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. 11 ......... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 12 ......................... 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, 1997 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 15, 1997; 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; (1-6) Objective of Each
Fund; (1-6) Portfolio Investments and
Strategies.
Item 5. Management of the Fund ....(1-6) First Priority Funds Information;
(1-6) Management of the First Priority
Funds; (1-6) Distribution of Fund
Shares; (1-6) Fund Administration; (1-6)
Brokerage Transactions.
Item 6. Capital Stock and
Other Securities ..........(1-6) Dividends and Capital Gains; (1-6)
Shareholder Information; (1-6) Voting
Rights; (1-6) Effect of Banking Laws;
(1-6) Tax Information; (1-6) Federal
Income Tax.
Item 7. Purchase of Securities
Being Offered ............(1-6) Net Asset Value; (1-6) Investing
in the Funds; (1-6) Minimum Investment
Required; (1-6) What Shares Cost; (1-6)
Conversion to Federal Funds; (1-6)
Reducing the Sales Charge; (1-6)
Systematic Investment Plan; (1-6)
Shareholder Accounts.
Item 8. Redemption or Repurchase ..(1-6) Exchange Privilege; (1-6)
Exchanging Securities for Fund Shares;
(1-6) Redeeming Shares; (1-6) By
Telephone; (1-6) By Mail; (1-6)
Systematic Withdrawal Plan; (1-6)
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; (1-6) Investment
Limitations.
Item 14............................Management of the Fund (1-6) First
Priority Funds Management.
Item 15............................Control Persons and Principal
Holders of Securities ....(1-6) Fund Ownership; (1-6) Trustees'
Compensation; (1-6) Trustee Liability.
Item 16............................Investment Advisory and Other
Services .................(1-6) Investment Advisory Services; (1-
6) Other Services; (1-6) Fund
Administration; (1-6) Custodian; (1-6)
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services; (1-6) Independent Auditors.
Item 17............................Brokerage Allocation (1-6) Brokerage
Transactions.
Item 18............................Capital Stock and Other
Securities ...............Not Applicable.
Item 19............................Purchase, Redemption and Pricing
of Securities being Offered (1-6) Purchasing Shares; (1-6)
Determining Net Asset Value; (1-6)
Redeeming Shares; (1-6) Exchange
Privilege; (1-6) Exchanging Securities
for Fund Shares.
Item 20............................Tax Status (1-6) Tax Status.
Item 21............................Underwriters (1-6) Distribution Plan;
(1-6) Massachusetts Partnership Law.
Item 22............................Calculation of Performance
Data .....................(1-6) Total Return; (1-6) Effective
Yield; (1-6) Yield; (1-6) Performance
Comparisons.
Item 23............................Financial Statements (1-6)
Incorporated by reference to Annual
Report of Registrant dated November 30,
1996.(File Nos. 33-44737 and 811-6511).
FIRST PRIORITY FAMILY OF FUNDS
COMBINED PROSPECTUS
DATED JANUARY 31, 1997
DIVERSIFIED PORTFOLIOS OF THE FIRST PRIORITY FUNDS,
AN OPEN-END, MANAGEMENT INVESTMENT COMPANY
[LOGO] FIRST PRIORITY FAMILY OF FUNDS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 2
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES 4
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
OBJECTIVE OF EACH FUND 10
- ------------------------------------------------------
Treasury Money Market Fund 10
Limited Maturity Government Fund 10
Fixed Income Fund 11
Balanced Fund 12
Value Fund 13
Growth Fund 14
PORTFOLIO INVESTMENTS AND STRATEGIES 15
- ------------------------------------------------------
Debt Securities--Ratings and Investment
Considerations 15
Asset-Backed Securities 15
Stripped Bonds 18
U.S. Government Securities 18
Bank Instruments 18
Equity Investment Considerations 19
Securities of Foreign Issuers 19
Convertible Securities 19
Put and Call Options 21
Futures and Options on Futures 22
Investing in Securities of New Issuers 23
Investing in Securities of Other
Investment Companies 23
Derivative Contracts and Securities 23
When-Issued and Delayed Delivery
Transactions 24
Lending of Portfolio Securities 24
Repurchase Agreements 24
Temporary Investments 25
Borrowing Money 25
Diversification 25
Restricted and Illiquid Securities 25
FIRST PRIORITY FUNDS INFORMATION 26
- ------------------------------------------------------
Management of the First Priority Funds 26
Distribution of Fund Shares 29
Fund Administration 30
BROKERAGE TRANSACTIONS 30
- ------------------------------------------------------
NET ASSET VALUE 31
- ------------------------------------------------------
INVESTING IN THE FUNDS 31
- ------------------------------------------------------
Minimum Investment Required 31
What Shares Cost 32
Conversion to Federal Funds 33
Reducing the Sales Charge 34
Systematic Investment Plan 35
Exchange Securities for Fund Shares 35
Shareholder Accounts 35
Dividends and Capital Gains 35
EXCHANGE PRIVILEGE 36
- ------------------------------------------------------
REDEEMING SHARES 37
- ------------------------------------------------------
By Telephone 37
By Mail 37
Systematic Withdrawal Program 38
Accounts with Low Balances 38
SHAREHOLDER INFORMATION 39
- ------------------------------------------------------
Voting Rights 39
EFFECT OF BANKING LAWS 39
- ------------------------------------------------------
TAX INFORMATION 40
- ------------------------------------------------------
Federal Income Tax 40
PERFORMANCE INFORMATION 40
- ------------------------------------------------------
ADDRESSES 41
- ------------------------------------------------------
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 ANY
REGIONS BANK, ARE NOT ENDORSED OR GUARANTEED BY 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.
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, 1997 ("SAI"), which has also been filed
with the Securities and Exchange Commission ("SEC"). 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 be writing to the Trust or by calling 1-800-433-2829. To
obtain other information or make inquiries about the Trust, contact the Trust at
the address listed in the back of this Prospectus. The SAI, material
incorporated by reference into this document, and other information regarding
the Trust, is maintained electronically with the SEC at Internet web site
(http:// www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1997
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")--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")--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.
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. Regions 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. Value Fund and 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
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
TREASURY MONEY
MARKET FUND LIMITED
---------------------- MATURITY
TRUST INVESTMENT GOVERNMENT
SHARES SHARES FUND
-------- ----------- -----------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............................ None None 3.50%
Maximum Sales Charge 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 Fee (as a percentage of amount redeemed,
if applicable)................................................. None None None
Exchange Fee..................................................... None None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of projected net assets)*
Management Fee (after waiver).................................... 0.25%(1) 0.25%(1) 0.70%
12b-1 Fees (2)................................................... None 0.40% 0.00%
Total Other Expenses............................................. 0.27% 0.27% 0.31%
Total Annual Fund Operating Expenses......................... 0.52%(3) 0.92%(3) 1.01%
</TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
FIXED
INCOME BALANCED VALUE GROWTH
FUND FUND FUND FUND
-------- ------- ------- ---------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)......................... 4.75% 4.75% 4.75% 4.75%
Maximum Sales Charge 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
ANNUAL FUND OPERATING EXPENSES
(As a percentage of projected net assets)*
Management Fee................................................ 0.75% 0.80% 0.80% 0.80%
12b-1 Fees (2)................................................ 0.00% 0.00% 0.00% 0.00%
Total Other Expenses.......................................... 0.27% 0.33% 0.31% 0.25%
Total Annual Fund Operating Expenses...................... 1.02% 1.13% 1.11% 1.05%
</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 Treasury Money Market Fund--Trust Shares and Investment
Shares.
(2) Limited Maturity Government Fund, Fixed Income Fund, Balanced Fund, Value
Fund, and Growth Fund, have no intention of paying or accruing 12b-1 fees
during the fiscal year ending November 30, 1997. If these Funds were paying
or accruing 12b-1 fees, Limited Maturity Government Fund would be able to
pay up to 0.25% of its daily net assets, and Fixed Income Fund, Balanced
Fund, Value Fund, and Growth 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 0.77% for the Treasury Money Market
Fund--Trust Shares and 1.17% for the Treasury Money Market Fund--Investment
Shares.
* The Annual Fund Operating Expenses for the fiscal year ended November 30, 1996
were 0.52% for Treasury Money Market Fund--Trust Shares; 0.92% for Treasury
Money Market Fund--Investment Shares; 1.01% for Limited Maturity Government
Fund; 1.02% for the Fixed Income Fund; 1.13% for the Balanced Fund; 1.11% for
the Value Fund; and 1.05% for the Growth 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, 1997.
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 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 charge of 3.50% or 4.75%, if
applicable. The Funds charge no contingent deferred sales charges.
Treasury Money Market Fund--Trust Shares........................... $ 5 $ 17 $ 29 $ 65
Treasury Money Market Fund--Investment Shares...................... $ 9 $ 29 $ 51 $ 113
Limited Maturity Government Fund................................... $ 45 $ 66 $ 89 $ 154
Fixed Income Fund.................................................. $ 57 $ 78 $ 101 $ 166
Balanced Fund...................................................... $ 58 $ 82 $ 107 $ 178
Value Fund......................................................... $ 58 $ 81 $ 106 $ 176
Growth Fund........................................................ $ 58 $ 80 $ 103 $ 170
</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.
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 10, 1997, on the Trust's
financial statements for the year ended November 30, 1996, 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 from the Trust.
