inc., an independent mutual fund rating service.
o DOW JONES INDUSTRIAL AVERAGE ("DJIA") is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is cited
as a principal indicator of market conditions.
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, compares total returns of funds whose portfolios are
invested primarily in common stocks. In addition, the Standard & Poor's
index assumes reinvestment of all dividends paid by stocks listed on the
index. Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in the Standard & Poor's figures.
O S&P/BARRA GROWTH INDEX is a sub-index of the S&P 500 composite index of
common stocks. The index represents approximately fifty percent of the S&P
500 market capitalization and is comprised of those companies with higher
price-to-book ratio (one distinction associated with "growth stocks"). The
index is maintained by Standard and Poor's in conjunction with BARRA, an
investment technology firm.
Investors may also consult the fund evaluation consulting universes listed
below. Consulting universes may be composed of pension, profit shares,
commingled, endowment/foundation, and mutual funds.
o FIDUCIARY CONSULTING GRID UNIVERSE, for example, is composed of over 1,000
funds, representing 350 different investment managers, divided into
subcategories based on asset mix. The funds are ranked quarterly based on
performance and risk characteristics.
o SEI data base for equity funds includes approximately 900 funds, representing
361 money managers, divided into fund types based on investor groups and
asset mix. The funds are ranked every three, six, and twelve months.
o MERCER MEIDINGLER, INC. complies a universe of approximately 600 equity
funds, representing about 500 investment managers, and updates their rankings
each calendar quarter as well as on a one, three, and five year basis.
o CALLAN ASSOCIATES, INC. maintains a detailed database of approximately 1900
equity mutual funds, representing about 500 investment managers, and divides
them into style groups based on asset mix and fund objectives. The funds are
ranked quarterly based in performance and risk characteristics.
Advertisements and other sales literature for a 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 a 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 a 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.
Cusip 335931606
Cusip 335931507
Cusip 335931705
Cusip 335931309
Cusip 335931101
Cusip 335931804
Cusip 335931887
007580 (1/96)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements: (1-6) Incorporated by reference to
Annual Report of Registrant dated November
30, 1995, filed January 25, 1996.(File Nos.
33-44737 and 811-6511).
(b) Exhibits:
(1) (i)Conformed copy of Declaration of Trust of the
Registrant, including conformed copy of Amendment No.
1;(7)
(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;(7)
(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;(7)
(6) (i)Conformed copy of Distributor's Contract of the
Registrant, including conformed copies of Exhibits A,
B, and C;(7)
(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)
(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);
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)
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)
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)
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).
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).
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).
(7) Response is incorporated by reference to Post-Effective Amendment No.7 on
Form N-1A filed October 7, 1994 (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;(7)
(iii) Copy of Shareholder Services Agreement of the
Registrant;(7)
(iv) Conformed copy of Administration Services Agreement;+
(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;(7)
(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;(7)
(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) Copy of Financial Data Schedules;+
(18) Conformed copy of Multiple Class Plan; (9)
(19) Conformed copy of Power of Attorney;(9)
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)
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)
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)
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)
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).
(7) Response is incorporated by reference to Post-Effective Amendment No.7 on
Form N-1A filed October 7, 1994 (File Nos. 33-44737 and 811-6511).
(8) Response is incorporated by reference to Post-Effective Amendment No.8 on
Form N-1A filed January 27, 1995 (File Nos. 33-44737 and 811-6511).
(9) Response is incorporated by reference to Post-Effective Amendment No. 9
filed June 29, 1995 (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 January 10, 1996
Shares of Beneficial Interest
(no par value)
First Priority Equity Fund 686
First Priority Fixed Income Fund 557
First Priority Limited
Maturity Government Fund 32
First Priority Treasury Money Market Fund
Trust Shares 9
Investment Shares 979
First Priority Equity Income Fund 25
First Priority Balanced Fund 19
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, and is a member of the Regions Bank
organization. Operating out of more than 284 offices, Regions provides
wide range of banking and fiduciary services to its customers. As
December 31, 1995, Regions Financial Corp. was one of the 100 largest
bank holding companies in the United States with total assets in
excess of $13.7 billion.
