<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
FUNDS GROUP
- --------------------------------------------------------------------------------
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 Trusts. It is not
authorized for distribution to others unless it is accompanied or
preceded by a current combined prospectus. For more complete
information on the 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.
(LOGO)
CARNEGIE CAPITAL MANAGEMENT COMPANY
-- 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, 1997
- -------------------------------------------------------------------
CARNEGIE CAPITAL MANAGEMENT COMPANY
1100 The Halle Building
1228 Euclid Avenue
Cleveland, Ohio 44115-1831
(LOGO)
<PAGE> 2
ANNUAL MESSAGE FROM THE PRESIDENT: August 18, 1997
Dear Fellow Shareholders:
1997, like 1996, has once again provided many gifts to investors both
short-term, and long-term as well as equities. It would appear that the economy,
although gathering "steam", has not seen inflation rise to levels where the
Federal Reserve Board would have to restrict the flow of funds. Because of this
and the seemingly continued growth of corporate earnings, we would expect that
interest rates would remain relatively little changed from current levels.
While rates certainly are more volatile in the last several years than thirty
years ago, the economy has also grown dramatically in that period of time.
Therefore, to see long term interest rates fluctuate by 30 to 50 basis points in
a short period of time is not as dramatic as might have been many decades ago.
We are pleased that you have chosen to remain with the Carnegie Funds Group and
to continue to invest with us and in our philosophy of "High Quality
Investments". We have attempted to maintain our high quality standards even
though at times shareholders might have benefited from higher yields with 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, 1997, 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, 1997, 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, 1997, 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 18, 1997 /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,
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<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 0.047 0.047 0.026 0.024
------------ ------------ ------------ ------------ ------------
Total from Investment
Operations..................... 0.045 0.047 0.047 0.026 0.024
LESS DISTRIBUTIONS:
Distributions from Net Investment
Income......................... (0.045) (0.047) (0.047) (0.026) (0.024)
------------ ------------ ------------ ------------ ------------
Total Distributions.............. (0.045) (0.047) (0.047) (0.026) (0.024)
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).... 0.94% 0.90% 0.87% 0.88% 0.83%
Net investment income as a
percentage of average daily net
assets(1)...................... 4.48% 4.69% 4.72% 2.62% 2.43%
Net Assets at end of period....... $185,185,738 $205,508,605 $247,385,884 $289,950,268 $335,030,422
============ ============ ============ ============ ============
</TABLE>
(1) The percentages should not be construed as representative of the yield or
expenses related to further investments in the Trust.
CARNEGIE GOVERNMENT SECURITIES TRUST -- FINANCIAL HIGHLIGHTS
Data for each share outstanding throughout the period
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<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............... 0.042 0.045 0.044 0.024 0.022
----------- ----------- ----------- ----------- -----------
Total from Investment Operations.... 0.042 0.045 0.044 0.024 0.022
LESS DISTRIBUTIONS:
Distributions from Net Investment
Income............................ (0.042) (0.045) (0.044) (0.024) (0.022)
----------- ----------- ----------- ----------- -----------
Total Distributions................. (0.042) (0.045) (0.044) (0.024) (0.022)
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)............... 1.11% 1.03% 1.06% 0.98% 0.87%
Net investment income as a
percentage of average daily net
assets(1)......................... 4.25% 4.50% 4.38% 2.37% 2.25%
Net Assets at end of period.......... $12,440,409 $12,737,746 $14,424,876 $18,078,719 $25,364,240
=========== =========== =========== =========== ===========
</TABLE>
(1) The percentages should not be construed as representative of the yield or
expenses related to further investments in the Trust.
2
<PAGE> 4
CARNEGIE TAX FREE INCOME TRUST -- FINANCIAL HIGHLIGHTS
Data for each share outstanding throughout the period
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<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.................. 0.027 0.029 0.029 0.018 0.019
----------- ----------- ----------- ----------- -----------
Total from Investment Operations....... 0.027 0.029 0.029 0.018 0.019
LESS DISTRIBUTIONS:
Distributions from Net Investment
Income............................... (0.027) (0.029) (0.029) (0.018) (0.019)
----------- ----------- ----------- ----------- -----------
Total Distributions.................... (0.027) (0.029) (0.029) (0.018) (0.019)
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).................. 0.84% 0.80% 0.82% 0.77% 0.76%
Net investment income as a percentage
of average daily net assets(1)....... 2.74% 2.92% 2.86% 1.77% 1.88%
Net Assets at end of period............. $20,188,763 $25,266,098 $27,615,905 $31,640,760 $40,646,525
=========== =========== =========== =========== ===========
</TABLE>
(1) The percentages should not be construed as representative of the yield or
expenses related to further investments in the Trust.