<TABLE>
<CAPTION>
DISTRIBUTIONS
FROM NET DISTRIBUTIONS
NET ASSET NET REALIZED DISTRIBUTIONS REALIZED IN EXCESS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET GAIN ON OF NET
YEAR ENDED BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT INVESTMENT INVESTMENT INVESTMENT
NOVEMBER 30, OF PERIOD INCOME ON 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) -- --
1996 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) -- --
1996 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) -- --
1996 10.04 0.50 (0.08) 0.42 (0.50) -- --
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)(g)
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)(g)
1995 9.46 0.52 0.90 1.42 (0.54) -- --
1996 10.34 0.54 0.02 0.56 (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 the Fund offered two classes of shares: Investment
Shares and Trust Shares. On February 1, 1995, all outstanding Trust Shares
were converted to Investment Shares and the Fund no longer offers Trust
Shares.
(e) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(f) Computed on an annualized basis.
(g) 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.
(h) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Trust's performance is contained in the Trust's
Combined Annual Report for the fiscal year ended November 30, 1996, which can be
obtained free of charge.
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------
NET ASSET NET EXPENSE NET ASSETS, AVERAGE
TOTAL VALUE, END TOTAL INVESTMENT WAIVER/ END OF PERIOD COMMISSION
DISTRIBUTIONS OF PERIOD RETURN(E) EXPENSES INCOME REIMBURSEMENT(H) (000 OMITTED) RATE PAID
- ------------------------------------------------------------------------------------------------------------------
<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 --
(0.05) 1.00 4.83% 0.52% 4.71% 0.29% $ 101,786 --
(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 --
(0.04) 1.00 4.41% 0.92% 4.31% 0.29% $ 40,619 --
(0.42) 9.60 0.19% 0.38%(f) 4.45%(f) 0.70%(f) $ 48,526 --
(0.51) 10.04 10.12% 0.61% 5.26% 0.49% $ 63,078 --
(0.50) 9.96 4.37% 1.01% 5.09% 0.08% $ 63,732 --
(0.38) 10.27 7.66% 0.77%(f) 6.02%(f) 0.29%(f) $ 96,354 --
(0.61) 10.67 10.14% 0.84% 4.80% 0.25% $ 169,881 --
(0.74) 9.46 (4.55%) 0.79% 5.44% 0.25% $ 153,289 --
(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 --
(0.58) 10.67 9.81% 1.14% 4.40% 0.25% $ 12,519 --
(0.71) 9.46 (4.83%) 1.09% 5.14% 0.25% $ 9,645 --
(0.54) 10.34 15.37% 1.02% 5.25% -- $ 160,286 --
(0.54) 10.36 5.66% 1.02% 5.38% -- $ 152,940 --
<CAPTION>
TOTAL PORTFOLIO
DISTRIBUTIONS TURNOVER
- -------------
<S> <C>
(0.02) --
(0.03) --
(0.04) --
(0.05) --
(0.05) --
(0.01) --
(0.02) --
(0.03) --
(0.04) --
(0.04) --
(0.42) 3%
(0.51) 26%
(0.50) 48%
(0.38) 44%
(0.61) 83%
(0.74) 24%
(0.09) --
(0.37) 44%
(0.58) 83%
(0.71) 24%
(0.54) 45%
(0.54) 52%
</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 10, 1997, on the Trust's
financial statements for the year ended November 30, 1996, 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 from the Trust.
<TABLE>
<CAPTION>
DISTRIBUTIONS
FROM NET DISTRIBUTIONS
NET ASSET NET REALIZED DISTRIBUTIONS REALIZED IN EXCESS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET GAIN ON OF NET
YEAR ENDED BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT INVESTMENT INVESTMENT INVESTMENT
NOVEMBER 30, OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME TRANSACTIONS INCOME
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCED FUND
1995(c) 10.00 0.44 1.38 1.82 (0.36) -- --
1996 11.46 0.41 1.27 1.68 (0.42) (0.21) --
VALUE FUND
1995(c) 10.00 0.40 1.98 2.38 (0.34) -- --
1996 12.04 0.27 2.22 2.49 (0.29) (0.35) --
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) --
1996 12.10 0.12 3.12 3.24 (0.15) (0.55) --
</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 the Fund offered two classes of shares: Investment
Shares and Trust Shares. On February 1, 1995, all outstanding Trust Shares
were converted to Investment Shares and the Fund no longer offers 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 charge 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 Trust's performance is contained in the Trust's
Combined Annual Report for the fiscal year ended November 30, 1996, which can be
obtained free of charge.
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------
NET ASSET NET EXPENSE NET ASSETS, AVERAGE
TOTAL VALUE, END TOTAL INVESTMENT WAIVER/ END OF PERIOD COMMISSION
DISTRIBUTIONS OF PERIOD RETURN(D) EXPENSES INCOME REIMBURSEMENT(F) (000 OMITTED) RATE PAID
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(0.36) 11.46 18.50% 0.61%(e) 4.34%(e) 0.56%(e) $ 51,197 --
(0.63) 12.51 15.35% 1.13% 3.60% 0.09% $ 59,321 0.0701
(0.34) 12.04 24.14% 0.69%(e) 3.93%(e) 0.55%(e) $ 45,424 --
(0.64) 13.89 21.72% 1.11% 2.29% 0.06% $ 83,572 0.0532
(0.11) 10.66 9.28% 0.76%(e) 2.28%(e) 0.35%(e) $ 102,822 --
(0.30) 10.51 1.43% 0.84% 1.85% 0.30% $ 154,185 --
(0.30) 10.36 1.42% 0.79% 2.32% 0.30% $ 143,876 --
(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 --
(0.27) 10.51 1.13% 1.14% 1.59% 0.30% $ 7,004 --
(0.27) 10.36 1.11% 1.09% 2.02% 0.30% $ 6,131 --
(0.54) 12.10 23.01% 1.03% 1.61% 0.05% $ 154,297 --
(0.70) 14.64 28.22% 1.05% 0.98% 0.01% $ 175,521 0.0713
<CAPTION>
TOTAL PORTFOLIO
DISTRIBUTIONS TURNOVER
- -------------
<S> <C>
(0.36) 49%
(0.63) 41%
(0.34) 76%
(0.64) 58%
(0.11) 30%
(0.30) 74%
(0.30) 66%
(0.41) --
(0.09) 30%
(0.27) 74%
(0.27) 66%
(0.54) 110%
(0.70) 56%
</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, and, in the case of Treasury
Money Market Fund, by complying with the diversification and other requirements
of Rule 2a-7 under the Investment Company Act of 1940 which regulates money
market mutual funds.
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."
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."
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 or AAA, AA, or A
by S&P or 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."
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 lend portfolio securities and engage in 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."
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. 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 $250 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 lend portfolio securities and engage in 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."
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. 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
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 lend portfolio securities and engage in 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."
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 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;
- notes, bonds, and discount notes issued or guaranteed by the U.S.
government agencies and instrumentalities, supported by the full faith
and credit of the United States;
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
- notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government 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
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 Standard & Poor's 500 Composite Stock Index ("S&P 500"). 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. 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
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 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 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.
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
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.
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, unless permitted to do so by action of the SEC. 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 Treasury Money Market
Fund) may lend portfolio securities on a short-term or long-term basis, (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) to
broker/dealers, banks, or other institutional borrowers of securities. This
policy cannot be changed without the approval of holders of a majority of a
Fund's shares. 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. 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 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 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 Growth Fund, for temporary defensive purposes in such
proportions as, in the judgment of the Adviser, prevailing market conditions
warrant, 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. (Treasury Money Market Fund, Limited
Maturity Government 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, Treasury Money Market Fund, Fixed
Income Fund, and Growth Fund are limited to pledging up to 10% (15% with respect
to Limited Maturity Government Fund) of the value of their respective total
assets to secure such borrowings. These policies 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. These policies cannot be
changed without the approval of holders of a majority of a Fund's shares.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund (except Treasury Money Market Fund) may invest up to 10% of their
total assets in restricted 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. This restriction is not applicable to commercial paper issued under Section
4(2) of the Securities Act of 1933.
Each of the Funds (except 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. 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 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 Regions Bank, 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 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 380 offices, Regions Bank, and its
affiliates, provide a wide range of banking and fiduciary services. As of
December 31, 1996, Regions Financial Corp. was one of the 100 largest bank
holding companies in the United States with total assets in excess of $18.9
billion.
Regions Financial Corp. 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 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, Regions Bank managed over $3.2 billion in discretionary
assets as of June 30, 1996. It manages seven common trust funds and
collective investment funds having a market value in excess of $100 million
as of December 31, 1996. Regions Bank has been Adviser to each of the First
Priority Funds since their inception with a market value in excess of $690
million as of December 31, 1996.
As part of their regular banking operations, Regions Bank 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 Regions Bank or its affiliates. The
lending relationship will not be a factor in the selection of securities.
J. Kenneth Alderman, CFA, Birthdate: July 10, 1952
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: 13 years investment experience, including nine years of
investment experience with the Trust Department of Regions 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.
Mary Lynn Bronner, CFA, Birthdate: May 9, 1955
Vice President and Trust Investment Officer
Responsible for the day-to-day management of First Priority Limited
Maturity Government Fund (January, 1997). She also serves as a member of
the Trust Investment Group as portfolio manager and analyst. Experience:
eighteen years investment experience, specifically six years as Trust
Investment Officer for Regions Financial Corporation under its predecessor,
First Alabama Bank; seven years as a Registered Investment Advisor with The
Bronner Group. Education: B.S., Finance, University of Tennessee, 1977;
M.B.A., Auburn University at Montgomery, 1980; Jurisdoctor Law, Jones Law
Institute, 1984; and Chartered Financial Analyst, 1982. Affiliations:
Member, Alabama State Bar, Institute of Chartered Financial Analysts, and
Association for Investment Management and Research.
T. Jerry Harris, CFA, Birthdate: May 9, 1948
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: twenty years investment experience,
specifically investment analysis; ten years with Regions 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.
