<PAGE> 1
CARNEGIE CAPITAL
MANAGEMENT COMPANY
THE CARNEGIE FUNDS GROUP
1228 Euclid Avenue, Cleveland, Ohio 44115
Phone: (216) 781-4440
call toll free (800) 321-2322
- --------------------------------------------------------------------------------
CARNEGIE
Liquid Capital Income Trust
is a money market fund with dividends compounded
daily.
CARNEGIE
Government Securities Trust
is a money market fund investing in securities issued
or guaranteed by the U.S. Government, its agencies
or instrumentalities and repurchase agreements.
CARNEGIE
Tax Free Income Trust
provides income free from federal income taxation--
while offering all the advantages of
a money market fund.
CARNEGIE
Tax Exempt Income Trust
Ohio General Municipal Fund
provides a high level of current income
exempt from federal and Ohio state income taxes.
This report was prepared for shareholders of the Trust. It is not
authorized for distribution to others unless it is accompanied or
preceded by a current combined prospectus. For more complete
information on other Carnegie funds, including sales charges and
expenses, see the appropriate sections of the combined prospectus,
which may be obtained from your broker. Read the prospectus
carefully before you invest or send money.
[CCMC LOGO]
CARNEGIE CAPITAL MANAGEMENT COMPANY
CARNEGIE
FUNDS GROUP
-- Liquid Capital Income Trust
-- Carnegie Government
Securities Trust
-- Carnegie Tax Free Income
Trust
-- Carnegie Tax Exempt Income
Trust -- Ohio General Municipal Fund
- -------------------------------------------------------------------
Annual Reports
July 31, 1996
- -------------------------------------------------------------------
[CCMC LOGO] CARNEGIE CAPITAL MANAGEMENT COMPANY
1100 The Halle Building
1228 Euclid Avenue
Cleveland, Ohio 44115-1831
<PAGE> 2
ANNUAL MESSAGE FROM THE PRESIDENT: August 16, 1996
Dear Fellow Shareholders:
1996 to date has once again provided many thrills to investors in both the
fixed income area as well as equity markets because of increasing volatility.
Interest rates so far have had almost a 50 basis point range. If one were to
examine the material from less than 30 years ago one would find that the
overall yield movement in an entire year was many times less then what we have
seen on the year-to-date basis so far for 1996.
With the economy apparently entering a slowing phase, and inflation showing
little upward movement, we would hope that the Federal Reserve would maintain
a "steady as you go" policy and refrain from further tightening. We believe
that with overall deficit levels coming down and solid growth apparently with
us for a while longer, we may be in "the best of all possible worlds."
We are pleased that once again you have chosen to remain with the Carnegie
Funds Group and to invest in our philosophy of quality investments. We have
maintained our high quality portfolio standards even though at times,
Shareholders might have benefited with higher yields from lower quality
standards. Thank you for your continued support as Shareholders of the
Carnegie Funds Group.
Sincerely,
/s/ George R. Mateyo
----------------------
George R. Mateyo
President
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick LLP
To the Board of Trustees and Shareholders
Liquid Capital Income Trust, Carnegie Government Securities Trust,
Carnegie Tax Free Income Trust and Carnegie Tax Exempt Income Trust
We have audited the accompanying statements of net assets of Liquid Capital
Income Trust, Carnegie Government Securities Trust, Carnegie Tax Free Income
Trust and Carnegie Tax Exempt Income Trust (comprising the Ohio General
Municipal Fund), as of July 31, 1996, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Trusts' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of July 31, 1996, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Liquid Capital Income Trust, Carnegie Government Securities Trust, Carnegie
Tax Free Income Trust and Carnegie Tax Exempt Income Trust, as of July 31,
1996, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
August 16, 1996 /s/ KPMG Peat Marwick LLP
Cleveland, Ohio
1
<PAGE> 3
LIQUID CAPITAL INCOME TRUST -- FINANCIAL HIGHLIGHTS
Data for each share outstanding throughout the period
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............ 0.047 0.047 0.026 0.024 0.042
------------ ------------ ------------ -------------- --------------
Total from Investment
Operations..................... 0.047 0.047 0.026 0.024 0.042
LESS DISTRIBUTIONS:
Distributions from Net Investment
Income......................... (0.047) (0.047) (0.026) (0.024) (0.042)
------------ ------------ ------------ -------------- --------------
Total Distributions.............. (0.047) (0.047) (0.026) (0.024) (0.042)
Net Asset Value, End of Period.... $1.00 $1.00 $1.00 $1.00 $1.00
============ ============ ============ ============== ==============
RATIOS/SUPPLEMENTAL INFORMATION
Expenses as a percentage of
average daily net assets(1).... 0.90% 0.87% 0.88% 0.83% 0.77%
Net investment income as a
percentage of average daily net
assets(1)...................... 4.69% 4.72% 2.62% 2.43% 4.25%
Net Assets at end of period....... $205,508,605 $247,385,884 $289,950,268 $335,030,422 $431,773,459
============ ============ ============ ============== ==============
<FN>
(1) The percentages should not be construed as representative of the yield or
expenses related to further investments in the Trust.
