<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1998
1933 Act Registration No. 2-76987
1940 Act File No. 811-3446
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 22 [X]
AND/OR
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 24
(CHECK APPROPRIATE BOX OR BOXES)
------------------
CARNEGIE TAX FREE INCOME TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
1100 The Halle Building,
1228 Euclid Avenue, Cleveland, Ohio 44115
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's Telephone Number, including Area Code: (216) 781-4440
GEORGE R. MATEYO
Carnegie Capital Management Company
1100 The Halle Building
1228 Euclid Avenue
Cleveland, Ohio 44115
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------
It is proposed that this filing will become effective (check appropriate
box):
[ ] immediately upon filing pursuant to paragraph (b),
[X] on November 30, 1998 pursuant to paragraph (b),
[ ] 60 days after filing pursuant to paragraph (a)(1),
[ ] on (date) pursuant to paragraph (a)(1).
[ ] 75 days after filing pursuant to paragraph (a)(2),
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
------------------
Title of Securities Being Registered: Shares of Beneficial Interest, par
value $.10 per share.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CARNEGIE TAX FREE INCOME TRUST
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
----------- ----------------------
<S> <C>
1. Cover Page.............................................. Cover Page of Prospectus
2. Synopsis................................................ Summary
3. Condensed Financial Information......................... Financial Highlights; Performance
4. General Description of Registrant....................... Cover Page of Prospectus; Summary; Investment
Objectives and Policies; Description of the
Trusts
5. Management of the Fund.................................. Investment Management; Management Fees
6. Capital Stock and Other Securities...................... Description of the Trusts; Shareholder Services;
Distributions; Taxes
7. Purchase of Securities Being Offered.................... How to Invest; Net Asset Value
8. Redemption or Repurchase................................ How to Redeem Shares
9. Legal Proceedings....................................... *
</TABLE>
<TABLE>
<CAPTION>
LOCATION IN STATEMENT
OF ADDITIONAL INFORMATION ("SAI")
---------------------------------
<S> <C>
10. Cover Page.............................................. Cover Page of SAI
11. Table of Contents....................................... Table of Contents
12. General Information and History......................... General Information
13. Investment Objectives and Policies...................... Investment Policies; Investment Restrictions
14. Management of the Registrant............................ Trustees and Officers
15. Control Persons and Principal Holders of Securities..... Trustees and Officers; Principal Holders of
Securities
16. Investment Advisory and Other Services.................. Management and Distribution Agreements; General
Information; Independent Auditors; Custodian
and Transfer Agent (Prospectus)
17. Brokerage Allocation and Other Practices................ Portfolio Transactions
18. Capital Stock and Other Securities...................... Description of the Trusts; Shareholder Services;
Distributions; Taxes (Prospectus)
19. Purchase, Redemption and Pricing of Securities Being
Offered.............................................. Reduced Sales Charges; Reinvestment Privilege;
Exchange Privilege; IRAs and SEPs;
Determination of Net Asset Value
20. Tax Status.............................................. Taxes
21. Underwriters............................................ Management and Distribution Agreements
22. Calculation of Performance Data......................... Calculation of Performance Data
23. Financial Statements.................................... Financial Statements
</TABLE>
- ---------------
*Not applicable
<PAGE> 3
NOVEMBER 30, 1998
THE CARNEGIE FUNDS GROUP
- --------------------------------------------------------------------------------
1100 THE HALLE BUILDING, 1228 EUCLID AVENUE - CLEVELAND, OHIO 44115
- --------------------------------------------------------------------------------
PHONE: TOLL FREE 1-800-321-2322
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information you should know about
the following four Trusts (the "Trusts") and the four separate portfolios
thereunder (the "Funds"). Each Fund has its own investment objectives and
policies, and a shareholder's interest is limited to the Fund in which the
shareholder owns shares.
CARNEGIE TAX EXEMPT INCOME TRUST
- Ohio General Municipal Fund (income exempt from federal and Ohio
taxes)
CARNEGIE GOVERNMENT SECURITIES TRUST
- Money Market Series (government money market)
LIQUID CAPITAL INCOME TRUST (general purpose money market)
CARNEGIE TAX FREE INCOME TRUST (tax exempt money market)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------
This Prospectus should be retained for future reference. A Statement of
Additional Information containing additional information about such Trusts and
Funds, dated November 30, 1998 (which is incorporated herein by reference), has
been filed with the Securities and Exchange Commission and is available upon
request and without charge by calling Carnegie Capital Management Company, toll
free, 1-800-321-2322.
Investments in the Money Market Series of Carnegie Government Securities
Trust, Liquid Capital Income Trust and Carnegie Tax Free Income Trust (the
"Money Market Funds") are neither insured nor guaranteed by the U.S. Government
and there is no assurance that the Money Market Funds will be able to maintain a
stable net asset value of $1.00 per share.
<PAGE> 4
FEE TABLE
The following tables illustrate all expenses and fees that a shareholder of
each of the Funds will incur. Except as otherwise indicated, the expenses and
fees set forth in the tables are based on each Fund's actual expenses and fees
for the fiscal year ended July 31, 1998.
<TABLE>
<CAPTION>
CARNEGIE TAX EXEMPT MONEY MARKET FUNDS
INCOME TRUST ("CTE") -----------------------------
---------------------- MONEY LIQUID CARNEGIE
OHIO GENERAL MARKET CAPITAL TAX
MUNICIPAL FUND SERIES INCOME FREE
-------------- ------ ------- --------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).... 4.50% none none none
Maximum Deferred Sales Load.............. none none none none
Maximum Sales Load Imposed on Reinvested
Dividends.............................. none none none none
Redemption Fees.......................... none none none none
Exchange Fees............................ none none none none
Annual Fund Operating Expenses -- net of
waiver and reimbursements where applicable
(as a percentage of average net assets):
Management Fees.......................... .50% .50% .50% .50%
12b-1 Fees............................... 0%(1) none none none
Other Expenses........................... .50% .48% .38% .40%
Total Fund Operating Expenses............ 1.00%(1) .98% .88% .90%
</TABLE>
(1) These figures are net of waiver arrangements through July 31, 1998. Absent
such arrangements, the 12b-1 Fees and Total Fund Operating Expenses would
have been .30% and 1.30%, respectively.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in a Trust will bear directly or
indirectly. For more complete information about the various costs and expenses,
see "Investment Management" and "How to Invest -- Distribution Expense Plans".
EXAMPLES
You would pay the following expenses on a hypothetical $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CARNEGIE TAX EXEMPT INCOME TRUST
Ohio General Municipal Fund.............. $55 $75 $98 $162
CARNEGIE GOVERNMENT SECURITIES TRUST
Money Market Series...................... $10 $31 $54 $120
LIQUID CAPITAL INCOME TRUST................ $ 9 $28 $49 $108
CARNEGIE TAX FREE INCOME TRUST............. $ 9 $29 $50 $111
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE> 5
SUMMARY
Set forth below are the investment objectives of the four Funds of the
Carnegie Funds Group described in this Prospectus. There can be no assurance
that any particular Fund's objective will be achieved.
OHIO GENERAL MUNICIPAL FUND (THE "OHIO FUND")
The investment objective of the OHIO FUND is to provide as high a level of
current income exempt from Federal income tax as is consistent with prudent
investment management, without the safety of insurance. The Ohio Fund has the
additional objective of providing income exempt from the personal income tax of
Ohio to residents of that state. The Ohio Fund is a non-diversified series of
Carnegie Tax Exempt Income Trust, an open-end management investment company.
MONEY MARKET SERIES ("MMS")
The MMS seeks to provide, through investment in U.S. Treasury bills, notes,
bonds and other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements secured by such
obligations, as high a level of current income obtainable from short-term
securities as is consistent with preservation of capital and maintenance of
liquidity. The MMS is a diversified series of Carnegie Government Securities
Trust, an open-end management investment company.
LIQUID CAPITAL INCOME TRUST ("LCI")
LCI seeks to provide, through investment in money market instruments
maturing in 397 days or less, as high a level of current income obtainable from
short-term securities as is consistent with prudent investment management and
preservation of capital. LCI is a diversified, open-end management investment
company.
CARNEGIE TAX FREE INCOME TRUST ("CTF")
CTF seeks to provide, through investment in a professionally managed
portfolio of high quality municipal obligations, as high a level of current
income exempt from Federal income taxation obtainable from short-term securities
as is consistent with prudent investment management, the preservation of capital
and the maintenance of liquidity. CTF is a diversified, open-end management
investment company.
Carnegie Capital Management Company ("CCMC" or the "Adviser"), of
Cleveland, Ohio, serves as the investment adviser of each of the Funds. See
"Investment Management".
Investment in the Funds involves certain risks which are discussed under
"Investment Objectives and Policies", "Special Considerations" and "Certain
Investment Strategies" in this Prospectus and under "Investment Policies" in the
Statement of Additional Information. See "How to Invest" for information about
how to purchase shares of the Funds and "How to Redeem Shares" for information
on redeeming such shares.
3
<PAGE> 6
FINANCIAL HIGHLIGHTS
The following financial highlights for the nine-year period ended July 31,
1998 have been audited by KPMG Peat Marwick LLP, independent auditors. Related
financial statements for the five-year period ended July 31, 1998 and
independent auditors' report thereon are contained in the Annual Reports to
Shareholders and are incorporated by reference into the Statement of Additional
Information. A copy of the Annual Reports is available upon request and without
charge by calling Carnegie Capital Management Company, toll free, at
1-800-321-2322.
4
<PAGE> 7
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 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 9.66 $ 9.41 $ 9.46 $ 9.50 $ 9.87 $ 9.79 $ 9.26
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (2).............. 0.477 0.484 0.514 0.556 0.549 0.559 0.571
Net realized and unrealized
gains/(losses) on securities......... (0.019) 0.250 (0.050) (0.040) (0.370) 0.080 0.530
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total From Investment Operations....... 0.458 0.734 0.464 0.516 0.179 0.639 1.101
LESS DISTRIBUTIONS:
Distributions from net investment
income............................... (0.477) (0.484) (0.514) (0.556) (0.549) (0.559) (0.571)
Distributions from net realized and
unrealized gains/(losses) on
securities........................... -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Distributions.................... (0.477) (0.484) (0.514) (0.556) (0.549) (0.559) (0.571)
Net Asset Value, End of Period.......... $ 9.64 $ 9.66 $ 9.41 $ 9.46 $ 9.50 $ 9.87 $ 9.79
========== ========== ========== ========== ========== ========== ==========
ANNUAL TOTAL RETURN..................... 4.84% 9.41% 4.98% 5.50% 1.82% 6.77% 12.32%
========== ========== ========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL INFORMATION
Net assets at end of period............ $9,220,496 10,283,205 11,655,988 11,448,521 12,574,835 18,669,199 28,011,143
Expenses as a percentage of average
daily net assets(1)(3)............... 1.00% 0.95% 0.88% 0.97% 0.93% 0.81% 0.76%
Net investment income as a percentage
of average daily net assets(1)....... 4.96% 5.12% 5.41% 5.95% 5.68% 5.81% 6.10%
Portfolio Turnover rate................ 5.36% 3.88% 23.45% 8.77% 10.04% 4.98% 11.40%
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------
1991 1990 1989
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 9.18 $ 9.26 $ 9.11
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (2).............. 0.576 0.574 0.616
Net realized and unrealized
gains/(losses) on securities......... 0.080 (0.080) 0.150
---------- ---------- ----------
Total From Investment Operations....... 0.656 0.494 0.766
LESS DISTRIBUTIONS:
Distributions from net investment
income............................... (0.576) (0.574) (0.616)
Distributions from net realized and
unrealized gains/(losses) on
securities........................... -- -- --
---------- ---------- ----------
Total Distributions.................... (0.576) (0.574) (0.616)
Net Asset Value, End of Period.......... $ 9.26 $ 9.18 $ 9.26
========== ========== ==========
ANNUAL TOTAL RETURN..................... 7.45% 5.58% 8.47%
========== ========== ==========
RATIOS/SUPPLEMENTAL INFORMATION
Net assets at end of period............ 30,908,900 18,502,450 18,926,245
Expenses as a percentage of average
daily net assets(1)(3)............... 0.76% 0.75% 0.33%
Net investment income as a percentage
of average daily net assets(1)....... 6.32% 6.31% 6.70%
Portfolio Turnover rate................ 19.45% 45.35% 101.69%
</TABLE>
- ---------------
(1) The percentages should not be construed as representative of the yield or
expenses related to further investments in the Fund. The ratio may change
due to the expenses of the Fund and the average account size, along with
other factors.
(2) During the periods indicated, the Fund did not make payments or made partial
payments under its Distribution Expense Plan and CCMC waived certain fees.
Net investment income would have been $.448, $.455, $.483, $.528, $.520,
$.530, $.543, $.545, $.544 and $.541 for the years ended July 31, 1998,
1997, 1996, 1995, 1994, 1993, 1992, 1991, 1990 and 1989, respectively, had
such Distribution Expense Plan payments been made and had such fees not been
waived.
(3) During the periods indicated, the Fund did not make payments or made partial
payments under its Distribution Expense Plan and CCMC waived certain fees.