John E. Steiner, Birthdate: May 24, 1957
Vice President and Trust Investment Officer
Responsible for 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 on June 1,
1996. He actively manages employee benefit and personal trust accounts as
well as contributes to the formulation of equity and fixed income
strategies. Experience: eleven years investment experience, specifically
Employee Benefits, Personal Trust, and Endowments; thirteen years with
Regions Bank. Education: B.S., Industrial Management, Auburn University,
1981: Chartered Financial Analyst, 1996. Affiliations: Member, Alabama
Society of Financial Analyst, and the Association of Investment Management
and Research.
James L. Savage, CFA, Birthdate: July 7, 1965
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: seven years investment
analysis and portfolio management. Joined Regions Bank (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--Board of Directors, Alabama
Society of Financial Analysts, Association of Investment Management and
Research.
Martha Davis Kelly, CFA, Birthdate: September 20, 1949
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: 26 years investment
analysis and portfolio management. Joined Regions Bank (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, Alabama Society of Financial Analysts; Member, Dallas
Association of Investment Analysts and Association of Investment Management
and Research, and Institute of Chartered Financial Analysts.
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 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 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
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.
FUND ADMINISTRATION
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>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% 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
- --------------------------------------------------------------------------------
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. 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 Treasury Money Market Fund is
$25,000. Subsequent investments may be made in any amounts. Trust Shares are
sold to trust accounts for which Regions Bank 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 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 Funds at 1-800-433-2829.
Officers, directors, employees, and retired employees of Regions Bank, or its
affiliates, and their spouses and their dependent children may purchase shares
of any Fund (except for Trust Shares of 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 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:
Limited Maturity Government Fund:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE 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 or more...................... 0.00% 0.00%
</TABLE>
Fixed Income Fund, Balanced Fund, Value Fund, and Growth Fund:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE 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 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 Regions Bank, or its 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 Regions Bank, or its affiliates. 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 Treasury Money
Market Fund, a dealer will normally receive 100% 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 Regions Bank and
its affiliates. 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 Regions Bank 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 Regions Bank or its affiliates. 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 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 Shareholder 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 Regions Bank, or its 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 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, through its
subsidiary Federated Shareholder Services Company, maintains a share account for
each shareholder of record. Share certificates are not usually issued.
DIVIDENDS AND CAPITAL GAINS
With respect to 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 Regions 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 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 or 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
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
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 Regions Bank 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 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 Regions Bank. 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 Shareholder
Services Company or 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 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. Shareholders of Investment Shares of Treasury Money Market Fund
can redeem shares by writing a check in the amount of at least $100.
Shareholders must complete the checkwriting section of the account application
or complete a subsequent checkwriting application form which can be obtained
from RICI. The Fund will then provide checks. A check presented for an amount in
excess of the shareholder's available Fund balance will be returned marked
"insufficient funds." In addition, checks written for less than the $100 minimum
will be returned. Checks cannot be used to close a shareholder's account.
Checkwriting is not allowed with respect to shares held in IRA accounts.
SYSTEMATIC WITHDRAWAL PLAN
Under a Systematic Withdrawal Plan, with respect to Funds other than Trust
Shares of 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 3, 1997, HUBCO c/o Regions Financial Corp. and IFTC, as custodian
for Regions Financial Corporation Profit Sharing Plan, may for certain purposes
be deemed to control the Funds because they are owners 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 a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling, or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
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.
Some entities providing services to the Trust are subject to such banking laws
and regulations. They believe, based on the advice of counsel, that they may
perform those services for the Funds contemplated by any agreement entered into
with the Trust without violating those 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 present or future statutes and
regulations, could prevent these entities from continuing to perform all or a
part of the above services. If this happens, the Trustees would consider
alternative means of continuing available services. It is not expected that
shareholders would suffer any adverse financial consequences 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. 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 Treasury Money Market Fund) is calculated by
dividing the net investment income per share (as defined by the SEC) 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 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 charge 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
First Priority Fixed Income Fund
First Priority Balanced Fund
First Priority Value Fund
First Priority Growth Fund
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Regions Bank P.O. Box 10247
Mutual Funds Group Birmingham, Alabama 35202
- ------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent
and Portfolio Accounting Services
Federated Shareholder Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
Regions Bank 417 North 20th Street
Birmingham, Alabama 35203
- ------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ------------------------------------------------------------------------------------------------
</TABLE>
[LOGO] FIRST PRIORITY FAMILY OF FUNDS
Federated Securities Corp. is the distributor of the fund
Cusip 335931887
Cusip 335931101
Cusip 335931804
Cusip 335931309
Cusip 335931705
Cusip 335931606
Cusip 335931507
007576 (1/97)
FIRST PRIORITY FUNDS
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 Balanced Fund
First Priority Value Fund
First Priority Growth Fund
This Statement of Additional Information should be read with the Prospectus
of First Priority Funds dated January 31, 1997 (`Prospectus''). This
Statement is not a prospectus itself. To request a copy of the prospectus
free of charge, write the Trust or call 1-800-433-2829.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1997
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 335931606
Cusip 335931507
Cusip 335931705
Cusip 335931309
Cusip 335931101
Cusip 335931804
Cusip 335931887
007580 (1/97)
GENERAL INFORMATION ABOUT THE TRUST 1
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS 1
Warrants 1
Collateralized Mortgage Obligations (``CMOs') 1
Resets of Interest 2
Caps and Floors 2
Investment Considerations - Mortgage-Backed and
Asset-Backed Securities 2
Repurchase Agreements 2
Money Market Instruments 3
When-Issued and Delayed Delivery Transactions 3
Futures and Options Transactions 3
Lending of Portfolio Securities 4
Restricted Securities 5
Reverse Repurchase Agreements 5
Portfolio Turnover 5
Investment Limitations 6
FIRST PRIORITY FUNDS MANAGEMENT 9
Fund Ownership 13
Trustees Compensation 14
Trustee Liability 14
INVESTMENT ADVISORY SERVICES 15
Adviser to the Funds 15
Advisory Fees 15
OTHER SERVICES 15
Fund Administration 15
Custodian 15
Transfer Agent, Dividend Disbursing Agent, and
Portfolio Accounting Services 16
Independent Auditors 16
BROKERAGE TRANSACTIONS 16
PURCHASING SHARES 16
Distribution Plan 16
EXCHANGING SECURITIES FOR FUND SHARES 17
DETERMINING NET ASSET VALUE 17
Determining Market Value of Securities 17
Use of the Amortized Cost Method (Treasury Money
Market Fund only) 18
EXCHANGE PRIVILEGE 19
Requirements for Exchanging Shares 19
Making an Exchange 19
REDEEMING SHARES 19
Redemption in Kind 19
MASSACHUSETTS PARTNERSHIP LAW 19
TAX STATUS 20
The Funds' Tax Status 20
Shareholders' Tax Status 20
TOTAL RETURN 20
YIELD 21
EFFECTIVE YIELD 21
PERFORMANCE COMPARISONS 22
Treasury Money Market Fund: 22
Limited Maturity Government Fund: 22
Fixed Income Fund: 23
Balanced Fund: 23
Value Fund: 24
Growth Fund: 24
APPENDIX 26
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 Balanced Fund
("Balanced Fund"); First Priority Value Fund, (``Value Fund,'' formerly,
First Priority Equity Income Fund); and First Priority Growth Fund,
(`Growth Fund,'' formerly, First Priority Equity 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
Balanced Fund, Value Fund and Growth 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'')
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
Value Fund and Growth Fund may invest in the following money market
instruments:
oinstruments 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
oprime 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 Funds' 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
Balanced Fund and Value 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:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.
REVERSE REPURCHASE AGREEMENTS
Balanced Fund and Value 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 years ended November 30, 1996 and 1995, the portfolio
turnover rates were 48% and 26%, respectively, for Limited Maturity
Government Fund; 52% and 45%, respectively, for the Fixed Income Fund; and
56% and 110%, respectively, for the Growth Fund. For the fiscal year ended
November 30, 1996, and for the period from December 19, 1994 (date of
initial public investment) to November 30, 1995, the portfolio turnover
rates were 58% and 76%, respectively, for the Value Fund and 41% and 49%,
respectively, 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 Balanced Fund and Value
Fund, through reverse repurchase agreements) in amounts up to one-
third of the value of their respective total assets, including the
amounts borrowed (except to the extent that Fixed Income Fund and
Growth Fund may enter into futures contracts). 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, the Funds 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. In
addition, each Fund will not acquire more than 10% of the outstanding
voting securities of that issuer. (For purposes of this limitation,
the Balanced Fund, Value Fund and Growth 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
The Funds 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 their assets, except, that each Fund,
other than Treasury Money Market Fund, will lend 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 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, unless permitted to
exceed these limitations by action of the SEC. 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.
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
Balanced Fund, Value Fund, and Growth Fund will not invest more than
5% of the value of their respective net assets in warrants. (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.) 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 Balanced Fund and Value 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, 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.