</TABLE>
CARNEGIE GOVERNMENT SECURITIES TRUST -- FINANCIAL HIGHLIGHTS
Data for each share outstanding throughout the period
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............... 0.045 0.044 0.024 0.022 0.040
----------- ----------- ----------- ------------ ------------
Total from Investment Operations.... 0.045 0.044 0.024 0.022 0.040
LESS DISTRIBUTIONS:
Distributions from Net Investment
Income............................ (0.045) (0.044) (0.024) (0.022) (0.040)
----------- ----------- ----------- ------------ ------------
Total Distributions................. (0.045) (0.044) (0.024) (0.022) (0.040)
Net Asset Value, End of Period....... $1.00 $1.00 $1.00 $1.00 $1.00
=========== =========== =========== ============ ============
RATIOS/SUPPLEMENTAL INFORMATION
Expenses as a percentage of average
daily net assets(1)............... 1.03% 1.06% 0.98% 0.87% 0.79%
Net investment income as a
percentage of average daily net
assets(1)......................... 4.50% 4.38% 2.37% 2.25% 4.05%
Net Assets at end of period.......... $12,737,746 $14,424,876 $18,078,719 $25,364,240 $34,687,846
=========== =========== =========== ============ ============
<FN>
(1) The percentages should not be construed as representative of the yield or
expenses related to further investments in the Trust.
</TABLE>
2
<PAGE> 4
CARNEGIE TAX FREE INCOME TRUST -- FINANCIAL HIGHLIGHTS
Data for each share outstanding throughout the period
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.029 0.029 0.018 0.019 0.036
----------- ----------- ----------- ------------ ------------
Total from Investment Operations....... 0.029 0.029 0.018 0.019 0.036
LESS DISTRIBUTIONS:
Distributions from Net Investment
Income............................... (0.029) (0.029) (0.018) (0.019) (0.036)
----------- ----------- ----------- ------------ ------------
Total Distributions.................... (0.029) (0.029) (0.018) (0.019) (0.036)
Net Asset Value, End of Period.......... $1.00 $1.00 $1.00 $1.00 $1.00
=========== =========== =========== ============ ============
RATIOS/SUPPLEMENTAL INFORMATION
Expenses as a percentage of average
daily net assets(1).................. 0.80% 0.82% 0.77% 0.76% 0.69%
Net investment income as a percentage
of average daily net assets(1)....... 2.92% 2.86% 1.77% 1.88% 3.58%
Net Assets at end of period............. $25,266,098 $27,615,905 $31,640,760 $40,646,525 $56,180,652
<FN>
(1) The percentages should not be construed as representative of the yield or
expenses related to further investments in the Trust.
</TABLE>
CARNEGIE TAX EXEMPT INCOME TRUST -- OHIO GENERAL MUNICIPAL FUND
FINANCIAL HIGHLIGHTS -- Data for each share outstanding throughout the period
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $9.46 $9.50 $9.87 $9.79 $9.26
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2)............... 0.514 0.556 0.549 0.559 0.571
Net realized and unrealized
gains/(losses) on securities......... (0.050) (0.040) (0.370) 0.080 0.530
------------- ----------- ----------- ----------- -----------
Total from investment operations....... 0.464 0.516 0.179 0.639 1.101
LESS DISTRIBUTIONS:
Distributions from net investment
income............................... (0.514) (0.556) (0.549) (0.559) (0.571)
------------- ----------- ----------- ----------- -----------
Total distributions.................... (0.514) (0.556) (0.549) (0.559) (0.571)
Net Asset Value, End of Period.......... $9.41 $9.46 $9.50 $9.87 $9.79
============= =========== =========== =========== ===========
ANNUAL TOTAL RETURN..................... 4.98% 5.50% 1.82% 6.77% 12.32%
============= =========== =========== =========== ===========
RATIOS/SUPPLEMENTAL INFORMATION
Net assets at end of period............ $11,655,988 $11,448,521 $12,574,835 $18,669,199 $28,011,143
Expenses as a percentage of average
daily net assets(1)(2)............... 0.88% 0.97% 0.93% 0.81% 0.76%
Net investment income as a percentage
of average daily net assets(1)....... 5.41% 5.95% 5.68% 5.81% 6.10%
Portfolio Turnover rate................ 23.45% 8.77% 10.04% 4.98% 11.40%
<FN>
(1) The percentages should not be construed as representative of the yield or
expenses related to further investments in the Fund.
(2) During the periods indicated, the Fund did not make payments or made partial
payments under their Distribution Expenses Plan and CCMC waived management
fees. Net investment income for the Ohio General Municipal Fund would have
been $.483, $.528, $.520, $.530, $.543 and $.545 for the years ended July
31, 1996, 1995, 1994, 1993 and 1992, respectively; had such Distribution
Expense Plan payments been made and had such fees not been waived. Expenses
as a percentage of average net assets would have been 1.18%, 1.27%, 1.23%,
1.11% and 1.06% for the same periods, respectively.
