<PAGE> 1
ANNUAL MESSAGE FROM THE PRESIDENT:
Dear Fellow Shareholders:
Once again we have seen an incredible year which had positive returns for
investors in short, intermediate, and long-term fixed-income investments as well
as equities. The only area that seemed to be negatively impacted in general was
Southeast Asia and specifically, Japan, Indonesia, Malaysia and other smaller
Asian countries.
It would appear once again that our domestic economy remains in a very strong
position with growth continuing, although not at a record pace, and inflation
being kept well under control. Although wage rates appear to be increasing at a
rate faster than that of inflation, it would seem very difficult at this point
in time for the Federal Reserve Board to arbitrarily raise interest rates in
light of international concerns.
We continue to believe that the balance of the 1990's will represent
opportunities for investors in fixed income securities as well as equities and,
greatly appreciate the trust you continue to show in the Carnegie Funds Group
and our philosophy of high quality fixed-income investments.
Thank you for your continued support as shareholders of the Carnegie Funds
Group.
Sincerely,
/s/ 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, 1998, 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, 1998, 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, 1998, 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 21, 1998 /s/ KPMG Peat Marwick LLP
Cleveland, Ohio
1
<PAGE> 2
LIQUID CAPITAL INCOME TRUST -- FINANCIAL HIGHLIGHTS
Data for each share outstanding throughout the period
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<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 0.045 0.047 0.047 0.026
------------ ------------ ------------ ------------ ------------
Total from Investment
Operations.................. 0.047 0.045 0.047 0.047 0.026
LESS DISTRIBUTIONS:
Distributions from Net
Investment Income........... (0.047) (0.045) (0.047) (0.047) (0.026)
------------ ------------ ------------ ------------ ------------
Total Distributions........... (0.047) (0.045) (0.047) (0.047) (0.026)
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)................... 0.88% 0.94% 0.90% 0.87% 0.88%
Net investment income as a
percentage of average daily
net assets(1)............... 4.71% 4.48% 4.69% 4.72% 2.62%
Net Assets at end of period.... $164,475,955 $185,185,738 $205,508,605 $247,385,884 $289,950,268
============ ============ ============ ============ ============
</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,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<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 0.042 0.045 0.044 0.024
----------- ----------- ----------- ----------- -----------
Total from Investment
Operations..................... 0.045 0.042 0.045 0.044 0.024
LESS DISTRIBUTIONS:
Distributions from Net Investment
Income......................... (0.045) (0.042) (0.045) (0.044) (0.024)
----------- ----------- ----------- ----------- -----------
Total Distributions.............. (0.045) (0.042) (0.045) (0.044) (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).... 0.98% 1.11% 1.03% 1.06% 0.98%
Net investment income as a
percentage of average daily net
assets(1)...................... 4.51% 4.25% 4.50% 4.38% 2.37%
Net Assets at end of period....... $14,534,252 $12,440,409 $12,737,746 $14,424,876 $18,078,719
=========== =========== =========== =========== ===========
</TABLE>
(1) The percentages should not be construed as representative of the yield or
expenses related to further investments in the Trust.