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. 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 and Trustee
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 or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Trustee of the
Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, 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
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Treasurer 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 Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee 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 or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee 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 Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee 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 Shareholder Services Company; President and Director,
Federated Services Company; President and Trustee, Federated Shareholder
Services; Director, Federated Securities Corp.; Executive Vice President
and Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
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 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.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; 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;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; 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: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
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 3, 1997: HUBCO, c/o Regions Financial
Corp., Birmingham, Alabama owned approximately 104,707,794 Trust Shares
(85.31%) of the Treasury Money Market Fund; approximately 4,984,581 Shares
(62.26%) of Limited Maturity Government Fund; approximately 13,498,327
Shares (93.21%) of Fixed Income Fund; approximately 6,024,782 Shares
(93.83%) of Value Fund; and approximately 12,154,254 Shares (81.52%) of
Growth Fund. IFTC, as custodian for Regions Financial Corporation Profit
Sharing Plan, Kansas City, Missouri, owned approximately 15,303,649 Trust
Shares (12.47%) of Treasury Money Market Fund; approximately 2,985,099
Shares (37.29%) of Limited Maturity Government Fund; approximately
4,568,868 Shares (92.77%) of Balanced Fund; approximately 321,589 Shares
(5.01%) of Value Fund; and approximately 1,905,119 Shares (12.78%) of
Growth Fund. SMA Inc. Insurance, Birmingham, Alabama, owned approximately
3,741,417 Investment Shares (7.94%) of Treasury Money Market Fund.
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
John F. Donahue $0
Chairman and Trustee
Thomas G. Bigley $1,595
Trustee
John T. Conroy, Jr. $1,755
Trustee
William J. Copeland $1,755
Trustee
James E. Dowd $1,755
Trustee
Lawrence D. Ellis, M.D. $1,595
Trustee
Edward L. Flaherty, Jr. $1,755
Trustee
Edward C. Gonzales $0
President, Treasurer and Trustee
Peter E. Madden $1,595
Trustee
Gregor F. Meyer $1,595
Trustee
John E. Murray, Jr., $1,595
Trustee
Wesley W. Posvar $1,595
Trustee
Marjorie P. Smuts $1,595
Trustee
*Information is furnished for the fiscal year ended November 30, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
6 portfolios.
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 Regions Bank (the "Adviser"), which is a
wholly-owned subsidiary of Regions Financial Corp. Because of internal
controls maintained by Regions Bank to restrict the flow of non-public
information, Fund investments are typically made without any knowledge of
Regions Bank 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, 1996, 1995 and 1994, the Adviser earned fees from
Treasury Money Market Fund of $735,258, $644,330 and $573,103,
respectively, of which $427,681, $644,330 and $573,013, were waived. For
the years ended November 30, 1996 and 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 $448,104,
$406,281 and $314,438, respectively, of which $48,135, $282,157 and
$314,438, were waived. For the fiscal years ended November 30, 1996, 1995
and 1994, the Adviser earned fees from Fixed Income Fund of $1,135,766
$1,167,748, and $1,334,608, respectively, of which $0, $63,017, and
$444,869, were waived. For the fiscal year ended November 30, 1996 and for
the period from December 19, 1994 (date of initial public investment) to
November 30, 1995, the Adviser earned fees from Balanced Fund of $436,997
and $349,457, respectively, of which $48,034 and $242,832, were waived. For
the fiscal year ended November 30, 1996 and for the period from December
19, 1994 (date of initial public investment) to November 30, 1995, the
Adviser earned fees from Value Fund of $528,160 and $261,156, respectively,
of which $42,523 and $180,915 were waived. For the fiscal years ended
November 30, 1996, 1995 and 1994, the Adviser earned fees from Growth Fund
of $1,242,921, $1,151,393, and $1,291,843, respectively, of which $12,959,
$129,440 and $484,441, were waived.
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 fiscal years ended November
30, 1996, 1995 and 1994, FAS earned fees from Treasury Money Market Fund of
$190,715, $171,752 and $157,664, respectively. For the fiscal years ended
November 30, 1996 and 1995 and the period from December 12, 1993 (date of
initial public investment) to November, 30, 1994, FAS earned fees from
Limited Maturity Government Fund of $83,044, $77,297 and $61,561,
respectively. For the years ended November 30, 1996, 1995 and 1994, FAS
earned fees from Fixed Income Fund of $196,480, $207,570 and $249,639,
respectively. During the fiscal year ended November 30, 1996, and for the
period from December 19, 1994 (date of initial public investment) to
November 30, 1995, FAS earned fees from Balanced Fund of $70,893 and
$58,065, respectively and from Value Fund of $85,580 and $50,126,
respectively. For the years ended November 30, 1996, 1995 and 1994, FAS
earned fees from Growth Fund of $201,629, $191,841, and $222,156,
respectively.
CUSTODIAN
Regions Bank, Birmingham, Alabama, is custodian for the securities and cash
of the Funds. Under the custodian agreement, Regions Bank holds the each
Fund's portfolio securities and keeps all necessary records and documents
relating to its duties. Regions 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 Shareholder Services Company, Pittsburgh, Pennsylvania, a
subsidiary of Federated Services Company, 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. For the fiscal
year ended November 30, 1996, and for the period from December 19, 1994
(date of initial public investment) to November 30, 1995, Balanced Fund
paid total brokerage commissions of $38,576 and $57,569, respectively and
Value Fund paid total brokerage commissions of $135,984 and $65,627,
respectively. For the fiscal years ended November 30, 1996, 1995, and 1994,
the Growth Fund paid total brokerage commissions of $269,887, $442,047 and
$278,680, 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 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 Funds." 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, 1996, brokers and administrators
received fees in the amount of $163,095 with respect to Investment Shares
of Treasury Money Market Fund.
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 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 Shareholder 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
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:
ofor equity securities, according to the last sale price on a
national securities exchange, if applicable;
oin the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
ofor unlisted equity securities, latest bid prices;
ofor bonds and other fixed income securities, as determined by an
independent pricing service;
ofor 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
ofor 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 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 SEC 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.
Treasury 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 Treasury 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
Treasury 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 Treasury Money Market Fund, respectively, of the other fund.
Further information on the exchange privilege and the Prospectus may be
obtained by calling 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 SEC 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:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute 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 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 charge, adjusted over the period by any
additional shares, assuming the quarterly or monthly, as applicable,
reinvestment of all dividends and distributions.
The average annual total returns for Investment Shares and Trust Shares of
Treasury Money Market Fund for the one-year period ended November 30, 1996
were 4.41% and 4.83%, respectively. During the period from April 14, 1992
(date of initial public investment) to November 30, 1995, the average total
returns were 3.63% and 4.04%, respectively.
The average annual total returns for Limited Maturity Government Fund for
the one-year period ended November 30, 1996 and the period from December
12, 1993 (date of initial public investment) to November 30 ,1996 were
0.76% and 3.62%, respectively.
The average annual total returns for Fixed Income Fund for the one-year
period ended November 30, 1996 and the period from April 20, 1992 (date of
initial public investment) to November 30, 1996 were 0.60% and 5.93%,
respectively.
The average annual total returns for Balanced Fund for the one-year period
ended November 30, 1996 and the period from December 19, 1994 (date of
initial public investment) to November 30, 1996 were 9.88% and 14.47%,
respectively.
The average annual total returns for Value Fund for the one-year period
ended November 30, 1996 and the period from December 19, 1994 (date of
initial public investment) to November 30, 1996 were 15.94% and 20.51%,
respectively.
The average annual total returns for Growth Fund for the one-year period
ended November 30, 1996 and the period from April 20, 1992 (date of initial
public investment) to November 30, 1996 were 22.16% and 11.86%,
respectively.
YIELD
The yield for Fund shares (other than shares of Treasury Money Market Fund)
is determined by dividing the net investment income per share (as defined
by the SEC) 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 SEC 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, 1996 was: 4.71% for
Limited Maturity Government Fund; 5.20% for Fixed Income Fund; 3.48% for
Balanced Fund; 1.62% for Value Fund; and 0.46% for Growth Fund.
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:
odetermining 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;
odividing the net change in the account's value by the value of the
account at the beginning of the base period return; and
omultiplying 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 yields for Investment Shares and Trust Shares of Treasury Money Market
Fund for the seven-day period ended November 30, 1996 were 4.28% and 4.68%,
respectively.
EFFECTIVE YIELD
Treasury Money Market Fund's effective yield for both classes of shares is
computed by compounding the unannualized base period return by:
oadding 1 to the base period return;
oraising the sum to the 365/7th power; and
osubtracting 1 from the result.
The effective yield for Investment Shares and Trust Shares of Treasury
Money Market Fund for the seven-day period ended November 30, 1995 were
4.37% and 4.79%, respectively.
PERFORMANCE COMPARISONS
The performance of Fund shares depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in a Fund's or class of share's expenses; and
ovarious other factors, including the relative amount of Fund cash
flow.
With respect to Funds other than 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:
oSALOMON 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.
oLEHMAN BROTHERS TREASURY BOND INDEX comprised entirely of U.S.
Treasury obligations. Flower bonds and foreign issues are excluded.
oIBC/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:
oMERRILL 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.
oMERRILL 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).
oMERRILL 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.
oLEHMAN 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.
oMERRILL 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.
o2-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:
OLEHMAN 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.
oMERRILL 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).
oMERRILL 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.
oLEHMAN 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:
oSTANDARD & 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.
oLEHMAN 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.
oS&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.
oMERRILL 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:
oSTANDARD & 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.
oS&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:
oDOW 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.
oSTANDARD & 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.
OS&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.
oFIDUCIARY 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.
oSEI 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.
oMERCER 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.
oCALLAN 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.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Funds can
compare their performance, or performance for the types of securities in
which they invest, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute (`ICI''). For example,
according to the ICI, twenty-seven percent of American households are
pursuing their financial goals through mutual funds. These investors, as
well as businesses and institutions, have entrusted over $3 trillion to the
more than 5,500 funds available.
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended November 30, 1996 are
incorporated herein by reference to the Annual Report of the Trust dated
November 30, 1996 (File No. 811-6511). A copy of the Trust's Annual Report
may be obtained without charge by contacting the Trust.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-):--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
NR--Not rated by Moody's.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. The issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
MOODY'S INVESTORS SERVICES, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (for related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources
of alternate liquidity.