</TABLE>
3
<PAGE> 5
LIQUID CAPITAL INCOME TRUST
STATEMENT OF NET ASSETS
JULY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MATURITY DATE VALUE
AMOUNT (1996) (NOTE A)
- ------------ --------------- --------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- .1%
$ 143,636 Mellon Bank, 5.25%................................................. 1/2/97 $ 143,636
--------------
TOTAL CERTIFICATES OF DEPOSIT (Cost $143,636)...................... 143,636
--------------
COMMERCIAL PAPER -- 46.9%
10,000,000 Dean Witter Discover Company, 5.35%................................ 8/16 9,977,708
10,000,000 Ford Motor Credit Company, 5.31%................................... 9/3 9,951,325
4,000,000 Industrial Funding Corp., 5.50%.................................... 9/27 3,965,167
6,000,000 Industrial Funding Corp., 5.55%.................................... 10/28 5,918,600
6,720,000 International Lease Finance Corp., 5.35%........................... 8/13 6,708,016
5,000,000 JC Penney Funding Corp., 5.35%..................................... 8/19 4,986,625
5,000,000 JC Penney Funding Corp., 5.34%..................................... 8/29 4,979,233
10,000,000 National City Corp., 5.37%......................................... 8/30 9,956,742
10,000,000 Pepsico Inc., 5.28%................................................ 8/23 9,967,733
10,000,000 Philip Morris Company, 5.28%....................................... 8/28 9,960,400
10,000,000 Republic National Bank of New York, 5.35%.......................... 8/20 9,971,764
10,000,000 Walt Disney Company, 5.26%......................................... 8/29 9,959,089
--------------
TOTAL COMMERCIAL PAPER (Cost $96,302,402).......................... 96,302,402
--------------
LETTERS OF CREDIT -- 4.8%
10,000,000 First National Bank of Chicago, Commonwealth Fuel, 5.32%........... 9/10 9,940,889
--------------
TOTAL LETTERS OF CREDIT (Cost $9,940,889).......................... 9,940,889
--------------
BANKER ACCEPTANCES -- 4.8%
5,000,000 Key Corp., 5.44%................................................... 9/17 4,964,489
5,000,000 Key Corp., 5.36%................................................... 9/18 4,964,266
--------------
TOTAL BANKER ACCEPTANCES (Cost $9,928,755)......................... 9,928,755
--------------
TAXABLE MUNICIPALS -- 4.9%
10,045,000 Metropolitan Washington D.C. Airport Authority, 5.43%.............. 8/15 10,079,848
--------------
TOTAL TAXABLE MUNICIPALS (Cost $10,079,848)........................ 10,079,848
--------------
U.S. GOVERNMENT AGENCIES -- 19.4%
10,000,000 Federal Home Mortgage Corp., 5.30%................................. 9/12 9,938,167
10,000,000 Federal National Mortgage Association, 5.30%....................... 8/8 9,989,694
10,000,000 Federal National Mortgage Association, 5.22%....................... 8/23 9,968,100
10,000,000 Federal National Mortgage Association, 5.22%....................... 8/30 9,957,950
--------------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost $39,853,911)................................................. 39,853,911
--------------
REPURCHASE AGREEMENTS -- 19.1%
42,420,000 Merrill Lynch Government Securities, Inc., 5.50%; Collateralized by
$42,420,000 U.S. Treasury Bills, 5.45% due 7/24/97 (repurchase
proceeds $39,306,004).............................................. 8/1 39,300,000
--------------
TOTAL INVESTMENTS -- 100% (COST $205,549,441)...................... 205,549,441
OTHER ASSETS LESS LIABILITIES...................................... (40,836)
--------------
NET ASSETS -- 100.0% -- equivalent to $1.00 per share for
205,508,605
outstanding Capital Shares in the Trust, $.10 par value (unlimited
number of shares authorized) -- Note E............................. $ 205,508,605
=============
<FN>
+ At July 31, 1996, investments in commercial paper are diversified among
several industries with no significant concentration. At the time of purchase,
all commercial paper investments are rated A-1 by S&P or P-1 by Moody's Rating
Services.
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 6
LIQUID CAPITAL INCOME TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<S> <C> <C>
INTEREST INCOME............................................. $12,768,718
EXPENSES -- NOTE B
Management fees........................................... $1,144,869
Custodian and transfer agent fees......................... 612,423
Printing.................................................. 86,969
Postage................................................... 74,868
Registration and filing fees.............................. 35,775
Insurance expense......................................... 31,393
Trustees' fees............................................ 24,000
Professional fees......................................... 23,406
Miscellaneous............................................. 23,724 2,057,427
---------- -----------
INVESTMENT INCOME -- NET.................................... $10,711,291
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS -- NOTE E
Operations:
Investment income -- net................................ $ 10,711,291 $ 12,656,143
Distributions to shareholders from net
investment income....................................... (10,711,291) (12,656,143)
Capital share transactions -- net......................... (41,877,279) (42,564,384)
------------ ------------
Total decrease in net assets....................... (41,877,279) (42,564,384)
NET ASSETS
Beginning of year......................................... 247,385,884 289,950,268
------------ ------------
End of year............................................... $205,508,605 $247,385,884
============ ============
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 7
CARNEGIE GOVERNMENT SECURITIES TRUST
STATEMENT OF NET ASSETS
JULY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATE (1996) (NOTE A)