Regions is one of only nine banking companies in the nation to be
named to Keefe, Bruyette & Woods, Inc.'s 1995 Bank Honor Roll, which
recognizes companies that continually report annual increases in their
earnings per share. Also, Thomson BankWatch has given Regions
Financial Corporation its highest rating of "A", a distinction earned
by less than 1% of U.S. financial institutions. In addition, Veribanc,
Inc. has designated Regions' flagship bank, First Alabama Bank, as a
Blue Ribbon Bank. The Blue Ribbon rating symbol symbolizes excellence
in asset quality, capital strength,
liquidity, and profitability, as well as other key financial
thresholds.
(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, 1995. It manages seven
common trust funds and collective investment funds having a market
value in excess of $100 million as of December 31, 1995. First
Alabama has been adviser to First Priority Funds since inception
with a market value in excess of $610 million as of December 31,
1995.
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
-
J. Kenneth Alderman Senior Trust Investment
Officer
Jackie D. Oliver Senior Vice President/
Revolving Credit
Edward A. Solomon Senior Vice President/
Operations
Loring C. Muir Senior Vice President/
Compliance
Samuel E. Upchurch, Jr. General Counsel
E. Eldridge, Jr. Corporate Auditor
Sheila S. Blair Director Executive Director, Greater
Birmingham Foundation
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
Richard D. Horsley Director Vice Chairman of the Board and
Executive Financial Officer
Regions Financial Corp.
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
-
William R. Boles Director Attorney,
Boles, Boles,& Ryan
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
Regions Financial Corp.
Henry E. Simpson Director Attorney
Lange, Simpson, Robinson &
Somerville
Robert E. Steiner, IIIDirector 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: American Leaders Fund, Inc.;
Annuity Management Series; Arrow Funds; Automated Government
Money Trust; BayFunds; The Biltmore Funds; The Biltmore
Municipal Funds; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series, Inc.; Cash Trust Series II; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated ARMs Fund; Federated Equity Funds; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term
U.S. Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund:
1-3 Years; Federated U.S. Government Securities Fund: 3-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years;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; Independence One Mutual Funds; 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; Marshall Funds, Inc.; Money
Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; The Monitor Funds; Municipal Securities Income
Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The
Planters Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds;
Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free
Instruments Trust; Tower Mutual Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; The Virtus Funds; 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 Executive Vice President
Executive Officer Federated Investors Tower
Chief, Operating Officer, Pittsburgh, PA 15222-3779
Asst. Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
John W. McGonigle Director, Federated Executive Vice
Federated Investors Tower Securities Corp. President and
Pittsburgh, PA 15222-3779 Secretary
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, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
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
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV 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
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
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
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779
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
Michael D. Fitzgerald 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
Craig S. Gonzales 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
H. Joseph Kennedy 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
Steven A. La Versa 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
Richard C. Mihm 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
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager 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
John C. Shelar, Jr. 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
Jamie M. Teschner 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
Paul A. Uhlman 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
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Assistant Secretary, Treasurer
Federated Investors Tower Federated Securities Corp.
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:
First Priority Funds Federated Investors Tower
("Registrant") 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FIRST PRIORITY FUNDS, certifies
that it meets all the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, all in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 26th day of January, 1996.
FIRST PRIORITY FUNDS
BY: /s/ Jay S. Neuman
Jay S. Neuman, Assistant Secretary
Attorney in Fact for John F. Donahue
January 26, 1996
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 January 26, 1996
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Edward C. Gonzales* President, Treasurer and Trustee
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
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
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
Exhibit (11) under N-1A
Exhibit 23 under 601/Reg SK
DELOITTE & TOUCHE
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No.
10 of the Registration Statement (No. 33-44737) of First Priority Funds
(comprising the following portfolios: Treasury Money Market Fund, Limited
Maturity Government Fund, Fixed Income Fund, Equity Fund, Equity Income Fund,
and Balanced Fund) of our report dated January 12, 1996, appearing inthe
Combined Annual Report for the FIRST PRIORITY FUNDS for the year ended November
30, 1995, and to references to under the heading "Financial Highlights" in the
Combined Prospectus, which is part of such Registration Statement
By:/s/DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FIRST PRIORITY FUNDS
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement is made as of this 1st day of
August, 1994, between First Priority Funds, a Massachusetts business trust
(herein called the "Fund"), and Federated Administrative Services, a
Delaware business trust (herein called "FAS").
