REGIONS FUNDS
REGIONS FAMILY OF FUNDS
COMBINED PROSPECTUS
DATED JANUARY 31, 1998
REVISED JULY 31, 1998
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FIRST PRIORITY FUNDS BECAME REGIONS FUNDS
EFFECTIVE MAY 15, 1998
Diversified Portfolios of the Regions Funds, an Open-End,
Management Investment Company
<PAGE>
TABLE OF CONTENTS
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SYNOPSIS 2
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SUMMARY OF FUND EXPENSES 4
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FINANCIAL HIGHLIGHTS 10
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OBJECTIVE OF EACH FUND 14
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Treasury Money Market Fund 14
Limited Maturity Government Fund 14
Fixed Income Fund 15
Balanced Fund 16
Value Fund 17
Growth Fund 18
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PORTFOLIO INVESTMENTS AND STRATEGIES 19
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Debt Securities--Ratings and Investment
Considerations 19
Asset-Backed Securities 19
Stripped Bonds 22
U.S. Government Securities 22
Bank Instruments 23
Equity Investment Considerations 23
Securities of Foreign Issuers 23
Convertible Securities 23
Put and Call Options 25
Futures and Options on Futures 26
Investing in Securities of Other
Investment Companies 27
Derivative Contracts and Securities 27
When-Issued and Delayed Delivery
Transactions 28
Lending of Portfolio Securities 28
Repurchase Agreements 28
Temporary Investments 29
Borrowing Money 29
Diversification 29
Restricted and Illiquid Securities 29
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REGIONS FUNDS INFORMATION 30
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Management of the Regions Funds 30
Distribution of Fund Shares 33
Fund Administration 34
BROKERAGE TRANSACTIONS 35
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EXPENSES OF THE FUNDS 35
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NET ASSET VALUE 35
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INVESTING IN THE FUNDS 36
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Minimum Investment Required 36
What Shares Cost 37
Conversion to Federal Funds 38
Systematic Investment Plan 39
Exchanging Securities for Fund Shares 39
Confirmations and Account Statements 39
Dividends and Capital Gains 39
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EXCHANGE PRIVILEGE 40
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REDEEMING SHARES 41
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By Telephone 41
By Mail 41
Systematic Withdrawal Plan 42
Accounts with Low Balances 42
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SHAREHOLDER INFORMATION 42
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Voting Rights 42
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EFFECT OF BANKING LAWS 43
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TAX INFORMATION 43
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Federal Income Tax 43
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PERFORMANCE INFORMATION 44
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ADDRESSES Inside Back Cover
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<PAGE>
PROSPECTUS
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REGIONS FAMILY OF FUNDS
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Regions Funds (the "Trust") (formerly, First Priority Funds), 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 and each Fund offering two classes of shares, Trust Shares and
Investment Shares:
- Regions Treasury Money Market Fund
- Regions Limited Maturity Government Fund
- Regions Fixed Income Fund
- Regions Balanced Fund
- Regions Value Fund
- Regions 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, 1998, revised July 31, 1998 ("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, 1998
Revised July 31, 1998
<PAGE>
SYNOPSIS
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Regions Funds was established as a Massachusetts business trust under a
Declaration of Trust dated October 15, 1991. Effective May 15, 1998, the Trust
changed its name from "First Priority Funds" to "Regions Funds".
The Declaration of Trust permits Regions 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, the Board of
Trustees ("Trustees") has established two classes of shares for each Fund, known
as Trust Shares and Investment Shares (individually and collectively as the
context requires "Shares").
As of the date of this prospectus, shares are offered in the following six
Funds:
- REGIONS TREASURY MONEY MARKET FUND ("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;
- REGIONS 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;
- REGIONS 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;
- REGIONS BALANCED FUND ("BALANCED FUND")--seeks to provide total return
through capital appreciation, dividends, and interest by investing
primarily in a diversified portfolio of common and preferred stocks
(including stocks issued by small-sized companies with a market
capitalization of $1 billion or less), fixed-income senior securities,
and convertible securities.
- REGIONS 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
- REGIONS 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. Generally, a
minimum initial investment of $1,000 is required for the Investment Shares of
each of the Funds and a $25,000 minimum initial investment is required for Trust
Shares of each of the Funds. 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. Trust Shares of the other
Funds are sold and redeemed at net asset value. Investment Shares of the other
Funds are sold at net asset value and redeemed at net asset value less an
<PAGE>
applicable contingent deferred sales charge (except as otherwise noted in this
prospectus). Net asset value 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. These risks, as well as a discussion of the risks associated with
investment in small capitalization stocks, are discussed in the section entitled
"Equity Investment Considerations." 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.
<PAGE>
SUMMARY OF FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
TREASURY MONEY LIMITED MATURITY
MARKET FUND GOVERNMENT FUND
---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRUST INVESTMENT TRUST INVESTMENT
SHARES SHARES SHARES SHARES
---------- ---------- ---------- ----------
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).................. None None None None
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)(1).................... 0.00% 0.00% 0.00% 3.00%
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 average net assets)
Management Fee (after waiver, if applicable)..... 0.25%(2) 0.25%(2) 0.70% 0.70%
12b-1 Fees....................................... None 0.40% None 0.00%(3)
Other Expenses................................... 0.27% 0.27% 0.29% 0.54%
Shareholder Servicing Fee (if applicable).... None None None 0.25%
Total Annual Fund Operating Expenses..... 0.52%(4) 0.92%(4) 0.99% 1.24%(4)
</TABLE>
(1) The contingent deferred sales charge is 3.00% in the first year declining to
1.00% in the third year and 0.00% thereafter. (See "What Shares Cost".)
Shareholders who purchase Investment Shares of the Treasury Money Market
Fund through exchange of Investment Shares of another Regions Fund, may be
charged a contingent deferred sales charge by the Trust's distributor.
No contingent deferred sales charge will be imposed on: (a) the portion of
redemption proceeds attributable to increases in the value of the account
due to increases in the net asset value per Share, (b) Shares acquired
through reinvestment of dividends and capital gains, (c) Shares held for
more than three years after the end of the calendar month of acquisition,
(d) accounts following the death or disability of a shareholder, (e) minimum
required distributions to a shareholder over the age of 70 1/2 from an IRA
or other retirement plan, (f) shares purchased prior to June 1, 1997, or (g)
involuntary redemptions by the Funds of shares in shareholder accounts that
do not comply with the minimum balance requirements.
(2) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 0.50% for the
Treasury Money Market Fund--Trust Shares and Investment Shares.
(3) The Limited Maturity Government Fund has no intention of paying or accruing
12b-1 fees during the fiscal year ending November 30, 1998. If this Fund was
paying or accruing 12b-1 fees, the Limited Maturity Government Fund would be
able to pay up to 0.25% of its daily net assets for 12b-1 fees.
(4) The Total Annual Operating Expenses would have been 0.77% for the Treasury
Money Market Fund--Trust Shares and 1.17% for the Treasury Money Market
Fund--Investment Shares absent the voluntary waiver described in Note 2
above. The Total Annual Operating Expenses for the fiscal year ending
November 30, 1998 are estimated to be 1.24% for the Limited Maturity
Government Fund--Investment Shares.