2
<PAGE> 3
CARNEGIE TAX FREE INCOME TRUST -- FINANCIAL HIGHLIGHTS
Data for each share outstanding throughout the period
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<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............... 0.028 0.027 0.029 0.029 0.018
----------- ----------- ----------- ----------- -----------
Total from Investment Operations.... 0.028 0.027 0.029 0.029 0.018
LESS DISTRIBUTIONS:
Distributions from Net Investment
Income............................ (0.028) (0.027) (0.029) (0.029) (0.018)
----------- ----------- ----------- ----------- -----------
Total Distributions................. (0.028) (0.027) (0.029) (0.029) (0.018)
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% 0.84% 0.80% 0.82% 0.77%
Net investment income as a
percentage of average daily net
assets(1)......................... 2.78% 2.74% 2.92% 2.86% 1.77%
Net Assets at end of period.......... $21,805,702 $20,188,763 $25,266,098 $27,615,905 $31,640,760
=========== =========== =========== =========== ===========
</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,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $9.66 $9.41 $9.46 $9.50 $9.87
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.477 0.484 0.514 0.556 0.549
Net realized and unrealized
gains/(losses) on securities...... (0.019) 0.250 (0.050) (0.040) (0.370)
----------- ----------- ----------- ----------- -----------
Total from investment operations.... 0.458 0.734 0.464 0.516 0.179
LESS DISTRIBUTIONS:
Distributions from net investment
income............................ (0.477) (0.484) (0.514) (0.556) (0.549)
----------- ----------- ----------- ----------- -----------
Total distributions................. (0.477) (0.484) (0.514) (0.556) (0.549)
Net Asset Value, End of Period....... $9.64 $9.66 $9.41 $9.46 $9.50
=========== =========== =========== =========== ===========
ANNUAL TOTAL RETURN.................. 4.84% 9.41% 4.98% 5.50% 1.82%
=========== =========== =========== =========== ===========
RATIOS/SUPPLEMENTAL INFORMATION
Net assets at end of period......... $9,220,496 $10,283,205 $11,655,988 $11,448,521 $12,574,835
Expenses as a percentage of average
daily net assets(1)(2)............ 1.00% 0.95% 0.88% 0.97% 0.93%
Net investment income as a
percentage of average daily net
assets(1)......................... 4.96% 5.12% 5.41% 5.95% 5.68%
Portfolio Turnover rate............. 5.36% 3.88% 23.45% 8.77% 10.04%
</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 $.448, $.455, $.483, $.528, and $.520 for the years ended July 31,
1998, 1997, 1996, 1995, and 1994, 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 1.30%, 1.25%, 1.18%,
1.27%, and 1.23%, for the same periods, respectively.
3
<PAGE> 4
LIQUID CAPITAL INCOME TRUST
STATEMENT OF NET ASSETS
JULY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MATURITY DATES VALUE
AMOUNT (1998) (NOTE A)
--------- -------------- --------
<C> <S> <C> <C>
COMMERCIAL PAPER -- 44.7%
$ 5,000,000 Abbott Laboratories, 5.48%.................................. 8/13 $ 4,992,389
5,000,000 American Express Company, 5,50%............................. 8/5 4,998,472
3,525,000 Associates First Capital Corp., 6.00%....................... 3/15/99 3,536,104
5,000,000 BankAmerica Corp., 5.51%.................................... 8/12 4,993,113
5,000,000 Bank One Corp., 5.52%....................................... 8/26 4,982,367
5,000,000 Coca-Cola Company, 5.47%.................................... 8/17 4,989,364
5,000,000 Ford Motor Credit Company, 5.52%............................ 8/7 4,996,933
5,000,000 General Electric Company, 5.48%............................. 8/10 4,994,672
5,000,000 Guardian Industries Corp., 5.53%............................ 9/11 4,970,046
5,000,000 International Lease Finance Corp., 5.49%.................... 8/24 4,983,988
5,000,000 Lucent Technologies Inc., 5.48% 8/27 4,981,733
5,000,000 Merrill Lynch & Company, 5.52% 8/25 4,983,133
5,000,000 National City Corp., 5.51% 9/4 4,975,511
5,000,000 National Rural Utilities Cooperative Finance Corp., 5.51% 9/2 4,977,042
5,000,000 Walt Disney Company, 5.44% 9/15 4,967,511
-------------
TOTAL COMMERCIAL PAPER (Cost $73,322,378)................... 73,322,378
-------------
U.S. GOVERNMENT INTEREST BEARING AND AGENCIES -- 42.6%
5,000,000 Federal Farm Credit Bank, 5.53%............................. 10/1 5,000,000
4,000,000 Federal Home Loan Bank, 5.63%............................... 3/2/99 4,000,000
16,000,000 Federal Home Loan Bank, 5.60%............................... 3/5/99 16,000,000