P-2--Issuers rated PRIME-2 (for related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM RATINGS
F-1+--(Exceptionally Strong Credit Quality). Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1--(Very Strong Credit Quality). Issues assigned to this rating reflect
an assurance of timely payment only slightly less in degree than issues
rated F-1+.
F-2--(Good Credit Quality). Issues carrying this rating have a
satisfactory degree of assurance for timely payment but the margin of
safety is not as great as the F-1+ and F-1 categories.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements: (1-6) Incorporated by reference to
Annual Report of Registrant dated
November 30, 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)Conformed Copy of Exhibits E and F to the
Investment Advisory Contract of the Registrant to
add First Priority Equity Income Fund and First
Priority Balanced Fund, respectively, to the
Investment Advisory Contract;+
(6) (i)Conformed copy of Distributor's Contract of the
Registrant, including conformed copies of
Exhibits A, B, and C;(7)
(ii)Conformed Copy of Exhibit D to the Distributor's
Contract to add First Priority Equity Income Fund
and First Priority Balanced Fund, respectively,
to the Distributor's Contract;+
(7) Not applicable;
(8) Conformed copy of Custodian Contract of the Registrant
between First Priority Funds and First Alabama Bank
(4);
(9) (i) Conformed copy of Fund Accounting and
Shareholder Recordkeeping Agreement (5);
(ii) Form of Shareholder Services Plan of the
Registrant; (7)
(iii) Conformed Copy of Shareholder Services Agreement
of the Registrant; (7)
(iv) Conformed copy of Administration Services
Agreement;(10)
(10) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered;+
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 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).
(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).
(10)Response is incorporated by reference to Post-Effective Amendment No.
10 filed January 26, 1996 (File Nos. 33-44737 and 811-6511).
(11) Conformed Copy of Independent Auditors Consent;+
(12) Not applicable;
(13) Conformed 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)Conformed Copy of Exhibit C to the Distribution
Plan of the Registrant to add First Priority
Equity Income Fund and First Priority Balanced
Fund, respectively, to the Distribution Plan;+
(iii)Copy of Rule 12b-1 Agreement (1);
(16) (i) Copy of Schedules for Computation of Fund
Performance Data for First Priority Growth Fund,
First Priority Value Fund, First Priority
Balanced Fund, First Priority Treasury Money
Market Fund, and First Priority Fixed Income
Fund;+
(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;+
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 3, 1997
Shares of Beneficial Interest
(no par value)
First Priority Growth Fund 693
First Priority Fixed Income Fund 473
First Priority Limited Maturity Government Fund 30
First Priority Treasury Money Market Fund
Trust Shares 12
Investment Shares 1,440
First Priority Value Fund 97
First Priority Balanced Fund 39
Item 27. Indemnification: (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)
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).
(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) Response is incorporated by reference to Post-Effective Amendment No.
9 filed June 29, 1995 (File Nos. 33-44737 and 811-6511).
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 300
offices, Regions provides wide range of banking and fiduciary
services to its customers. As of December 31, 1996, 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.
As fiduciary, First Alabama managed over $3.2 billion in
discretionary assets as of June 30, 1996. It manages five
common trust funds and collective investment funds having a
market value in excess of $90 million as of December 31,
1996. Regions Bank has been adviser to First Priority Funds
since inception with a market value in excess of $690 million
as of December 31, 1996.
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
(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)
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
-
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
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
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
-
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.
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) 111 Corcoran Funds; Arrow Funds; Automated Government Money Trust;
BayFunds; 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; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund
for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated
High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Insurance Series; Federated Investment
Portfolios; Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; 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: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Independence One Mutual Funds;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty U.S. Government Money Market
Trust; Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; The Biltmore Funds; The
Biltmore Municipal Funds; The Monitor Funds; The Planters Funds; The
Starburst Funds; The Starburst Funds II; The Virtus Funds; 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; Vision Group of Funds, Inc.; andWorld Investment
Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive VicePresident,
Federated Investors Tower President, Federated, Treasurer and
Pittsburgh, PA 15222-3779 Securities Corp. Trustee
Thomas R. Donahue Director, Assistant Secretary, --
Federated Investors Tower Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, 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
Dale R. Browne 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
R. Leonard Corton, 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
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher 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
James E. Hickey 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
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
Thomas A. Peters III 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
Edward L. Smith 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
Richard Suder 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
Miles J. Wallace 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
Edward J. Wojnarowski 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
Edward R. Bozek Assistant 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
Leslie K. Platt Assistant Secretary, --
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 Shareholder 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 22nd day of
January, 1997.
FIRST PRIORITY FUNDS
BY: /s/ Jay S. Neuman
Jay S. Neuman, Assistant Secretary
Attorney in Fact for John F. Donahue
January 22, 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 22, 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
* By Power of Attorney
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees and Shareholders of
FIRST PRIORITY FUNDS:
We consent to the incorporation by reference in Post-Effective Amendment
No. 11 to Registration Statement (No. 33-44737) of First Priority Funds
(comprising the following portfolios: Treasury Money Market Fund, Growth
Fund, Balanced Fund, Fixed Income Fund, Value Fund and Limited Maturity
Government Fund) of our report dated January 10, 1997, appearing in the
Combined Annual Report of the First Priority Funds for the year ended
November 30, 1996, and to the references to us under the heading
`Financial Highlights'' in such Combined Prospectus, which is a part of
such Registration Statement.
/s/ Deliotte & Touche LLP
Pittsburgh, Pennsylvania
January 22, 1997
Exhibit 5(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
EXHIBIT E
to the
Investment Advisory Contract
FIRST PRIORITY FUNDS
FIRST PRIORITY EQUITY INCOME FUND
For all services rendered by Adviser hereunder, the above-named Fund
of the Trust shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment
advisory fee equal to 0.80 of 1% of the average daily net assets of the
Fund.,
The portion of the fee based upon average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.80 of 1% applied to the
daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 1st day of December, 1994.
Attest: FIRST ALABAMA BANK
By: /s/ Virginia L. Martin By: /s/ Richard E. Wambsganss
Assistant Secretary Executive Vice President
Attest: FIRST PRIORITY FUNDS
By: /s/ John W. McGonigle By: /s/ Edward C. Gonzales
Secretary President
EXHIBIT F
to the
Investment Advisory Contract
FIRST PRIORITY FUNDS
FIRST PRIORITY BALANCED FUND
For all services rendered by Adviser hereunder, the above-named Fund
of the Trust shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment
advisory fee equal to 0.80 of 1% of the average daily net assets of the
Fund.,
The portion of the fee based upon average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.80 of 1% applied to the
daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 1st day of December, 1994.
Attest: FIRST ALABAMA BANK
By: /s/ Virginia L. Martin By: /s/ Richard E. Wambsganss
Assistant Secretary Executive Vice President
Attest: FIRST PRIORITY FUNDS
By: /s/ John W. McGonigle By: /s/ Edward C. Gonzales
Secretary President
Exhibit 6(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit D
to the
Distributor's Contract
FIRST PRIORITY FUNDS
FIRST PRIORITY EQUITY INCOME FUND
FIRST PRIORITY BALANCED FUND
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated the 26th day of February, 1992, between FIRST
PRIORITY FUNDS and Federated Securities Corp. with respect to the Funds set
forth above.
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of Shares of the Funds. Pursuant to this
appointment, FSC is authorized to select a group of brokers (`Brokers'')
to sell shares of the above-listed Funds (`Shares''), at the current
offering price thereof as described and set forth in the respective
prospectuses of the Trust, and to render administrative support services to
the Trust and its shareholders. In addition, FSC is authorized to select a
group of administrators (`Administrators'') to render administrative
support services to the Trust and its shareholders.
2. Administrative support services may include, but are not limited
to, the following eleven functions: 1) account openings: the Broker or
Administrator communicates account openings via computer terminals located
on the Broker's or Administrator's premises; 2) account closings: the
Broker or Administrator communicates account closings via computer
terminals; 3) enter purchase transactions: purchase transactions are
entered through the Broker's or Administrator's own personal computer or
through the use of a toll-free telephone number; 4) enter redemption
transactions: Broker or Administrator enters redemption transactions in
the same manner as purchases; 5) account maintenance: Broker or
Administrator provides or arranges to provide accounting support for all
transactions. Broker or Administrator also wires funds and receives funds
for Trust share purchases and redemptions, confirms and reconciles all
transactions, reviews the activity in the Trust's accounts, and provides
training and supervision of its personnel; 6) interest posting: Broker or
Administrator posts and reinvests dividends to the Trust's accounts; 7)
prospectus and shareholder reports: Broker or Administrator maintains and
distributes current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously advertises the
availability of its services and products; 9) customer lists: the Broker
or Administrator continuously provides names of potential customers; 10)
design services: the Broker or Administrator continuously designs material
to send to customers and develops methods of making such materials
accessible to customers; and 11) consultation services: the Broker or
Administrator continuously provides information about the product needs of
customers.
3. During the term of this Agreement, the Trust will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the annual
rate of .30% of the average aggregate net asset value of the First Priority
Equity Income Fund and First Priority Balanced Fund held during the month.
For the month in which this Agreement becomes effective or terminates,
there shall be an appropriate proration of any fee payable on the basis of
the number of days that the Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Fund's expenses
exceed such lower expense limitation as FSC may, by notice to the Trust,
voluntarily declare to be effective.
5. FSC will enter into separate written agreements with various
firms to provide certain of the services set forth in Paragraph 1 herein.