WHEREAS, the Fund is a Massachusetts business trust, consisting of one
or more portfolios, which operates as an open-end management investment
company and will so register under the Investment Company Act of 1940; and
WHEREAS, the Fund desires to retain FAS as its Administrator to
provide it with Administrative Services (as herein defined), and FAS is
willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereto agree as follows:
1. Appointment of Administrator. The Fund hereby appoints FAS as
Administrator of the Fund on the terms and conditions set forth in this
Agreement; and FAS hereby accepts such appointment and agrees to perform
the services and duties set forth in Section 2 of this Agreement in
consideration of the compensation provided for in Section 4 hereof.
2. Services and Duties. As Administrator, and subject to the
supervision and control of the Fund's Board of Trustees, FAS will provide
facilities, equipment, and personnel to carry out the following
administrative services for operation of the business and affairs of the
Fund and each of its portfolios:
(a) prepare, file, and maintain the Fund's governing documents and
any amendments thereto, including the Declaration of Trust
dated October 15, 1991 ("Declaration of Trust") (which has
already been prepared and filed), the By-laws and minutes of
meetings of Trustees and shareholders;
(b) prepare and file with the Securities and Exchange Commission
and the appropriate state securities authorities the
registration statements for the Fund and the Fund's shares and
all amendments thereto, reports to regulatory authorities and
shareholders, prospectuses, proxy statements, and such other
documents all as may be necessary to enable the Fund to make a
continuous offering of its shares;
(c) prepare, negotiate, and administer contracts on behalf of the
Fund with, among others, the Fund's investment adviser,
distributor, custodian, and transfer agent, subject to approval
by the Fund's Board of Trustees;
(d) supervise the Fund's custodian in the maintenance of the Fund's
general ledger and in the preparation of the Fund's financial
statements, including oversight of expense accruals and
payments, of the determination of the net asset value of the
Fund and of the declaration and payment of dividends and other
distributions to shareholders;
-2-
(e) calculate performance data of the Fund for dissemination to
information services covering the investment company industry;
(f) prepare and file the Fund's tax returns;
(g) examine and review the operations of the Fund's custodian and
transfer agent;
(h) coordinate the layout and printing of publicly disseminated
prospectuses and reports;
(i) perform internal audit examinations in accordance with the
charter adopted by FAS and the Fund;
(j) assist with the design, development, and operation of the Fund;
(k) provide individuals reasonably acceptable to the Fund's Board
of Trustees for nomination, appointment, or election as
officers of the Fund, who will be responsible for the
management of certain of the Fund's affairs as determined by
the Fund's Board of Trustees; and
(l) consult with the Fund and its Board of Trustees on matters
concerning the Fund and its affairs.
The foregoing, along with any additional services that FAS shall agree
in writing to perform for the Fund hereunder, shall hereafter be referred
to as "Administrative Services." Administrative Services shall not include
any duties, functions, or services to be performed for the Fund by the
-3-
Fund's investment adviser, distributor, custodian, or transfer agent
pursuant to their respective agreements with the Fund.
3. Expenses. FAS shall be responsible for expenses incurred in
providing office space, equipment, and personnel as may be necessary or
convenient to provide the Administrative Services to the Fund, including
the compensation of FAS employees who serve as Trustees or officers of the
Fund. The Fund shall be responsible for all other expenses incurred by FAS
on behalf of the Fund, including without limitation postage and courier
expenses, printing expenses, travel expenses, registration fees, filing
fees, fees of outside counsel and independent auditors, insurance premiums,
fees payable to Trustees who are not FAS employees, and trade association
dues.
4. Compensation. For the Administrative Services provided, the
Fund hereby agrees to pay and FAS hereby agrees to accept as full
compensation for its services rendered hereunder an administrative fee at
an annual rate per portfolio of the Fund's shares, payable daily, as
specified below:
Maximum Administrative Average Daily Net Assets
Fee of the Fund
.15% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of
$750 million
-4-
However, in no event shall the administrative fee received during any
year of this Agreement with respect to each portfolio be less than, or be
paid at a rate less than would aggregate $50,000, per portfolio.