5,000,000 Federal Home Loan Mortgage Corp., 5.44%..................... 8/7 4,996,978
5,000,000 Federal Home Loan Mortgage Corp., 5.42%..................... 8/13 4,992,472
5,000,000 Federal Home Loan Mortgage Corp., 5.46% 8/20 4,987,108
5,000,000 Federal Home Loan Mortgage Corp., 5.45%..................... 8/21 4,986,375
5,000,000 Federal Home Loan Mortgage Corp., 5.45%..................... 8/28 4,981,076
5,000,000 Federal Home Loan Mortgage Corp., 5.45%..................... 9/18 4,965,181
5,000,000 Federal National Mortgage Association, 5.44%................ 8/14 4,991,689
5,000,000 Federal National Mortgage Association, 5.43%................ 8/21 4,986,425
5,000,000 Federal National Mortgage Association, 5.46%................ 9/18 4,984,075
-------------
TOTAL U.S. GOVERNMENT INTEREST BEARING AND AGENCIES
(Cost 69,871,379)........................................... 69,871,379
-------------
REPURCHASE AGREEMENTS -- 12.6%
20,729,000 Merrill Lynch Government Securities, Inc., 5.63%;
Collateralized by $21,145,000 Federal Home Loan Bank, 5.66%
due 7/30/99 (repurchase proceeds $20,738,725)............... 8/3 20,729,000
-------------
TOTAL INVESTMENTS -- 99.9% (COST $163,922,757).............. 163,922,757
OTHER ASSETS LESS LIABILITIES-.1............................ 553,198
-------------
NET ASSETS -- 100.0% -- equivalent to $1.00 per share for
164,475,955 outstanding Capital Shares in the Trust, $.10
par value (unlimited number of shares authorized) --
Note E........................................................... $ 164,475,955
=============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1998
<TABLE>
<S> <C> <C>
INTEREST INCOME.................................................... $12,128,269
EXPENSES -- NOTE B
Management fees................................................... $1,091,375
Custodian and transfer agent fees................................. 510,975
Printing.......................................................... 89,149
Postage........................................................... 76,701
Registration and filing fees...................................... 47,296
Professional fees................................................. 40,087
Trustees' fees.................................................... 24,000
Insurance expense................................................. 17,206
Miscellaneous..................................................... 15,072 1,911,861
---------- -----------
INVESTMENT INCOME -- NET........................................... $10,216,408
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------
1998 1997
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS -- NOTE E
Operations:
Investment income -- net........................................ $ 10,216,408 $ 8,808,056
Distributions to shareholders from net
investment income............................................... (10,216,408) (8,808,056)
Capital share transactions -- net................................. (20,709,783) (20,322,867)
------------ ------------
Total decrease in net assets................................. (20,709,783) (20,322,867)
NET ASSETS
Beginning of year................................................. 185,185,738 205,508,605
------------ ------------
End of year....................................................... $164,475,955 $185,185,738
============ ============
</TABLE>
+ At July 31, 1998, 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> 5
CARNEGIE GOVERNMENT SECURITIES TRUST
STATEMENT OF NET ASSETS
JULY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATES (1998) (NOTE A)
- - - - --------- ------------ --------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCIES -- 82.3%
$1,000.000 Federal Home Loan Mortgage Corp., 5.44%..................... 8/7 $ 999,396
1,000,000 Federal Home Loan Mortgage Corp., 5.44%..................... 8/7 999,396
1,000,000 Federal Home Loan Mortgage Corp., 5.45%..................... 8/17 997,880
1,000,000 Federal Home Loan Mortgage Corp., 5.46%..................... 8/20 997,422
1,000,000 Federal Home Loan Mortgage Corp., 5.45%..................... 8/21 997,275
1,000,000 Federal Home Loan Mortgage Corp., 5.44%..................... 8/28 996,222
1,000,000 Federal Home Loan Mortgage Corp., 5.40%..................... 9/3 995,350
1,000,000 Federal Home Loan Mortgage Corp., 5.42%..................... 9/4 995,182
1,000,000 Federal Home Loan Mortgage Corp., 5.45%..................... 9/30 991,219
1,000,000 Federal National Mortgage Association, 5.43%................ 8/4 999,849
1,000,000 Federal National Mortgage Association, 5.44%................ 8/14 998,338