FSC, in its sole discretion, may pay Brokers and Administrators a periodic
fee in respect of Shares owned from time to time by their clients or
customers. The schedules of such fees and the basis upon which such fees
will be paid shall be determined from time to time by FSC in its sole
discretion.
6. FSC will prepare reports to the Board of Trustees of the
Trust on a quarterly basis showing amounts expended hereunder including
amounts paid to Brokers and Administrators and the purpose for such
payments.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated February 26, 1992 between FIRST PRIORITY FUNDS
and Federated Securities Corp., FIRST PRIORITY FUNDS executes and delivers
this Exhibit on behalf of the Funds first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1994.
ATTEST: FIRST PRIORITY FUNDS
/s/ John W. McGonigle /s/Edward C. Gonzales
By:
Secretary President
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan /s/ John W. McGonigle
By:
Secretary Executive Vice President
Exhibit 10 under Form N-1A
Exhibit 5 under Item 601/Reg. S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
PITTSBURGH, PA 15222
William McC Houston
Fred Chalmers Houston, Jr. (412) 471-5828 Fred
Chalmers Houston
Thomas J. Donnelly FAX (412) 471-0738 (1914-1971)
John J. Heck
Mario Santillo, Jr.
Theodore M. Hammer
February 19, 1992
The Trustees of
First Priority Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
First Priority Funds (`Trust'') proposes to offer and sell one
separate series of Shares of Beneficial Interest representing interests in
separate portfolios of securities known as First Priority Equity Fund,
First Priority Fixed Income Fund and First Priority Treasury Money Market
Fund (all such shares of beneficial interest being herein referred to as
`Shares'') in the manner and on the terms set forth in its Registration
Statement filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
As counsel we have participated in the organization of the Trust, its
registration under the Investment Company Act of 1940 and the preparation
and filing of its Registration Statement under the Securities Act of 1933.
We have examined and are familiar with the provisions of the written
Declaration of Trust dated October 15, 1991, as amended (`Declaration of
Trust'), the Bylaws of the Trust and such other documents and records
deemed relevant. We have also reviewed questions of law and consulted with
counsel thereon as deemed necessary or appropriate by us for the purposes
of this opinion.
Based upon the foregoing, it is our opinion that:
1. The Trust is duly organized and validly existing pursuant to the
Declaration of Trust.
2. The Shares which are currently being registered by the
Registration Statement referred to above may be legally and validly issued
from time to time in accordance with the Declaration of Trust upon receipt
of consideration sufficient to comply with the provisions of Article III,
Section 3, of the Declaration of Trust and subject to compliance with the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and applicable state laws regulating the sale of securities. Such
Shares, when so issued, will be fully paid and non-assessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement referred to above and to any application or
registration statement filed under the securities laws of any of the States
of the United States. We further consent to the reference to our firm
under the caption Legal Counsel in the prospectus filed as a part of such
Registration Statement, applications and registration statements.
Very truly yours,
HOUSTON, HOUSTON & DONNELLY
By: /s/Thomas J. Donnelly
TJD: heh
Exhibit 15(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
EXHIBIT C
to the
Plan
FIRST PRIORITY FUNDS
FIRST PRIORITY EQUITY INCOME FUND
FIRST PRIORITY BALANCED FUND
This Plan is adopted by First Priority Funds with respect to the
Shares of the portfolios of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at an annual rate of 0.30 of 1% of the
average aggregate net asset value of the First Priority Equity Income Fund
and First Priority Balanced Fund held during the month.
Witness the due execution hereof this 1st day of December, 1994.
FIRST PRIORITY FUNDS
By: /s/ Edward C. Gonzales
President
EXHIBIT 16(i) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
FUND NAME: FIRST PRIORITY EQUITY FUND-TRUST SHARES
COMPUTATION OF SEC YIELD
AS OF: MAY 31, 1992
DIVIDEND AND/OR INTEREST INCOME
FOR THE 30 DAYS ENDED $187,973
NET EXPENSES FOR THE PERIOD $41,769.38
AVG DAILY SHARES OUTSTANDING AND
ENTITLED TO RECEIVE DIVIDENDS 7,705,725
MAXIUM OFFERING PRICE PER SHARE AS OF 08-01-91 $10.03
UNDISTRIBUTED NET INCOME $0.00000
YIELD=2[( 187973.24 - 41769.38)+1)^6-1]= 2.28%
7705724.91 *( 10.03 - 0)
DECLARED: QUARTERLY Schedule for Computation FUND:FIRST PRIORITY
EQUITY FUND-TRUST SHARES
PAID:QUARTERLY of Fund Performance Data
Returns Since Inception ending 4/20/92
FYE:November 30
Average Total Return
Initial Investment of: $1,000.00 on 04/20/92
Offering Price/Share = $9.86
NAV = $9.86
BEGINNING
REINVESTMENT ENDING TOTAL
REINVESTMENT PERIOD DIVIDEND CAPITAL GAIN PRICE
PERIOD PERIOD END INVESTMENT
DATES SHARE BASE PER SHARE PER SHARE PER SHARE
SHARE BASE PRICE VALUE
04/20/92 101.420 0.000000000 0.00000
$9.86 101.420 $9.86 $1,000.00
04/30/92 101.420 0.000000000 0.00000
$10.02 101.420 $10.02 $1,016.23
05/31/92 101.420 0.000000000 0.00000
$10.03 101.420 $10.03 $1,017.24
$1,000 (1+T) = Ending Redeemable Value
T = 1.72%
FUND NAME: FIRST PRIORITY EQUITY FUND-INVESTMENT SHARES
COMPUTATION OF SEC YIELD
AS OF: MAY 31, 1992
DIVIDEND AND/OR INTEREST INCOME
FOR THE 30 DAYS ENDED $187,973
NET EXPENSES FOR THE PERIOD $61,394.80
AVG DAILY SHARES OUTSTANDING AND
ENTITLED TO RECEIVE DIVIDENDS 7,705,725
MAXIUM OFFERING PRICE PER SHARE AS OF 08-01-91 $10.50
UNDISTRIBUTED NET INCOME $0.00000
YIELD=2[( 187973.24 - 61394.8)+1)^6-1]= 1.88%
7705724.91 *( 10.5 - 0)
DECLARED: QUARTERLY Schedule for Computation FUND:FIRST PRIORITY
EQUITY
FUND-INVESTMENT SHARES
PAID:QUARTERLY of Fund Performance Data Returns Since
Inception ending 4/20/92
FYE:November 30
Average Total
Return
Initial Investment of: $1,000.00 on 04/20/92
Offering Price/Share = $10.32
NAV = $9.86
BEGINNING
REINVESTMENT ENDING TOTAL
REINVESTMENT PERIOD DIVIDEND CAPITAL GAIN PRICE
PERIOD PERIOD END INVESTMENT
DATES SHARE BASE PER SHARE PER SHARE PER SHARE
SHARE BASE PRICE VALUE
04/20/92 96.899 0.000000000 0.00000
$9.86 96.899 $9.86 $955.43
04/30/92 96.899 0.000000000 0.00000
$10.02 96.899 $10.02 $970.93
05/31/92 96.899 0.000000000 0.00000
$10.03 96.899 $10.03 $970.90
$1,000 (1+T) = Ending Redeemable Value
T = 2.81%
FIRST PRIORITY TREASURY MONEY MARKET FUND
TRUST SHARES
SCHEDULE FOR COMPUTATION OF YIELD CALCULATION
This example illustrates the yield quotation for the seven-day period ended
May 31, 1992:
Value of a hypothetical pre-existing account with exactly one share at the
beginning of the base period $1.000000000
Value of same account (excluding capital changes) at end of the seven-day
base periodH 1.000697596
Net change in account value 0.000697596
Base Period Return:
Net Change in account value divided by the beginning
account value ($0.000697596 + $1.000000000) 0.000697596
Annualized Current Net Yield [0.000697596 x (365/7)] 3.64%
Effective Yield HH (0.000697596 + 2) 365/7 -1 3.70%
H This value includes the value of additional shares purchases with
dividends from the original share,
and dividends declared on both the original share and any such
additional shares.
HH This value may change to include shares purchases with dividends
reinvested on a less frequent basis.
FIRST PRIORITY TREASURY MONEY MARKET FUND
INVESTMENT SHARES
SCHEDULE FOR COMPUTATION OF YIELD CALCULATION
This example illustrates the yield quotation for the seven-day period ended
May 31, 1992:
Value of a hypothetical pre-existing account with exactly one share at the
beginning of the base period $1.000000000
Value of same account (excluding capital changes) at end of the seven-day
base periodH 1.000621000
Net change in account value 0.000621000
Base Period Return:
Net Change in account value divided by the beginning
account value ($0.000621000 + $1.000000000) 0.000621000
Annualized Current Net Yield [0.000621000 x (365/7)] 3.24%
Effective Yield HH (0.000621000 + 1) 365/7 -1 3.29%
H This value includes the value of additional shares purchases with
dividends from the original share,
and dividends declared on both the original share and any such
additional shares.
HH This value may change to include shares purchases with dividends
reinvested on a less frequent basis.