- ---------- ------------ -----------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES -- 86.0%
$2,000,000 Federal Home Loan Bank, 5.20%................... 8/6 $ 1,998,556
2,000,000 Federal Home Loan Mortgage Corp., 5.22%......... 8/15 1,995,940
2,000,000 Federal Home Loan Mortgage Corp., 5.30%......... 9/12 1,987,633
1,000,000 Federal National Mortgage Association, 5.20%.... 8/12 998,411
2,000,000 Federal National Mortgage Association, 5.22%.... 8/23 1,993,620
2,000,000 Federal National Mortgage Association, 5.26%.... 9/24 1,984,220
-----------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost $10,958,380)............................ 10,958,380
-----------
REPURCHASE AGREEMENTS -- 14.1%
2,015,000 Merrill Lynch Government Securities, Inc.,
5.50%; Collateralized by $2,015,000 Federal
Home Loan Bank, 5.40% due 3/25/1997
(repurchase proceeds $1,794,274).............. 8/1 1,794,000
-----------
TOTAL INVESTMENTS -- 100.1%
(Cost $12,738,162)............................ 12,752,380
OTHER ASSETS LESS LIABILITIES (.1%)............. (14,634)
-----------
NET ASSETS -- 100.0% -- equivalent to $1.00 per
share for 12,737,746 outstanding Capital
Shares in the Trust, $.10 par value (unlimited
number of shares authorized) -- Note E........ $12,737,746
============
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 8
CARNEGIE GOVERNMENT SECURITIES TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<S> <C> <C>
INTEREST INCOME............................................. $783,561
EXPENSES -- NOTE B
Management fees........................................... $ 71,083
Custodian and transfer agent fees......................... 28,046
Professional fees......................................... 13,073
Registration and filing fees.............................. 11,592
Trustees' fees............................................ 8,000
Printing.................................................. 5,988
Insurance expense......................................... 2,310
Postage................................................... 2,020
Miscellaneous............................................. 3,477 145,589
-------- --------
INVESTMENT INCOME -- NET.................................... $637,972
========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS -- NOTE E
Operations:
Investment income -- net................................ $ 637,972 $ 686,538
Distributions to shareholders from net
investment income....................................... (637,972) (686,538)
Capital share transactions -- net......................... (1,687,130) (3,653,843)
----------- -----------
Total decrease in net assets....................... (1,687,130) (3,653,843)
NET ASSETS
Beginning of year......................................... 14,424,876 18,078,719
----------- -----------
End of year............................................... $12,737,746 $14,424,876
=========== ===========
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 9
CARNEGIE TAX FREE INCOME TRUST
STATEMENT OF NET ASSETS+
JULY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT RATING* (NOTE A)
- ---------- -------- ----------------
<S> <C> <C> <C>
MUNICIPAL SECURITIES -- 99.4%
ALABAMA -- 11.5%
$ 200,000 Alabama Special Care Facility Variable Rate Demand Revenue Bonds 3.60%,
8/7/96................................................................. Aaa $ 200,000
1,200,000 Birmingham Baptist Medical Center Variable Rate Demand Revenue Bonds
4.05%, 8/7/96.......................................................... A1 1,200,000
1,200,000 Columbia Alabama Variable Rate Demand Industrial Development
Revenue Bonds 3.60%, 8/1/96............................................ A2 1,200,000
300,000 North Alabama Pollution Control Variable Rate Demand Revenue Bonds
3.65%, 8/1/96.......................................................... Aa3 300,000
ARIZONA -- 5.9%
1,000,000 Arizona Health Facilities Authority Variable Rate Demand Revenue Bonds
3.65%, 8/7/96.......................................................... Aaa 1,000,000
500,000 Pima County Variable Rate Demand Industrial Development Revenue Bonds
3.55%, 8/7/96.......................................................... NR 500,000
CALIFORNIA -- 4.0%
1,000,000 Los Angeles Regional Airports Improvement Variable Rate Demand Revenue
Bonds 3.65%, 8/1/96.................................................... Aa2 1,000,000
DELAWARE -- 2.7%
700,000 Wilmington Hospital Franciscan Health System Variable Rate Demand
Revenue Bonds 3.65%, 8/1/96............................................ Aa2 700,000
GEORGIA -- 4.7%
1,200,000 Burke County Pollution Control Variable Rate Demand Revenue Bonds
3.60%, 8/1/96.......................................................... A1 1,200,000
HAWAII -- 4.0%
1,000,000.. Hawaii Housing Finance Variable Rate Demand Revenue Bonds 3.85%,
8/7/96................................................................. A1 1,000,000
ILLINOIS -- 7.5%
900,000 Illinois Health Facilities Variable Rate Demand Revenue Bonds 3.65%,
8/7/96................................................................. Aaa 900,000
1,000,000 Saint Charles Variable Rate Demand Industrial Development Revenue Bonds
3.65%, 8/7/96.......................................................... AA 1,000,000
KENTUCKY -- 4.7%
1,200,000 Appalachian Regional Health Care Development Finance Authority Variable
Rate Demand Revenue Bonds 3.65%, 8/7/96................................ Aa2 1,200,000
MARYLAND -- 4.0%
1,000,000 Montgomery County Housing Variable Rate Demand Revenue Bonds 3.75%,
8/7/96................................................................. Aa 1,000,000
MASSACHUSETTS -- 4.0%
1,000,000 Massachusetts State Health and Educational Facility Authority Variable
Rate Demand Revenue Bonds 3.60%, 8/7/96................................ Aa3 1,000,000
MICHIGAN -- 4.7%
1,200,000 Michigan State Hospital Finance Authority Variable Rate Demand Revenue