5. Responsibility of Administrator.
(a) FAS shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the 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. FAS shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the 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 FAS, who may be or become an officer, Trustee,
employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting on any business of the Fund
(other than services or business in connection with the duties
of FAS hereunder) to be rendering such services to or acting
solely for the Fund and not as an officer, trustee, partner,
employee or agent or one under the control or direction of FAS
even though paid by FAS.
(b) FAS shall be kept indemnified by the Fund and be without
liability for any action taken or thing done by it in
performing the Administrative Services in accordance with the
above standards. In order that the indemnification provisions
-5-
contained in this Section 5 shall apply, however, it is
understood that if in any case the Fund may be asked to
indemnify or save FAS harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that FAS
will use all reasonable care to identify and notify the Fund
promptly concerning any situation which presents or appears
likely to present the probability of such a claim for
indemnification against the Fund. The Fund shall have the
option to defend FAS against any claim which may be the subject
of this indemnification. In the event that the Fund so elects,
it will so notify FAS and thereupon the Fund shall take over
complete defense of the claim, and FAS shall in such situation
initiate no further legal or other expenses for which it shall
seek indemnification under this Section. FAS shall in no case
confess any claim or make any compromise in any case in which
the Fund will be asked to indemnify FAS except with the Fund's
written consent.
6. Duration and Termination.
(a) The initial term of this Agreement shall commence on the date
hereof and extend until December 31, 1998. During that period,
the Fund may add up to three new portfolios, provided that the
post-effective amendment(s) to the Fund's registration
statement filed for the purpose of adding the portfolio(s)
become(s) effective on or before December 31, 1995.
(b) Upon the expiration of any term, this Agreement shall be
automatically renewed each year for an additional term of one
-6-
year, unless notice of termination has been delivered by either
party to the other no less than one year before the beginning
of any such additional term.
7. Amendment. 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. Limitations of Liability of Trustees or Officers, Employees,
Agents and Shareholders of the Fund. FAS is expressly put on notice of the
limitation of liability as set forth in the Fund's Declaration of Trust and
agrees that the obligations assumed by the Fund pursuant to this Agreement
shall be limited in any case to the Fund and its assets and that FAS shall
not seek satisfaction of any such obligations from the shareholders of the
Fund, the Trustees, Officers, Employees or Agents of the Fund, or any of
them.
9. Limitations of Liability of Trustees and Shareholders of FAS.
The execution and delivery of this Agreement have been authorized by the
Trustees of FAS and signed by an authorized officer of FAS, 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 FAS, but bind only the trust property of FAS as provided in
the Declaration of Trust.
10. Notices. Notices of any kind to be given hereunder shall be in
writing (including facsimile communication) and shall be duly given if
-7-
delivered to the Fund and to its investment adviser at the following
address: First Alabama Bank, P.O. Box 10247, Birmingham, AL 35202
Attention: J. Kenneth Alderman
and if delivered to FAS at Federated Investors Tower, Pittsburgh, PA
15222-3779, Attention: President.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court or
regulatory agency decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. Subject to the provisions of
Section 6, 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. Counterparts. 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.
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.
First Priority Funds
-8-
By:/s/ Edward C. Gonzales
President
Attest:/s/ John W. McGonigle
Secretary
Federated Administrative Services
By:/s/ James J. Dolan
President
Attest:/s/ S. Elliott Cohan
Secretary
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 006
<NAME> First Priority Funds
First Priority Balanced Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 45,942,887
<INVESTMENTS-AT-VALUE> 50,894,640
<RECEIVABLES> 326,774
<ASSETS-OTHER> 20,888
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 51,242,302
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,694
<TOTAL-LIABILITIES> 45,694
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,977,162
<SHARES-COMMON-STOCK> 4,469,111