Expenses as a percentage of average net assets would have been 1.30%, 1.25%,
1.18%, 1.27%, 1.23%, 1.11%, 1.06%, 1.11%, 1.07% and 1.13% for the years
ended July 31, 1998, 1997, 1996, 1995, 1994, 1993, 1992, 1991, 1990 and
1989, respectively, had such Distribution Expense Plan payments been made
and had such fees not been waived.
5
<PAGE> 8
CARNEGIE GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
FINANCIAL HIGHLIGHTS
DATA FOR EACH SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 1.00 $ 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 0.022
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment
Operations.................. 0.045 0.042 0.045 0.044 0.024 0.022
LESS DISTRIBUTIONS:
Distributions From Net
Investment Income........... (0.045) (0.042) (0.045) (0.044) (0.024) (0.022)
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions.......... (0.045) (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 $ 1.00
=========== =========== =========== =========== =========== ===========
RATIOS/SUPPLEMENTAL
INFORMATION
Expenses as a percentage of
average daily net assets
(1)......................... .98% 1.11% 1.03% 1.06% 0.98% 0.87%
Net investment income as a
percentage of average daily
net assets (1).............. 4.51% 4.25% 4.50% 4.38% 2.37% 2.25%
Net assets at end of period.. $14,534,252 12,440,409 12,737,746 14,424,876 18,078,719 25,364,240
=========== =========== =========== =========== =========== ===========
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------------
1992 1991 1990 1989
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income........ 0.040 0.061 0.076 0.080
------------- ------------- ------------- -------------
Total From Investment
Operations.................. 0.040 0.061 0.076 0.080
LESS DISTRIBUTIONS:
Distributions From Net
Investment Income........... (0.040) (0.061) (0.076) (0.080)
------------- ------------- ------------- -------------
Total Distributions.......... (0.040) (0.061) (0.076) (0.080)
Net Asset Value, End of
Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============= ============= =============
RATIOS/SUPPLEMENTAL
INFORMATION
Expenses as a percentage of
average daily net assets
(1)......................... 0.79% 0.71% 0.76% 0.71%
Net investment income as a
percentage of average daily
net assets (1).............. 4.05% 6.12% 7.61% 8.02%
Net assets at end of period.. 34,687,846 126,090,338 95,736,283 103,831,403
============= ============= ============= =============
</TABLE>
(see footnote on next page)
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 1993
------------- ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 1.00 $ 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 0.024
------------ ----------- ----------- ----------- ----------- -------------
Total From Investment
Operations.................. 0.047 0.045 0.047 0.047 0.026 0.024
LESS DISTRIBUTIONS:
Distributions From Net
Investment Income........... (0.047) (0.045) (0.047) (0.047) (0.026) (0.024)
------------ ----------- ----------- ----------- ----------- -------------
Total Distributions.......... (0.047) (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 $ 1.00
============ =========== =========== =========== =========== =============
RATIOS/SUPPLEMENTAL
INFORMATION
Expenses as a percentage of
average daily net assets
(1)......................... .88% 0.94% 0.90% 0.87% 0.88% 0.83%
Net investment income as a
percentage of average daily
net assets (1).............. 4.71% 4.48% 4.69% 4.72% 2.62% 2.43%
Net assets at end of
period...................... $164,475,955 185,185,738 205,508,605 247,385,884 289,950,268 335,030,422
============ =========== =========== =========== =========== =============
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------------
1992 1991 1990 1989
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income........ 0.042 0.065 0.078 0.083
------------- ------------- ------------- -------------
Total From Investment
Operations.................. 0.042 0.065 0.078 0.083
LESS DISTRIBUTIONS:
Distributions From Net
Investment Income........... (0.042) (0.065) (0.078) (0.083)
------------- ------------- ------------- -------------
Total Distributions.......... (0.042) (0.065) (0.078) (0.083)
Net Asset Value, End of
Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============= ============= =============
RATIOS/SUPPLEMENTAL
INFORMATION
Expenses as a percentage of
average daily net assets
(1)......................... 0.77% 0.70% 0.71% 0.72%
Net investment income as a
percentage of average daily
net assets (1).............. 4.25% 6.48% 7.83% 8.31%
Net assets at end of
period...................... 431,773,459 1,503,924,041 1,461,547,132 1,184,089,699
============= ============= ============= =============
</TABLE>
(see footnote on next page)
6
<PAGE> 9
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 1993 1992 1991
----------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $1.00 $1.00 $1.00 $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 0.019 0.036 0.046
----------- --------- --------- --------- --------- --------- --------- ---------
Total From Investment
Operations............. 0.028 0.027 0.029 0.029 0.018 0.019 0.036 0.046
LESS DISTRIBUTIONS:
Distributions From Net
Investment Income...... (0.028) (0.027) (0.029) (0.029) (0.018) (0.019) (0.036) (0.046)
----------- --------- --------- --------- --------- --------- --------- ---------
Total Distributions..... (0.028) (0.027) (0.029) (0.029) (0.018) (0.019) (0.036) (0.046)
Net Asset Value, End of
Period.................. $1.00 $1.00 $1.00 $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% 0.76% 0.69% 0.64%
Net investment income as
a percentage of average
daily net assets (1)... 2.78% 2.74% 2.92% 2.86% 1.77% 1.88% 3.58% 4.61%
Net assets at end of
period................. $21,805,702 20,188,763 25,266,098 27,615,905 31,640,760 40,646,525 56,180,652 250,951,045
=========== ========== ========== ========== ========== ========== ========== ===========
<CAPTION>
YEAR ENDED JULY 31,
---------------------
1990 1989
--------- ---------
<S> <C> <C>
Net asset value,
beginning of period..... $1.00 $1.00
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income... 0.053 0.056
--------- ---------
Total From Investment
Operations............. 0.053 0.056
LESS DISTRIBUTIONS:
Distributions From Net
Investment Income...... (0.053) (0.056)
--------- ---------
Total Distributions..... (0.053) (0.056)
Net Asset Value, End of
Period.................. $1.00 $1.00
========= =========
RATIOS/SUPPLEMENTAL
INFORMATION
Expenses as a percentage
of average daily net
assets (1)............. 0.65% 0.62%
Net investment income as
a percentage of average
daily net assets (1)... 5.35% 5.60%
Net assets at end of
period................. 218,199,216 226,472,041
=========== ===========
</TABLE>
- ---------------
(1) The percentages should not be construed as representative of the yield or
expenses related to further investments in the Fund. The ratio may change
due to the expenses of the Fund and the average account size, along with
other factors.
7
<PAGE> 10
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of each Fund, as set forth below, along with the
investment policies identified as fundamental policies may not be changed
without the affirmative vote of a majority of the applicable Fund's outstanding
voting securities. All other policies of a Fund may be changed by the Trustees
of the applicable Trust without shareholder approval. There can be no guarantee
that the investment objective of any Fund will be achieved. For additional
information concerning certain investment policies of the Funds, see "Certain
Investment Strategies".
OHIO GENERAL MUNICIPAL FUND (THE "OHIO FUND")
The investment objective of the Ohio Fund is to provide as high a level of
current income exempt from Federal income tax as is consistent with prudent
investment, without the safety of insurance. The Ohio Fund has the additional
objective of providing income exempt from the personal income tax of Ohio to
residents of that state. The Ohio Fund will invest in municipal obligations of
investment grade ("Investment Grade Obligations"), i.e. those which are rated
(or, if not rated, have, in the opinion of the Adviser, in accordance with
policies established by the Board of Trustees of CTE, equivalent credit
characteristics) Baa or better, MIG-2 or better, or Prime-2 or better by Moody's
Investor Services, Inc. ("Moody's") or BBB or better, SP-2 or better, or A-2 or
better by Standard & Poor's Corporation ("S&P") (or those rated equivalently by
another nationally recognized statistical rating organization ("NRSRO")).
Municipal obligations rated Baa or BBB have certain speculative characteristics.
Investment Grade Obligations generally will not be insured.
INVESTMENT POLICIES APPLICABLE TO THE OHIO FUND
Under normal operating circumstances, the Ohio Fund attempts to invest 100%
(and as a matter of fundamental policy will invest at least 80%) of the value of
its net assets in securities the interest on which is exempt from Federal income
tax and is exempt from the personal income tax of Ohio. Such securities consist
of debt obligations issued by or on behalf of the State of Ohio, or in certain
cases, a territory or possession of the United States (such as Puerto Rico) or
political subdivisions, agencies or instrumentalities thereof. Under normal
operating circumstances, at least 65% of the value of the Fund's total assets
will be invested in such securities issued by or on behalf of the State of Ohio
or its political subdivisions, agencies or instrumentalities.
Under normal operating circumstances, the Ohio Fund may invest up to 20% of
its assets in "temporary investments": short-term obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements secured thereby. For temporary defensive purposes when the
Adviser believes market conditions present unusual risks, the Fund may invest
more than 20% of its assets in such "temporary investments". See "Investment
Policies" in the Statement of Additional Information for a more detailed
description of such instruments. Such investments would produce interest neither
exempt from Federal income tax nor (in many cases) exempt from state personal
income tax. The Ohio Fund does not expect that such investments will be
necessary on a regular basis.
8
<PAGE> 11
Under normal market circumstances, management anticipates that longer-term
maturities will provide the highest current income and, accordingly, expects
that 80% or more of the assets of the Fund will be invested in long-term
municipal obligations. Under normal market conditions, it is anticipated that
the average weighted maturity of the portfolio of the Fund will be in excess of
20 years. However, management reserves the right to substantially shorten
average portfolio maturity if yields on shorter-term municipal obligations of
comparable quality approach or exceed yields on longer-term municipal
obligations.
THE MONEY MARKET FUNDS
Each of the Money Market Series, Liquid Capital Income Trust and Carnegie
Tax Free Income Trust (collectively, the "Money Market Funds") invests
exclusively in high quality securities that generally mature within 397 days
from the date of purchase. Each such Fund maintains an average weighted maturity
of not more than 90 days.
The Money Market Funds are designed for investors with cash reserves or
temporary cash balances seeking to maximize current income with a minimum of
capital risk and inconvenience while maintaining liquidity on a day-to-day basis
without penalty. The Money Market Series, LCI and CTF each has adopted
procedures designed to maintain a net asset value of $1.00 per share for
purposes of purchases and redemptions and has done so to date. However, there
can be no assurance that the net asset value will not vary in the future.
Each of the Money Market Funds will limit its portfolio investments to
securities that, at the time of acquisition, (i) are rated in the two highest
categories by at least two NRSROs (or by one organization if only one
organization has rated the security), (ii) if not rated, are obligations of an
issuer whose other outstanding short-term debt obligations are so rated, or
(iii) if not rated, are of comparable quality as determined by the Board of
Trustees in accordance with procedures established by the Board of Trustees
(collectively, "Eligible Securities"). Each of these Funds will limit its
investments to Eligible Securities that present minimal credit risk, as
determined by the Board of Trustees in accordance with procedures established by
the Board of Trustees.
All Eligible Securities may be classified as "first tier" securities or
"second tier" securities. In general, first tier securities consist of Eligible
Securities that have received the highest rating by at least two NRSROs (or by
one NRSRO if only one NRSRO has rated the security) or which are unrated but
determined to be of comparable quality. All other Eligible Securities are
classified as second tier securities. Neither the Money Market Series nor LCI
may invest more than 5% of its total assets in second tier securities and
neither Fund may invest more than 1% of its total assets or $1.0 million
(whichever is greater) in the second tier securities of any single issuer.
Comparable limitations are applicable to CTF as relates to certain conduit
securities.
MONEY MARKET SERIES
The Money Market Series seeks to provide, through investment in U.S.
Treasury bills, notes, bonds and other obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities and repurchase agreements
secured by such obligations, as high a level of current income obtainable from
short-term securities as is consistent with preservation of capital and
maintenance of liquidity.
9
<PAGE> 12
LIQUID CAPITAL INCOME TRUST
Liquid Capital Income Trust seeks to provide, through investment in money
market instruments maturing in 397 days or less, as high a level of current
income obtainable from short-term securities as is consistent with prudent
investment management and preservation of capital.
LCI may invest in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; corporate debt obligations; deposit
obligations of banks and savings and loans which are FDIC members; bankers'
acceptances (bills of exchange used to finance foreign trade), bank notes
(unsecured indebtedness of banking institutions) and letters of credit
(commercial paper backed by a commercial bank or other financial institution);
high grade commercial paper (unsecured indebtedness of business or banking
firms); federally taxable obligations issued by states or their agencies,
instrumentalities or political subdivisions; and repurchase agreements secured
by the foregoing.
LCI may, but is not required to, concentrate its investments in bank
instruments issued by domestic banks. In accordance with currently applicable
Securities and Exchange Commission guidelines, this policy limits such
discretionary concentration to instruments issued by domestic branches of United
States banks, United States branches of foreign banks to the extent such banks
are subject to the same regulation as United States banks, and foreign branches
of United States banks to the extent that the United States bank would be
unconditionally liable to pay on such instruments upon the default of the
foreign branch. LCI may invest in deposit obligations of banks and savings and
loans which are members of the FDIC. Such obligations are not necessarily
guaranteed by the FDIC. Deposit obligations of domestic banks and savings and
loans are insured by the FDIC up to a maximum of $100,000, which limitation
applies to all funds which LCI may have on deposit at any one bank or savings
and loan.