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,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $9.41 $9.46 $9.50 $9.87 $9.79
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2)............... 0.484 0.514 0.556 0.549 0.559
Net realized and unrealized
gains/(losses) on securities......... 0.250 (0.050) (0.040) (0.370) 0.080
----------- ----------- ----------- ----------- -----------
Total from investment operations....... 0.734 0.464 0.516 0.179 0.639
LESS DISTRIBUTIONS:
Distributions from net investment
income............................... (0.484) (0.514) (0.556) (0.549) (0.559)
----------- ----------- ----------- ----------- -----------
Total distributions.................... (0.484) (0.514) (0.556) (0.549) (0.559)
Net Asset Value, End of Period.......... $9.66 $9.41 $9.46 $9.50 $9.87
=========== =========== =========== =========== ===========
ANNUAL TOTAL RETURN..................... 9.41% 4.98% 5.50% 1.82% 6.77%
=========== =========== =========== =========== ===========
RATIOS/SUPPLEMENTAL INFORMATION
Net assets at end of period............ $10,283,205 $11,655,988 $11,448,521 $12,574,835 $18,669,199
Expenses as a percentage of average
daily net assets(1)(2)............... 0.95% 0.88% 0.97% 0.93% 0.81%
Net investment income as a percentage
of average daily net assets(1)....... 5.12% 5.41% 5.95% 5.68% 5.81%
Portfolio Turnover rate................ 3.88% 23.45% 8.77% 10.04% 4.98%
</TABLE>
(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 $.455, $.483, $.528, $.520, $.530, and for the years ended July 31,
1997, 1996, 1995, 1994 and 1993, 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 1.25%, 1.18%, 1.27%, 1.23%,
and 1.11% for the same periods, respectively.
3
<PAGE> 5
LIQUID CAPITAL INCOME TRUST
STATEMENT OF NET ASSETS
JULY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MATURITY DATE VALUE
AMOUNT (1997) (NOTE A)
- ------------ -------------- -------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 48.5%
$ 9,000,000 American Telephone and Telegraph Company, 5.44%.............................. 8/21 $ 8,972,800
9,000,000 Asset Securitization Corp., 5.52%............................................ 8/22 8,971,020
9,500,000 Coca-Cola Company, 5.47%..................................................... 8/04 9,495,669
9,500,000 Ford Motor Credit Company, 5.47%............................................. 8/06 9,492,783
9,500,000 General Electric Company, 5.47%.............................................. 8/11 9,485,565
6,029,000 Industrial Funding Corp., 5.60%.............................................. 8/07 6,023,373
9,500,000 International Lease Finance Corp., 5.51%..................................... 8/22 9,469,466
9,000,000 Merrill Lynch & Company, 5.55%............................................... 8/13 8,983,500
10,000,000 National City Corp., 5.55%................................................... 8/19 9,972,250
9,000,000 Pepsico Inc., 5.75%.......................................................... 8/01 9,000,000
------------
TOTAL COMMERCIAL PAPER (Cost $89,866,426).................................... 89,866,426
------------
LETTERS OF CREDIT -- 10.3%
9,500,000 AES Barbers Point Inc., 5.47%................................................ 9/05 9,449,478
9,672,000 First National Bank of Chicago, Commonwealth Fuel 5.58% 8/18 9,646,514
------------
TOTAL LETTERS OF CREDIT (Cost $19,095,992)................................... 19,095,992
------------
TAXABLE MUNICIPALS -- 3.8%
7,025,000 Metropolitan Washington D.C. Airport Authority, 5.59% 9/08 7,049,005
------------
TOTAL TAXABLE MUNICIPALS (Cost $7,049,005)................................... 7,049,005
------------
U.S. GOVERNMENT INTEREST BEARING AND AGENCIES -- 21.0%
10,000,000 Federal Home Loan Bank, 5.34%................................................ 8/08 9,989,617
5,000,000 Federal Home Loan Bank, 5.36%................................................ 8/15 4,989,578
10,000,000 Federal Home Loan Bank, 5.36%................................................ 8/26 9,962,778
9,000,000 Federal National Mortgage Association, 5.37%................................. 8/19 8,975,835
5,000,000 Federal Farm Credit Bank, 5.62%.............................................. 12/01 5,010,926
------------
TOTAL U.S. GOVERNMENT INTEREST BEARING AND AGENCIES
(Cost 38,928,734)............................................................ 38,928,734
------------
REPURCHASE AGREEMENTS -- 16.4%
30,300,000 Merrill Lynch Government Securities, Inc., 7.00% Collateralized by
$30,755,000 Federal Home Loan Mortgage, 5.70% due 01/28/02 (repurchase
proceeds $30,304,798)........................................................ 08/01 30,300,000
------------
TOTAL INVESTMENTS -- 100% (COST $185,240,157)................................ 185,240,157
OTHER ASSETS LESS LIABILITIES................................................ (54,419)
------------
NET ASSETS -- 100.0% -- equivalent to $1.00 per share for 185,185,738
outstanding Capital Shares in the Trust, $.10 par value (unlimited number of
shares authorized) -- Note E................................................. $ 185,185,738