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 335,912
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 931,781
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,951,753
<NET-ASSETS> 51,196,608
<DIVIDEND-INCOME> 474,888
<INTEREST-INCOME> 1,687,618
<OTHER-INCOME> 0
<EXPENSES-NET> 264,587
<NET-INVESTMENT-INCOME> 1,897,919
<REALIZED-GAINS-CURRENT> 931,781
<APPREC-INCREASE-CURRENT> 4,951,753
<NET-CHANGE-FROM-OPS> 7,781,453
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,562,007
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,045,851
<NUMBER-OF-SHARES-REDEEMED> 576,771
<SHARES-REINVESTED> 31
<NET-CHANGE-IN-ASSETS> 51,196,608
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 349,457
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 507,419
<AVERAGE-NET-ASSETS> 45,533,432
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.440
<PER-SHARE-GAIN-APPREC> 1.380
<PER-SHARE-DIVIDEND> 0.360
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.460
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> First Priority Funds
First Priority Equity Fund
Investment Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 138,121,663
<INVESTMENTS-AT-VALUE> 157,223,515
<RECEIVABLES> 298,917
<ASSETS-OTHER> 8,761
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 157,531,193
<PAYABLE-FOR-SECURITIES> 3,176,525
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57,235
<TOTAL-LIABILITIES> 3,233,760
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,755,153
<SHARES-COMMON-STOCK> 12,752,956
<SHARES-COMMON-PRIOR> 592,016
<ACCUMULATED-NII-CURRENT> 451,537
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,977,391
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,113,352
<NET-ASSETS> 154,297,433
<DIVIDEND-INCOME> 748,245
<INTEREST-INCOME> 3,253,859
<OTHER-INCOME> 0
<EXPENSES-NET> 1,439,080
<NET-INVESTMENT-INCOME> 2,563,024
<REALIZED-GAINS-CURRENT> 6,978,571
<APPREC-INCREASE-CURRENT> 20,298,337
<NET-CHANGE-FROM-OPS> 29,839,932
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,859,046
<DISTRIBUTIONS-OF-GAINS> 195,892
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,417,880
<NUMBER-OF-SHARES-REDEEMED> 4,173,046
<SHARES-REINVESTED> 29,980
<NET-CHANGE-IN-ASSETS> 4,290,226
<ACCUMULATED-NII-PRIOR> 646,818
<ACCUMULATED-GAINS-PRIOR> 4,191,020
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,151,393
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,568,520
<AVERAGE-NET-ASSETS> 143,792,761
<PER-SHARE-NAV-BEGIN> 10.360
<PER-SHARE-NII> 0.180
<PER-SHARE-GAIN-APPREC> 2.100
<PER-SHARE-DIVIDEND> 0.210
<PER-SHARE-DISTRIBUTIONS> 0.330
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.100
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> First Priority Funds
First Priority Equity Fund
Trust Shares
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 138,121,663
<INVESTMENTS-AT-VALUE> 157,223,515
<RECEIVABLES> 298,917
<ASSETS-OTHER> 8,761
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 157,531,193
<PAYABLE-FOR-SECURITIES> 3,176,525
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57,235
<TOTAL-LIABILITIES> 3,233,760
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,755,153
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 13,886,126
<ACCUMULATED-NII-CURRENT> 451,537
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,977,391
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,113,352
<NET-ASSETS> 0
<DIVIDEND-INCOME> 748,245
<INTEREST-INCOME> 3,253,859
<OTHER-INCOME> 0
<EXPENSES-NET> 1,439,080
<NET-INVESTMENT-INCOME> 2,563,024
<REALIZED-GAINS-CURRENT> 6,978,571
<APPREC-INCREASE-CURRENT> 20,298,337
<NET-CHANGE-FROM-OPS> 29,839,932
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 938,172
<DISTRIBUTIONS-OF-GAINS> 3,996,308
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,290,226
<ACCUMULATED-NII-PRIOR> 646,818
<ACCUMULATED-GAINS-PRIOR> 4,191,020
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,151,393
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,568,520
<AVERAGE-NET-ASSETS> 143,792,761
<PER-SHARE-NAV-BEGIN> 10.360
<PER-SHARE-NII> 0.080
<PER-SHARE-GAIN-APPREC> 0.020
<PER-SHARE-DIVIDEND> 0.080
<PER-SHARE-DISTRIBUTIONS> 0.330
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.050
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 005
<NAME> First Priority Funds
First Priority Equity Income Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 40,434,147
<INVESTMENTS-AT-VALUE> 45,226,950
<RECEIVABLES> 218,032
<ASSETS-OTHER> 16,534
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,461,516
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,840
<TOTAL-LIABILITIES> 37,840
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,073,488
<SHARES-COMMON-STOCK> 3,773,216
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 230,372
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,327,013
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,792,803
<NET-ASSETS> 45,423,676
<DIVIDEND-INCOME> 885,623
<INTEREST-INCOME> 623,614