CARNEGIE TAX FREE INCOME TRUST
Carnegie Tax Free Income Trust seeks to provide, through investment in a
professionally managed portfolio of high quality municipal obligations, as high
a level of current income exempt from Federal income taxation obtainable from
short-term securities as is consistent with prudent investment management, the
preservation of capital and the maintenance of liquidity. Under normal operating
circumstances, CTF attempts to invest 100% (and as a matter of fundamental
policy will invest at least 80%) of the value of its net assets in securities
the interest on which is exempt from Federal income tax and excluded from the
calculation of Federal alternative minimum taxes for individual taxpayers.
CTF may invest in debt obligations issued by or on behalf of any state,
territory or possession of the United States or the District of Columbia or
their political subdivisions, agencies or instrumentalities and participation
interests therein, the interest on which, in the opinion of counsel to the
issuer rendered on the date of issue thereof, is exempt from Federal income
taxation.
CTF may invest in bond anticipation notes, construction loan notes, revenue
anticipation notes and tax anticipation notes, along with municipal bonds and
participation interests therein. In addition, CTF may purchase other types of
tax-exempt municipal obligations, such as short-
10
<PAGE> 13
term discount notes, and in certain variable or floating rate demand securities,
including participation interests therein.
Under certain circumstances, CTF may invest in high grade, short-term,
taxable instruments of the nature in which LCI may invest. Under normal
operating circumstances, CTF may invest up to 20% of its assets in "temporary
investments", that is, taxable money market instruments. When the Adviser
believes abnormal market conditions exist, CTF may invest more than 20% of its
assets in such "temporary investments". Such investments would produce interest
not exempt from Federal income tax. CTF has never made such investments in the
past and does not expect that such investments will be necessary in the future.
CERTAIN INVESTMENT STRATEGIES
REPURCHASE AGREEMENTS (APPLICABLE TO ALL FUNDS). Each Fund may invest in
repurchase agreements. A repurchase agreement is an instrument under which the
purchaser acquires ownership of a security (ordinarily U.S. Government
securities) but the seller agrees, at the time of sale, to repurchase the
security at a mutually agreed upon time and price. Although structured as a
purchase and sale of securities, a repurchase agreement is, in substance, a loan
by the purchaser to the seller that is collateralized by securities. Should any
seller of a repurchase agreement fail to repurchase the underlying security, or
should any seller become insolvent or involved in a bankruptcy proceeding, a
Fund could incur disposition costs and a loss if the proceeds of the sale of
such security to a third party are less than the repurchase price. Under certain
limited conditions, a Fund could also be delayed or otherwise limited in
disposing of the underlying security. CCMC, under guidelines and standards of
review established by each Trust's Board of Trustees, evaluates the
creditworthiness of sellers and enters into repurchase agreements only with
those institutions that it believes present minimal credit risks. CCMC has been
directed to fully collateralize the amount of any repurchase agreement and to
maintain such collateral, on a daily basis, at the repurchase price or better.
WHEN-ISSUED SECURITIES (APPLICABLE TO THE OHIO FUND AND CTF). The Ohio Fund
and CTF may purchase securities on a "when-issued" or delayed delivery basis.
Delivery and payment normally take place within one week of the purchase of
notes and within one month of the purchase of bonds.
There is no limit on the amount of the assets of the Ohio Fund or of CTF
which may be invested in "when-issued" obligations. No interest accrues to a
Fund on "when-issued" securities prior to the time such Fund takes delivery and
makes payment. Purchase of "when-issued" securities involves the risk that
yields available in the market when delivery occurs may be higher than those
available when the "when-issued" order is placed. The Custodian will maintain on
a daily basis segregated accounts for each Fund consisting of cash or liquid
debt securities with a value at least equal to the amount of the commitments to
purchase "when-issued" securities of the Fund. During periods when interest
rates fluctuate substantially and CTF remains substantially fully invested at
the same time it purchases securities on a "when-issued" basis, there will be a
greater possibility that the market value of CTF's assets will vary from $1.00
per share. However, CTF does not believe that under normal circumstances its net
asset value or income will be affected by its purchase of securities on a
"when-issued" basis.
11
<PAGE> 14
MUNICIPAL OBLIGATIONS (APPLICABLE TO THE OHIO FUND AND CTF). The Ohio Fund
invests, and CTF may invest, in municipal obligations, including, primarily,
municipal bonds and participation interests therein. Each such Fund also may
invest in bond anticipation notes, construction loan notes, revenue anticipation
notes and tax anticipation notes. In addition, the Ohio Fund may purchase other
types of tax-exempt municipal obligations, such as short-term discount notes.
CTF also may invest in such securities. Municipal bonds generally are classified
as either "general obligation" or "revenue bonds". See "Investment Policies" in
the Statement of Additional Information.
Bond anticipation notes are issued in anticipation of a later issuance of
bonds and are usually payable from the proceeds of the sale of the bonds
anticipated or of renewal notes. Construction loan notes, issued to provide
construction financing for specific projects, are often redeemed after the
projects are completed and accepted with funds obtained from the Federal Housing
Administration under "Fannie Mae" (Federal National Mortgage Association) or
"Ginnie Mae" (Government National Mortgage Association). Revenue anticipation
notes are issued by governmental entities in anticipation of revenues to be
received later in the then current fiscal year. Tax anticipation notes are
issued by state and local governments in anticipation of collection of taxes to
finance the current operations of such governments. These notes are generally
repayable only from tax collections and often only from the proceeds of the
specific tax levy whose collection they anticipate.
The Ohio Fund and CTF may invest in certain variable or floating rate
demand securities, including participation interests therein. These securities
may be general obligation or revenue bonds. The value of such securities may
change with changes in interest rates generally. However, the variable or
floating rate nature of such securities should reduce, to the extent a Fund is
invested in such securities, the degree of fluctuation in the value of its
portfolio investments. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation and risk of potential capital depreciation is
less than would be the case with a portfolio composed entirely of fixed-income
securities. The portfolio of a Fund may contain variable or floating rate demand
securities on which stated minimum or maximum rates set by state law limit the
degree to which interest on such securities may fluctuate; to the extent it
does, increases or decreases in value may be somewhat greater than would be the
case without such limits. Because the adjustment of interest rates on the
variable or floating rate demand securities is made in relation to movements of
the applicable indexes (e.g., the prime rate), such securities are not
comparable to longer-term fixed rate securities. Accordingly, interest rates on
such securities may be higher or lower than current market rates for fixed rate
obligations of comparable quality with similar maturities. CTF will attempt to
achieve a balance of variable or floating and fixed rate securities such that
under normal circumstances the net asset value of CTF can be maintained at $1.00
per share while the highest possible yield can be returned to the investors.
However, to the extent the portfolio of any Fund is invested in variable or
floating rate securities, yield can be expected to decline in periods of falling
interest rates more rapidly than if the portfolio of that Fund were invested
solely in longer-term fixed rate securities. Conversely, yield, under the same
circumstances, can be expected to increase more rapidly in periods of rising
interest rates.
The demand feature of variable rate participation interests will be
supported by a letter of credit or comparable guarantee provided by the selling
institution (generally, banks which are
12
<PAGE> 15
members of the Federal Reserve Board or insurance companies). Such participation
interests will not be purchased unless accompanied by an opinion of counsel,
given at the time of purchase by a Fund, that the interest payable in connection
with the participation is exempt from Federal income tax.
INVESTMENT RESTRICTIONS
The following investment restriction of the Funds is fundamental and may
not be changed without the affirmative vote of a majority of the outstanding
voting securities of the applicable Fund.
None of the Funds may purchase securities subject to legal or contractual
restrictions on the resale thereof ("restricted securities") or securities which
are not readily marketable, if such purchase would cause more than 5% of its
assets to be invested in restricted securities or more than 10% of its assets to
be invested in restricted securities, securities which are not readily
marketable, and repurchase agreements maturing in more than seven days.
For a complete list of investment restrictions, see "Investment
Restrictions" in the Statement of Additional Information.
SPECIAL CONSIDERATIONS
MUNICIPAL OBLIGATIONS (APPLICABLE TO THE OHIO FUND). The market price of
long-term municipal obligations depends on a number of factors, including the
credit rating of the issuer, the terms of the security itself (e.g., maturity,
call protection and yield), as well as general economic and interest rate
conditions. Since the Ohio Fund generally invests only in the securities of the
State of Ohio, there are certain specific factors and considerations concerning
the State which may affect the credit and market risk of the municipal
obligations which the Ohio Fund purchases. See "Certain Factors Affecting the
Ohio Fund" in the Statement of Additional Information.
Because the Ohio Fund is a non-diversified series of CTE, the Ohio Fund may
invest up to 25% of its assets in the municipal obligations of one issuer. While
management has no intention of doing so at this time, the investment of a
substantial portion of the Ohio Fund's assets in the securities of one or a
relatively small number of issuers would cause such Fund's performance to depend
on the credit and other characteristics of one or a small number of issuers. The
investment of the Ohio Fund's assets in the securities of a small number of
issuers increases the risk associated with investing in the Ohio Fund.
GOVERNMENT SECURITIES (APPLICABLE TO THE MONEY MARKET FUNDS). Each of the
Money Market Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. For examples of such agencies or
instrumentalities, see "Investment Policies" in the Statement of Additional
Information. Some such obligations are supported by the full faith and credit of
the U.S. Treasury; others by Treasury guarantees; and others, by the right of
the issuer to borrow from the Treasury. In addition, some obligations of U.S.
Government agencies or instrumentalities are supported by the discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality and others are
13
<PAGE> 16
supported solely by the credit of the issuing agency or instrumentality. No
assurance can be given that the U.S. Government will provide financial support
to such U.S. Government-sponsored agencies or instrumentalities in the future,
since it is not obligated to do so by law. Each such Fund may invest in such
securities only when it is satisfied that the credit risk with respect to the
issuer is minimal.
YEAR 2000
Many computer-based systems in use today have not been designed to properly
process date-related information relating to the Year 2000 and beyond. The
operations of the Funds depend upon the proper processing of date-related
information by service providers, primarily the Adviser and the Funds' dividend
and transfer agent, First Data Investor Services Group ("First Data"), a
subsidiary of First Data Corp. The Adviser maintains the internal financial
accounting system for the Funds, which includes calculation of a Fund's net
asset value, yield and dividends. The computer software used by the Adviser to
perform such financial accounting activities is "Year 2000 compliant" in that it
properly processes date-related information for the Year 2000 and beyond. The
shareholder accounting function relating to the Funds is carried out by First
Data. First Data is in the process of taking actions designed to ensure that
date-related information will be properly processed in the Year 2000 and beyond,
and First Data has informed the Adviser that it expects to complete such actions
on a timely basis. Based upon current information available to the Adviser, the
Adviser believes the Funds' operations will not be materially adversely affected
by Year 2000 issues. However, neither the Adviser nor the Funds control the Year
2000 activities of the Funds' service providers, and no assurances can be given
that the operations of the Funds will not be materially adversely affected due
to Year 2000 issues.
INVESTMENT MANAGEMENT
THE ADVISER
Carnegie Capital Management Company, 1100 The Halle Building, 1228 Euclid
Avenue, Cleveland, Ohio 44115, serves as each Trust's investment adviser.
Pursuant to the investment advisory contract in effect between each Trust and
CCMC, CCMC manages the investment and reinvestment of the assets of each Fund in
accordance with its investment objective, policies and limitations, subject to
the general supervision and control of the Trust's Board of Trustees. In
addition, CCMC is responsible for the overall management of each Trust's
business affairs, subject to the authority of its Board of Trustees. CCMC
furnishes office facilities and clerical and administrative services to the
Trusts and, together with its wholly-owned subsidiary, Carnegie Fund
Distributors, Inc. (the "Distributor"), with respect to the Ohio Fund, also
bears certain promotional expenses, including a portion of the costs of printing
and distributing prospectuses utilized for promotional purposes. CCMC also
performs and bears the cost of research, statistical analysis and continuous
supervision of the investment portfolios of each Fund.
CCMC has been registered with the Securities and Exchange Commission as an
investment adviser since 1974. CCMC, together with its wholly owned subsidiary,
Carnegie Capital Asset Management Company, have approximately $365 million under
management for open-end investment companies and for corporate, employee benefit
plan and individual accounts. CCMC also serves as co-administrator of STAROhio
(State Treasury Asset Reserve of Ohio), a $6.5 billion investment pool offered
to political subdivisions within Ohio.
14
<PAGE> 17
Messrs. Karam, Mateyo and Pease, three officers of CCMC (as described under
"Trustees and Officers" in the Statement of Additional Information), own, in the
aggregate, 100% of its common stock. Messrs. Karam and Mateyo each own 40% and
Mr. Pease owns 20% of such stock.
MANAGEMENT FEES
As compensation for its services, the Adviser receives monthly from each of
the Funds an advisory fee based upon the average value of such Fund's daily net
assets.
For the fiscal year ended July 31, 1998, the Ohio Fund, Money Market
Series, LCI and CTF incurred advisory fees which amounted to .50% of their
respective average daily net assets. The total expenses as a percentage of
average daily net assets of such Funds for the period set forth above were
1.00%, .98%, .88% and .90%, respectively.
BROKERAGE
Each Fund may consider sales of its shares by brokers or dealers when
selecting brokers or dealers to execute portfolio transactions. The policies and
practices with respect to the payment of brokerage commissions are subject to
review by the Board of Trustees of each Trust.