============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
<S> <C> <C>
INTEREST INCOME................................................................................ $10,656,251
EXPENSES -- NOTE B
Management fees............................................................................... $ 982,614
Custodian and transfer agent fees............................................................. 551,036
Printing...................................................................................... 103,144
Postage....................................................................................... 87,471
Registration and filing fees.................................................................. 33,647
Professional fees............................................................................. 24,760
Trustees' fees................................................................................ 24,000
Insurance expense............................................................................. 18,791
Miscellaneous................................................................................. 22,732 1,848,195
---------- -----------
INVESTMENT INCOME -- NET....................................................................... $ 8,808,056
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1997 1996
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS -- NOTE E
Operations:
Investment income -- net.................................................................... $ 8,808,056 $ 10,711,291
Distributions to shareholders from net
investment income........................................................................... (8,808,056) (10,711,291)
Capital share transactions -- net............................................................. (20,322,867) (41,877,279)
------------ ------------
Total decrease in net assets............................................................. (20,322,867) (41,877,279)
NET ASSETS
Beginning of year............................................................................. 205,508,605 247,385,884
------------ ------------
End of year................................................................................... $185,185,738 $205,508,605
============ ============
</TABLE>
+ At July 31, 1997, 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.
See Notes to Financial Statements.
4
<PAGE> 6
CARNEGIE GOVERNMENT SECURITIES TRUST
STATEMENT OF NET ASSETS
JULY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATE (1997) (NOTE A)
- ---------- ------------ -----------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES -- 80.1%
$2,000,000 Federal Home Loan Mortgage Corp., 5.36%........................................... 8/15 $ 1,995,831
2,000,000 Federal Home Loan Mortgage Corp., 5.36%........................................... 8/26 1,992,556
2,000,000 Federal National Mortgage Association, 5.40%...................................... 8/19 1,994,600
2,000,000 Federal National Mortgage Association, 5.38%...................................... 8/28 1,991,930
2,000,000 World Bank International Bank for Recon & Dev., 5.42%............................. 8/29 1,991,569
-----------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost $9,966,486)................................................................ 9,966,486
-----------
REPURCHASE AGREEMENTS -- 19.8%
2,465,000 Merrill Lynch Government Securities, Inc., 7.00%; Collateralized by $2,505,000
Federal Home Loan Mortgage Corp., 5.70% due 1/28/02 (repurchase proceeds
$2,465,390)...................................................................... 8/1 2,465,000
-----------
TOTAL INVESTMENTS -- 99.9%
(Cost $12,431,486)............................................................... 12,431,486
OTHER ASSETS LESS LIABILITIES .1%................................................. 8,923
-----------
NET ASSETS -- 100.0% -- equivalent to $1.00 per share for 12,440,409 outstanding
Capital Shares in the Trust, $.10 par value (unlimited number of shares
authorized) -- Note E............................................................ $12,440,409
===========
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
<S> <C> <C>
INTEREST INCOME................................................................................... $659,842
EXPENSES -- NOTE B
Management fees.................................................................................. $ 61,567
Custodian and transfer agent fees................................................................ 26,741
Registration and filing fees..................................................................... 15,145
Professional fees................................................................................ 9,958
Trustees' fees................................................................................... 8,000
Printing......................................................................................... 6,987
Postage.......................................................................................... 2,932