<PAGE>
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING
THEVARIOUS 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 "REGIONS FUNDS INFORMATION", "INVESTING IN
THE FUNDS:, AND THE SAI.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT
OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Treasury Money Market Fund--Trust Shares.................. $ 5 $17 $ 29 $ 65
Treasury Money Market Fund--Investment Shares............. $ 9 $29 $ 51 $113
Limited Maturity Government Fund--Trust Shares............ $10 $32 $ 55 $121
Limited Maturity Government Fund--Investment Shares....... $44 $51 $ 68 $150
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemptions:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Treasury Money Market Fund--Trust Shares.................. $ 5 $17 $ 29 $ 65
Treasury Money Market Fund--Investment Shares............. $ 9 $29 $ 51 $113
Limited Maturity Government Fund--Trust Shares............ $10 $32 $ 55 $121
Limited Maturity Government Fund--Investment Shares....... $13 $39 $ 68 $150
</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.
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
FIXED INCOME BALANCED
FUND FUND
---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRUST INVESTMENT TRUST INVESTMENT
SHARES SHARES SHARES SHARES
---------- ---------- ---------- ----------
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).................. None None None None
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)(1).................... 0.00% 3.00% 0.00% 3.00%
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 average net assets)
Management Fee (after waiver, if applicable)..... 0.75% 0.75% 0.80% 0.80%
12b-1 Fees....................................... None 0.00%(2) None 0.00%(2)
Other Expenses................................... 0.22% 0.47% 0.31% 0.56%
Shareholder Servicing Fee.................... None 0.25% None 0.25%
Total Annual Fund Operating Expenses..... 0.97% 1.22%(3) 1.11% 1.36%(3)
</TABLE>
(1) The contingent deferred sales charge is 3.00% in the first year declining to
1.00% in the third year and 0.00% thereafter. (See "What Shares Cost".)
Shareholders who purchase Investment Shares of the Treasury Money Market
Fund through exchange of Investment Shares of another Regions Fund, may be
charged a contingent deferred sales charge by the Trust's distributor.
No contingent deferred sales charge will be imposed on: (a) the portion of
redemption proceeds attributable to increases in the value of the account
due to increases in the net asset value per Share, (b) Shares acquired
through reinvestment of dividends and capital gains, (c) Shares held for
more than three years after the end of the calendar month of acquisition,
(d) accounts following the death or disability of a shareholder (e) minimum
required distributions to a shareholder over the age of 70 1/2 from an IRA
or other retirement plan, (f) shares purchased prior to June 1, 1997, or (g)
involuntary redemptions by the Funds of shares in shareholder accounts that
do not comply with the minimum balance requirements.
(2) The Fixed Income Fund and Balanced Fund have no intention of paying or
accruing 12b-1 fees during the fiscal year ending November 30, 1998. If
these Funds were paying or accruing 12b-1 fees, the Fixed Income Fund and
Balanced Fund would be able to pay up to 0.30% of its daily net assets for
12b-1 fees.
(3) The Total Annual Operating Expenses for the fiscal year ending November 30,
1998 are estimated to be 1.22% for the Fixed Income Fund--Investment Shares
and 1.36% for the Balanced Fund--Investment Shares.
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 "REGIONS FUNDS INFORMATION", "INVESTING IN
THE FUNDS", AND THE SAI.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT
OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
<PAGE>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Fixed Income Fund--Trust Shares........................... $10 $31 $54 $119
Fixed Income Fund--Investment Shares...................... $44 $50 $67 $148
Balanced Fund--Trust Shares............................... $11 $35 $61 $135
Balanced Fund--Investment Shares.......................... $45 $54 $74 $164
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemptions:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Fixed Income Fund--Trust Shares........................... $10 $31 $54 $119
Fixed Income Fund--Investment Shares...................... $12 $39 $67 $148
Balanced Fund--Trust Shares............................... $11 $35 $61 $135
Balanced Fund--Investment Shares.......................... $14 $43 $74 $164
</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.
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
VALUE GROWTH
FUND FUND
---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRUST INVESTMENT TRUST INVESTMENT
SHARES SHARES SHARES SHARES
---------- ---------- ---------- ----------
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).................. None None None None
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)(1).................... 0.00% 3.00% 0.00% 3.00%
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 average net assets)
Management Fee (after waiver, if applicable)..... 0.80% 0.80% 0.80% 0.80%
12b-1 Fees....................................... None 0.00%(2) None 0.00%(2)
Other Expenses................................... 0.24% 0.49% 0.21% 0.46%
Shareholder Servicing Fee.................... None 0.25% None 0.25%
Total Annual Fund Operating Expenses..... 1.04% 1.29%(3) 1.01% 1.26%(3)
</TABLE>
(1) The contingent deferred sales charge is 3.00% in the first year declining to
1.00% in the third year and 0.00% thereafter. (See "What Shares Cost".)
Shareholders who purchase Investment Shares of the Treasury Money Market
Fund through exchange of Investment Shares of another Regions Fund, may be
charged a contingent deferred sales charge by the Trust's distributor.
No contingent deferred sales charge will be imposed on: (a) the portion of
redemption proceeds attributable to increases in the value of the account
due to increases in the net asset value per Share, (b) Shares acquired
through reinvestment of dividends and capital gains, (c) Shares held for
more than three years after the end of the calendar month of acquisition,
(d) accounts following the death or disability of a shareholder, (e) minimum
required distributions to a shareholder over the age of 70 1/2 from an IRA
or other retirement plan, (f) shares purchased prior to June 1, 1997, or (g)
involuntary redemptions by the Funds of shares in shareholder accounts that
do not comply with the minimum balance requirements.
(2) The Value Fund and Growth Fund have no intention of paying or accruing 12b-1
fees during the fiscal year ending November 30, 1998. If these Funds were
paying or accruing 12b-1 fees, the Value Fund and Growth Fund would be able
to pay up to 0.30% of its daily net assets for 12b-1 fees.
(3) The Total Annual Operating Expenses for the fiscal year ending November 30,
1998 are estimated to be 1.29% for the Value Fund--Investment Shares and
1.26% for the Growth Fund--Investment Shares.
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 "REGIONS FUNDS INFORMATION", "INVESTING IN
THE FUNDS", AND THE SAI.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT
OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
<PAGE>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Value Fund--Trust Shares.................................. $11 $33 $57 $127
Value Fund--Investment Shares............................. $44 $52 $71 $156
Growth Fund--Trust Shares................................. $10 $32 $56 $124
Growth Fund--Investment Shares............................ $44 $51 $69 $152
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemptions:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Value Fund--Trust Shares.................................. $11 $33 $57 $127
Value Fund--Investment Shares............................. $13 $41 $71 $156
Growth Fund--Trust Shares................................. $10 $32 $56 $124
Growth Fund--Investment Shares............................ $13 $40 $69 $152
</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.
<PAGE>
REGIONS 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 9, 1998, on the Trust's
financial statements for the year ended November 30, 1997, 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 DISTRIBUTIONS
NET ASSET NET REALIZED DISTRIBUTIONS FROM NET IN EXCESS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET REALIZED GAIN OF NET
BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT INVESTMENT ON INVESTMENT INVESTMENT
YEAR ENDED 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) -- --
1997 $ 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) -- --
1997 $ 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) -- --
1997 $ 9.96 0.49 (0.02) 0.47 (0.49) -- --
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) -- --
1997 $10.36 0.58 0.02 0.60 (0.59) -- --
</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 temporarily ceased
offering Trust Shares. The Fund resumed offering Trust Shares as of January
31, 1998.
Further information about the Trust's performance is contained in the Trust's
Combined Annual Report for the fiscal year ended November 30, 1997, which can be
obtained free of charge.