PORTFOLIO MANAGEMENT
David Munoz is Vice President, Fixed Income/Equities of the Adviser. Mr.
Munoz became portfolio manager for the Ohio Fund in January 1998, having served
as assistant portfolio manager for eight years. Mr. Munoz has been employed with
CCMC since 1988 and is responsible for the daily management of the portfolio of
the Ohio Fund, as well as providing economic research and advice to management.
PERFORMANCE
The performance of the Ohio Fund was affected by various factors during the
fiscal year ended July 31, 1998. Some factors are related to the particular
investment strategy of the Adviser, while others can be attributed to market
conditions.
Falling interest rates on municipal obligations continues to be the most
significant market condition factor affecting the Ohio Fund's performance.
Interest rates on municipal bonds with intermediate term maturities decreased
during the Ohio Fund's 1998 fiscal year, resulting in an increase in the value
of the Ohio Fund's portfolio. The decrease in interest rates and resulting
increase in portfolio value produced a positive effect on the performance of the
Ohio Fund.
The primary investment strategy factors affecting the Ohio Fund's
performance are the quality and maturity of portfolio obligations. The average
maturity of the Ohio Fund declined during the 1998 fiscal year, to 17.7 years
for 1998 as compared to 19.3 years for 1997, but this decline did not materially
affect the Ohio Fund's performance. The Adviser continued to invest primarily in
top quality bonds rated AAA in order to minimize risk, which tends to reduce the
overall yield.
A line graph follows that compares the initial account value and subsequent
account values at the end of each of the last ten fiscal years, assuming a
$10,000 investment, to the same investment in the Lehman Brothers Index of
Municipal Bonds.
15
<PAGE> 18
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN OHIO GENERAL MUNICIPAL FUND(1) AND THE
LEHMAN BROTHERS INDEX OF MUNICIPAL BONDS(2)
<TABLE>
<CAPTION>
Thousands
Ohio General LB Index: Muni Bond
<S> <C> <C>
1989 10.40 12.10
1990 10.90 12.90
1991 11.80 14.00
1992 13.20 15.90
1993 14.10 17.40
1994 14.30 17.70
1995 15.10 19.10
1996 15.90 20.40
1997 17.10 22.60
1998 18.00 24.20
</TABLE>
1. Years shown are on a fiscal year basis.
2. Lehman Brothers Index of Municipal Bonds does not include any sales charge or
expenses.
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<PAGE> 19
HOW TO INVEST
You may purchase shares of each Fund at the public offering price, which is
the net asset value next determined plus, in the case of the Ohio Fund only, a
sales charge. The sales charge is a percentage of the public offering price and
varies with the amount of purchase as shown below. The Money Market Funds are
sold without a sales charge.
<TABLE>
<CAPTION>
SALES CHARGE AS
SALES CHARGE AS PERCENTAGE OF DEALERS DISCOUNT
PERCENTAGE OF NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OFFERING PRICE
------------------ --------------- --------------- ----------------
<S> <C> <C> <C>
OHIO FUND
Less than $50,000............................ 4.50% 4.71% 4.00%
$50,000 to $99,999........................... 4.25 4.44 4.00
$100,000 to $249,999......................... 4.00 4.17 3.50
$250,000 to $499,999......................... 2.50 2.56 2.00
$500,000 to $999,999......................... 1.50 1.52 1.00
$1,000,000 to $1,999,999..................... 1.25 1.27 1.00
$2,000,000 to $3,999,999..................... 1.00 1.01 1.00
$4,000,000 or more........................... -- -- --
</TABLE>
You may open an account and make your initial investment in a Fund by
contacting the Distributor or your local dealer. The minimum initial investment
is $1,000; lower minimum investments apply to purchases of shares for IRA and
SEP accounts offered by certain Funds. See "Shareholder Services" in this
Prospectus and "IRAs and SEPs" in the Statement of Additional Information.
Subsequent purchases may be made through your local dealer or directly
through First Data. Such purchases must be in amounts of at least $250. To make
a subsequent purchase by mail, send a check or other negotiable bank draft
payable to the order of "Carnegie Funds Group", along with your account number,
to:
Carnegie Funds Group
Post Office Box 60447
King of Prussia, PA 19406-0447
To expedite processing by First Data, it is essential for you to include your
account number with your purchase request.
To make a subsequent purchase by bank wire transfer, instruct your bank to
wire Federal funds along with the following wire instructions:
Federal Reserve Bank of Boston
BOS SAFE DEP
Account No. 011001234
For the Further Credit to
Carnegie Funds Group Account No. 11-660-2
[Name of Fund in which you wish to invest]
[Shareholder account number]
[Name of investor]
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<PAGE> 20
OHIO FUND
Shares of the Ohio Fund are distributed through authorized dealers by such
Fund's principal underwriter, Carnegie Fund Distributors, Inc. (the
"Distributor"), 1100 The Halle Building, 1228 Euclid Avenue, Cleveland, Ohio
44115, according to a Master Distribution Agreement between CTE and the
Distributor, dated June 4, 1993, which was last approved by the Board of
Trustees of the Trust at a meeting held on April 3, 1998. The Distributor is a
member of the National Association of Securities Dealers, Inc. and is a
wholly-owned subsidiary of CCMC. The Master Distribution Agreement permits the
Distributor to reallow up to the full amount of the sales charge, as shown in
the above table, to dealers entering into dealer agreements with the
Distributor; accordingly, such dealers may be deemed to be underwriters, as that
term is defined in the Securities Act of 1933, as amended.
The offering price of the Ohio Fund is the net asset value per share
determined as set forth in "Net Asset Value" below plus the applicable sales
charge. Such price applies to all purchase orders received by the Distributor or
First Data prior to 4:00 p.m., Eastern time, or at an earlier time as made
necessary by an early closing of one or more of the national stock exchanges. If
you buy shares through your dealer, the dealer must receive your order before
4:00 p.m., Eastern time, or at an earlier time as made necessary by an early
closing of one or more of the national stock exchanges, and transmit it to the
Distributor by 4:30 p.m., Eastern time, to receive that day's public offering
price (except orders handled through the National Securities Clearing
Corporation ("NSCC") may be transmitted to the Distributor at a later time).
Since the net asset value at which shares of the Ohio Fund are purchased is
determined after receipt of an order by the Fund, the failure of a dealer to
promptly transmit an order may cause the purchase price to be more or less than
the amount you otherwise would have paid. Transmission of orders is the
responsibility of the dealer through whom you purchase shares; the Distributor
is not responsible for the prompt transmission of orders by dealers. Funds in
the amount of the net asset value plus the sales charge must be transmitted to
First Data within three business days following investment. If funds are not
received by such time, the Distributor reserves the right to cancel the purchase
order.
CCMC and the Distributor from time to time may provide promotional
incentives to certain dealers with whom the Distributor has entered into
Dealer's Agreements with respect to the Ohio Fund. Such incentives may include
sales contests under which registered representatives employed by such dealers
who reach a certain level of sales of shares of the Ohio Fund may be awarded
additional compensation in the form of cash, merchandise or reimbursement of
travel expenses. Other incentives may include cash compensation paid to certain
broker-dealer firms for performing internal wholesale marketing services on
behalf of the Ohio Fund. Such compensation will be based upon sales of the Ohio
Fund shares above a minimum level.
REDUCED SALES CHARGES (OHIO FUND)
You may be eligible to purchase shares of the Ohio Fund at a reduced sales
charge if you qualify for the combined purchase privilege, the cumulative
quantity discount or have executed a letter of intent, or if you exercise the
reinvestment or exchange privilege. A description of these options is included
in the instructions to the application form attached to this Prospectus and in
the Statement of Additional Information. For additional information, contact the
Trust or your dealer.
18
<PAGE> 21
You may purchase shares of the Ohio Fund at net asset value when the
payment for your investment represents the proceeds from the redemption of
shares of another investment company which has a sales charge or other selling
commission and is not part of the Carnegie Funds Group. Your investment will
qualify for this "commission free switch" if the purchase price of the shares of
the other investment company included a sales charge and if the redemption of
such shares occurred no more than 60 days prior to your purchase of shares of
the Ohio Fund. To make a purchase at net asset value pursuant to this provision,
mark the appropriate section on the application form attached to this Prospectus
and submit with the application a photocopy of the confirmation (or similar
evidence) showing the redemption from the other fund. The minimum investment in
shares of the Ohio Fund is $1,000. The payment may be made with the redemption
check representing the proceeds of the shares redeemed, endorsed to the order of
the "Carnegie Funds Group". The redemption of shares of the other investment
company is, for Federal income tax purposes, a sale on which you may realize a
gain or loss. You will be deemed to have paid the maximum sales load for
purposes of the exchange privilege. See "Exchange Privilege" in this Prospectus
and in the Statement of Additional Information. This provision may be modified
or terminated at any time. Contact your dealer or the Trust for further
information.
Ohio Fund shares may be sold at net asset value to the Trustees, officers,
full-time employees and sales representatives of the Trusts, the Adviser, the
Distributor and the NASD member firms that have entered into dealer agreements
with the Distributor, and the spouses and minor children of such persons. The
Ohio Fund may also issue shares at net asset value in connection with any merger
or consolidation with, or acquisition of the assets of, any investment company.
MONEY MARKET FUNDS
Shares of each Money Market Fund are sold on a continuing basis at the net
asset value next computed after an order and Federal funds are received by First
Data. Purchase orders will become effective on the day Federal funds are
received by First Data, i.e. the day on which your money is credited to First
Data's account at the Federal Reserve Bank of Boston. If Federal funds are
received by First Data prior to noon on any day, Monday through Friday (except
on the customary national business holidays listed in "Net Asset Value") the
order will be effective on that day. Money transmitted by check drawn on a
member of the Federal Reserve System will normally be converted to Federal funds
on the first business day following receipt. Funds transmitted by wire will be
invested on the same day as the transfer so long as Federal funds are received
by First Data prior to noon on that day. Funds transmitted by bank wire to First
Data and received by it after noon will normally be invested on the next
business day. Your bank may charge for its services in effecting wire transfers
of funds. Firms or fiduciaries may charge you for the service of forwarding
investments. Shares purchased prior to noon will commence accruing dividends on
the date of purchase.
Share certificates will be issued only upon your written request to First
Data. No certificate will be issued for fractional shares. Each Trust and the
Distributor reserve the right to reject in whole or in part any order to
purchase shares of the respective Trusts.
Each of the Money Market Funds intends to send to shareholders written
notification of their account transactions on a monthly basis in lieu of
immediate confirmation.
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AUTOMATIC INVESTMENT SERVICE
After you have opened your Fund account, you may arrange to make automatic
monthly or quarterly investments into your account by selecting this service on
the application form attached to this Prospectus or by calling CCMC. Under this
plan, a draft will be drawn on your bank account at regular intervals (the 20th
day of the appropriate month) to purchase shares of the Fund at the applicable
offering price on the date of the draft and a debit will appear on your bank
statement. The Fund will send you a confirmation for each transaction. The
minimum amount for each such investment is $250. To change the amount or cancel
the automatic investment service, notify the appropriate Trust or First Data in
writing. The change or cancellation may not become effective for up to 30 days.
Because a sales charge is applied on new Ohio Fund shares purchased, it would
not be to your advantage to buy such shares while also making systematic
withdrawals.
DISTRIBUTION EXPENSE PLANS
Each of the Trusts has adopted a Distribution Expense Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "1940 Act"). The plans
adopted by the Money Market Funds are "defensive" type plans and do not
authorize the payment of any expenses by such Funds other than those incurred
under their respective investment advisory contracts. Pursuant to the plan of
the Ohio Fund, the Fund pays the Distributor, as reimbursement for certain
distribution expenses, a distribution fee (the "Distribution Fee"). The Ohio
Fund pays a Distribution Fee at the annual rate of not more than .30 of 1% of
the average net assets of such Fund. The Distribution Fee is calculated and
accrued on a daily basis and paid to the Distributor quarterly. The Distributor
is required to use an amount equal to .20 of 1% of the average daily net assets
of the Ohio Fund (or all of any lesser Distribution Fee) to make continuing
payments (i.e., trail commissions) to authorized dealers for their continuing
distribution and promotional assistance in connection with the sale of shares of
the Fund. Any remaining portion of the Distribution Fee is utilized by the
Distributor for any activities of, or expenses incurred by, the Distributor
which are primarily intended to result in the sale of shares of the Fund,
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 for directly or indirectly purchasing radio,
television, newspaper and other media advertising and conducting sales seminars,
sales contests and other incentives. In some instances, these incentives may be
offered only to certain dealers who have sold or may sell a significant amount
of shares. The Plans do not provide for reimbursement of the Distributor's
overhead expenses, or for carry-over of distribution expenses incurred in a
given year to a later year or related interest or financing charges. The
Distributor and broker-dealers which have entered into dealer's agreements with
the Distributor have agreed to waive the Distribution Fees with respect to the
Ohio Fund indefinitely. The waiver of such fees will cause a reduction of such
Fund's expenses and an increase in its yield and total return. See "Distribution
Expense Plans" in the Statement of Additional Information.