Insurance expense................................................................................ 1,396
Miscellaneous.................................................................................... 3,698 136,424
-------- --------
INVESTMENT INCOME -- NET.......................................................................... $523,418
========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS -- NOTE E
Operations:
Investment income -- net.................................................................... $ 523,418 $ 637,972
Distributions to shareholders from net
investment income........................................................................... (523,418) (637,972)
Capital share transactions -- net............................................................. (297,337) (1,687,130)
----------- -----------
Total decrease in net assets............................................................ (297,337) (1,687,130)
NET ASSETS
Beginning of year............................................................................. 12,737,746 14,424,876
----------- -----------
End of year................................................................................... $12,440,409 $12,737,746
=========== ===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 7
CARNEGIE TAX FREE INCOME TRUST
STATEMENT OF NET ASSETS+
JULY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT RATING* (NOTE A)
- ---------- -------- -----------
<S> <C> <C> <C>
MUNICIPAL SECURITIES -- 99.1%
ALABAMA -- 7.0%
$ 200,000 Alabama Special Care Facility Variable Rate Demand Revenue Bonds 3.65%, 8/16/97........ Aaa $ 200,000
1,000,000 Birmingham Baptist Medical Center Variable Rate Demand Revenue Bonds 3.70%, 8/6/97..... Aa3 1,000,000
200,000 Columbia Alabama Variable Rate Demand Industrial Development
Revenue Bonds 3.65%, 8/1/97............................................................ A2 200,000
ARIZONA -- 7.4%
1,000,000 Arizona Health Facilities Authority Variable Rate Demand Revenue Bonds 3.65%, 8/6/97... Aaa 1,000,000
500,000 Pima County Variable Rate Demand Industrial Development Revenue Bonds 3.65%, 8/6/97.... NR 500,000
DELAWARE -- 1.0%
200,000 Wilmington Hospital Franciscan Health System Variable Rate Demand Revenue Bonds 3.70%,
8/1/97................................................................................. Aa2 200,000
GEORGIA -- 4.0%
800,000 Burke County Pollution Control Variable Rate Demand Revenue Bonds 3.65%, 8/1/97........ A1 800,000
HAWAII -- 4.9%
1,000,000 Hawaii Housing Finance Variable Rate Demand Revenue Bonds 3.75%, 8/6/97................ A2 1,000,000
ILLINOIS -- 13.9%
1,000,000 Illinois Health Facilities SSM Health Care Variable Rate Demand Revenue Bonds 3.70%,
3.65% 8/6/97........................................................................... Aaa 900,000
800,000 Illinois Health Facilities Variable Rate Demand Revenue Bonds 3.70%, 8/6/97............ Aaa 900,000
1,000,000 Saint Charles Variable Rate Demand Industrial Development Revenue Bonds 3.70%,
8/6/97................................................................................. AA 1,000,000
KENTUCKY -- 5.5%
1,100,000 Appalachian Regional Health Care Development Finance Authority Variable Rate Demand
Revenue Bonds 3.70%, 8/6/97............................................................ Aa2 1,100,000
LOUISIANA -- 4.9%
1,000,000 Delhi Louisiana Industrial Development Variable Rate Demand Revenue Bonds 3.75%, 8/6/97 A1 1,000,000
MARYLAND -- 4.9%
1,000,000 Montgomery County Housing Variable Rate Demand Revenue Bonds 3.70%, 8/6/97............. Aa2 1,000,000
MASSACHUSETTS -- 4.9%
1,000,000 Massachusetts State Health and Educational Facility Authority Variable Rate Demand
Revenue Bonds 3.65%, 8/6/97............................................................ Aa3 1,000,000
MICHIGAN -- 4.9%
1,000,000 Michigan State Hospital Finance Authority Variable Rate Demand Revenue Bonds 3.70%,
8/6/97................................................................................. A1 1,000,000
NEW YORK -- 4.5%
900,000 New York State Medical Care Facilities Variable Rate Demand Revenue Bonds 3.55%,
8/6/97................................................................................. Aa2 900,000
OHIO -- 15.4%
1,000,840 Franklin County Bond Anticipation Notes 3.90%, 8/1/97.................................. MIG1 1,000,840
900,000 Hamilton County Health System Variable Rate Demand Revenue Bonds 3.75%, 8/1/97......... A1 900,000
200,000 Muskingum County Variable Rate Demand Industrial Development Revenue Bonds 3.80%,
9/1/97................................................................................. Aa2 200,000
1,000,000 Ohio State Environmental Improvement Variable Rate Demand Revenue Bonds 3.65%,
9/1/97................................................................................. A1 1,000,000
OREGON -- 3.5%
300,000 Port of Portland Pollution Control Variable Rate Demand Revenue Bonds 3.70%, 8/1/97.... Aa3 300,000
400,000 Umatilla County Hospital Facilities Variable Rate Demand Revenue Bonds 3.70%, 8/1/97... Aa2 400,000
TEXAS -- 6.4%