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
-----------------------------------------
NET ASSET NET EXPENSE NET ASSETS, AVERAGE
TOTAL VALUE, END TOTAL INVESTMENT WAIVER/ END OF PERIOD COMMISSION PORTFOLIO
DISTRIBUTIONS OF PERIOD RETURN(E) EXPENSES INCOME REIMBURSEMENT(H) (000 OMITTED) RATE PAID TURNOVER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 -- --
(0.05) $ 1.00 4.81% 0.52% 4.71% 0.25% $166,035 -- --
(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 -- --
(0.04) $ 1.00 4.39% 0.92% 4.31% 0.25% $ 45,962 -- --
(0.42) $ 9.60 0.19% 0.38%(f) 4.45%(f) 0.70%(f) $ 48,526 -- 3%
(0.51) $10.04 10.12% 0.61% 5.26% 0.49% $ 63,078 -- 26%
(0.50) $ 9.96 4.37% 1.01% 5.09% 0.08% $ 63,732 -- 48%
(0.49) $ 9.94 4.81% 0.99% 4.91% -- $ 79,621 -- 40%
(0.38) $10.27 7.66% 0.77%(f) 6.02%(f) 0.29%(f) $ 96,354 -- 44%
(0.61) $10.67 10.14% 0.84% 4.80% 0.25% $169,881 -- 83%
(0.74) $ 9.46 (4.55%) 0.79% 5.44% 0.25% $153,289 -- 24%
(0.09) $ 9.57 2.11% 0.82%(f) 5.79%(f) 0.25%(f) -- -- --
(0.37) $10.27 7.48% 1.07%(f) 5.33%(f) 0.29%(f) $ 5,457 -- 44%
(0.58) $10.67 9.81% 1.14% 4.40% 0.25% $ 12,519 -- 83%
(0.71) $ 9.46 (4.83%) 1.09% 5.14% 0.25% $ 9,645 -- 24%
(0.54) $10.34 15.37% 1.02% 5.25% -- $160,286 -- 45%
(0.54) $10.36 5.66% 1.02% 5.38% -- $152,940 -- 52%
(0.59) $10.37 5.99% 0.97% 5.73% -- $184,064 -- 37%
</TABLE>
(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.
<PAGE>
REGIONS 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 9, 1998, on the Trust's
financial statements for the year ended November 30, 1997, 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 DISTRIBUTIONS
NET ASSET NET REALIZED DISTRIBUTIONS FROM NET IN EXCESS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET REALIZED GAIN OF NET
BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT INVESTMENT ON INVESTMENT INVESTMENT
YEAR ENDED 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) --
1997 $12.51 0.36 1.60 1.96 (0.37) (0.31) --
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) --
1997 $13.89 0.22 2.94 3.16 (0.21) (0.66) --
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) --
1997 $14.64 0.07 3.01 3.08 (0.07) (0.76) --
</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 temporarily ceased
offering Trust Shares. The Fund resumed offering Trust Shares as of January
31, 1998.
(c) Reflects operations for the period from December 19, 1994 (date of initial
public investment) to November 30, 1995.
Further information about the Trust's performance is contained in the Trust's
Combined Annual Report for the fiscal year ended November 30, 1997, which can be
obtained free of charge.
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
------------------------------------------
NET ASSET NET EXPENSE NET ASSETS, END AVERAGE
TOTAL VALUE, END TOTAL INVESTMENT WAIVER/ OF PERIOD COMMISSION PORTFOLIO
DISTRIBUTIONS OF PERIOD RETURN(D) EXPENSES INCOME REIMBURSEMENT(F) (000 OMITTED) RATE PAID (G) TURNOVER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(0.36) $11.46 18.50% 0.61%(e) 4.34%(e) 0.56%(e) $ 51,197 -- 49%
(0.63) $12.51 15.35% 1.13% 3.60% 0.09% $ 59,321 0.0701 41%
(0.68) $13.79 16.34% 1.11% 2.73% -- $ 83,073 0.09 34%
(0.34) $12.04 24.14% 0.69%(e) 3.93%(e) 0.55%(e) $ 45,424 -- 76%
(0.64) $13.89 21.72% 1.11% 2.29% 0.06% $ 83,572 0.0532 58%
(0.87) $16.18 24.08% 1.04% 1.50% -- $152,531 0.09 31%
(0.11) $10.66 9.28% 0.76%(e) 2.28%(e) 0.35%(e) $102,822 -- 30%
(0.30) $10.51 1.43% 0.84% 1.85% 0.30% $154,185 -- 74%
(0.30) $10.36 1.42% 0.79% 2.32% 0.30% $143,876 -- 66%
(0.41) $10.05 1.00% 0.83%(e) 2.76%(e) 0.30%(e) -- -- --
(0.09) $10.66 9.14% 1.07%(e) 1.85%(e) 0.35%(e) $ 3,132 -- 30%
(0.27) $10.51 1.13% 1.14% 1.59% 0.30% $ 7,004 -- 74%
(0.27) $10.36 1.11% 1.09% 2.02% 0.30% $ 6,131 -- 66%
(0.54) $12.10 23.01% 1.03% 1.61% 0.05% $154,297 -- 110%
(0.70) $14.64 28.22% 1.05% 0.98% 0.01% $175,521 0.0713 56%
(0.83) $16.89 22.37% 1.01% 0.45% -- $275,006 0.09 40%
</TABLE>
(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.
(g) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
<PAGE>
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 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 one and one-half and three 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
<PAGE>
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;
<PAGE>
- 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 American Depositary Receipts ("ADRs"), debt securities, common
stocks (including stocks issued by small-sized companies with a market
capitalization of $1 billion or less ("small-cap 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. The Fund reserves the right to invest up to
25% of its total assets in ADRs and 25% of its total assets in small-cap stocks.
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.
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;
<PAGE>
- American Depositary Receipts ("ADRs"), which are receipts typically
issued by an American bank or trust company that evidences ownership of
underlying securities issued by a foreign issuer. ADRs may not
necessarily be denominated in the same currency as the securities into
which they may be converted. Generally, ADRs, in registered form, are
designed for use in U.S. securities markets. The Fund may invest up to
25% of its total assets in ADRs;
- 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)
<PAGE>
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.
<PAGE>
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.
<PAGE>
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-RELATE 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
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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
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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.
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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 Growth Fund and Value Fund may invest in
stocks of small-to-medium-sized companies, the Funds' portfolio managers have no
present intention of emphasizing investment in such stocks. As noted above, the
Balanced Fund may invest up to 25% of its total assets in small-cap 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 ADRs. 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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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 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 order 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.
It should be noted that investment companies incur certain expenses such as
advisory, 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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
REGIONS FUNDS INFORMATION
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MANAGEMENT OF THE REGIONS 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 the Capital Management Group, a
unit of the Trust Division of 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 493 offices, Regions Bank, and its
affiliates, provide a wide range of banking and fiduciary services. As of
December 31, 1997, Regions Financial Corp. was one of the 100 largest bank
holding companies in the United States with total assets of approximately
$23 billion.
Regions Financial Corp. is one of only nine banking companies in the nation
to be named to Keefe, Bruyette & Woods, Inc.'s 1996 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,
<PAGE>
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 $3.9 billion in discretionary assets as
of December 31, 1997. It manages six common trust funds and collective
investment funds having a market value in excess of $80 million as of
December 31, 1997. Regions Bank has been Adviser to each of the Regions
Funds since their inception. The Funds had a market value of approximately
$1 billion as of December 31, 1997.