1,000,000 Federal National Mortgage Association, 5.46%................ 8/24 996,815
-----------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost $11,963,344).......................................... 11,964,344
===========
</TABLE>
<TABLE>
<S> <C> <C> <C>
REPURCHASE AGREEMENTS -- 17.7%
2,580,000 Merrill Lynch Government Securities, Inc., 5.63%;
Collateralized by $2,640,000 Federal Home Loan Mortgage
Corp., 6.59% due 7/23/08 (repurchase proceeds
$2,581,210)................................................ 8/3 2,580,000
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $14,544,344)......................................... 14,544,344
OTHER ASSETS LESS LIABILITIES............................... (10,092)
-----------
NET ASSETS -- 100.0% -- equivalent to $1.00 per share for
14,534,252 outstanding Capital Shares in the Trust, $.10
par value (unlimited number of shares authorized) -- Note
E.......................................................... $14,534,252
===========
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1998
<TABLE>
<S> <C> <C>
INTEREST INCOME............................................. $800,138
EXPENSES -- NOTE B
Management fees............................................ $ 72,460
Custodian and transfer agent fees.......................... 25,321
Registration and filing fees............................... 11,925
Professional fees.......................................... 11,265
Trustees' fees............................................. 8,000
Printing................................................... 6,873
Postage.................................................... 2,769
Insurance expense.......................................... 1,450
Miscellaneous.............................................. 2,909 142,972
-------- --------
INVESTMENT INCOME -- NET.................................... $657,166
========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS -- NOTE E
Operations:
Investment income -- net................................. $ 657,166 $ 523,418
Distributions to shareholders from net
investment income........................................ (657,166) (523,418)
Capital share transactions -- net.......................... 2,093,843 (297,337)
----------- -----------
Total increase in net assets......................... 2,093,843 (297,337)
NET ASSETS
Beginning of year.......................................... 12,440,409 12,737,746
----------- -----------
End of year................................................ $14,534,252 $12,440,409
=========== ===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 6
CARNEGIE TAX FREE INCOME TRUST
STATEMENT OF NET ASSETS+
JULY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT RATING* (NOTE A)
- - - - --------- ------- --------
<C> <S> <C> <C>
MUNICIPAL SECURITIES -- 99.6%
ALABAMA -- 4.6%
$ 200,000 Alabama Special Care Facility Variable Rate Demand Revenue
Bonds 3.50%, 8/5/98......................................... Aaa $ 200,000
500,000 Columbia Industrial Development Board Pollution Control
Variable Rate Demand Revenue Bonds 3.70%, 8/3/98............ A2 500,000
300,000 North Alabama Environmental Improvement Authority Variable
Rate Demand Revenue Bonds 3.75%, 8/3/98..................... Aa3 300,000
ARIZONA -- 5.0%
600,000 Arizona Health Facilities Authority Variable Rate Demand
Revenue Bonds 3.65%, 8/5/98................................. Aaa 600,000
500,000 Pima County Variable Rate Demand Industrial Development
Revenue Bonds 3.60%, 8/5/98................................. NR 500,000
CALIFORNIA -- 4.1%
200,000 California Health Facilities Financing Authority Variable
Rate Demand Revenue Bonds 3.20%, 8/5/98..................... Aaa 200,000
600,000 Palm Springs Community Redevelopment Agency Variable Rate
Demand Revenue Bonds 3.375%, 8/5/98......................... AA- 600,000
100,000 Los Angeles Regional Airports Improvement Corporation
Variable Rate Demand Revenue Bonds 3.75%, 8/3/98............ Aa2 100,000
DELAWARE -- 2.3%
500,000 Delaware State Economic Development Authority Demand Revenue
Bonds 3.70%, 8/5/98......................................... A2 500,000
FLORIDA -- .5%
100,000 Florida Housing Finance Agency Variable Rate Demand Revenue
Bonds 3.55%, 8/5/98......................................... AA 100,000
GEORGIA -- 4.1%
900,000 Burke County Pollution Control Variable Rate Demand Revenue
Bonds 3.70%, 8/3/98......................................... A1 900,000
HAWAII -- 2.3%
500,000 Hawaii Housing Financial and Development Corporation
Variable Rate Demand Revenues Bonds 3.55%, 8/5/98........... Aa3 500,000