FUND NAME: FIRST PRIORITY FIXED INCOME FUND-TRUST SHARES
COMPUTATION OF SEC YIELD
AS OF: MAY 31, 1992
DIVIDEND AND/OR INTEREST INCOME
FOR THE 30 DAYS ENDED $410,016
NET EXPENSES FOR THE PERIOD $35,021.81
AVG DAILY SHARES OUTSTANDING AND
ENTITLED TO RECEIVE DIVIDENDS 6,533,850
MAXIUM OFFERING PRICE PER SHARE AS OF 08-01-91 $10.04
UNDISTRIBUTED NET INCOME $0.00000
YIELD=2[( 410016.19 - 35021.81 )+1)^6-1]= 6.96%
6533850.14*( 10.04 - 0)
DECLARED: QUARTERLY Schedule for Computation FUND:FIRST PRIORITY
FIXED
INCOME FUND-TRUST SHARES
PAID:QUARTERLY of Fund Performance Data Returns Since
Inception ending 4/20/92
FYE:November 30
Average Total
Return
Initial Investment of: $1,000.00 on 04/20/92
Offering Price/Share = $9.90
NAV = $9.90
BEGINNING
REINVESTMENT ENDING TOTAL
REINVESTMENT PERIOD DIVIDEND CAPITAL GAIN PRICE PERIOD
PERIOD END INVESTMENT
DATES SHARE BASE PER SHARE PER SHARE PER SHARE
SHARE BASE PRICE VALUE
04/20/92 101.010 0.000000000 0.00000
$9.90 101.010 $9.90 $1,000.00
04/30/92 101.010 0.020658452 0.00000
$9.88 101.221 $9.88 $1,000.07
05/31/92 101.010 0.057985969 0.00000
$10.04 101.806 $10.04 $1,022.13
$1,000 (1+T) = Ending Redeemable Value
T = 2.21%
FUND NAME: FIRST PRIORITY FIXED INCOME FUND-INVESTMENT SHARES
COMPUTATION OF SEC YIELD
AS OF: MAY 31, 1992
DIVIDEND AND/OR INTEREST INCOME
FOR THE 30 DAYS ENDED $410,016
NET EXPENSES FOR THE PERIOD $51,628.34
AVG DAILY SHARES OUTSTANDING AND
ENTITLED TO RECEIVE DIVIDENDS 6,533,850
MAXIUM OFFERING PRICE PER SHARE AS OF 08-01-91 $10.51
UNDISTRIBUTED NET INCOME $0.00000
YIELD=2[( 410016.19 - 51628.34)+1)^6-1]= 6.34%
6533850.14 *( 10.51 - 0)
DECLARED: QUARTERLY Schedule for Computation FUND:FIRST PRIORITY
FIXED INCOME FUND
-INVESTMENT SHARES
PAID:QUARTERLY of Fund Performance Data Returns Since
Inception ending 4/20/92
FYE:November 30
Average Total
Return
Initial Investment of: $1,000.00 on 04/20/92
Offering Price/Share = $10.37
NAV = $9.90
BEGINNING
REINVESTMENT ENDING TOTAL
REINVESTMENT PER DIVIDEND CAPITAL GAIN PRICE PERIOD PERIOD
END INVESTMENT
DATES SHARE BASE PER SHARE PER SHARE PER SHARE SHARE BASE
PRICE VALUE
04/20/92 96.432 0.000000000 0.00000 $9.90
96.432 $9.90 $954.68
04/30/92 96.432 0.020658452 0.00000 $9.88
96.432 $9.88 $954.74
05/31/92 96.634 0.055464050 0.00000 10.04
97.167 $10.04 $975.56
$1,000 (1+T) = Ending Redeemable Value
T = 2.44%
FIRST PRIORITY EQUITY INC
COMPUTATION OF SEC YIELD
AS OF: MAY 31, 1995
DIVIDEND AND/OR INTEREST INCOME
FOR THE 30 DAYS ENDED $139,505.44
NET EXPENSES FOR THE PERIOD $23,836.15
AVG DAILY SHARES OUTSTANDING AND
ENTITLED TO RECEIVE DIVIDENDS 3,354,787
MAXIUM OFFERING PRICE PER SHARE AS OF 08-01-91 $11.29
UNDISTRIBUTED NET INCOME $0.09510
YIELD=2[( 139,505.44 -23,836.15 )+1)^6-1]=
3,354,787 *( 11.29 - 0.09510)
SEC Yield = 3.73%
Tax-Equivalent Yield
(assumes individual does not itemize on Federal Return)
100% minus the Federal taxable % (100%-28% = 72%)
30 SEC yield / by the tax equivalent % (0.00%/72. 5.18%
Schedule for Computation Initial Invest of: $1,000
of Fund Performance Data Offering
Price/Share $10.20
First Priority Equity Income Fund FYE:November 30
Return Since Inception ending 5/31/95 NAV = $10.00
DECLARED: QUARTERLY
PAID: QUARTERLY
BEGINNING
REINVESTMENT ENDING TOTAL
REINVESTMENT PERIOD DIVIDEND CAPITAL GAIN PRICE PERIOD
PERIOD END INVESTMENT
DATES SHARE BASE PER SHARE PER SHARE PER
SHARE SHARE BASE PRICE VALUE
12/19/94 98.039 0.000000000 0.00000
$9.99 98.039 $9.99 $979.41
12/28/94 98.039 0.011800000 0.00000
$10.05 98.154 $10.05 $986.45
3/24/95 98.154 0.130000000 0.00000
$10.48 99.372 $10.48 $1,041.42
5/31/95 98.372 0.000000000 0.00000
$11.06 99.372 $11.06 $1,099.05
$1,000 (1+T) = Ending Redeemable Value
T = 9.91%
FIRST PRIORITY BALANCED
COMPUTATION OF SEC YIELD
AS OF: MAY 31, 1995
DIVIDEND AND/OR INTEREST INCOME
FOR THE 30 DAYS ENDED $179,755.06
NET EXPENSES FOR THE PERIOD $22,90.08
AVG DAILY SHARES OUTSTANDING AND
ENTITLED TO RECEIVE DIVIDENDS 4,257,981
MAXIUM OFFERING PRICE PER SHARE AS OF 08-01-91 $11.10
UNDISTRIBUTED NET INCOME $0.08040
YIELD=2[( 179,755.06 -22,906.08 )+1)^6-1]=
4,257,981 *( 11.10 - 0.08040)
SEC Yield = 4.04%
Tax-Equivalent Yield
(assumes individual does not itemize on Federal Return)
100% minus the Federal taxable % (100%-28% = 72%)
30 SEC yield / by the tax equivalent % (0.00%/72. 5.61%
Schedule for Computation Initial Invest of: $1,000
of Fund Performance Data Offering
Price/Share $10.20
First Priority Balanced Fund FYE:November 30
Return Since Inception ending 5/31/95 NAV = $10.00
DECLARED: QUARTERLY
PAID: QUARTERLY
BEGINNING REINVESTMENT
ENDING TOTAL
REINVESTMENT PERIOD DIVIDEND CAPITAL GAIN PRICE PERIOD
PERIOD END INVESTMENT
DATE SHARE BASE PER SHARE PER SHARE PER SHARE
SHARE BASE PRICE VALUE
12/19/94 98.039 0.000000000 0.00000
$9.99 98.039 $9.99 $979.41
12/27/94 98.039 0.014400000 0.00000
$10.00 98.180 $10.00 $981.80
12/31/94 98.180 0.000000000 0.00000
$10.02 98.180 $10.02 $983.77
3/24/95 98.180 0.110000000 0.00000
$10.40 99.219 $10.40 $1,031.88
3/31/95 98.180 0.000000000 0.00000
$10.42 98.180 $10.42 $1,023.04
5/31/95 99.219 0.000000000 0.00000
$10.88 99.219 $10.88 $1,079.50
$1,000 (1+T) = Ending Redeemable Value
T = 7.95%
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoint the Secretary and Assistant Secretary of FIRST PRIORITY FUNDS and
the Assistant General Cousnel of Federated Investors, and each of them,
their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed
with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, the Securities Exchange Act of 1934 and the Investment Company Act
of 1940, by means of the Securities and Exchange Commission's electronic
disclosure system known as EDGAR; and to file the same, with all exhibits
thereto and other doucments in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents,
each of them, full power and authority to sign and perform each and every
act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. DonahueChairman and TrusteeJanuary 10, 1997
John F. Donahue(Chief Executive Officer)
/s/ Edward C. GonzalesPresident,Treasurer andJanuary 10, 1997
Edward C. GonzalesTrustee (Principal Financial
and Accounting Officer)
/s/ Thomas G. Bigley Trustee January 10, 1997
Thomas G. Bigley
/s/John T. Conroy, Jr. Trustee January 10, 1997
John T. Conroy, Jr.
/s/William J. Copeland Trustee January 10, 1997
William J. Copeland
/s/James E. Dowd Trustee January 10, 1997
James E. Dowd
/s/ Lawrence D. Ellis, M.D.Trustee January 10, 1997
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr.Trustee January 10, 1997
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Trustee January 10, 1997
Peter E. Madden
/s/ Gregor F. Meyer Trustee January 10, 1997
Gregor F. Meyer
/s/John E. Murray, Jr. Trustee January 10, 1997
John E. Murray, Jr.