<OTHER-INCOME> 0
<EXPENSES-NET> 224,922
<NET-INVESTMENT-INCOME> 1,284,315
<REALIZED-GAINS-CURRENT> 1,327,013
<APPREC-INCREASE-CURRENT> 4,792,803
<NET-CHANGE-FROM-OPS> 7,404,131
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,053,943
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,087,317
<NUMBER-OF-SHARES-REDEEMED> 314,184
<SHARES-REINVESTED> 83
<NET-CHANGE-IN-ASSETS> 45,423,676
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 261,156
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 405,837
<AVERAGE-NET-ASSETS> 33,533,336
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.400
<PER-SHARE-GAIN-APPREC> 1.980
<PER-SHARE-DIVIDEND> 0.340
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.040
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> First Priority Funds
First Priority Fixed Income Fund
Investment Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 158,395,078
<INVESTMENTS-AT-VALUE> 159,567,282
<RECEIVABLES> 1,303,585
<ASSETS-OTHER> 8,737
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 160,879,604
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 593,573
<TOTAL-LIABILITIES> 593,573
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 162,707,945
<SHARES-COMMON-STOCK> 15,506,800
<SHARES-COMMON-PRIOR> 1,023,599
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,594,118)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,172,204
<NET-ASSETS> 160,286,031
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,840,167
<OTHER-INCOME> 0
<EXPENSES-NET> 1,534,758
<NET-INVESTMENT-INCOME> 8,305,409
<REALIZED-GAINS-CURRENT> (2,505,522)
<APPREC-INCREASE-CURRENT> 16,376,572
<NET-CHANGE-FROM-OPS> 22,176,459
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,052,406
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,836,454
<NUMBER-OF-SHARES-REDEEMED> 5,598,273
<SHARES-REINVESTED> 41,512
<NET-CHANGE-IN-ASSETS> (2,648,230)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,088,596)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,167,748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,597,775
<AVERAGE-NET-ASSETS> 155,902,658
<PER-SHARE-NAV-BEGIN> 9.460
<PER-SHARE-NII> 0.520
<PER-SHARE-GAIN-APPREC> 0.900
<PER-SHARE-DIVIDEND> 0.540
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.340
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> First Priority Funds
First Priority Fixed Income Fund
Trust Shares
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 158,395,078
<INVESTMENTS-AT-VALUE> 159,567,282
<RECEIVABLES> 1,303,585
<ASSETS-OTHER> 8,737
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 160,879,604
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 593,573
<TOTAL-LIABILITIES> 593,573
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 162,707,945
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 16,203,508
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,594,118)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,172,204
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,840,167
<OTHER-INCOME> 0
<EXPENSES-NET> 1,534,758
<NET-INVESTMENT-INCOME> 8,305,409
<REALIZED-GAINS-CURRENT> (2,505,522)
<APPREC-INCREASE-CURRENT> 16,376,572
<NET-CHANGE-FROM-OPS> 22,176,459
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,365,718
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,648,230)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,088,596)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,167,748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,597,775
<AVERAGE-NET-ASSETS> 155,902,658
<PER-SHARE-NAV-BEGIN> 9.460
<PER-SHARE-NII> 0.090
<PER-SHARE-GAIN-APPREC> 0.110
<PER-SHARE-DIVIDEND> 0.090
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.570
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> First Priority Funds
First Priority Limited Maturity Government Fun
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 62,267,882
<INVESTMENTS-AT-VALUE> 63,054,042
<RECEIVABLES> 1,345,640
<ASSETS-OTHER> 16,045
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 64,415,727
<PAYABLE-FOR-SECURITIES> 1,000,308
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 337,580
<TOTAL-LIABILITIES> 1,337,888
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62,423,654
<SHARES-COMMON-STOCK> 6,279,565
<SHARES-COMMON-PRIOR> 5,056,046
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (131,975)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 786,160
<NET-ASSETS> 63,077,839
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,409,755
<OTHER-INCOME> 0
<EXPENSES-NET> 355,388
<NET-INVESTMENT-INCOME> 3,054,367
<REALIZED-GAINS-CURRENT> (69,260)
<APPREC-INCREASE-CURRENT> 2,687,975
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First Priority Treasury Money Market Fund
Trust Shares
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<NAME> First Priority Funds
First Priority Treasury Money Market Fund
Investment Shares
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