500,000 Bexar County Housing Finance Variable Rate Demand Revenue Bonds 3.80%, 8/6/97.......... Aaa 500,000
300,000 Lone Star Airport Improvement Authority Variable Rate Demand Revenue Bonds 3.70%,
8/1/97................................................................................. VMIG1 300,000
500,000 Lower Neches Valley Authority Variable Rate Demand Revenue Bonds 3.65%, 8/6/97......... Aa2 500,000
VIRGINIA -- 2.0%
400,000 Fairfax County Industrial Development Authority Variable Rate Demand Revenue Bonds
3.65%, 8/6/97.......................................................................... Aa2 400,000
WISCONSIN -- 4.0%
800,000 Wisconsin Health Facilities Variable Rate Demand Revenue Bonds 3.65%, 8/6/97........... Aaa 800,000
-----------
TOTAL INVESTMENTS -- 99.1% (Cost $20,000,840).......................................... 20,000,840
OTHER ASSETS LESS LIABILITIES -- .9%................................................... 187,923
-----------
NET ASSETS -- 100% -- equivalent to $1.00 per share for 20,188,763 outstanding Capital
Shares in the Trust, $.10 par value (unlimited number of shares authorized) -- Note
E...................................................................................... $20,188,763
===========
</TABLE>
+ 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, 1997 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.
See Notes to Financial Statements.
6
<PAGE> 8
CARNEGIE TAX FREE INCOME TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
<S> <C> <C>
INTEREST INCOME.................................................. $799,458
EXPENSES -- NOTE B
Management fees................................................ $111,775
Custodian and transfer agent fees.............................. 20,738
Registration and filing fees................................... 16,822
Professional fees.............................................. 12,075
Trustees' fees................................................. 8,000
Printing....................................................... 7,887
Postage........................................................ 2,920
Insurance expense.............................................. 2,602
Miscellaneous.................................................. 4,062 186,881
-------- --------
INVESTMENT INCOME -- NET......................................... $612,577
========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS -- NOTE E
Operations:
Investment income -- net..................................... $ 612,577 $ 718,521
Distributions to shareholders from net
investment income............................................ (612,577) (718,521)
Capital share transactions -- net.............................. (5,077,335) (2,349,807)
----------- -----------
Total decrease in net assets............................ (5,077,335) (2,349,807)
NET ASSETS
Beginning of year.............................................. 25,266,098 27,615,905
----------- -----------
End of year.................................................... 20,188,763 $25,266,098
=========== ===========
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 9
CARNEGIE TAX EXEMPT INCOME TRUST
OHIO GENERAL MUNICIPAL FUND
STATEMENT OF NET ASSETS -- JULY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT RATING* (NOTE A)
- --------- ---------- -----------
<S> <C> <C> <C>
MUNICIPAL BONDS -- 98.2%
$ 750,000 Columbus Citation Housing Corp. Revenue Bonds 7.63%, 1/1/2022........................ AA $ 914,248
400,000 Cuyahoga Cnty. University Hosp. Rev Refunding & Improvement 5.63%, 1/15/2026......... AAA 411,456
500,000 Cuyahoga Cnty. Meridia Hlth. Care Sys. Revenue Bonds 7.00%, 8/15/2006................ A 544,342
500,000 Dublin Ohio City Schl Dist. General Obligation Bonds 6.20%, 12/1/2019................ AAA 530,746
600,000 Franklin Cnty. Hosp. Revenue Refunding & Improvement Riverside 7.60%, 5/15/2020...... AAA 667,328
600,000 Franklin Cnty. Riverside Hosp. Revenue Bonds 7.25%, 5/15/2020........................ AAA 661,840
800,000 Hamilton Cnty. General Obligation Bonds 5.10%, 12/1/2013 - 12/1/2014................. NR 803,990
850,000 Hamilton Cnty. Bethesda Hosp. Revenue Bonds 7.00%, 1/1/2009.......................... A 864,632
450,000 Mahoning Cnty. Sanitary Sewer Sys. Revenue Bonds 7.50%, 2/1/2009..................... AAA 486,188
500,000 Mahoning Cnty. Western Reserve Care Sys. Revenue Bonds 5.38%, 10/15/2015............. AAA 510,198
500,000 Ohio Capital Corp. Housing Revenue Bonds 7.60%, 11/1/2023............................ AAA 528,434
411,000 Ohio Housing Finance Agency Revenue Bonds 7.05% -7.40%, 9/1/2015 - 9/1/2016.......... AAA 432,118
120,000 Ohio State Higher Ed. Oberlin College Revenue Bonds 7.10%, 10/1/2012................. NR 130,103
500,000 Ohio State Water Development Authority Revenue Bonds 5.50%, 12/1/2018................ AAA 508,705
250,000 Parma Community Hospital Revenue Bonds 7.13%, 11/15/2013............................. AAA 262,617
500,000 Richland Cnty. General Obligation Bonds 5.40%, 12/1/2015............................. AAA 513,918
150,000 Rural Lorain Water Authority Revenue Bonds 5.45% 10/1/2018........................... AAA 151,960