Bonds 3.65%, 8/7/96.................................................... A1 1,200,000
NEW YORK -- 3.6%
900,000 New York State Medical Care Facilities Variable Rate Demand Revenue
Bonds 3.45%, 8/7/96.................................................... Aa3 900,000
OHIO -- 8.8%
1,000,000 Hamilton County Health System Variable Rate Demand Revenue Bonds 3.70%,
8/1/96................................................................. A1 1,000,000
200,000 Muskingum County Variable Rate Demand Industrial Development Revenue
Bonds 3.65%, 8/1/96.................................................... Aa2 200,000
1,000,000 Ohio State Environmental Improvement Variable Rate Demand Revenue Bonds
3.65%, 8/1/96.......................................................... A1 1,000,000
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 10
CARNEGIE TAX FREE INCOME TRUST
STATEMENT OF NET ASSETS+ -- CONTINUED
JULY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT RATING* (NOTE A)
- ---------- -------- ----------------
<S> <C> <C> <C>
OREGON -- 4.0%
$ 400,000 Port of Portland Pollution Control Variable Rate Demand Revenue Bonds
3.65%, 8/1/96.......................................................... Aa3 $ 400,000
600,000 Umatilla County Hospital Facilities Variable Rate Demand Revenue Bonds
3.65%, 8/1/96.......................................................... Aa2 600,000
PENNSYLVANIA -- 3.6%
900,000 Delaware County Variable Rate Industrial Development Revenue Bonds
3.55%, 8/1/96.......................................................... Aaa 900,000
SOUTH CAROLINA -- 4.0%
1,000,000 York County Pollution Control Tax Free Commercial Paper 3.45%,
10/1/96................................................................ Aa2 1,000,000
TENNESSEE -- 2.7%
400,000 Metropolitan Nashville Airport Authority Special Facilities Variable
Rate Demand Revenue Bonds 3.65%, 8/1/96................................ AA+ 400,000
300,000 Sullivan County Variable Rate Industrial Development Revenue Bonds
3.65%, 8/1/96.......................................................... AAA 300,000
TEXAS -- 5.5%
900,000 Lone Star Airport Improvement Authority Variable Rate Demand Revenue
Bonds 3.65%, 8/1/96.................................................... VMIG1 900,000
500,000 Lower Neches Valley Authority Variable Rate Demand Revenue Bonds 3.60%,
8/7/96................................................................. Aa2 500,000
VIRGINIA -- 1.6%
400,000 Fairfax County Industrial Development Authority Variable Rate Demand
Revenue Bonds 3.75%, 8/7/96............................................ Aa 400,000
WISCONSIN -- 7.9%
1,000,000 Racine University School District Tax and Revenue Anticipation Notes
4.50%, 8/23/96......................................................... Sp1+ 1,004,550
1,000,000 Wisconsin Health Facilities Variable Rate Demand Revenue Bonds 3.60%,
8/7/96................................................................. Aaa 1,000,000
----------------
TOTAL INVESTMENTS -- 99.4% (Cost $25,104,550).......................... 25,104,550
OTHER ASSETS LESS LIABILITIES -- .6%................................... 161,548
----------------
NET ASSETS -- 100% -- equivalent to $1.00 per share for 25,266,098
outstanding Capital Shares in the Trust, $.10 par value (unlimited
number of shares authorized) -- Note E................................. $ 25,266,098
=================
<FN>
+ Variable Rate Demand Notes (V.R.D.N.) are instruments whose interest rates
change on a specified date (such as coupon date or interest payment date).
These instruments are payable on demand and are secured by one or more of the
following: letters of credit or other credit support agreements from either
banks, corporate obligors, insurance companies and/or the taxing authority of
the municipality.
* All ratings are stated as of July 31, 1996 by Moody's Investor Services, Inc.
or Standard and Poor's. The unrated municipal obligations are considered by
the Trust's investment adviser, Carnegie Capital Management Company, to have
characteristics and quality comparable to the rated municipal obligations
purchased by the Fund, and are in accordance with policies established by the
Board of Trustees.
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 11
CARNEGIE TAX FREE INCOME TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<S> <C> <C>
INTEREST INCOME.................................................. $915,872
EXPENSES -- NOTE B
Management fees................................................ $123,510
Custodian and transfer agent fees.............................. 23,616
Registration and filing fees................................... 13,724
Professional fees.............................................. 12,960
Trustees' fees................................................. 8,000
Printing....................................................... 5,313
Insurance expense.............................................. 4,350
Postage........................................................ 2,626
Miscellaneous.................................................. 3,252 197,351
-------- --------
INVESTMENT INCOME -- NET......................................... $718,521
========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS -- NOTE E
Operations:
Investment income -- net..................................... $ 718,521 $ 810,380
Distributions to shareholders from net
investment income............................................ (718,521) (810,380)
Capital share transactions -- net.............................. (2,349,807) (4,024,855)
----------- -----------
Total decrease in net assets............................ (2,349,807) (4,024,855)
NET ASSETS
Beginning of year.............................................. 27,615,905 31,640,760
----------- -----------
End of year.................................................... $25,266,098 $27,615,905
=========== ===========
</TABLE>
See Notes to Financial Statements.