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 Vice President and Director, Capital Management Group
Director of the Capital Management Group; responsible for the comprehensive
investment policy of the group and the Regions Family of Mutual Funds.
Experience: 15 years investment experience, including ten years of
investment experience with the Trust Division 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 Portfolio Manager
Fixed Income Strategist
Responsible for the day-to-day management of Regions Fixed Income Fund
(July, 1997) and co-manager of the Regions Balanced Fund. Ms. Bronner
served as portfolio manager for Regions Limited Maturity Government Fund
from January, 1997 until taking over the Fixed Income Fund in July, 1997.
She also serves as a member of the Capital Management Group as portfolio
manager and Fixed Income Strategist. Experience: 19 years investment
experience, specifically seven years as Portfolio Manager 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.
<PAGE>
John M. Haigler, Birthdate: February 16, 1940
Vice President and Portfolio Manager
Responsible for the day-to-day management of Regions Limited Maturity
Government Fund (July, 1997). Mr. Haigler previously served as portfolio
manager of Regions Treasury Money Market Fund (April, 1992-December, 1993)
and as portfolio manager of Regions Limited Maturity Government Fund
(December, 1993-January, 1997). He is responsible for management of the
Trust Division's short-term income funds and for commercial paper and
certificates of deposit investments. Mr. Haigler also serves as an active
member of the Capital Management Group and as portfolio manager and
analyst. Experience: 20 years investment experience, 27 years with Regions
Bank. Education: B.A., Huntington College, 1963. Affiliations: Member,
Alabama Society of Financial Analysts and Association of Investment
Management and Research.
John E. Steiner, CFA, Birthdate: May 24, 1957
Vice President and Portfolio Manager
Responsible for day-to-day management of the Regions Growth Fund and
co-manager of the Regions Balanced Fund. Served as portfolio manager of the
Regions Treasury Money Market Fund from December, 1993 until taking over
the Regions 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: 12 years
investment experience, specifically Employee Benefits, Personal Trust, and
Endowments; 13 years with Regions Bank. Education: B.S., Industrial
Management, Auburn University, 1981; Chartered Financial Analyst, 1996.
Affiliations: Member, Chartered Financial Analysts, and the Association for
Investment Management and Research.
James L. Savage, CFA, Birthdate: July 7, 1965
Vice President and Portfolio Manager
Responsible for the day-to-day management of the Regions Value Fund
(January, 1996). Also serves as an active member of the Capital Management
Group as portfolio manager and analyst. Experience: eight years investment
analysis and portfolio management. Joined Regions Bank (November, 1995) to
bring further expertise to the 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, Chartered Financial
Analysts, Member & Board of Directors, Alabama Society of Financial
Analysts, Association for Investment Management and Research.
David E. Ross, CFA, Birthdate: May 31, 1964
Vice President and Portfolio Manager
Equity Strategist
Responsible for the formulation of equity strategy, equity research and
investment philosophy and processes for the Regions Funds and the Capital
Management Group. Also serves as an active member of the Capital Management
Group as portfolio manager and analyst. Experience: eight years investment
analysis and portfolio management. Joined Regions Bank (July, 1998) to
bring
<PAGE>
further expertise to the investment team. Previously had been the equity
strategist and equity fund manager for a large regional trust company and
served as a portfolio manager for a large regional bank in the Midwest.
Education: B.A., Yale University, 1986; M.B.A., Syracuse University, 1989;
Chartered Financial Analyst, 1996. Affiliations: Member, Chartered
Financial Analysts, Association for Investment Management and Research.
Terry K. Albano, Birthdate: October 7, 1963
Portfolio Manager
Responsible for the day-to-day management of the Regions Treasury Money
Market Fund (July, 1996). Also serves as an active member of the Capital
Management Group as portfolio manager and analyst. Experience: nine years
investment analysis and portfolio management including serving as director
of cash management for a publicly-held food service company. Education:
B.S. Finance, University of South Alabama, 1989. Affiliations: Member,
Alabama Society of Financial Analysts, Association for Investment
Management and Research.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the distributor for shares of the Funds. It is a
Pennsylvania corporation organized on November 14, 1969, and is the distributor
for a number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT (INVESTMENT
SHARES ONLY). Under a distribution plan adopted in accordance with Investment
Company
Act Rule 12b-1 (the "Distribution Plan"), the Investment Shares of each 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-- 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) are
presently not accruing or paying any distribution expenses pursuant to the
Distribution Plan.
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 Investment Shares class of the Funds.
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.
<PAGE>
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.
In addition, the Funds (except Treasury Money Market Fund) have entered into a
Shareholder Services Agreement with Federated Shareholder Services Company, a
subsidiary of Federated Investors, under which the Fund may make payments up to
0.25% of the average daily net asset value of Investment Shares, computed at an
annual rate, to obtain certain personal services for shareholders and to
maintain shareholder accounts. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Investment 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 Funds and
Federated Shareholder 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>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
</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.
<PAGE>
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.
EXPENSES OF THE FUNDS
- --------------------------------------------------------------------------------
Holders of Shares pay their allocable portion of Trust and Fund expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise from time to time.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and Shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise from time to time.
The only expenses which are allocated specifically to Investment Shares as a
class are expenses under the Trust's Shareholder Services Agreement and
Distribution Plan. However, the Trustees reserve the right to allocate certain
other expenses to holders of Shares as they deem appropriate ("Class Expenses").
In any case, Class Expenses would be limited to: distribution fees; transfer
agent fees as identified by the transfer agent as attributable to holders of a
class of Shares; fees paid pursuant to the Trust's Shareholder Services
Agreement; printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders; registration fees paid to the Securities and Exchange Commission
and to state securities commissions; expenses related to administrative
personnel and services as required to support holders of a class of Shares;
legal fees relating solely to a class of Shares; and Trustees' fees incurred as
a result of issues relating solely to a class of Shares.
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
<PAGE>
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 for Trust Shares will differ from that of Investment Shares due to the
variance in net income realized by each class. Such variance will reflect only
accrued net income to which the shareholders of a particular class are entitled.
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, Martin
Luther King 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, Martin Luther King 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 for each of the Funds 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 Funds.
The minimum initial investment in Investment Shares for each of the Funds 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 Regions Funds at 1-800-433-2829.
Investors may open an IRA account for Investment Shares of any Fund with a
minimum initial investment of $500. Officers, directors, employees, and retired
employees of Regions Bank, or its affiliates, and their spouses and their
dependent children may purchase Investment Shares of any 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.
<PAGE>
WHAT SHARES COST
Trust Shares of all of the Funds are sold at their net asset value next
determined after an order is received. There is no sales charge imposed on
either class of shares for the Treasury Money Market Fund.
Investment Shares of the other Funds are sold without an initial sales charge,
but are subject to a contingent deferred sales charge of up to 3.00% if redeemed
within three full years following the purchase date. Investment Shares of these
Funds provide an investor the benefit of putting all of the investor's dollars
to work from the time the investment is made.
Investment Shares redeemed within three years of their purchase will be subject
to a contingent deferred sales charge. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
shares at the time of purchase or the net asset value of the redeemed Investment
Shares at the time of redemption according to the following schedule:
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
- ------------------ -------------------
<S> <C>
First 3.00%
Second 2.00%
Third 1.00%
Fourth 0.00%
</TABLE>
Redemptions will be processed in a manner intended to maximize the amount of
redemption which will not be subject to a contingent deferred sales charge. In
computing the amount of the applicable contingent deferred sales charge,
redemptions are deemed to have occurred in the following order: (1) Investment
Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Investment Shares held for more than three full years from the date
of purchase; and (3) Investment Shares held for fewer than three years on a
first-in, first-out basis.