ILLINOIS -- .9%
200,000 Chicago O'Hare International Airport Variable Rate Demand
Revenue Bonds 3.50%, 8/5/98................................. Aa3 200,000
LOUISIANA -- 5.5%
1,000,000 Delhi Louisiana Industrial Development Variable Rate Demand
Revenue Bonds 3.70%, 8/5/98 A1 1,000,000
200,000 Lake Charles Louisiana Harbor and Terminal District Variable
Rate Demand Revenue Bonds 3.50%, 8/5/98..................... AA- 200,000
MARYLAND -- 4.6%
1,000,000 Montgomery County Housing Variable Rate Demand Revenue Bonds
3.55%, 8/5/98............................................... Aa2 1,000,000
MICHIGAN -- 5.0%
300,000 Cornell Michigan Economic Development Corporation Variable
Rate Demand Revenue Bonds 3.65%, 8/3/98..................... AA+ 300,000
800,000 Michigan State Hospital Finance Authority Variable Rate
Demand Revenue Bonds 3.55%, 8/5/98.......................... A1 800,000
NEW YORK -- 2.3%
100,000 New York State Energy Research Variable Rate Demand Revenue
Bonds 3.65%, 8/3/98......................................... Aaa 100,000
400,000 New York State Medical Care Facilities Variable Rate Demand
Revenue Bonds 3.43%, 8/5/98................................. Aa2 400,000
NORTH DAKOTA -- 2.3%
500,000 Grand Forks North Dakota Hospital Facilities Variable Rate
Demand Revenue Bonds 3.75%, 8/5/98.......................... Aa3 500,000
OHIO -- 11.9%
600,000 Hamilton County Health System Variable Rate Demand Revenue
Bonds 3.50%, 8/5/98......................................... Aa2 600,000
1,000,000 Ohio State Environmental Improvement Variable Rate Demand
Revenue Bonds 3.70%, 8/5/98................................. A1 1,000,000
1,000,000 Ohio State Water Development Authority Variable Rate Demand
Revenue Bonds 3.65%, 8/3/98................................. AA- 1,000,000
OKLAHOMA -- 1.8%
400,000 Garfield County Oklahoma Pollution Control Variable Rate
Demand Revenue Bonds 3.55%, 8/5/98.......................... Aa3 400,000
OREGON -- 1.4%
300,000 Port of Portland Pollution Control Variable Rate Demand
Revenue Bonds 3.75%, 8/3/98................................. Aa3 300,000
PENNSYLVANIA -- 11.0%
1,000,000 Allegheny County Pennsylvania Hospital Development Authority
Variable Rate Demand Revenue Bonds 3.60%, 8/5/98............ Aaa 1,000,000
100,000 Delaware County Variable Rate Industrial Development Demand
Revenue Bonds 3.65%, 8/3/98................................. Aaa 100,000
300,000 New Castle Pennsylvania Hospital Authority Variable Rate
Demand Revenue Bonds 3.60%, 8/5/98.......................... Aaa 300,000
1,000,000 Pennsylvania State Higher Educational Facilities Authority
Variable Rate Demand Revenue Bonds 3.60%, 8/5/98............ Aa3 1,000,000
TEXAS -- 16.1%
500,000 Bexar County Housing Finance Variable Rate Demand Revenue
Bonds 3.55%, 8/5/98......................................... AA+ 500,000
400,000 Grapevine Texas Industrial Development Corporation Variable
Rate Demand Revenue Bonds 3.75%, 8/3/98..................... Aa2 400,000
500,000 Harris County Texas Health Facilities Variable Rate Demand
Revenue Bonds 3.75%, 8/3/98................................. AA 500,000
1,000,000 Harris County Texas Flood Control General Obligation Bonds
7.00%, 10/1/98.............................................. Aa2 1,015,994
600,000 Lone Star Texas Airport Variable Rate Demand Revenue Bonds
3.75%, 8/3/98............................................... VMIG1 600,000
500,000 Lower Neches Valley Authority Variable Rate Demand Revenue
Bonds 3.50%, 8/5/98......................................... Aa2 500,000
VIRGINIA -- 1.4%
300,000 Fairfax County Industrial Development Authority Variable
Rate Demand Revenue Bonds 3.50%, 8/5/98..................... Aa2 300,000
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT RATING* (NOTE A)
- - - - --------- ------- --------
<S> <C> <C> <C>
MUNICIPAL SECURITIES -- CONTINUED
WASHINGTON --9.6%
$ 500,000 Port of Seattle Washington Variable Rate Demand General Obligation Bonds,
3.50%, 8/5/98.................................................................. Aa1 $ 500,000
600,000 Seattle Washington Municipal Light and Power Variable Rate Demand Revenue Bonds
3.50%, 8/5/98.................................................................. Aa2 600,000
1,000,000 Yakima County Washington Bond Anticipation Notes 4.125%, 9/1/98................ MIG1 1,002,420
WISCONSIN -- 2.8%
600,000 Wisconsin Health Facilities Variable Rate Demand Revenue Bonds 3.55%, 8/5/98... Aaa 600,000
----------
TOTAL INVESTMENTS -- 99.6% (Cost $21,718,414).................................. 21,718,414