/s/ Wesley W. Posvar Trustee January 10, 1997
Wesley W. Posvar
/s/ Marjorie P. Smuts Trustee January 10, 1997
Marjorie P. Smuts
Sworn to and subscribed before me this 10th day of January, 1997
/s/ Marie N.Hamm
Notary Republic
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> First Priority Funds
First Priority Treasury Money Market Fund
Trust Shares
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 129,872,911
<INVESTMENTS-AT-VALUE> 129,872,911
<RECEIVABLES> 12,865,126
<ASSETS-OTHER> 1,888
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 142,739,925
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 334,878
<TOTAL-LIABILITIES> 334,878
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 142,405,047
<SHARES-COMMON-STOCK> 101,786,449
<SHARES-COMMON-PRIOR> 109,367,632
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 101,786,449
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,690,335
<OTHER-INCOME> 0
<EXPENSES-NET> 927,046
<NET-INVESTMENT-INCOME> 6,763,289
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,763,289
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,005,887
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 225,453,608
<NUMBER-OF-SHARES-REDEEMED> 233,591,379
<SHARES-REINVESTED> 556,588
<NET-CHANGE-IN-ASSETS> 4,107,474
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 735,258
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,354,727
<AVERAGE-NET-ASSETS> 147,058,963
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> First Priority Funds
First Priority Treasury Money Market Fund
Investment Shares
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 129,872,911
<INVESTMENTS-AT-VALUE> 129,872,911
<RECEIVABLES> 12,865,126
<ASSETS-OTHER> 1,888
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 142,739,925
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 334,878
<TOTAL-LIABILITIES> 334,878
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 142,405,047
<SHARES-COMMON-STOCK> 40,618,598
<SHARES-COMMON-PRIOR> 28,929,941
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 40,618,598
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,690,335
<OTHER-INCOME> 0
<EXPENSES-NET> 927,046
<NET-INVESTMENT-INCOME> 6,763,289
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,763,289
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,757,402
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 268,532,663
<NUMBER-OF-SHARES-REDEEMED> 258,536,525
<SHARES-REINVESTED> 1,692,519
<NET-CHANGE-IN-ASSETS> 4,107,474
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 735,258
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,354,727
<AVERAGE-NET-ASSETS> 147,058,963
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.040
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> First Priority Funds
First Priority Limited Maturity Government Fun
Investment Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 62,000,327
<INVESTMENTS-AT-VALUE> 62,353,319
<RECEIVABLES> 1,537,282
<ASSETS-OTHER> 10,698
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 63,901,299
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 169,780
<TOTAL-LIABILITIES> 169,780
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63,658,146
<SHARES-COMMON-STOCK> 6,400,017
<SHARES-COMMON-PRIOR> 6,279,565
<ACCUMULATED-NII-CURRENT> 18,946
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (298,565)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 352,992
<NET-ASSETS> 63,731,519
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,899,774
<OTHER-INCOME> 0
<EXPENSES-NET> 646,406
<NET-INVESTMENT-INCOME> 3,253,368
<REALIZED-GAINS-CURRENT> (166,590)
<APPREC-INCREASE-CURRENT> (433,168)
<NET-CHANGE-FROM-OPS> 2,653,610
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,234,422
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,356,256
<NUMBER-OF-SHARES-REDEEMED> 1,340,753
<SHARES-REINVESTED> 104,949
<NET-CHANGE-IN-ASSETS> 653,680
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (131,975)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 448,104
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 694,541
<AVERAGE-NET-ASSETS> 63,959,890
<PER-SHARE-NAV-BEGIN> 10.040
<PER-SHARE-NII> 0.500
<PER-SHARE-GAIN-APPREC> (0.080)
<PER-SHARE-DIVIDEND> 0.500
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.960
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> First Priority Funds
First Priority Fixed Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 150,848,919
<INVESTMENTS-AT-VALUE> 152,218,934
<RECEIVABLES> 1,407,578
<ASSETS-OTHER> 1,747
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 153,628,259
<PAYABLE-FOR-SECURITIES> 18,467
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 669,427
<TOTAL-LIABILITIES> 687,894
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 155,130,300
<SHARES-COMMON-STOCK> 14,763,120
<SHARES-COMMON-PRIOR> 15,506,800
<ACCUMULATED-NII-CURRENT> 49,471
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,609,421)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,370,015
<NET-ASSETS> 152,940,365
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,732,358
<OTHER-INCOME> 0
<EXPENSES-NET> 1,544,996
<NET-INVESTMENT-INCOME> 8,187,362
<REALIZED-GAINS-CURRENT> (15,303)
<APPREC-INCREASE-CURRENT> 197,811
<NET-CHANGE-FROM-OPS> 8,369,870
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,137,891
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,523,751
<NUMBER-OF-SHARES-REDEEMED> 7,311,945
<SHARES-REINVESTED> 44,514
<NET-CHANGE-IN-ASSETS> (7,345,666)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,594,118)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,135,766
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,544,996
<AVERAGE-NET-ASSETS> 151,433,081
<PER-SHARE-NAV-BEGIN> 10.340
<PER-SHARE-NII> 0.540
<PER-SHARE-GAIN-APPREC> 0.020
<PER-SHARE-DIVIDEND> 0.540
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.360
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> First Priority Funds
First Priority Balanced Fund
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 49,290,040
<INVESTMENTS-AT-VALUE> 58,746,606
<RECEIVABLES> 782,985
<ASSETS-OTHER> 10,022
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 59,539,613
<PAYABLE-FOR-SECURITIES> 186,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32,316
<TOTAL-LIABILITIES> 218,816
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,066,403
<SHARES-COMMON-STOCK> 4,740,378
<SHARES-COMMON-PRIOR> 4,469,111
<ACCUMULATED-NII-CURRENT> 323,481
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,474,347
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,456,566
<NET-ASSETS> 59,320,797
<DIVIDEND-INCOME> 576,066
<INTEREST-INCOME> 2,007,628
<OTHER-INCOME> 0
<EXPENSES-NET> 619,027
<NET-INVESTMENT-INCOME> 1,964,667
<REALIZED-GAINS-CURRENT> 1,477,490
<APPREC-INCREASE-CURRENT> 4,504,813
<NET-CHANGE-FROM-OPS> 7,946,970
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,977,098
<DISTRIBUTIONS-OF-GAINS> 934,924
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,045,572
<NUMBER-OF-SHARES-REDEEMED> 8,906,342
<SHARES-REINVESTED> 950,011
<NET-CHANGE-IN-ASSETS> 8,124,189
<ACCUMULATED-NII-PRIOR> 335,912
<ACCUMULATED-GAINS-PRIOR> 931,781
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 436,997
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 667,061
<AVERAGE-NET-ASSETS> 54,706,980
<PER-SHARE-NAV-BEGIN> 11.460
<PER-SHARE-NII> 0.410
<PER-SHARE-GAIN-APPREC> 1.270
<PER-SHARE-DIVIDEND> 0.420
<PER-SHARE-DISTRIBUTIONS> 0.210
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.510
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> First Priority Funds
First Priority Value Fund
Investment Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 70,649,669
<INVESTMENTS-AT-VALUE> 83,519,810
<RECEIVABLES> 944,553
<ASSETS-OTHER> 8,909
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84,473,272
<PAYABLE-FOR-SECURITIES> 863,515
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,787
<TOTAL-LIABILITIES> 901,302
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,555,314
<SHARES-COMMON-STOCK> 6,018,115
<SHARES-COMMON-PRIOR> 3,773,216
<ACCUMULATED-NII-CURRENT> 257,785
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,888,730
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,870,141
<NET-ASSETS> 83,571,970
<DIVIDEND-INCOME> 1,900,125
<INTEREST-INCOME> 341,287
<OTHER-INCOME> 0
<EXPENSES-NET> 730,601
<NET-INVESTMENT-INCOME> 1,510,811
<REALIZED-GAINS-CURRENT> 3,889,499
<APPREC-INCREASE-CURRENT> 8,077,338
<NET-CHANGE-FROM-OPS> 13,477,648
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,483,398
<DISTRIBUTIONS-OF-GAINS> 1,327,782
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,724,418
<NUMBER-OF-SHARES-REDEEMED> 483,316
<SHARES-REINVESTED> 3,797
<NET-CHANGE-IN-ASSETS> 38,148,294
<ACCUMULATED-NII-PRIOR> 230,372
<ACCUMULATED-GAINS-PRIOR> 1,327,013
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 528,160
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 773,124
<AVERAGE-NET-ASSETS> 65,786,533
<PER-SHARE-NAV-BEGIN> 12.040
<PER-SHARE-NII> 0.270
<PER-SHARE-GAIN-APPREC> 2.220
<PER-SHARE-DIVIDEND> 0.290
<PER-SHARE-DISTRIBUTIONS> 0.350
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.890
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> First Priority Funds
First Priority Growth Fund
Investment Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 132,764,722
<INVESTMENTS-AT-VALUE> 175,202,726
<RECEIVABLES> 531,508
<ASSETS-OTHER> 1,752
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 175,735,986
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 215,003
<TOTAL-LIABILITIES> 215,003
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 118,236,386
<SHARES-COMMON-STOCK> 11,992,551
<SHARES-COMMON-PRIOR> 12,752,956
<ACCUMULATED-NII-CURRENT> 100,160
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,157,307
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 48,027,130
<NET-ASSETS> 175,520,983
<DIVIDEND-INCOME> 2,839,057
<INTEREST-INCOME> 320,266
<OTHER-INCOME> 0
<EXPENSES-NET> 1,630,535
<NET-INVESTMENT-INCOME> 1,528,788
<REALIZED-GAINS-CURRENT> 9,169,321
<APPREC-INCREASE-CURRENT> 28,913,778
<NET-CHANGE-FROM-OPS> 39,611,887
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,880,165
<DISTRIBUTIONS-OF-GAINS> 6,989,405
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,178,975
<NUMBER-OF-SHARES-REDEEMED> 2,980,103
<SHARES-REINVESTED> 40,723
<NET-CHANGE-IN-ASSETS> 21,223,550
<ACCUMULATED-NII-PRIOR> 451,537
<ACCUMULATED-GAINS-PRIOR> 6,977,391
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,242,921
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,643,494
<AVERAGE-NET-ASSETS> 155,656,010
<PER-SHARE-NAV-BEGIN> 12.100
<PER-SHARE-NII> 0.120
<PER-SHARE-GAIN-APPREC> 3.120
<PER-SHARE-DIVIDEND> 0.150
<PER-SHARE-DISTRIBUTIONS> 55.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.640
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