No contingent deferred sales charge will be imposed on the redemption of
Investment Shares by officers, directors, employees and retired employees of
Regions Bank, or its affiliates, and their spouses and dependent children and by
Regions Management Account customers. Additionally, no contingent deferred sales
charge will be imposed upon trust customers redeeming 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 fees charged for these services.
In addition, no contingent deferred sales charge will be imposed on (i) the
portion of redemption proceeds attributable to increases in the value of the
account due to increases in the net asset value per share, (ii) Investment
Shares acquired through reinvestment of dividends and capital gains, (iii)
Investment Shares held for more than three years after the end of the calendar
month of acquisition, (iv) accounts following the death or disability of any
shareholder in the account, (v) minimum required distributions to a shareholder
over the age of 70 1/2 from an IRA or other retirement plan, (vi) Investment
Shares purchased prior to June 1, 1997, or (vii) involuntary
<PAGE>
redemptions by the Funds of Investment Shares in shareholder accounts that do
not comply with the minimum balance requirements.
DEALER CONCESSIONS. For the redemption of Investment Shares of Funds other than
Treasury Money Market Fund, a dealer may receive up to 100% of the contingent
deferred sales charge. A portion of this charge may be advanced to the dealer at
the time of purchase. Any portion of the contingent deferred 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.
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
<PAGE>
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.
SYSTEMATIC INVESTMENT PLAN
Holders of Investment Shares of the 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.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Funds will not issue share certificates.
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. 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.
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 borne by each respective class.
<PAGE>
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
A shareholder may exchange Shares of one Fund for the same class of Shares of
any other Fund in the Regions 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 Regions
Funds will be executed by redeeming the Shares owned at net asset value and
purchasing Shares of any of the other Regions 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.
Investment Shares of any Fund, including the Treasury Money Market Fund, may be
exchanged for Investment Shares of another Fund without the imposition of a
contingent deferred sales charge. However, if the shareholder redeems the
exchanged-for Shares within three years of the original purchase of exchanged
Shares, a contingent deferred sales charge will be imposed. For purposes of
computing the contingent deferred sales charge, the length of time the
shareholder has owned Shares will be measured from the date of original purchase
and will not be affected by the exchange. However, if Shares of the Treasury
Money Market Fund are exchanged for any other Fund, the time for which the
Treasury Money Market Fund Shares were held will not be added to the time the
exchanged-for Shares are held.
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.
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
Each Fund redeems shares at net asset value, less any applicable deferred sales
charge, 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 not 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 class
of shares, 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.
<PAGE>
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." If the check exceeds the value of the shares in your
account, your check will be returned and a $10 fee will be deducted from your
account. 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 the Investment Shares of the
Funds, 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. A
contingent deferred sales charge may be imposed on Investment Shares of the
Funds, with the exception of Treasury Money Market Fund.
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
<PAGE>
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 December 24, 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.
<PAGE>
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 of each
class. Treasury Money Market Fund may also advertise effective yield of each
class.
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 or class over a thirty-day period by the maximum offering price per
share of the Fund or class 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 or class 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.
Yields of all of the Funds and effective yields of the Treasury Money Market
Fund 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. Because Investment Shares are subject to shareholder
services and/or Rule 12b-1 fees, the total return and yield for Trust Shares,
for the same period, will exceed that of Investment Shares.
From time to time, advertisements for the Trust Shares and Investment Shares may
refer to ratings, rankings, and other information in certain financial
publications and/or compare the performance of Trust Shares and Investment
Shares to certain indices.
The performance information described above reflects the effect of the maximum
contingent deferred sales charge which, if excluded, would increase the total
return and yield.
<PAGE>
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Regions Treasury Money Market Fund
Regions Limited Maturity Government Fund
Regions Fixed Income Fund
Regions Balanced Fund
Regions Value Fund
Regions Growth Fund
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
- -------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pennsylvania Pittsburgh, 15222-3779
- -------------------------------------------------------------------------------------------------------------------
Investment Adviser
Regions Bank P.O. Box 10247
Capital Management 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>
REGIONS FUNDS
Federated Securities Corp., Distributor
Regions Bank, Investment Adviser
- ------------------------------------------------------------
Cusip 335931887 Cusip 335931879
Cusip 335931101 Cusip 335931861
Cusip 335931804 Cusip 335931853
Cusip 335931309 Cusip 335931846
Cusip 335931705 Cusip 335931838
Cusip 335931606 Cusip 335931507
007576 (7/98)
Regions Funds
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the following six
portfolios (the "Funds"), of Regions Funds (the "Trust")(formerly, First
Priority Funds), each Fund having two classes of shares, Investment Shares and
Trust Shares:
Regions Treasury Money Market Fund
Regions Limited Maturity Government Fund
Regions Fixed Income Fund
Regions Balanced Fund
Regions Value Fund
Regions Growth Fund
This Statement of Additional Information should be read with the Prospectus of
Regions Funds dated January 31, 1998, revised July 31, 1998 ("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.
Regions Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
Statement dated January 31, 1998
Revised July 31, 1998
[GRAPHIC OMITTED]
Federated Securities Corp., Distributor
Cusip 335931606 Cusip 335931887
Cusip 335931507 Cusip 335931879
Cusip 335931705 Cusip 335931861
Cusip 335931309 Cusip 335931853
Cusip 335931101 Cusip 335931846
Cusip 335931804 Cusip 335931838
007580 (7/98)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------
I
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
Regions 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 and Shareholder Servicing Plans 16
Exchanging Securities for Fund Shares 17
Determining Net Asset Value 17
Determining Market Value of Securities18
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 20
Tax Status 20
The Funds' Tax Status 20
Shareholders' Tax Status 20
Total Return 21
Yield 21
Effective Yield 22
Performance Comparisons 22
Treasury Money Market Fund 23
Limited Maturity Government Fund 23
Fixed Income Fund 24
Balanced Fund 24
Value Fund 25
Growth Fund 25
Economic and Market Information 26
Financial Statements 26
Appendix 27
<PAGE>
General Information About the Trust
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated October 15, 1991. Effective May 15, 1998, the Trust
changed its name from "First Priority Funds" to "Regions Funds." As of the date
of this Statement, the Trust consists of six separate portfolios of securities
(the "Funds") which are as follows: Regions Treasury Money Market Fund
("Treasury Money Market Fund"),; Regions Limited Maturity Government Fund
("Limited Maturity Government Fund"); Regions Fixed Income Fund ("Fixed Income
Fund"); Regions Balanced Fund ("Balanced Fund"); Regions Value Fund, (" Value
Fund," formerly, Regions Equity Income Fund); and Regions Growth Fund, ("Growth
Fund," formerly, Regions Equity Fund). Shares of the Funds are offered in two
classes of shares, Trust Shares and Investment Shares (individually and
collectively referred to as "Shares" as the context may require). This Combined
Statement of Additional Information relates to both classes of the
above-mentioned Shares of the Funds. The Funds (other than Treasury Money Market
Fund) did not offer the Trust Shares class until January 1998.
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.
<PAGE>
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.