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HOW TO REDEEM SHARES
You may redeem shares for cash on any day on which the New York Stock
Exchange is open at the net asset value next computed after receipt by First
Data of a redemption request in proper form. Payment normally will be made by
check mailed within not more than seven days. If shares have been purchased by
check and are being redeemed, the purchase check must be collected by First Data
before payment can be made, which may take up to fifteen days or more after
investment. Accordingly, if you expect to receive payment for redeemed shares
within fifteen days of purchase, you should purchase through a dealer or provide
payment in immediately available funds (e.g., wire transfer).
Redemption requests must be made through your dealer or in writing to First
Data, accompanied by share certificates, if issued. Written requests for
redemption should be forwarded to Carnegie Funds Group, Post Office Box 60447,
King of Prussia, Pennsylvania, 19406-0447, and must state your account number
and the number of shares or dollar amount to be redeemed, or that you are
requesting "redemption in full", and be signed by each registered owner exactly
as the shares are registered. See "Complete Redemption". If the shares to be
redeemed were issued in share certificate form, the certificate must be endorsed
for transfer (or be accompanied by an endorsed stock power) and must be
submitted to First Data together with a redemption request. Any signature
appearing on a redemption request, share certificate or stock power must be
guaranteed by an "eligible guarantor institution" (generally, FDIC member banks,
brokers, dealers, government securities dealers and brokers, municipal
securities brokers and dealers, credit unions, a member firm of a national
securities exchange, registered securities association or clearing agency and/or
savings associations). A signature guarantee by a notary public is not
acceptable. The signature guarantee requirement on redemptions of up to $1,000
may be waived at the sole discretion of either the applicable Trust or First
Data. First Data may request further documentation such as certified corporate
resolutions or evidence of authority to act as a fiduciary from corporations,
executors, administrators, trustees or other fiduciaries. A redemption request
will not be deemed to be properly received until First Data receives all
required documents in proper form. You also may elect to use the wire redemption
procedure (see "Wire Redemption" below). You should be aware that the net asset
value per share may fluctuate between the time you mail your redemption request
and the time First Data receives your request. Dealers may charge for their
services in connection with redemptions, but neither the Trusts nor the
Distributor impose any charge in connection with redemptions.
The Distributor, as agent for the Ohio Fund, is authorized to offer to
repurchase shares of such Fund which are presented by telephone or telegraph by
dealers in amounts of at least $500. The repurchase price is the net asset value
per share next determined after the repurchase order is received. Repurchase
orders for shares of the Ohio Fund received by dealers prior to 4:00 p.m.,
Eastern time, daily Monday through Friday or at an earlier time as made
necessary by an early closing of one or more of the national stock exchanges
(except on customary national business holidays) are priced at a net asset value
per share that is determined no later than 4:00 p.m. or at an earlier time as
made necessary by an early closing of one or more of the national stock
exchanges, provided that they are time stamped by the dealer no later than 4:00
p.m. or at an earlier time as made necessary by an early closing of one or more
of the national stock exchanges on such day. It is the responsibility of dealers
to transmit orders received by them to the Distributor prior to 4:30 p.m.,
Eastern time, or at an earlier time as made necessary by an
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<PAGE> 24
early closing of one or more of the national stock exchanges on such day (except
orders handled through the NSCC may be transmitted to the Distributor at a later
time). If the dealer should fail to do so, the shareholder's entitlement to that
day's net asset value per share must be settled between the shareholder and his
dealer. Repurchase orders received by dealers after the daily determination of
net asset value, or received by the Distributor after 4:30 p.m., Eastern time,
or at an earlier time as made necessary by an early closing of one or more of
the national stock exchanges, are priced based upon the next day's close.
Dealers may charge for their services in connection with the repurchase, but
neither the Trusts nor the Distributor make any charge. The offer to repurchase
by the Distributor may be suspended at any time.
WIRE REDEMPTION
You may elect to use the wire redemption procedure to redeem shares of any
Fund by designating, on the application form submitted at the time of initial
investment, the name of a Federal Reserve System member bank and account number
to receive redemption proceeds. If you make this election, requests for
redemption (except for accounts held through certain dealers) may be made by
telephone by calling 1-800-558-5835. Neither the Trusts nor First Data will be
liable for any loss to the shareholder resulting from an unauthorized
transaction as long as the Trusts and First Data are following instructions
communicated by telephone reasonably believed to be genuine. The Trusts and
First Data will employ reasonable procedures, including recording all telephone
calls requesting telephone exchanges and testing the caller's identity, to
ensure that instructions communicated by telephone are genuine. Requests for
expedited redemption may also be made by letter to Carnegie Funds Group, Post
Office Box 60447, King of Prussia, Pennsylvania, 19406-0447. You may elect to
receive payment of redemption proceeds by bank wire to your designated account
if the proceeds are $1,000 or more; otherwise, proceeds will be sent by mail to
your address of record. If shares are redeemed under this procedure you will not
be required to provide a signature guarantee. However, requests to change bank
or account designations may only be made by written instructions to First Data
with the type of signature guarantee and other documentation specified under
"How to Redeem Shares". No share certificates will be issued if you elect this
procedure and it is not available for redemption of shares in IRA or SEP
accounts.
Wire redemption of shares of the Ohio Fund will be effected five business
days following the date of the net asset value next determined after receipt by
First Data of a redemption request in proper form. Wire redemption of shares of
the Money Market Funds will be effected immediately.
CHECK-WRITING REDEMPTION
Check-writing redemption is available to all shareholders of each of the
Money Market Funds. In addition, check-writing redemption is available to
shareholders of the Ohio Fund who own or purchase shares of such Fund having a
value of $25,000 or more. To participate in the check-writing redemption
procedure, contact First Data at the number listed in "Shareholder Services" and
request a signature card. Upon return of an executed signature card, First Data
will provide you with a supply of checks which may be drawn against your Fund's
account maintained by First Data. These checks, which will be imprinted with
your name, may be made payable to the order of any person in any amount not less
than $100. This procedure is not available to accounts of the Ohio Fund which
fall below $5,000 in value, and it is subject to
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<PAGE> 25
First Data's rules and regulations governing checking accounts. No share
certificates will be issued to you or may be held by you if you elect this
procedure. Because of the daily fluctuations in the value of Fund shares, you
should be certain there are adequate shares in your account to cover the amount
of checks written on a Fund. If insufficient shares are in your account, the
check will be returned for "insufficient funds". No shares will be redeemed in
one Fund to cover a check written on another Fund. Neither First Data nor the
Trusts shall incur any liability to you under this procedure for honoring
checks, for effecting redemptions pursuant to payment thereof or for returning
checks which are not accepted for payment.
The check-writing redemption procedure enables you to receive the daily
dividends declared on Fund shares to be redeemed until such time as your check
is presented to First Data for payment. When a check drawn under this procedure
is so presented, First Data, as your agent, will cause the appropriate Fund to
redeem, at the net asset value next computed, a sufficient number of full and
fractional shares in the account to cover the amount of the check. Redemption
pursuant to the check-writing privilege will be treated as a sale for Federal
income tax purposes. See "Taxes".
No charge will be made for participation in the check-writing redemption
procedure or for the clearance of any checks. This procedure may be terminated
at any time by the applicable Trust, First Data or you. Such check-writing
accounts are not FDIC insured.
COMPLETE REDEMPTION
The value of your account varies daily due to the fluctuation in net asset
value and/or to the declaration of dividends and the reinvestment of dividends
in additional shares. Accordingly, if you wish to close out your account, you
should not specify the number of shares or dollar amount but, instead, should
request, "redemption in full". A complete redemption may be accomplished by mail
or by the wire redemption procedure using the same procedures described under
"How to Redeem Shares" or "Wire Redemption". Your final monthly statement will
indicate the amount of the complete redemption attributable to principal and the
amount paid as interest. The check-writing redemption procedure is not
appropriate for a complete redemption. Prior to effecting a complete redemption,
if you have recently used the check-writing redemption procedure you should
verify with the appropriate Trust or First Data (at the telephone numbers listed
under "Shareholder Services") that your check has been collected by First Data
to avoid the possibility that your check may not be accepted by First Data for
payment after the complete redemption due to insufficient funds.
RIGHT OF REDEMPTION
The Trusts may, with respect to any Fund, suspend the right of redemption
or delay payment more than seven days (i) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday closings),
(ii) when trading in the markets that such Fund normally utilizes is restricted,
or an emergency exists as determined by the Securities and Exchange Commission
so that disposal of any of such Fund's investments or determination of its net
asset value is not reasonably practicable, or (iii) for such other periods as
the Securities and Exchange Commission by order may permit for protection of
such Fund's shareholders. In case of suspension of the right of redemption, you
may either withdraw your
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request for redemption or, if your request is not withdrawn, receive payment
based on the net asset value next computed after termination of the suspension.
Due to the high cost of maintaining accounts, the Trusts reserve the right
to involuntarily redeem shares in your account at their then current net asset
value if, at any time, redemptions have reduced your total investment in a Fund
to a net asset value below $500. Proceeds of redemptions so processed will be
promptly paid to you. Brokers who sell shares of the Trusts may establish
special redemption procedures for investors purchasing shares through such
brokers. Under such procedures, shares of a Fund may be automatically redeemed
by the broker to the extent necessary to satisfy debit balances arising in the
investor's cash account with such broker. Investors may elect not to permit such
a redemption by notifying their broker to that effect. For more detailed
information, contact your broker.
Each Money Market Fund will send its investors a month-end written
statement, in lieu of an immediate confirmation, within five business days after
the end of each monthly period. This statement will disclose each purchase or
redemption, effected for or with, and each dividend or distribution credited to,
or reinvested for, the account during the period.
NET ASSET VALUE
The net asset value is determined at 4:00 p.m., Eastern time, for the Ohio
Fund and noon for the Money Market Funds (or in each case at an earlier time as
made necessary by an early closing of one or more of the national stock
exchanges) Monday through Friday, except on (i) days during which no security is
tendered for redemption and no order to purchase or sell such security is
received by the investment company; or (ii) the following customary national
business holidays: New Year's Day, Martin Luther King Jr. Day, Washington's
Birthday, Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas. The net asset value per share of each Fund is
calculated by subtracting each Fund's liabilities from its assets and dividing
the result by the number of outstanding shares of such Fund. Each of the Money
Market Funds values its securities using the amortized cost method, when it is
determined pursuant to procedures established by the Board of Trustees that
amortized cost reflects fair value of such securities. When calculating net
asset value, all portfolio securities of the Ohio Fund are valued at market
value when there is a reliable market quotation for the securities and otherwise
in accordance with procedures established by the Board of Trustees. Securities
with remaining maturities of less than 60 days are valued at amortized cost
according to the standards for the Money Market Funds set forth above. The
Trustees of a Trust may authorize the use of a pricing service to determine
valuations. Shares of the Trusts are redeemed at the net asset value per share
next computed after the redemption request is received and shares are purchased
at net asset value plus, in the case of the Ohio Fund, the applicable sales
charge.
For purposes of calculating net assets of the Ohio Fund, reliable market
quotations normally are not considered to be readily available for tax-exempt
securities. These securities are stated at fair value on the basis of valuations
furnished by pricing services, approved by the CTE Trustees, which determine
valuations using methods based on market transactions for comparable securities
and other factors which are generally recognized by institutional traders.
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Generally, trading in fixed-income municipal obligations is substantially
completed each day at various times prior to 4:00 p.m., Eastern time. The values
of such securities used in determining the net asset value of the Ohio Fund's
shares are computed as of such times. Events affecting the value of such
securities may occur between such times and 4:00 p.m., Eastern time, which
events will not be reflected in the computation of the Fund's net asset value.
When events that materially affect the value of the Ohio Fund's securities occur
during such a period, the tax-exempt securities will be valued at their fair
value as determined in good faith by the CTE Trustees.
DISTRIBUTIONS
All dividends and any capital gain distributions of each Fund will be
reinvested in additional shares of such Fund (including fractional shares where
necessary) at net asset value, without a sales charge, unless you elect on your
application form or in writing, not less than five full business days prior to
the record date for a particular dividend or distribution, to receive such
dividend or distribution in cash. If you elect to receive distributions in cash,
your election will be effective until you give other written instructions to the
applicable Trust. The timing and amount of all dividends and distributions are
subject to the discretion of the Board of Trustees of each Trust.
OHIO GENERAL MUNICIPAL FUND. The Ohio Fund declares dividends from net
investment income daily and pays such dividends on the last business day of each
month. If you completely redeem the shares in your account at any time during
the month, all dividends declared with respect to such shares to the date of the
complete redemption are paid to you at the time of such redemption. The Ohio
Fund will distribute substantially all of its net capital gains annually in
December, if any are realized.
MONEY MARKET FUNDS. All of the Money Market Funds declare dividends from
net investment income daily, Monday through Friday (except on customary national
business holidays or when First Data is not open for business) at noon, Eastern
time, immediately prior to the determination of net asset value. Shares
purchased prior to noon will be entitled to the dividend paid on that day and on
each day to (but not including) the date of redemption. The Money Market Series
and LCI distribute such dividends daily; CTF distributes such dividends monthly
on the last business day of each month. None of the Money Market Funds expects
to realize any net long-term capital gains. If such gains are realized, they
will be distributed at least annually.
TAXES
The following federal income tax discussion, which is based on the advice
of Squire, Sanders & Dempsey L.L.P., reflects applicable federal tax laws as of
the date of this Prospectus and is qualified by reference to the additional
Federal income tax discussion included in the Statement of Additional
Information.