OTHER ASSETS LESS LIABILITIES -- .4%........................................... 87,288
----------
NET ASSETS -- 100% -- equivalent to $1.00 per share for 21,780,058 outstanding
Capital Shares in the Trust, $.10 par value (unlimited number of shares
authorized) -- Note E.......................................................... $21,805,702
==========
</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, 1998 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. These ratings were not audited by our independent auditors
KPMG Peat Marwick.
See Notes to Financial Statements.
CARNEGIE TAX FREE INCOME TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1998
<TABLE>
<S> <C> <C>
INTEREST INCOME............................................................... $755,228
EXPENSES -- NOTE B
Management fees.............................................................. $103,404
Custodian and transfer agent fees............................................ 20,710
Registration and filing fees................................................. 16,979
Professional fees............................................................ 14,591
Printing..................................................................... 11,824
Trustees' fees............................................................... 8,000
Postage...................................................................... 3,412
Insurance expense............................................................ 2,326
Miscellaneous................................................................ 3,485 184,731
-------- --------
INVESTMENT INCOME -- NET...................................................... $570,497
========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS -- NOTE E
Operations:
Investment income -- net................................................... $ 570,497 $ 612,577
Distributions to shareholders from net
investment income.......................................................... (570,497) (612,577)
Capital share transactions -- net............................................ 1,616,939 (5,077,335)
----------- -----------
Total increase in net assets........................................... 1,616,939 (5,077,335)
NET ASSETS
Beginning of year............................................................ $20,188,763 25,266,098
----------- -----------
End of year.................................................................. 21,805,702 20,188,763
=========== ===========
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 8
CARNEGIE TAX EXEMPT INCOME TRUST
OHIO GENERAL MUNICIPAL FUND
STATEMENT OF NET ASSETS -- JULY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT RATING (NOTE A)
- - - - --------- ------ -----------
<C> <S> <C> <C>
MUNICIPAL BONDS -- 98.1%
$750,000 Columbus Citation Housing Corp. Revenue Bonds 7.63%,
1/1/2022.................................................... AA $ 923,186
400,000 Cuyahoga Cnty. University Hosp. Rev Refunding & Improvement
5.63%, 1/15/2026............................................ AAA 413,617
500,000 Cuyahoga Cnty. Meridia Hlth. Care Sys. Rev. Bonds 7.00%,
8/15/2006................................................... A 551,832
500,000 Dublin Ohio City Schl Dist. General Obligation Bonds 6.20%,
12/1/2002................................................... AAA 550,284
600,000 Franklin Cnty. Hosp. Rev. Refunding & Improvement Riverside
7.60%, 5/15/2020............................................ AAA 649,257
200,000 Franklin Cnty. Riverside Hosp. Rev. Bonds 7.25%,
5/15/2020................................................... AAA 215,221
200,000 Hamilton Cnty. General Obligation Bonds 5.10%, 12/1/2013.... NR 202,426
850,000 Hamilton Cnty. Bethesda Hosp. Rev. Bonds 7.00%, 1/1/2009.... A 857,577
450,000 Mahoning Cnty. Sanitary Sewer Sys. Rev. Bonds 7.50%,
2/1/2009.................................................... AAA 478,740
500,000 Mahoning Cnty. Western Reserve Care Sys. Rev. Bonds 5.38%,
10/15/2015.................................................. AAA 508,976
145,000 Ohio Capital Corp. Housing Revenue Bonds 7.60%, 11/1/2023... AAA 152,389
500,000 Ohio Housing Finance Agency Mtg. Rev. Bonds 5.40%,
9/1/2029.................................................... AAA 499,227
271,000 Ohio Housing Finance Agency Rev. Bonds 7.05% 9/1/2016....... AAA 285,200
120,000 Ohio State Higher Ed. Oberlin College Rev. Bonds 7.10%,
10/1/2012................................................... NR 127,050
500,000 Ohio State Water Dev. Auth. Ref. & Impt. Rev. Bonds 5.50%,