<PAGE>
Money Market Instruments
Value Fund and Growth Fund may invest in the following money market instruments:
o instruments of domestic and foreign banks and savings associations if
they have capital, surplus and undivided profits of over $100,000,000
or if the principal amount of the instrument is insured in full by the
Bank Insurance Fund or the Savings Association Insurance Fund, both of
which are administered by the Federal Deposit Insurance Corporation;
and
o prime commercial paper (rated "A-1" by Standard & Poor's Ratings Group,
"Prime-1" by Moody's Investors Service, or "F-1" by Fitch Investors
Service, Inc.).
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price and yield for the Funds. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of a Fund sufficient to
make payment for the securities to be purchased are segregated on the 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.
<PAGE>
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.
<PAGE>
Restricted Securities
The Funds (with the exception of Treasury Money Market Fund) may invest in
commercial paper issued in reliance on the exemption from registration afforded
by Section 4(2) of the Securities Act of 1933. Section 4(2) commercial paper is
restricted as to disposition under federal securities law and is generally sold
to institutional investors, such as the Funds, who agree that they are
purchasing the paper for investment purposes and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) commercial paper is normally resold to other institutional
investors like the Funds through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) commercial paper, thus
providing liquidity. The Funds believe that Section 4(2) commercial paper and
possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Funds intend,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the Funds' investment adviser, as liquid and not subject to the
investment limitation applicable to illiquid securities. In addition, because
Section 4(2) commercial paper is liquid, the Funds intend to not subject such
paper to the limitation applicable to restricted securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission (the "SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe-harbor for
certain secondary market transactions involving registration for resales of
otherwise restricted securities to qualified institutional buyers. The Rule was
expected to further enhance the liquidity of the secondary market for securities
eligible for resale under the Rule. The Funds believe that the staff of the SEC
has left the question of determining the liquidity of all restricted securities
to the Trustees. The Trustees may consider the following criteria in determining
the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security
and the number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Reverse Repurchase Agreements
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, 1997 and 1996, the portfolio turnover
rates were 40% and 48%, respectively, for Limited Maturity Government Fund; 37%
and 52%, respectively, for the Fixed Income Fund; 40% and 56%, respectively, for
the Growth Fund; 31% and 58%, respectively, for the Value Fund; and 34% and 41%,
respectively, for the Balanced Fund.
<PAGE>
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).
<PAGE>
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 order 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.
<PAGE>
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.
<PAGE>
Regions Funds Management
Officers and Trustees are listed with their addresses, birthdates, present
positions with Regions Funds, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
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
15 Old Timber Trail
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.; Director, Member of
Executive Committee, 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.
Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Formerly, Partner, Anderson Worldwide SC; Director or Trustee of the Funds.
<PAGE>
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, United Refinery; Chairman, Pittsburgh
Foundation; Director, Forbes Fund; Chairman, Pittsburgh Civic Light Opera;
Director or Trustee of the Funds.
James E. Dowd, Esq.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; formerly,
President, Boston Stock Exchange, Inc.; Regional Administrator, United States
Securities and Exchange Commission; Director or 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; formerly, Member, National Board of
Trustees, Leukemia Society of America; Director or Trustee of the Funds.
Edward L. Flaherty, Jr., Esq.@
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; Partner, Meyer and Flaherty; Director or Trustee of the Funds.
<PAGE>
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Treasurer and Trustee
Vice Chairman, Federated Investors, Inc.; 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
Formerly, Representative, Commonwealth of Massachusetts General Court;
President, State Street Bank and Trust Company and State Street Corporation;
Director, VISA USA and VISA International; Chairman and Director, Massachusetts
Banker Association; Director, Depository Trust Corporation; 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
and Murray; formerly, Dean and Professor of Law, University of Pittsburgh School
of Law; Dean and Professor of Law, Villanova University School of Law; Director
or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
President, World Society for Ekistics, Athens; Professor, International
Politics; Management Consultant; Trustee, Carnegie Endowment for International
Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense
University, and U.S. Space Foundation; President Emeritus, University of
Pittsburgh; Founding Chairman, National Advisory Council for Environmental
Policy and Technology, Federal Emergency Management Advisory Board and Czech
Management Center, Prague; formerly, Professor, United States Military Academy;
Professor, United States Air Force Academy; Director or Trustee of the
Funds.
<PAGE>
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; formerly, National
Spokesperson, Aluminum Company of America; business owner; Director or Trustee
of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Director, Federated Investors, Inc; President and Trustee,
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 Director, Federated Investors,
Inc.; Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.; Trustee,
Federated Shareholder Services Company; 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, Federated Investors, Inc.; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
<PAGE>
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; 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.; Regions 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 Obligations Trust II; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; RIMCO Monument Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; 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; WesMark Funds;
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 December 24, 1997: HUBCO, c/o Regions Financial Corp.,
Birmingham, Alabama owned approximately 132,608,769 Trust Shares (82.96%) of the
Treasury Money Market Fund; approximately 4,855,677 Shares (61.20%) of Limited
Maturity Government Fund; approximately 16,750,197 Shares (93.21%) of Fixed
Income Fund; approximately 572,256 Shares (9.48%) of the Balanced Fund;
approximately 8,216,230 Shares (86.24%) of Value Fund; and approximately
11,962,694 Shares (73.91%) of Growth Fund. IFTC, as custodian for Regions
Financial Corporation Profit Sharing Plan, Kansas City, Missouri, owned
approximately 23,136,155 Trust Shares (14.47%) of Treasury Money Market Fund;
approximately 2,726,679 Shares (34.36%) of Limited Maturity Government Fund;
approximately 5,208,968 Shares (86.33%) of Balanced Fund; approximately 999,579
Shares (10.49%) of Value Fund; and approximately 3,037,665 Shares (18.77%) of
Growth Fund. SMA Inc. Insurance, Birmingham, Alabama, owned approximately
4,504,726 Investment Shares (8.37%) and Midtown Restaurant Corporation, Mobile,
Alabama, owned approximately 5,023,064 Investment Shares (9.34%) of Treasury
Money Market Fund.
<PAGE>
Trustees Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
John F. Donahue $0
Chairman and Trustee
Thomas G. Bigley $1,596
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. $1,596
Trustee
Edward L. Flaherty, Jr. $1,755
Trustee
Edward C. Gonzales $0
President, Treasurer and Trustee
Peter E. Madden $1,596
Trustee
John E. Murray, Jr., $1,596
Trustee
Wesley W. Posvar $1,596
Trustee
Marjorie P. Smuts $1,596
Trustee
*Information is furnished for the fiscal year ended November 30, 1997.
#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.