TAXATION -- IN GENERAL
Each Trust has qualified and intends to qualify each year as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code").
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If a Trust so qualifies and distributes each year to its shareholders at least
90% of its net investment income, the Trust will not be required to pay federal
income taxes on any income distributed to shareholders. In addition, the Trust
will not be subject to federal income tax on any net capital gains distributed
to shareholders.
Shareholders receiving distributions in the form of additional shares
issued by a Trust will be treated for Federal income tax purposes as receiving
the amount of cash that they would have received had they not reinvested in
additional shares.
In order to avoid a nondeductible 4% excise tax, each Trust will be
required to distribute substantially all of its ordinary income and capital
gains. The Trusts intend to make such distributions as are necessary to avoid
imposition of this excise tax.
The sale of shares (including through redemption of shares by a Trust) will
be a taxable transaction for Federal income tax purposes. Selling shareholders
will generally recognize gain or loss in an amount equal to the difference
between their adjusted tax basis in the shares and the amount received. If the
shares are held as a capital asset, the gain or loss will be a capital gain or
loss and will be long-term if the shares have been held for more than one year.
If a shareholder sells shares at a loss after holding them for six months or
less, the loss is treated as a long-term capital loss to the extent of any
capital gains distributions made to the shareholder.
The tax discussion set forth herein is for general information only.
Prospective investors should consult their advisors regarding the specific
federal and state tax consequences of holding and disposing of shares, as well
as the effects of other state, local and foreign tax laws and any proposed tax
law changes.
A Fund, or a shareholder's broker with respect to a Fund, is required to
withhold Federal income tax at a rate of 31% of the ordinary income dividends,
capital gains dividends and proceeds of redemptions paid to any shareholder who
fails to furnish the Fund with a correct taxpayer identification number ("TIN")
or fails to certify that he is exempt from such withholding or if the Internal
Revenue Service notifies the Fund or broker that the shareholder has provided
the Fund with an incorrect TIN or failed to properly report dividend or interest
income for Federal income tax purposes. Any such withheld amount will be fully
creditable on each shareholder's individual Federal income tax return. An
individual's TIN is his social security number.
MMS AND LCI
Distributions by MMS and LCI of investment company taxable income are
taxable to shareholders as ordinary income whether paid in cash or reinvested in
additional shares. Distributions of capital gains dividends, if any, are taxable
to shareholders at the rates applicable to long-term capital gains regardless of
how long the shareholders have held their MMS or LCI shares.
Dividend distributions of net income to MMS and LCI shareholders generally
will not qualify for the dividends received deduction for corporations.
Under Federal law, the income derived from obligations issued by the U.S.
Government and certain of its agencies and instrumentalities is exempt from
state income taxes. Many states that tax personal income permit mutual funds to
pass through this tax exemption to shareholders.
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<PAGE> 29
MMS will report to its shareholders annually the percentage and source of
interest income earned in such Government obligations to permit shareholders to
claim the exemption from state income taxes where permitted.
THE OHIO FUND AND CTF
The Ohio Fund and the CTF will distribute substantially all of their net
investment income and capital gain net income to shareholders. The Ohio Fund and
the CTF intend to qualify to pay exempt-interest dividends to their shareholders
to the extent of their tax-exempt interest income (less expenses applicable
thereto). Exempt-interest dividends are treated by shareholders as interest
excludable from gross income for Federal income tax purposes, but can adversely
affect the determination of what portion, if any, of social security and
railroad retirement benefits are includable in gross income subject to Federal
income tax and the determination of whether the individual is eligible for the
earned income credit. Such dividends may be taxable for state and local
purposes. Interest with respect to indebtedness incurred or continued by a
shareholder to purchase or carry shares of the Ohio Fund or the CTF is not
deductible to the extent that such interest relates to exempt-interest dividends
received from the Ohio Fund or the CTF.
In order to pay exempt-interest dividends, the Ohio Fund and the CTF must
(and intend to) qualify as a regulated investment company and satisfy the
requirement that, at the end of each quarter of the Ohio Fund's and CTF's
taxable years, at least 50% of the value of the Ohio Fund's and the CTF's total
assets consist of obligations the interest on which is exempt from Federal
income tax.
Exempt-interest dividends allocable to interest received by the Ohio Fund
and the CTF on certain "private activity bonds" issued after August 7, 1986,
will be treated as an item of tax preference that will increase a shareholder's
alternative minimum taxable income. In addition, for corporations, 75% of the
excess of adjusted current earnings (which includes tax-exempt interest and
exempt-interest dividends) over other alternative minimum taxable income is
included in alternative minimum taxable income. Accordingly, investment in the
Fund may cause shareholders to be subject to (or result in an increased
liability under) the alternative minimum tax.
The Ohio Fund and the CTF anticipate that substantially all of their
dividends will be exempt from Federal income tax and will inform shareholders of
the source and tax status of all distributions promptly after the close of each
calendar year.
As mentioned above, the sale of shares will be a taxable transaction for
Federal income tax purposes. Any loss realized upon a sale of shares held for
six months or less will be disallowed to the extent of any exempt-interest
dividends received with respect to those shares.
Distributions by the Ohio Fund or the CTF of ordinary income (other than
exempt-interest dividends) or capital gain, if any, will be treated for Federal
income tax purposes in the manner described above under the heading "Taxes --
MMS and LCI" for distributions by MMS and LCI of such income and gains.
Provided that the Ohio Fund continues to qualify as a regulated investment
company under the Code, and that at all times at least 50% of the value of the
total assets of the Ohio Fund
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<PAGE> 30
consists of obligations issued by or on behalf of Ohio, political subdivisions
thereof or agencies or instrumentalities of Ohio or its political subdivisions
(Ohio Obligations), or similar obligations of other states or their
subdivisions, (i) dividends paid by the Ohio Fund will be exempt from Ohio
personal income tax and will be excluded from the net income base for purposes
of the Ohio corporation franchise tax to the extent such dividends are properly
attributable to interest payments on Ohio Obligations, and (ii) distributions of
"capital gain dividends", as defined in the Code, that are properly attributable
to the Ohio Fund's sale or other disposition of Ohio Obligations will be exempt
from Ohio personal income tax and will be excluded from the net income base for
purposes of the Ohio corporation franchise tax. However, other distributions
from the Ohio Fund will generally not be exempt from Ohio personal income tax
and shares of the Ohio Fund will not be excluded from the net worth base for
purposes of the Ohio corporation franchise tax.
A more detailed summary of certain of the provisions of Ohio statutes and
administrative interpretations presently in effect governing the taxation of
shareholders of the Ohio Fund appears in the Statement of Additional
Information. These provisions are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Ohio Fund transactions. Shareholders are advised to consult their own tax
advisers for more detailed information concerning Ohio tax matters.
SHAREHOLDER SERVICES
Shareholder inquiries should be directed to First Data. Written inquiries
to First Data should be directed to Carnegie Funds Group, Post Office Box 60447,
King of Prussia, Pennsylvania, 19406-0447. You may call First Data, toll free,
at 1-800-558-5835.
MONTHLY DISTRIBUTION PLAN
You may arrange for the monthly redemption of all shares purchased through
the automatic reinvestment of dividends from net income, in the case of each
Fund except CTF, or for the monthly payment of dividends from net income, in the
case of CTF, by indicating your desire to participate in the Monthly
Distribution Plan on the application form accompanying your original investment.
Shares purchased during each month through reinvestment of dividends will be
redeemed at net asset value on the first day of the following month and the
proceeds distributed to you. The Monthly Distribution Plan may be terminated at
any time by you, the applicable Trust or First Data and it is not available to
IRA or SEP accounts.
SYSTEMATIC WITHDRAWAL PLAN
You also may participate in the Systematic Withdrawal Plan if you make that
election on the application form. An investor may direct First Data to send to
him/her regular monthly, bi-monthly, quarterly, semi-annual or annual payments,
as designated on the account application form. This Plan enables investors to
receive a portion of their invested funds on a periodic basis to supplement
income. Such payments are made from share redemptions. If redemptions continue,
the investor's account may eventually be exhausted. The minimum initial
investment required to start a withdrawal plan is $10,000. This Plan is not
available for accounts held through certain dealers.
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EXCHANGE PRIVILEGE
You may exchange shares of any Fund for shares of another Fund in the
Carnegie Funds Group at any time. Shareholders exchanging shares among the Money
Market Funds may do so without paying a sales charge; exchanges of shares of the
Money Market Funds for shares of the Ohio Fund will include the payment of the
applicable sales charge. Additional exchange instructions may be obtained by
calling the toll free numbers listed above; for more information, see "Exchange
Privilege" in the Statement of Additional Information. Before considering an
exchange to another Carnegie Fund, you should refer to such Fund's description
for information regarding that Fund.
Written exchange instructions may be given to First Data at the address
listed in "Shareholder Services". Exchanges also may be effected by telephone
request to First Data (1-800-558-5835) unless the Fund has received prior
written instructions from the investor not to effect such exchanges. Without
such instructions, an investor automatically authorizes First Data to honor
telephone instructions for exchange of shares received by First Data from the
investor or his/her agent and believed by First Data to be genuine. (This
telephone service is not available for accounts held through certain dealers.)
Neither the Trusts nor First Data will be liable for any loss to the shareholder
resulting from an unauthorized transaction as long as the Trusts and First Data
are following instructions communicated by telephone reasonably believed to be
genuine. The Trusts and First Data will employ reasonable procedures, including
recording all telephone calls requesting telephone exchanges and testing the
caller's identity, to ensure that instructions communicated by telephone are
genuine. The exchange privilege is subject to termination and its terms are
subject to change, upon 60 days advance notice in each case, in accordance with
the rules of the Securities and Exchange Commission.
For purposes of exchanges among Funds, the redemption price of the shares
of the Fund to be exchanged and the purchase price of the shares of the Fund to
be purchased will be valued at the net asset value next determined for each such
Fund following receipt of request for exchange by First Data. Because an
exchange is considered a redemption and purchase of shares, you may realize a
capital gain or loss for Federal income tax purposes if you make an exchange,
and back-up withholding and reporting may also apply.
Any service options previously selected for an account at the time of the
exchange will be carried over to the new account, if applicable, unless
instructed otherwise by the shareholder.
IRAS AND SEPS
You may purchase shares of LCI or MMS in conjunction with the establishment
of a Carnegie Individual Retirement Account ("IRA") or Simplified Employee
Pension Plan ("SEP"). The minimum initial investment to establish a
tax-sheltered plan is $250; subsequent investments are subject to a minimum of
$50 for each account. See the Statement of Additional Information or contact the
applicable Trust or your dealer for detailed information concerning such account
or plan. Prior to establishing any such account or plan, you should consult with
a tax adviser concerning the tax consequences thereof.
29
<PAGE> 32
YIELD CALCULATIONS
From time to time, each Fund may advertise its yield, which reflects the
rate of income the applicable Fund earns on its investments as a percentage of
its price per share. All yield figures are based on historical earnings and are
not intended to indicate future performance. The Ohio Fund's yield is computed
by dividing the interest and dividend income it earned on its investments for a
30-day (or one month) period, less expenses, by the average number of Fund
shares outstanding during the period. The figure is expressed as an annualized
percentage rate based on the Fund's offering price, including the sales charge,
at the end of the 30-day (or one month) period.
The current yield of the Money Market Funds refers to the income generated
over a seven-day period (which period will be stated in the advertisement). The
income is then annualized. That is, the amount of income generated by the
investment that week is assumed to be generated each week over a 52-week period
and is shown as a percentage of the investment. The effective or compounded
yield of the Money Market Funds is calculated similarly, but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
effective or compounded yield will be slightly higher than the current yield
because of the compounding effect of this assumed reinvestment.
Performance advertising by the Ohio Fund will include total return data.
The total return of the Fund refers to its overall change in value, assuming all
dividends and gains distributions are reinvested and deduction of the maximum
sales charge. Total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over one-, five- and
10-year periods of time, that would compare the initial amount to the ending
redeemable value of such investment.
DESCRIPTION OF THE TRUSTS
GENERAL DESCRIPTION (ALL TRUSTS)
The Trustees of each Trust are authorized to issue an unlimited number of
shares of beneficial interest representing interests in separate series of the
Trust, each of which is referred to in this Prospectus as a "Fund". Each Trust
maintains accounting records that specifically allocate assets and liabilities
on a Fund by Fund basis. The shares of each Fund represent an undivided interest
in the assets and liabilities specifically allocated to that Fund. Creditors and
other persons contracting with the Trust with respect to a Fund may look solely
to the assets of that Fund to satisfy claims against the Trust.
All shares of each Trust are the same class and are freely transferable.