500,000 Stark Cnty. General Obligation Bonds 5.70%, 11/15/2017............................... AAA 519,004
145,000 University Heights B General Obligation Bonds 6.20%, 12/1/2014....................... NR 155,388
500,000 Washington Water Sys. Revenue Bonds 5.38%, 12/1/2019................................. AAA 505,090
-----------
TOTAL MUNICIPAL BONDS -- (COST $9,543,192)........................................... 10,102,305
-----------
TOTAL INVESTMENTS -- 98.2% (COST $9,543,192)......................................... 10,102,305
OTHER ASSETS LESS LIABILITIES -- 1.8%................................................ 180,900
-----------
NET ASSETS -- 100%................................................................... $10,283,205
============
NET ASSET VALUE PER SHARE............................................................ $ 9.66
============
SHARES OUTSTANDING (unlimited number of shares authorized; $.10 par value) --
NOTE C............................................................................... 1,065,017
============
MAXIMUM OFFERING PRICE PER SHARE (net asset value plus 4.71% of net amount invested
or 4.5% of the offering price)....................................................... $ 10.11
============
NET ASSETS, AS OF JULY 31, 1997, ARE COMPRISED OF THE FOLLOWING:
Aggregate paid in capital............................................................ $10,045,914
Accumulated undistributed net realized losses........................................ (321,822)
Unrealized appreciation of investments -- net........................................ 559,113
-----------
$10,283,205
============
* All ratings are stated as of July 31, 1997 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.
8
<PAGE> 10
CARNEGIE TAX EXEMPT INCOME TRUST
OHIO GENERAL MUNICIPAL FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
<S> <C>
INTEREST INCOME................................................................................. $ 645,366
--------
EXPENSES -- NOTE B
Management fees................................................................................. 53,238
Pricing service fees............................................................................ 11,671
Trustees' fees.................................................................................. 8,000
Custodian and transfer agent fees............................................................... 6,777
Printing and postage............................................................................ 6,671
Professional fees............................................................................... 6,041
Insurance expense............................................................................... 1,364
Miscellaneous................................................................................... 7,092
--------
Total expenses.............................................................................. 100,854
--------
INVESTMENT INCOME -- NET........................................................................ 544,512
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET
Realized gain on investments.................................................................... 66,008
Change in unrealized appreciation of investments................................................ 202,087
--------
Net gain on investments......................................................................... 268,095
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS...................................................... 812,607
========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income........................................................ $ 544,512 $ 636,768
Realized gain on investments -- net.......................................... 66,008 13,258
Change in unrealized appreciation of investments -- net...................... 202,087 (96,894)
----------- -----------
Net increase in net assets from operations................................... 812,607 553,132
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME -- NOTE A........... (544,512) (636,768)
CAPITAL SHARE TRANSACTIONS -- NOTE C
Shares sold.................................................................. 631,315 2,185,962
Shares issued on reinvestment of distributions............................... 369,749 428,112
----------- -----------
1,001,064 2,614,074
Shares redeemed.............................................................. (2,641,942) (2,322,971)
----------- -----------
Net increase/(decrease) from capital shares transactions..................... (1,640,878) 291,103
----------- -----------
Total increase/(decrease) in net assets............................. (1,372,783) 207,467
NET ASSETS
Beginning of year............................................................ 11,655,988 11,448,521
----------- -----------
End of year.................................................................. $10,283,205 $11,655,988
=========== ===========
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 11
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,
1997.