12/1/2018................................................... AAA 513,119
250,000 Parma Community Hospital Rev. Bonds 7.13%, 11/15/2013....... AAA 256,860
500,000 Richland Cnty. General Obligation Bonds 5.40%, 12/1/2015.... AAA 516,242
150,000 Rural Lorain Water Auth. Ref. & Impt. Rev. Rev. Bonds 5.45%
10/1/2018................................................... AAA 154,013
500,000 Stark Cnty. General Obligation Bonds 5.70%, 11/15/2017...... AAA 519,880
145,000 University Heights B General Obligation Bonds 6.20%,
12/1/2014................................................... NR 157,207
500,000 Washington Water Sys. Rev. Bonds 5.38%, 12/1/2019........... AAA 508,544
-----------
TOTAL MUNICIPAL BONDS -- (COST $8,551,460).................. 9,040,847
-----------
TOTAL INVESTMENTS -- 98.1% (COST $8,551,460)................ 9,040,847
OTHER ASSETS LESS LIABILITIES -- 1.9%....................... 179,649
-----------
NET ASSETS -- 100%.......................................... $ 9,220,496
===========
NET ASSET VALUE PER SHARE................................... $ 9.64
===========
SHARES OUTSTANDING (unlimited number of shares authorized;
$.10 par value) --
NOTE C...................................................... 956,516
===========
MAXIMUM OFFERING PRICE PER SHARE (net asset value plus 4.71%
of net amount invested or 4.5% of the offering price)....... $ 10.09
===========
NET ASSETS, AS OF JULY 31, 1998, ARE COMPRISED OF THE
FOLLOWING:
Aggregate paid in capital................................... $ 9,260,616
Accumulated undistributed net realized losses............... (532,132)
Unrealized appreciation of investments -- net............... 492,012
-----------
$ 9,220,496
===========
</TABLE>
* All ratings are stated as of July 31, 1998 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. These ratings were not audited by our independent auditors
KPMG Peat Marwick.
See Notes to Financial Statements.
8
<PAGE> 9
CARNEGIE TAX EXEMPT INCOME TRUST
OHIO GENERAL MUNICIPAL FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1998
<TABLE>
<S> <C>
INTEREST INCOME............................................. $565,506
--------
EXPENSES -- NOTE B
Management fees............................................. 47,508
Professional fees........................................... 9,415
Printing and postage........................................ 9,151
Pricing service fees........................................ 8,494
Trustees' fees.............................................. 8,000
Custodian and transfer agent fees........................... 7,270
Insurance expense........................................... 1,202
Miscellaneous............................................... 3,619
--------
Total expenses.......................................... 94,659
--------
INVESTMENT INCOME -- NET.................................... 470,847
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET
Realized gain on investments................................ 47,896
Change in unrealized appreciation of investments............ (67,102)
--------
Net loss on investments..................................... (19,206)
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. 451,641
========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income....................................... $ 470,847 $ 544,512
Realized gain on investments -- net......................... 47,896 66,008
Change in unrealized appreciation of investments -- net..... (67,102) 202,087
----------- -----------
Net increase in net assets from operations.................. 451,641 812,607
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME --
NOTE A.................................................... (470,847) (544,512)
CAPITAL SHARE TRANSACTIONS -- NOTE C
Shares sold................................................. 616,998 631,315
Shares issued on reinvestment of distributions.............. 319,004 369,749
----------- -----------
936,002 1,001,064
Shares redeemed............................................. (1,979,505) (2,641,942)
----------- -----------
Net increase/(decrease) from capital shares transactions.... (1,043,503) (1,640,878)
----------- -----------
Total increase/(decrease) in net assets............ (1,062,709) (1,372,783)
NET ASSETS
Beginning of year........................................... 10,283,205 11,655,988
----------- -----------
End of year................................................. $ 9,220,496 $10,283,205
=========== ===========
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 10
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,
1998.