Each share has equal dividend rights and is entitled to one vote at all
shareholder meetings. Separate votes are taken by each Fund except to the extent
that the 1940 Act requires shares of all Funds of a Trust to be voted in the
aggregate. Shares have non-cumulative voting rights, so that the holders of more
than 50% of the shares voting for the election of trustees can, if they choose
to do so, elect all the trustees of a Trust, in which event the holders of the
remaining shares will be unable to elect any person as a trustee. Whenever the
approval of a majority of the outstanding shares of a Fund is required in
connection with shareholder approval of an investment advisory contract, changes
in the investment objective, policies or limitations of that Fund, or approval
of a
30
<PAGE> 33
distribution expense plan, a "majority" shall mean the vote of the lesser of (i)
67% or more of the shares of such Fund present at a meeting, if the holders of
more than 50% of the outstanding shares of such Fund are present in person or by
proxy, or (ii) more than 50% of the outstanding shares of such Fund. The Trusts
do not hold regular meetings of shareholders. Thus, there will ordinarily be no
shareholder meetings unless required by the 1940 Act. Under the Trusts'
Declarations, however, a group consisting of shareholders holding at least 10%
of a Trust's shares then outstanding may cause the Trust to hold a meeting of
shareholders to act upon the removal of one or more of the trustees and/or
certain other matters as provided in the Trust's Declaration or in the Trust's
by-laws. In connection with any such meeting, the Trust will assist shareholders
in communicating with other shareholders.
Upon issuance and sale in accordance with the terms of this Prospectus and
the related Statement of Additional Information, each share will be fully paid
and non-assessable by the respective Trust. Shares have no preemptive,
subscription or conversion rights and are redeemable as set forth under "How To
Redeem Shares". In the event of the dissolution or liquidation of a Trust, the
holders of the shares of any Fund thereof are entitled to receive, as a class,
the underlying assets of such Fund available for distribution to shareholders.
The Declaration of Trust of each Trust also provides that shareholders shall not
be subject to any personal liability for the acts or obligations of the Trust
and that every agreement, obligation or instrument entered into or executed by
the Trust shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declarations provide for indemnification out
of Trust property of any shareholder held personally liable for the obligations
of the Trust and that the Trust shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the Trust and
satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations. Management
believes that, in view of the above, the risk of personal liability is remote.
The business and affairs of each Trust are managed under the direction of
the Trust's Board of Trustees. Each Declaration of Trust provides for an
unlimited number of authorized shares of beneficial interest in the Trust, par
value $.10 per share, of any Fund authorized by the Board of Trustees pursuant
to the Declaration.
CTE
CTE is a non-diversified, open-end management investment company organized
under the laws of the State of Ohio as a business trust by a Declaration of
Trust dated September 19, 1985. The Trust currently has one authorized Fund, the
Ohio General Municipal Fund.
MMS
MMS is a diversified series of Carnegie Government Securities Trust. The
Trust is a diversified, open-end management investment company organized under
the laws of the Commonwealth of Massachusetts by a Declaration of Trust dated
February 19, 1982, as amended April 28, 1982 and May 21, 1985. MMS currently is
the only Fund of the Trust.
31
<PAGE> 34
LCI AND CTF
LCI and CTF are diversified, open-end management investment companies
organized under the laws of the Commonwealth of Massachusetts by Declarations of
Trust dated February 19, 1982, as amended May 21, 1985 (LCI) and April 6, 1982,
as amended May 21, 1985 (CTF). LCI and CTF each currently has only one
authorized Fund.
Although each Trust is offering only its own shares, it is possible that
one Trust may become liable for any misstatement in this combined Prospectus
about another Trust. The Board of Trustees of each Trust has considered this
factor in approving the use of this combined Prospectus.
CUSTODIAN AND TRANSFER AGENT
Boston Safe Deposit and Trust, ("Boston Safe"), One Cabot Road, Third
Floor, Medford, Massachusetts 02155, serves as the Custodian of each of the
Trusts pursuant to separate Custody Agreements. Boston Safe is a wholly-owned
subsidiary of Mellon Bank Corporation.
First Data, a wholly-owned subsidiary of First Data Corp., 3200 Horizon
Drive, King of Prussia, Pennsylvania, 19406, serves as the Dividend and Transfer
Agent of the Trusts pursuant to a Transfer Agency and Services Agreement.
32
<PAGE> 35
CARNEGIE FUNDS GROUP APPLICATION FORM
================================================================================
Mail To: Carnegie Funds Group, P.O. Box 60447, King of Prussia, PA 19406-0447
================================================================================
ACCOUNT REGISTRATION
<TABLE>
<S> <C> <C>
[ ] (1/2) INDIVIDUAL _______________________________ Age: ________
Occupation/Employer: _________________________
[ ] (3) JOINT OWNER _______________________________ Age: ________
Occupation/Employer: _________________________
(A joint tenancy with right of survivorship
will be presumed, unless otherwise indicated.)
[ ] (8) GIFT TO MINOR _____________________________ as Custodian for
Name of Custodian
______________________ under the _____________
Name of Minor State
Uniform Gift to Minors Act. Minor's Age: _____
(Show Minor's Social Security Number below.)
OTHER: ____________________________________________________________________
(Check box below that applies. Multi-Purpose Certification Form may
be required.)
</TABLE>
<TABLE>
<S> <C>
[ ] (9) Corporation [ ] (6) Bank Trustee
[ ] (13) Bank/Nominee [ ] (14) Pension Plan
[ ] (4) Individual Trustee [ ] (15) Profit Sharing Plan
[ ] (5) Individual Exec., Gdn., Admin., etc. [ ] Other: _________________
</TABLE>
<TABLE>
<C> <S> <C>
[ ] (1) SOCIAL SECURITY NUMBER: ________________________________________________________ or
[ ] (0) TAXPAYER IDENTIFICATION NUMBER ("T.I.N."): ________________________________________
[ ] (0) U.S. CITIZEN [ ] ( ___ ) CITIZEN OF ____________________________
TELEPHONE NUMBER (where you can be reached during the day): ______________________________________
ADDRESS: _________________________________________________________________________________________
STREET
_________________________________________________________________________________________
CITY STATE ZIP
</TABLE>
================================================================================
<PAGE> 36
================================================================================
FUND INVESTMENT DESIGNATION
INITIAL INVESTMENT Minimum $1,000 per Fund. The application may be used to
establish accounts in multiple Funds if the accounts will have identical
registrations and applicable options. Otherwise, designate only one Fund. MAKE
CHECK PAYABLE TO: CARNEGIE FUNDS GROUP.
<TABLE>
<S> <C> <C> <C>
INTERNAL
AMOUNT USE ONLY
------ --------
CARNEGIE GOVERNMENT SECURITIES TRUST ("CGST") ____________________ ___________
[ ] (01) MONEY MARKET SERIES ("MMS")
CARNEGIE TAX EXEMPT INCOME TRUST ____________________ ___________
[ ] (16) OHIO GENERAL MUNICIPAL FUND
(the "Ohio Fund")
[ ] (03) LIQUID CAPITAL INCOME TRUST ("LCI") ____________________ ___________
[ ] (04) CARNEGIE TAX FREE INCOME TRUST ("CTF") ____________________ ___________
TOTAL AMOUNT ____________________
[ ] REDUCED SALES CHARGE APPLIES
[ ] REDEMPTION FROM OTHER FUNDS "Commission Free Switch" -- See Prospectus for explanation. Application is
hereby made to purchase shares at net asset value with payment representing the proceeds from the
redemption of shares of another investment company. The investor certifies that the requirements
necessary to qualify for this provision have been met. Enclosed is the redemption confirmation from
the other fund.
[ ] EXCHANGE FROM ANOTHER CARNEGIE FUND (Specify as shown on statement.)
Fund Name: _________________________________________________________
Fund Number: ___________________ Account Number: ___________________
</TABLE>
================================================================================
<TABLE>
<S> <C> <C> <C>
[ ] CUMULATIVE QUANTITY DISCOUNT AND COMBINED PURCHASE FUND NUMBERS/ACCOUNT NUMBERS
AND REINVESTMENT PRIVILEGES -- The account (as shown on statement)
qualifies for the cumulative quantity discount, ________ _______________
combined purchase or reinvestment privileges ________ _______________
described in the Prospectus for the selected Funds ________ _______________
under the Terms and Conditions of the General ________ _______________
Application Form and Additional Investments and in ________ _______________
the Statement of Additional Information. This is a
schedule of accounts which qualify.
</TABLE>
<TABLE>
<S> <C> <C>
[ ] LETTER OF INTENT -- I agree to the Letter of [ ] $25,000 [ ] $500,000
Intent and Terms of Escrow set forth in the [ ] $50,000 [ ] $1,000,000
Prospectus for the Ohio Fund under the Terms and [ ] $100,000 [ ] $2,000,000
Conditions of the General Application Form and [ ] $250,000 [ ] $4,000,000 or more
Additional Investments and in the Statement of
Additional information. Although I am not
obligated to do so, it is my intent to invest over
a thirteen-month period in shares of such Fund an
aggregate amount at least equal to that which is
checked:
</TABLE>
================================================================================
<PAGE> 37
================================================================================
OPTIONAL SHAREHOLDER PRIVILEGES -- See Prospectus and Statement of Additional
Information for explanations unless otherwise noted. Check box for each option
selected. The shareholder acknowledges that any service options previously
selected for an account at the time of an exchange will be carried over to the
new account, if applicable, unless instructed otherwise by the shareholder.
================================================================================
<TABLE>
<S> <C> <C>
[ ] CHECK-WRITING REDEMPTION PROCEDURE. See Prospectus for Unless I advise you to the contrary, I request the
explanation and minimum required investment or balance. check-writing redemption procedure for my account
I hereby request First Data Investor Services Group in the Funds as indicated below:
("First Data"), a division of First Data Corp. to honor
checks drawn by me on the Fund(s) account indicated CARNEGIE GOVERNMENT SECURITIES TRUST
subject to acceptance by the Trust, with payment [ ] (01) MONEY MARKET SERIES
therefor to be made by redeeming sufficient shares in CARNEGIE TAX EXEMPT INCOME TRUST
account without a signature guarantee. First Data and [ ] (16) OHIO GENERAL MUNICIPAL FUND
the Fund(s) do hereby reserve all their lawful rights [ ] (03) LIQUID CAPITAL INCOME TRUST
for honoring checks drawn by me and for effecting [ ] (04) CARNEGIE TAX FREE INCOME TRUST
redemptions pursuant to the Check-Writing Redemption
Procedure. I understand that this election does not
create a checking or other bank account relationship
between me and First Data or the Trust and that the
relationship between me and First Data is that of
shareholder-transfer agent. If the box is checked, First
Data will notify Corporations, Trustees, Partnerships
and similar institutions as to the additional
documentation needed to receive the Check-Writing
Redemption Procedure.
[ ] Signature Card -- I have enclosed a completed signature card in order to be eligible for the
Check-Writing Redemption Procedure.
[ ] Check box if you wish to require the signatures of both joint account holders on each check.
</TABLE>
================================================================================
[ ] WIRE REDEMPTION -- See Prospectus for explanation. If this procedure is
selected, redemption proceeds may be sent only to the commercial bank
listed below, for credit to your account. The investor hereby authorizes
First Data to honor telephonic or written instruction, without a signature
guarantee, for redemption of shares received by First Data from the
investor and believed by First Data to be genuine. First Data's records of
such instructions will be binding.
_____________________________________________________ _________________
Name of Commercial Bank--Savings Bank May Not Be Used Account Number
__________________________________________________________________________
Address of Bank City State Zip Code
================================================================================
[ ] AUTOMATIC INVESTMENT SERVICE -- The undersigned investor(s) (the
"Investor") hereby authorizes the automatic investment in the amount of
$ ________ ($250 minimum per Fund) in shares of the Fund(s) indicated
each month/quarter (circle one) beginning on ________ (Date), (the
account will be credited on the 20th day of the appropriate month) with
the payments of such automatic investments to be made by debiting the
following bank account (the "Bank Account") of the Investor:
___________________________________ ___________________________________
Name of Commercial Bank Account Number
_________________________________________________________________________
Address of Bank City State Zip Code
The Investor requests and authorizes the above-named Bank (the "Bank") to charge
to the Bank Account debit entries initiated to the Bank Account by First Data
for deposit in the Trust's account for purchasing shares of the Trust on behalf
of the Investor pursuant to the Automatic Investment Service. The rights of the
Bank with respect to each such debit entry will be the same as if it were a
check drawn on the Bank and signed by the Investor. This authorization will
remain in effect until revoked by the Investor in writing to the Bank and First
Data. Until the Bank receives such notice and has reasonable time to act on it,
the Bank will be fully protected in accepting any such debit entry. If such
debit entry is not accepted, whether with or without cause and whether
intentionally or inadvertently, the Bank and First Data will be under no
liability whatsoever, regardless of the consequences of such action. The
Investor understands that his/her participation in the Automatic Investment
Service is subject to the terms and conditions of such service as amended from
time to time.
____________________________________ ____________________________________
Signature Signature (joint owner)
A VOIDED CHECK from the Bank Account must be enclosed with this authorization.
================================================================================
<PAGE> 38
================================================================================
<TABLE>
<S> <C> <C>
[ ] DIVIDEND AND CAPITAL GAINS DISTRIBUTION Unless I advise you to the contrary, I elect to:
OPTIONS (Applicable to the Ohio Fund only) [ ] Distribute capital gains in cash. (Reinvest dividends
Unless box is checked, all dividends and only.)
capital gain distributions will be [ ] Distribute dividends in cash. (Reinvest capital gains
reinvested in additional shares. Designate distributions only.)
distribution option desired by checking [ ] Distribute all dividends and capital gain
appropriate box. distributions in cash.
</TABLE>
================================================================================
[ ] MONTHLY DIVIDEND DISTRIBUTION PLAN -- Applicable for LCI, MMS and CTF
only.