10
<PAGE> 12
CARNEGIE TAX EXEMPT INCOME TRUST
OHIO GENERAL MUNICIPAL FUND
STATEMENT OF NET ASSETS -- JULY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT RATING* (NOTE A)
- --------- ---------- -----------
<S> <C> <C> <C>
MUNICIPAL BONDS -- 97.3%
$ 750,000 Columbus Citation Housing Corp. Revenue Bonds 7.63%, 1/1/2022........................ AA $ 859,622
250,000 Cuyahoga Cnty. Hosp.-Metro Health Sys. Revenue Bonds 6.90%, 2/15/2007................ NR 261,807
250,000 Cuyahoga Cnty. Jail Fac. General Obligation Bonds 7.00%, 10/1/2013................... AAA 281,245
750,000 Cuyahoga Cnty. Meridia Hlth. Care Sys. Revenue Bonds 7.00%, 8/15/2006................ A 804,826
500,000 Dublin Ohio City Schl Dist. General Obligation Bonds 6.20%, 12/1/2019................ AAA 517,359
800,000 Franklin Cnty. Hosp. Revenue Refunding & Improvement Riverside 7.60%, 5/15/2020...... AAA 897,753
600,000 Franklin Cnty. Riverside Hosp. Revenue Bonds 7.25%, 5/15/2020........................ AAA 639,647
800,000 Hamilton Cnty. General Obligation Bonds 5.10%, 12/1/2013 - 12/1/2014................. AA 757,323
850,000 Hamilton Cnty. Bethesda Hosp. Revenue Bonds 7.00%, 1/1/2009.......................... A 870,418
450,000 Mahoning Cnty. Sanitary Sewer Sys. Revenue Bonds 7.50%, 2/1/2009..................... AAA 490,556
500,000 Mahoning Cnty. Western Reserve Care Sys. Revenue Bonds 5.38%, 10/15/2015............. AAA 475,803
500,000 Ohio Capital Corp. Housing Revenue Bonds 7.60%, 11/1/2023............................ AAA 538,176
461,000 Ohio Housing Finance Agency Revenue Bonds 7.05% -7.40%, 9/1/2015 - 9/1/2016.......... AAA 478,428
120,000 Ohio State Higher Ed. Oberlin College Revenue Bonds 7.10%, 10/1/2012................. NR 131,936
500,000 Ohio State Water Development Authority Revenue Bonds 5.50%, 12/1/2018................ AAA 484,958
250,000 Parma Community Hospital Revenue Bonds 7.13%, 11/15/2013............................. AAA 266,161
500,000 Richland Cnty. General Obligation Bonds 5.40%, 12/1/2015............................. AAA 480,257
500,000 Rural Lorain Water Authority Revenue Bonds 5.45% 10/1/2018........................... AAA 479,482
500,000 Stark Cnty. General Obligation Bonds 5.70%, 11/15/2017............................... AAA 498,729
145,000 University Heights B General Obligation Bonds 6.20%, 12/1/2014....................... NR 149,512
500,000 University of Toledo General Receipts Revenue Bonds 5.90%, 6/1/2020.................. AAA 502,565
500,000 Washington Water Sys. Revenue Bonds 5.38%, 12/1/2019................................. AAA 470,827
-----------
TOTAL INVESTMENTS -- 97.3% (COST $10,980,363)........................................ 11,337,390
OTHER ASSETS LESS LIABILITIES -- 2.7%................................................ 318,598
-----------
NET ASSETS -- 100%................................................................... $11,655,988
============
NET ASSET VALUE PER SHARE............................................................ $ 9.41
============
SHARES OUTSTANDING (unlimited number of shares authorized; $.10 par value) --
NOTE C............................................................................... 1,238,451
============
MAXIMUM OFFERING PRICE PER SHARE (net asset value plus 4.71% of net amount invested
or 4.5% of the offering price)....................................................... $ 9.85
============
NET ASSETS, AS OF JULY 31, 1996, ARE COMPRISED OF THE FOLLOWING:
Aggregate paid in capital............................................................ $11,686,791
Accumulated undistributed net realized losses........................................ (387,830)
Unrealized appreciation of investments -- net........................................ 357,027
-----------
$11,655,988
============
<FN>
* All ratings are stated as of July 31, 1996 by Moody's Investor Services, Inc. or Standard and Poor's. The unrated
municipal obligations are considered by the Trust's investment adviser, Carnegie Capital Management Company, to have
characteristics and quality comparable to the rated municipal obligations purchased by the Fund, and are in accordance
with policies established by the Board of Trustees.
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 13
CARNEGIE TAX EXEMPT INCOME TRUST
OHIO GENERAL MUNICIPAL FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<S> <C>
INTEREST INCOME.............................................................................. $ 739,910
------------
EXPENSES -- NOTE B
Management fees.............................................................................. 59,047
Pricing service fees......................................................................... 10,199
Custodian and transfer agent fees............................................................ 8,646
Trustees' fees............................................................................... 8,000
Professional fees............................................................................ 6,505
Printing..................................................................................... 3,970
Registration and filing fees................................................................. 2,109
Insurance expense............................................................................ 1,976
Miscellaneous................................................................................ 2,690
------------
Total expenses........................................................................... 103,142
------------
NET INVESTMENT INCOME........................................................................ 636,768
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET
Realized gain on investments................................................................. 13,258
Change in unrealized appreciation of investments............................................. (96,894)
------------
Net loss on investments...................................................................... (83,636)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS................................................... $ 553,132
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income........................................................ 636,768 678,256
Realized gain on investments -- net.......................................... 13,258 47,871
Change in unrealized appreciation of investments -- net...................... (96,894) (127,808)
----------- -----------
Net increase in net assets from operations................................... 553,132 598,319
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME -- NOTE A........... (636,768) (678,256)
CAPITAL SHARE TRANSACTIONS -- NOTE C
Shares sold.................................................................. 2,185,962 702,342
Shares issued on reinvestment of distributions............................... 428,112 456,507
----------- -----------
2,614,074 1,158,849
Shares redeemed.............................................................. (2,322,971) (2,205,226)
----------- -----------
Net increase/(decrease) from capital shares transactions..................... 291,103 (1,046,377)
----------- -----------
Total increase/(decrease) in net assets............................. 207,467 (1,126,314)
NET ASSETS
Beginning of year............................................................ 11,448,521 12,574,835
----------- -----------
End of year.................................................................. $11,655,988 $11,448,521
=========== ===========
</TABLE>
See Notes to Financial Statements.