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, 1998, Ohio General has capital loss carryovers for
federal income tax purposes of $273,926. 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, 1998, 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. At July 31, 1998, LCI had $76,281 payable to CCMC for management fees,
and for the year then ended CCMC earned management fees of $1,091,375.
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. At July
31, 1998, CGST had $6,586 payable to CCMC for management fees, and for the year
then ended CCMC earned management fees of $72,460.
CTF compensates CCMC with a management fee at an annual rate of .50% of CTF's
average daily net assets. At July 31, 1998, CTF had $9,825 payable to CCMC for
management fees, and for the year then ended CCMC earned management fees of
$103,404.
Ohio General compensates CCMC with a management fee at an annual rate of .50%
of Ohio General's average daily net assets. At July 31, 1998, Ohio General had
$3,917 payable to CCMC for management fees, and for the year then ended CCMC
earned management fees of $47,508.
10
<PAGE> 11
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 $28,499
for the year ended July 31, 1998 were waived for the Ohio General Municipal
Fund.
For the year ended July 31, 1998, CFD received sales charges paid by the
purchasers of Ohio General's shares of $711. 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
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
LCI
Shares sold................................................ 666,052,853 386,866,751
Shares issued on reinvestment of distributions............. 10,216,408 8,808,056
-------------- --------------
676,269,261 395,674,807
Shares redeemed............................................ (696,979,044) (415,997,674)
-------------- --------------
Net decrease in capital shares............................. (20,709,783) (20,322,867)
============== ==============
CGST
Shares sold................................................ 14,224,541 15,408,580
Shares issued on reinvestment of distributions............. 657,166 523,418
-------------- --------------
14,881,707 15,931,998
Shares redeemed............................................ (12,787,864) (16,229,335)
-------------- --------------
Net increase in capital shares............................. 2,093,843 (297,337)
============== ==============
CTF
Shares sold................................................ 41,751,665 35,113,852
Shares issued on reinvestment of distributions............. 570,497 612,577
-------------- --------------
42,322,162 35,726,429
Shares redeemed............................................ (40,705,223) (40,803,764)
--------------
Net increase in capital shares............................. 1,616,939 (5,077,335)
============== ==============
Ohio General
Shares sold................................................ 64,230 66,452
Shares issued on reinvestment of distributions from net
investment income........................................ 33,074 39,040
-------------- --------------
97,304 105,492
Shares redeemed............................................. (205,805) (278,926)
-------------- --------------
Net increase/(decrease) in capital shares................... (108,501) (173,434)
============== ==============
</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, 1998 amounted to
$499,500 and $1,539,280 respectively.
For Federal income tax purposes, the identified cost of securities owned on
July 31, 1998 was $8,551,460. Aggregate unrealized appreciation on the cost
basis of investments was zero and aggregate unrealized depreciation was $67,102.
Net realized appreciation at July 31, 1998 was $492,012.
NOTE E -- NET ASSETS
Net Assets, as of July 31, 1998, are comprised of the following:
<TABLE>
<CAPTION>
LCI CGST CTF
------------ ----------- -----------
<S> <C> <C> <C>
Capital shares, at par...................................... $ 16,447,596 $ 1,453,425 $ 2,180,570
Capital shares in excess of par............................. 148,028,359 13,080,827 19,625,132
------------ ----------- -----------
Net Assets........................................... $164,475,955 $14,534,252 $21,805,702
============ =========== ===========
</TABLE>
11
<PAGE> 12
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, 1998
- - - - -------------------------------------------------------------------
(LOGO) CARNEGIE CAPITAL MANAGEMENT COMPANY
1100 The Halle Building
1228 Euclid Avenue
Cleveland, Ohio 44115-1831