<PAGE>
Investment Advisory Services
Adviser to the Funds
The Funds' investment adviser is the Capital Management Group, a unit of the
Trust Division of 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, 1997, 1996 and 1995, the Adviser earned fees from Treasury Money
Market Fund of $923,323, $735,258 and $644,330, respectively, of which $461,662,
$427,681 and $644,330, were waived. For the fiscal years ended November 30,
1997, 1996 and 1995, the Adviser earned fees from Limited Maturity Government
Fund of $554,567, $448,104 and $406,281, respectively, of which $0 $48,135 and
$282,157, were waived. For the fiscal years ended November 30, 1997, 1996 and
1995, the Adviser earned fees from Fixed Income Fund of $1,272,862, $1,135,766
and $1,167,748, respectively, of which $0, $0 and $63,017, were waived. For the
fiscal years ended November 30, 1997, 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 $576,963, $436,997 and $349,457, respectively,
of which $0, $48,034 and $242,832, were waived. For the fiscal years ended
November 30, 1997, 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 $875,092, $528,160 and $261,156, respectively, of which $0,
$42,523 and $180,915 were waived. For the fiscal years ended November 30, 1997,
1996 and 1995, the Adviser earned fees from Growth Fund of $1,925,571,
$1,242,921 and $1,151,393, respectively, of which $0, $12,959 and $129,440, 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, 1997, 1996
and 1995, FAS earned fees from Treasury Money Market Fund of $218,861, $190,715
and $171,752, respectively. For the fiscal years ended November 30, 1997, 1996
and 1995, FAS earned fees from Limited Maturity Government Fund of $94,304,
$83,044 and $77,297, respectively. For the fiscal years ended November 30, 1997,
1996 and 1995, FAS earned fees from Fixed Income Fund of $201,589, $196,480 and
$207,570, respectively. During the fiscal years ended November 30, 1997, 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 $85,552, $70,893 and
$58,065, respectively and from Value Fund of $129,340, $85,580 and $50,126,
respectively. For the fiscal years ended November 30, 1997, 1996 and 1995, FAS
earned fees from Growth Fund of $285,419, $201,629 and $191,841, 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.
<PAGE>
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 years ended November 30, 1997, 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 $45,727, $38,576 and $57,569,
respectively and Value Fund paid total brokerage commissions of $178,390,
$135,984 and $65,627, respectively. For the fiscal years ended November 30,
1997, 1996, and 1995, the Growth Fund paid total brokerage commissions of
$382,723, $269,887 and $442,047, 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 of the Funds are sold at their net asset value and redeemed at net asset
value less any applicable contingent deferred sales charge on days on which 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 and Shareholder Services Agreement (Investment Shares Only)
With respect to the Investment Shares of the Funds, 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. In addition,
the Funds have entered into a Shareholder Services Agreement with Federated
Shareholder Services on behalf of Investment Shares of the Funds. 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
Investment 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. Pursuant to the Shareholder Services Agreement,
<PAGE>
Federated Shareholder Services Company may pay financial institutions to provide
services to holders of Investment Shares. The services provided under both
arrangements are made by a representative who has knowledge of the shareholder's
particular circumstances and goals, and include, but are not limited to:
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
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.
Other benefits which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholders assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal years ended November 30, 1997 and 1996, brokers and
administrators received fees in the amount of $187,392 and $163,095,
respectively, 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.
<PAGE>
Determining Market Value of Securities
With the exception of Treasury Money Market Fund, market or fair values of each
Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price on a national
securities exchange, if applicable;
o in the absence of recorded sales for listed equity securities, according
to the mean between the last closing bid and asked prices;
o for unlisted equity securities, latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, or for
short-term obligations with remaining maturities of 60 days or less at
the time of purchase, at amortized cost; or
o for all other securities, at fair value as determined in good faith
by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
A Fund will value futures contracts and options at their market values
established by the exchanges at the close of options trading on such exchanges
unless the Trustees determine in good faith that another method of valuing
option positions is necessary.
Over-the-counter put options will be valued at the mean between the bid and the
asked prices. Covered call options will be valued at the last sale price on the
national exchange on which such option is traded. Unlisted call options will be
valued at the latest bid price as provided by brokers.
Use of the Amortized Cost Method (Treasury Money Market Fund only)
With respect to 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.
<PAGE>
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 the same class of Shares 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." Shareholder redemptions for Investment
Shares of the Funds may be subject to a contingent deferred sales charge.
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.
<PAGE>
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust. To protect shareholders,
the Trust has filed legal documents with Massachusetts that expressly disclaim
the liability of shareholders for such acts or obligations of the Trust. These
documents require notice of this disclaimer to be given in each agreement,
obligation, or instrument the Trust or its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
Tax Status
The Funds' Tax Status
The Funds will pay no federal income tax because they expect to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, each Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to a Fund if the Fund were a regular corporation and to the extent
designated by the Fund as so qualifying. These dividends and any short-term
capital gains are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
the Fund shares.
With respect to 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.
<PAGE>
Total Return
The average annual total return for each class of shares 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 adjusted
over the period by any additional Shares, assuming the quarterly or monthly
reinvestment of all dividends and distributions. Any applicable contingent
deferred sales charge is deducted from the ending value of the investment based
on the lesser of the original purchase price or the net asset value of
Investment Shares redeemed.
The average annual total returns for Investment Shares and Trust Shares of
Treasury Money Market Fund for the one-year period ended November 30, 1997 were
4.39% and 4.81%, respectively. During the period from April 14, 1992 (date of
initial public investment) to November 30, 1997, the average total returns were
3.76% and 4.17%, respectively.
The average annual total returns for Investment Shares of Limited Maturity
Government Fund for the one-year period ended November 30, 1997 and the period
from December 12, 1993 (date of initial public investment) to November 30 ,1997
were 1.66% and 4.86%, respectively.
The average annual total returns for Investment Shares of Fixed Income Fund for
the one-year period ended November 30, 1997 and the period from April 20, 1992
(date of initial public investment) to November 30, 1997 were 2.84% and 6.86%,
respectively.
The average annual total returns for Investment Shares of Balanced Fund for
the one-year period ended November 30, 1997 and the period from December 19,
1994 (date of initial public investment) to November 30, 1997 were 13.14% and
16.73%, respectively.
The average annual total returns for Investment Shares of Value Fund for the
one-year period ended November 30, 1997 and the period from December 19, 1994
(date of initial public investment) to November 30, 1997 were 20.85% and 23.48%,
respectively.
The average annual total returns for Investment Shares of Growth Fund for the
one-year period ended November 30, 1997 and the period from April 20, 1992 (date
of initial public investment) to November 30, 1997 were 19.19% and 14.65%,
respectively.
The Funds (other than Treasury Money Market Fund) did not offer the Trust Shares
class until January 1998.
Yield
The yield for each class of shares of the Funds (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 any class of shares 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 any
class of 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 any class
of shares of the Fund, the performance will be reduced for shareholders paying
those fees.
The yield for the 30-day period ended November 30, 1997 for Investment Shares
was: 4.89% for Limited Maturity Government Fund; 5.79% for Fixed Income Fund;
2.70% for Balanced Fund; 1.41% for Value Fund; and 0.35% for Growth Fund.
The Funds (other than Treasury Money Market Fund) did not offer the Trust Shares
class until January 1998.
<PAGE>
Treasury Money Market Fund calculates yield for Investment Shares and Trust
Shares daily, based upon the seven days ending on the day of the calculation,
called the "base period." This yield is computed by the following:
o determining the net change in the value of a hypothetical account with
a balance of one share at the beginning of the base period, with the
net change excluding capital changes but including the value of any
additional shares purchased with dividends earned from the original one
share, and all dividends declared on the original and any purchased
shares;
o dividing the net change in the account's value by the value of the
account at the beginning of the base period return; and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
The yields for Investment Shares and Trust Shares of Treasury Money Market Fund
for the seven-day period ended November 30, 1997 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:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
The effective yield for Investment Shares and Trust Shares of Treasury Money
Market Fund for the seven-day period ended November 30, 1997 were 4.38% and
4.79%, respectively.
Performance Comparisons
The performance of each class of shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in a Fund's or class of share's expenses; and
o various other factors, including the relative amount of Fund cash flow.