12
<PAGE> 14
CARNEGIE FUNDS GROUP (THE "TRUSTS")
NOTES TO FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
Liquid Capital Income Trust (LCI), Carnegie Government Securities Trust
(CGST) and Carnegie Tax Free Income Trust (CTF) (the "Money Funds") are money
market funds. The Trusts are open-end, diversified management investment
companies registered under the Investment Company Act of 1940, as amended.
Carnegie Tax-Exempt Income Trust is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, open-end management investment
company. The Trust offers shares of beneficial interest in the Ohio General
Municipal Fund ("Ohio General").
The following is a summary of significant accounting policies followed by
the Trusts. The policies are in conformity with generally accepted accounting
principles.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported results of operations during the
reporting period. Actual results could differ from those estimates.
Security valuations -- Investment securities for LCI, CGST and CTF are
valued using the amortized cost method whereby a security is valued at cost
adjusted for the amortization of any premiums or discounts over the period until
maturity. The cost of portfolio securities is substantially the same for
financial reporting and federal income tax purposes.
The value of municipal obligations held by Ohio General are furnished by
pricing services approved by the Trust's Board of Trustees using methods based
on market transactions for comparable securities and other factors which are
generally recognized by institutional traders. Short-term portfolio securities
are valued using the amortized cost method whereby a security is valued at cost
adjusted for the amortization of any premiums or discounts over the period until
maturity.
Security transactions and related investment income -- Security transactions
are accounted for on the trade date (date order to buy or sell is executed).
Interest income is determined on the basis of accrued interest and discount
earned (including original issue and market discount) and premium amortized.
Realized gains and losses, if any, on sales of securities are calculated on the
identified cost basis.
Repurchase Agreements -- For LCI and CGST, all repurchase agreements are
collateralized by United States Government Securities and such collateral is in
the possession of the Trusts' custodian. Each Trust evaluates collateral daily.
The market value of collateral is noted in the Statement of Net Assets. Unless
otherwise noted, the purchase date for all repurchase agreements was July 31,
1996.
Federal income taxes -- The Trusts have elected to fulfill the applicable
requirements of the Internal Revenue Code relating to regulated investment
companies by distributing all income to shareholders and, accordingly, no
provision for federal income taxes is required.
Distributions paid by Ohio General from net investment income on tax-exempt
municipal obligations are not includable by shareholders as gross income for
federal income tax purposes because Ohio General has fulfilled certain
requirements of the Internal Revenue Code applicable to regulated investment
companies which will enable Ohio General to pay exempt-interest distributions.
For the year ended July 31, 1996, Ohio General has capital loss carryovers for
federal income tax purposes of $387,830. If unused, such amount will expire on
July 31, 1999.
Securities purchased on a when-issued basis -- Delivery and payment for
securities which have been purchased on a when-issued or delayed delivery basis
can take place a month or more after the date of the transaction. The securities
so purchased are subject to market fluctuation during this period. The Trusts
instruct the custodian to segregate assets in a separate account with a market
value equal to the amount of its purchase commitment. At July 31, 1996, there
were no when-issued securities.
Capital share transactions and distributions to shareholders -- The Money
Funds' shares are sold in continuous public offerings and are redeemed at their
respective net asset values. LCI and CGST declare and pay dividends each
business day to distribute their net investment income and realized net
short-term capital gains, if any. CTF declares a dividend each business day and
pays the dividend monthly. For LCI and CGST, all such dividends are
automatically reinvested in additional shares of the applicable Trust at their
respective net asset values. For CTF, the shareholders may elect a cash
distribution of dividends or elect automatic reinvestment in additional shares
of the Trust at its net asset value.
Ohio General shares are sold in a continuous public offering and are
redeemed at the net asset value. The Fund declares distributions each business
day and pays the distributions monthly. Shareholders may elect to reinvest such
distributions at the net asset value on the payment date or receive the
distributions in cash.
Ohio General concentrates its investments in Ohio, and therefore may have
more credit risk related to the economic conditions in the state of Ohio than a
portfolio with broader geographical diversification.
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE B -- MANAGEMENT FEE AND DISTRIBUTION FEE
Pursuant to the investment advisory contract (the "Advisory Contract") in
effect between the Trusts and Carnegie Capital Management Company ("CCMC"), CCMC
is responsible for the management of the investments for the Trusts, and the
overall management of the business affairs, subject to the general supervision
and control of the Board of Trustees.
CCMC performs and bears the cost of research, statistical analysis and
continuous supervision of the investment portfolios of the Trusts and furnishes
office facilities and certain clerical and administrative services. In addition,
CCMC, together with Carnegie Fund Distributors, Inc. ("CFD"), the Fund's
principal underwriter and a wholly-owned subsidiary of CCMC, bears promotional
expenses, including costs of printing and distributing prospectuses utilized for
promotional purposes, other than those waived under the Distribution Expense
Plan described below.
LCI compensates CCMC with a management fee at an annual rate of .50% of
LCI's average daily net assets up to $700 million, .45% of the next $500
million, .40% of the next $800 million and .35% of the average daily net assets
exceeding $2.0 billion. For the year ended July 31, 1996, LCI had $89,247
payable to CCMC for management fees, and for the year then ended CCMC earned
management fees of $1,144,869.