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, 1997, Ohio General has capital loss carryovers for
federal income tax purposes of $321,822. 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, 1997, 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.
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, 1997, LCI had $81,921 payable to CCMC for
management fees, and for the year then ended CCMC earned management fees of
$982,614.
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, 1997, CGST had $5,234 payable to CCMC for management fees,
and for the year then ended CCMC earned management fees of $61,567.
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, 1997, CTF had $8,637
payable to CCMC for management fees, and for the year then ended CCMC earned
management fees of $111,775.
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, 1997,
Ohio General had $4,377 payable to CCMC for management fees, and for the year
then ended CCMC earned management fees of $53,238.
10
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
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 $31,918
for the year ended July 31, 1997 were waived for the Ohio General Municipal
Fund.
For the year ended July 31, 1997, CFD received sales charges paid by the
purchasers of Ohio General's shares of $8,265. 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.
NOTE C -- CAPITAL SHARES
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
---------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
LCI
Shares sold............................................................. 386,866,751 523,164,749
Shares issued on reinvestment of distributions.......................... 8,808,056 10,711,291
-------------- --------------
395,674,807 533,876,040
Shares redeemed......................................................... (415,997,674) (575,753,319)
-------------- --------------
Net decrease in capital shares.......................................... (20,322,867) (41,877,279)
============== ==============
CGST
Shares sold............................................................. 15,408,580 46,242,801
Shares issued on reinvestment of distributions.......................... 523,418 637,972
-------------- --------------
15,931,998 46,880,773
Shares redeemed......................................................... (16,229,335) (48,567,903)
-------------- --------------
Net decrease in capital shares.......................................... (297,337) (1,687,130)
============== ==============
CTF
Shares sold............................................................. 35,113,852 53,251,073
Shares issued on reinvestment of distributions.......................... 612,577 718,521
-------------- --------------
35,726,429 53,969,594
Shares redeemed......................................................... (40,803,764) (56,319,401)
-------------- --------------
Net decrease in capital shares.......................................... (5,077,335) (2,349,807)
============== ==============
Ohio General
Shares sold............................................................. 66,452 226,209
Shares issued on reinvestment of distributions from net
investment income..................................................... 39,040 47,504
-------------- --------------
105,492 273,713
Shares redeemed.......................................................... (278,926) (245,855)
-------------- --------------
Net increase/(decrease) in capital shares................................ (173,434) 27,858
============== ==============
</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, 1997 amounted to
$400,000 and $1,760,534 respectively.
For Federal income tax purposes, the identified cost of securities owned on
July 31, 1997 was $9,543,192. Aggregate unrealized appreciation on the cost
basis of investments was $559,113 and aggregate unrealized depreciation was
zero. Net realized appreciation at July 31, 1997 was $599,113.
NOTE E -- NET ASSETS
Net Assets, as of July 31, 1997, are comprised of the following:
<TABLE>
<CAPTION>
LCI CGST CTF
------------ ----------- -----------
<S> <C> <C> <C>
Capital shares, at par................................................... $ 18,518,574 $ 1,244,041 $ 2,018,876
Capital shares in excess of par.......................................... 166,667,164 11,196,368 18,169,887
------------ ----------- -----------
Net Assets........................................................ $185,185,738 $12,440,409 $20,188,763
============ =========== ===========
</TABLE>
11