With respect to Funds other than Treasury Money Market Fund, either class of
Shares' 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.
<PAGE>
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. MUTUA FUND VALUES rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Treasury Money Market Fund:
o Salomon 30-Day Treasury Bill Index is a weekly quote of the most
representative yields for selected securities, issued by the U.S.
Treasury, maturing in 30 days.
o Lehman Brothers Treasury Bond Index comprised entirely of U.S.
Treasury obligations. Flower bonds and foreign issues are excluded.
o IBC/Donohue's Money Fund Report publishes annualized yields of hundreds
of money market funds on a weekly basis and through its Money Market
Insight publication reports monthly reinvestment of dividends over a
specified period of time.
Limited Maturity Government Fund:
o Merrill Lynch 1-3 Year Treasury Index is an unmanaged index tracking
short-term U.S. government securities with maturities between 1
and 2.99 years. The index is produced by Merrill Lynch, Pierce,
Fenner & Smith, Inc.
o Merrill Lynch Corporate and Government Index includes issues which must
be in the form of publicly placed, nonconvertible, coupon-bearing
domestic debt with maturities between 1 and 4.99 years. Par amounts
outstanding must be no less than $10 million at the start and at the
close of the performance measurement period. Corporate instruments must
be rated by S&P or by Moody's as investment grade issues (i.e., BBB/Baa
or better).
o Merrill Lynch 1-10 Year Government Index is an unmanaged index
comprised of U.S. government securities with maturities between 1 and
10 years. Index returns are calculated as total returns for periods of
one, six and twelve months, as well as year-to-date. The index is
produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
o Lehman Brothers Intermediate Government Index is an unmanaged index
comprised of all publicly issued, non-convertible domestic debt of the
U.S. government. Only notes and bonds with minimum outstanding
principal of $1 million and minimum maturity of one year and maximum
maturity of ten years are included.
o Merrill Lynch 2-Year Treasury Curve Index is comprised of the most
recently issued 2-year U.S. Treasury notes. Index returns are
calculated as total returns for periods of one, three, six, and twelve
months as well as year-to-date.
o 2-Year Treasury Note-Source: Wall Street Journal, Bloomberg Financial
Markets, and Telerate.
Investors may use such a reporting service or indices in addition to
the Fund's prospectus to obtain a more complete view of the Fund's
performance before investing.
<PAGE>
Fixed Income Fund:
o Lehman Brothers Government/Corporate Total Index is comprised of
approximately 5,000 issues which include non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds
guaranteed by the U.S. government and quasi-federal corporations; and
publicly issued, fixed-rate, non-convertible domestic bonds of maturity
of nine years. It calculates total return for one month, three month,
twelve month, and ten year periods, and year-to-date.
o Merrill Lynch Government/Corporate Index is comprised of approximately
4,800 issues which include publicly placed, nonconvertible
coupon-bearing domestic debt carrying a term to maturity of at least
one year, with par amounts outstanding at no less than $10 million at
the start and close of the performance measurement period, and which
must be rated by S&P or Moody's as investment grade issues (i.e.,
BBB/Baa or better).
o Merrill Lynch 1-10 Year Government Index is an unmanaged index
comprised of U.S. Government securities with maturities between 1 and
10 years. Index returns are calculated as total returns for periods of
one, three, six and twelve months as well as year-to-date. The index is
produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
o Lehman Brothers Government (LT) Index, for example, is an index
composed of bonds issued by the U.S. government or its agencies which
have at least $1 million outstanding in principal and which have
maturities of ten years or longer. Index figures are total return
figures calculated monthly.
Balanced Fund:
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, can be used to compare to the
total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the Standard & Poor's Index assumes
reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's figures.
o Lehman Brothers Government/Corporate Total Index is comprised of
approximately 5,000 issues which include non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds
guaranteed by the U.S. government and quasi-federal corporations; and
publicly issued, fixed-rate, nonconvertible domestic bonds of companies
in industry, public utilities, and finance. Tracked by Lehman Brothers,
the index has an average maturity of nine years. It calculates total
return for one-month, three-month, twelve-month, and ten-year periods,
and year-to-date.
o S&P 500/Lehman Brothers Government/Corporate (Weighted Index) and the
S&P 500/Lehman Government (Weighted Index) combine the components of a
stock-oriented index and a bond-oriented index to obtain results which
can be compared to the performance of a managed fund. The indices'
total returns will be assigned various weights depending upon the
Fund's current asset allocation.
o Merrill Lynch 1-10 Year Government Index is an unmanaged index
comprised of U.S. government securities with maturities between 1 and
10 years. Index returns are calculated as total returns for periods of
one, six and twelve months, as well as year-to-date. The index is
produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
<PAGE>
Value Fund:
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, can be used to compare to the
total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the Standard & Poor's Index assumes
reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's figures.
o S&P/Barra Value Index is a sub-index of the S&P 500 composite index of
common stocks. The index represents approximately fifty percent of the
S&P 500 market capitalization and is comprised of those companies with
lower price-to-book ratios. The index is maintained by Standard &
Poor's in conjunction with Barra, an investment technology firm.
Growth Fund:
o Dow Jones Industrial Average ("DJIA") is an unmanaged index
representing share prices of major industrial corporations, public
utilities, and transportation companies. Produced by the Dow Jones &
Company, it is cited as a principal indicator of market conditions.
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, compares total returns of funds
whose portfolios are invested primarily in common stocks. In addition,
the Standard & Poor's index assumes reinvestment of all dividends paid
by stocks listed on the index. Taxes due on any of these distributions
are not included, nor are brokerage or other fees calculated in the
Standard & Poor's figures.
o S&P/BARRA Growth Index is a sub-index of the S&P 500 composite index of
common stocks. The index represents approximately fifty percent of the
S&P 500 market capitalization and is comprised of those companies with
higher price-to-book ratio (one distinction associated with "growth
stocks"). The index is maintained by Standard and Poor's in conjunction
with BARRA, an investment technology firm.
Investors may also consult the fund evaluation consulting universes
listed below. Consulting universes may be composed of pension, profit
shares, commingled, endowment/foundation, and mutual funds.
o Fiduciary Consulting Grid Universe, for example, is composed of over
1,000 funds, representing 350 different investment managers, divided
into subcategories based on asset mix. The funds are ranked quarterly
based on performance and risk characteristics.
o SEI data base for equity funds includes approximately 900 funds,
representing 361 money managers, divided into fund types based on
investor groups and asset mix. The funds are ranked every three, six,
and twelve months.
o Mercer Meidingler, Inc. complies a universe of approximately 600
equity funds, representing about 500 investment managers, and updates
their rankings each calendar quarter as well as on a one, three, and
five year basis.
o Callan Associates, Inc. maintains a detailed database of approximately
1900 equity mutual funds, representing about 500 investment managers,
and divides them into style groups based on asset mix and fund
objectives. The funds are ranked quarterly based in performance and
risk characteristics.
Advertisements and other sales literature for a Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in either class of
shares based on quarterly reinvestment of dividends over a specified period of
time. Advertisements for Investment Shares may quote performance information
which does not reflect the effect of the contingent deferred sales charge.
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.
<PAGE>
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,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.
Financial Statements
The financial statements for the fiscal year ended November 30, 1997, are
incorporated herein by reference to the Annual Report of the Trust dated
November 30, 1997 (File No. 811-6511) . A copy of the Trust's Annual Report may
be obtained without charge by contacting the Trust.
<PAGE>
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.
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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.