CGST compensates CCMC with a management fee at an annual rate of .50% of
CGST's average daily net assets up to $100 million, .40% of the next $200
million and .35% of average daily net assets in excess of $300 million. For the
year ended July 31, 1996, CGST had $5,434 payable to CCMC for management fees,
and for the year then ended CCMC earned management fees of $71,083.
CTF compensates CCMC with a management fee at an annual rate of .50% of
CTF's average daily net assets. For the year ended July 31, 1996, CTF had
$10,810 payable to CCMC for management fees, and for the year then ended CCMC
earned management fees of $123,510.
Ohio General compensates CCMC with a management fee at an annual rate of
.50% of Ohio General's average daily net assets. For the year ended July 31,
1996, Ohio General had $5,230 payable to CCMC for management fees, and for the
year then ended CCMC earned management fees of $59,047.
In addition, in the event that the aggregate operating expenses of the Money
Funds and Ohio General (excluding certain expenses and, where permitted by
applicable state securities regulations, expenses incurred as part of the
Distribution Expense Plan described below) exceed any expense limitations
imposed by applicable state securities regulations, CCMC will reimburse 100% of
such excess expenses. There were no excess expenses for the year ended July 31,
1996.
The Trustees have adopted a Distribution Expense Plan pursuant to Rule 12b-1
under the 1940 Act with respect to Ohio General. Pursuant to the Distribution
Expense Plan, Ohio General will pay to CFD quarterly a Distribution Fee at the
annual rate of .30 of 1% of the average daily net assets. If actual Distribution
Expenses incurred for the year are less than the yearly Distribution Fee, as
calculated above, the Ohio General will pay an amount equal to such Distribution
Expenses. CFD is required to use .20 of 1% of such fee to make continuing
payments to authorized securities dealers for their continuing distribution and
promotional assistance in connection with the sale of the shares of Ohio
General. The remaining portion of the Distribution Fee must be utilized by CFD
for expenses incurred which are primarily intended to result in the sale of
shares including, but not limited to, paying for the preparation, printing and
distribution of sales literature and other promotional materials to existing and
prospective investors and by directly or indirectly purchasing radio,
television, newspaper and other media advertising and conducting sales seminars,
sales contests, and other incentives. Distribution fees in the amount of $35,410
for the year ended July 31, 1996 were waived for the Ohio General Municipal
Fund.
For the year ended July 31, 1996, CFD received sales charges paid by the
purchasers of Ohio General's shares of $19,282. Such sales charges are not
expenses of Ohio General and hence are not reflected in the accompanying
Statements of Operations. CCMC, CFD and the Trusts have certain officers in
common.
LCI compensates independent trustees with a quarterly fee of $1,500. CGST,
CTF and Ohio General each compensate trustees with a quarterly fee of $500.
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE C -- CAPITAL SHARES
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
---------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
LCI
Shares sold................................................... 523,164,749 581,045,745
Shares issued on reinvestment of distributions................ 10,711,291 12,656,143
-------------- --------------
533,876,040 593,701,888
Shares redeemed............................................... (575,753,319) (636,266,272)
-------------- --------------
Net decrease in capital shares................................ (41,877,279) (42,564,384)
=============== ===============
CGST
Shares sold................................................... 46,242,801 64,575,987
Shares issued on reinvestment of distributions................ 637,972 686,538
-------------- --------------
46,880,773 65,262,525
Shares redeemed............................................... (48,567,903) (68,916,368)
-------------- --------------
Net decrease in capital shares................................ (1,687,130) (3,653,843)
=============== ===============
CTF
Shares sold................................................... 53,251,073 73,012,254
Shares issued on reinvestment of distributions................ 718,521 810,380
-------------- --------------
53,969,594 73,822,634
Shares redeemed............................................... (56,319,401) (77,847,489)
-------------- --------------
Net decrease in capital shares................................ (2,349,807) (4,024,855)
=============== ===============
Ohio General
Shares sold................................................... 226,209 74,725
Shares issued on reinvestment of distributions from net
investment income........................................... 47,504 48,762
-------------- --------------
273,713 123,487
Shares redeemed................................................. (245,855) (235,935)
-------------- --------------
Net increase/(decrease) in capital shares....................... 27,858 (112,448)
=============== ===============
</TABLE>
NOTE D -- PURCHASES AND SALES OF INVESTMENT SECURITIES -- OHIO GENERAL MUNICIPAL
FUND
Purchases of investment securities and value of securities maturing or sold
excluding short-term securities during the year ended July 31, 1996 amounted to
$3,162,115 and $2,682,888, respectively.
For Federal income tax purposes, the identified cost of securities owned on
July 31, 1996 was $10,980,363. Aggregate unrealized appreciation on the cost
basis of investments was $507,830 and aggregate unrealized depreciation was
$150,803. Net realized appreciation at July 31, 1996 was $357,027.
NOTE E -- NET ASSETS
Net Assets, as of July 31, 1996, are comprised of the following:
<TABLE>
<CAPTION>
LCI CGST CTF
------------ ----------- -----------
<S> <C> <C> <C>
Capital shares, at par.......................................... $ 20,550,861 $ 1,273,775 $ 2,526,610
Capital shares in excess of par................................. 184,957,744 11,463,971 22,739,488
------------ ----------- -----------
Net Assets.............................................. $205,508,605 $12,737,746 $25,266,098
============= ============ ============
</TABLE>
15