If box is checked, shares purchased by reinvestment of net income
dividends will be automatically redeemed on the first day of each month
(or monthly dividends from net income will be paid, in the case of CTF)
and the investor will receive a monthly check in the amount of the
proceeds thereof.
================================================================================
[ ] SYSTEMATIC WITHDRAWAL PLAN -- See Terms and Conditions of the General
Application Form and Additional Investments for explanation. Payments are
drawn from share redemptions and automatically mailed to the investor by
the 20th day of the appropriate month.
Send a check in the amount of $ _____ monthly, bi-monthly, quarterly,
semi-annually, annually (circle one).
================================================================================
[ ] CONSOLIDATED STATEMENT -- I hereby authorize First Data to report account
activity in a consolidated statement on the account(s) indicated below.
(Note: First Data will automatically consolidate the statements of
accounts established simultaneously in more than one Fund, as may be
accomplished with this Application Form, unless the Investor requests
independent statements for these accounts in writing.)
<TABLE>
<S> <C> <C>
Fund Number Account Number Registration
- -------------- ---------------------------- ------------------------------------------------
- -------------- ---------------------------- ------------------------------------------------
- -------------- ---------------------------- ------------------------------------------------
</TABLE>
Attach a list of any additional accounts to be linked. The investor
represents that he/she is authorized to receive statements on each account.
================================================================================
[ ] DUPLICATE STATEMENT -- I hereby authorize First Data to report account
activity in duplicate to the following address:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
================================================================================
TELEPHONE EXCHANGE PRIVILEGE -- See Prospectus and Statement of Additional
Information of the selected Fund(s) for explanation. The investor hereby
acknowledges that First Data will honor telephone instructions, without a
signature guarantee, for exchange of shares received by First Data from the
investor and believed by First Data to be genuine. First Data's records of such
instructions will be binding. Any shareholder may revoke the privilege by
notifying First Data in writing that such exchanges should be prohibited on the
specified account(s).
================================================================================
<PAGE> 39
================================================================================
SIGNATURE
By the execution of this Application, the investor represents and warrants that
he/she has full right, power and authority, and, if a natural person, is of
legal age in his state of residence, to make the investment applied for pursuant
to this Application, and the person or persons, if any, signing on behalf of the
investor represent and warrant that they are duly authorized to sign this
Application and to purchase or redeem shares of the Fund(s) on behalf of the
investor. The investor hereby affirms that he/she has received a current
Prospectus for the Fund(s). The investor understands and agrees that the
Fund(s), Carnegie Capital Management Company and First Data will not be liable
for any loss, cost or expense for acting on instructions (whether in writing or
by telephone) believed by the party receiving such instructions to be genuine
and in accordance with the procedures described in the Prospectus and Statement
of Additional Information.
"Under penalties of perjury, I certify (1) that the number shown on this
form is my correct taxpayer identification number and (2) that I am not subject
to backup withholding either because I have not been notified that I am subject
to backup withholding as a result of a failure to report all interest or
dividends, or the Internal Revenue Service has notified me that I am no longer
subject to backup withholding."
In addition, my signature indicates that I have selected the options and plans
indicated.
<TABLE>
<S> <C>
(1) ONLY INDIVIDUALS COMPLETE
</TABLE>
<TABLE>
<S> <C>
----------------------- ---------------------------------------------------
Date Signature
----------------------- ---------------------------------------------------
Signature of Joint Owner, if any
or
------------------------- ---------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(2) ONLY CORPORATIONS, PARTNERSHIPS, TRUSTS, INSTITUTIONS COMPLETE
</TABLE>
<TABLE>
<S> <C>
Firm:
------------------------------------------------------------------------------------
----------------------- ---------------------------------------------------
Date Signature and Title
----------------------- ---------------------------------------------------
Date Signature and Title
or
------------------------- ---------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(3) ONLY ADVISORS, BROKER-DEALERS WITH AUTHORITY FILL IN (APPLICABLE ONLY TO LCI, MMS AND CTF)
</TABLE>
<TABLE>
<S> <C>
Firm Name:
-------------------------------------------------------------------------------
----------------------- ---------------------------------------------------
Date Signature and Title
----------------------- ---------------------------------------------------
Date Signature and Title
</TABLE>
================================================================================
FOR DEALERS AND ADVISORS ONLY
(IF AUTHORIZED TO PURCHASE OR REDEEM LCI, MMS OR CTF, FILL IN ITEM 3 ABOVE)
Carnegie Fund Distributors, Inc. (the "Distributor") acts as agent in all
purchases by the investor of the Ohio Fund shares. The Distributor and the
authorized dealer, if any, named below each authorizes and appoints First Data
to act as its agent to execute the purchase of Fund shares by the investor,
whether the payment is received from the Distributor, the authorized dealer or
directly from the investor, and to confirm such purchases on their behalf.
- --------------------------------------------------------------------------------
Dealer's Name
- --------------------------------------------------------------------------------
Home Office Address City State Zip
By
-----------------------------------------------------------------------------
Authorized Signature of Dealer Address of Office Servicing Account
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- -------------------- ------------------------------- --- --- --- ---
Branch No. Sales Rep. No. Sales Rep. Last Name Dealer No.
</TABLE>
================================================================================
<PAGE> 40
CARNEGIE FUNDS GROUP
TERMS AND CONDITIONS OF THE GENERAL APPLICATION FORM AND ADDITIONAL INVESTMENTS
After a Shareholder account is established, additional investments in
amounts of $250 or more may be made at any time. Such additional investments
will be applied to the purchase of full and fractional shares of the designated
Fund at the public offering price. These investments should be accompanied by an
investment transmittal stub (attached to any previously received shareholder
confirmation) and mailed directly to First Data (the Transfer Agent) at the
following address: Carnegie Funds Group, Post Office Box 60447, King of Prussia,
PA 19406-0447. Additional investments can also be made through your dealer.
LETTER OF INTENT (Applicable to the Ohio Fund only)
Subject to conditions specified below, each purchase during the 13-month
period subsequent to the effective date of this application will be made at the
public offering price applicable to a single transaction of the dollar amount
indicated, as described in the then effective Prospectus. The offering price may
be further reduced under the Cumulative Quantity Discount and the Combined
Purchase Privilege if the Transfer Agent is advised of any shares previously
purchased and still owned. I understand that I may at any time during the period
revise upward my stated intention by submitting a written request to this
effect. Such revision shall provide for the escrowing of additional shares. The
original period of the Letter, however, shall remain unchanged. Each separate
purchase made pursuant to the Letter is subject to the terms and conditions
contained in the Prospectus in effect at the time of that particular purchase.
It is understood that I make no commitment to purchase shares, but that if
purchases so made within thirteen months from this date do not aggregate the
amount specified, I will pay the increased amounts of sales charge prescribed in
the terms of escrow. I or my dealer must refer to this Letter of Intent in
placing each future order for shares while this Letter is in effect. It is
understood that when remitting funds directly to the Transfer Agent for
investment in my account, specific reference must be made to this Letter. This
cancels and supersedes any previous instructions which I may have given
inconsistent with the above. I have received a copy of the current Prospectus of
the Fund.
Terms of Escrow to the Letter of Intent (Applicable to the Ohio Fund only):
1. To assure compliance with provisions of the Investment Company Act of
1940 (the "1940 Act"), out of the initial purchase (or subsequent purchase if
necessary) up to 5% of the dollar amount indicated on the Account Application
Form will be held in escrow in the form of shares (computed to the nearest full
share at the applicable public offering price) registered in the purchaser's
name. These shares will be held at the Fund's Transfer Agent and be subject to
the terms of escrow.
2. If total purchases pursuant to this Statement equal the amount
specified at the expected aggregate purchases, escrow shares will be released
from restriction and be deposited in the purchaser's account.
3. If the total purchases pursuant to this Statement are less than the
amount specified, the purchaser shall remit to the dealer an amount equal to the
difference between the dollar amount of sales charge actually paid and the
amount of sales charge which would have been paid on the total purchases if all
such purchases had been made at a single time. If the Distributor or the dealer,
within 10 business days after request, does not receive said difference in sales
charge, they will instruct the Fund's Transfer Agent to redeem an appropriate
number of escrow shares to realize such difference. If the proceeds from his/her
redemption are inadequate, the purchaser will be liable to the Distributor or
the dealer for the difference. The remaining shares after the redemption will be
deposited to his/her account unless otherwise instructed.
4. The purchaser hereby irrevocably constitutes and appoints the Fund's
Transfer Agent as attorney to surrender for redemption any or all shares on the
books of the Fund, under the conditions previously outlined, with full power of
substitutions in the premises.
REDUCED SALES CHARGES (Applicable to the Ohio Fund only)
1) COMBINED PURCHASE PRIVILEGE -- Reduced sales charges are applicable to
purchases of $50,000 or more of the Fund if such purchases are made at any one
time by any "person," which term includes (1) an individual, his spouse and
their children under the age of twenty-one purchasing securities for his or
their own account; (2) a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account; (3) a pension, profit sharing or other
employee benefit plan qualified or non-qualified under Section 401 of the
Internal Revenue Code (the "Code"); (4) tax-exempt organizations enumerated in
the Code; (5) employee benefit plans qualified under Section 401 of the Code of
a single employer or of employers who are "affiliated persons" of each other
within the meaning of Section 2(a)(3)(C) of the 1940 Act; or (6) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount.
2) CUMULATIVE QUANTITY DISCOUNT (Right of Accumulation) -- Reduced sales
charges are also applicable to a purchase by any person (as described above) if
the dollar amount thereof plus the value of shares of the Fund described above
then held of record by such person (valued at their current offering price) is
$50,000 or more.
3) REINVESTMENT PRIVILEGE -- If you redeem all of your shares of a Fund,
you may reinvest all or a part of the proceeds of such redemption in additional
shares of that Fund without paying any sales charge if such reinvestment is
effected within 30 days after the redemption and you or your dealer notify First
Data at the time of such reinvestment that you are exercising the reinvestment
privilege.
IN ORDER FOR THESE PRIVILEGES TO BE MADE AVAILABLE, YOU OR YOUR SECURITIES
DEALER MUST NOTIFY FIRST DATA OR THE DISTRIBUTOR OF THE TOTAL HOLDINGS IN THE
FUND EACH TIME AN ORDER IS PLACED.
SYSTEMATIC WITHDRAWAL PLAN
An investor may direct First Data to send to him regular monthly,
bi-monthly, quarterly, semi-annual or annual payments, as designated on the
Account Application Form. This plan enables investors to receive a portion of
their invested funds on a periodic basis to supplement income. Such payments are
made from share redemptions. If redemptions continue, the investor's account may
eventually be exhausted. The minimum initial investment required to start a
withdrawal plan is $10,000. The plan is not available for accounts held through
certain dealers. Maintaining a withdrawal plan concurrently with an investment
program would not be advantageous because of the sales charges included in
purchases of shares of the Ohio Fund. Therefore, an investor should not have a
withdrawal plan in effect while making recurring purchases of shares of such
Fund.
DEALER AUTHORIZATION (Applicable to the Ohio Fund only)
The dealer, in signing the Authorization, authorizes Carnegie Fund
Distributors, Inc., as its agent and on its behalf, to purchase from time to
time all Fund shares necessary for the shareholder who has signed the
Authorization. First Data is authorized and directed where necessary to cause
said shares to be transferred to the name of the shareholder on the books of the
Fund, to retain and to account to the dealer for the dealer's sales charge due
on each purchase, to confirm each direct sale to the shareholder on behalf of
the dealer, and to transmit to the shareholder each new prospectus of the Fund
or supplement thereto delivered to it for that purpose. The dealer guarantees
the genuineness of the signature(s) of the Authorization and represents that
each person who has signed the Authorization is of full age and not under legal
disability. The dealer also represents that it is a duly licensed and registered
dealer and that it may lawfully sell the specified securities in the state
designated as the investor's mailing address. It further represents, if the sale
has been made within the United States, that it is a member of the NASD and has
entered into a dealer's agreement with Carnegie Fund Distributors, Inc. with
respect to such shares.
<PAGE> 41
THE SHAREHOLDER SERVICES GROUP, INC.
MULTI-PURPOSE CERTIFICATION
================================================================================
================================================================================
FOR USE BY CORPORATIONS, TRUSTS, PARTNERSHIPS OR OTHER INSTITUTIONAL INVESTORS
ONLY
(IF TRUSTEE IS NAMED IN THE REGISTRATION OF THE ACCOUNT IDENTIFIED BELOW, THIS
CERTIFICATE IS NOT REQUIRED)
DATED
---------------------
NOTE: RETAIN A COPY OF THIS DOCUMENT FOR YOUR RECORDS. ANY MODIFICATION OF THE
INFORMATION BELOW WILL REQUIRE AN AMENDMENT TO THIS FORM. THIS DOCUMENT IS
IN FULL FORCE AND EFFECT UNTIL ANOTHER FULLY EXECUTED FORM IS RECEIVED BY
FIRST DATA INVESTOR SERVICES GROUP ("FIRST DATA"), A DIVISION OF FIRST
DATA CORP.
<TABLE>
<S> <C> <C>
[ ] New [ ] Amendment to form dated / /
----------
</TABLE>
<TABLE>
<S> <C>
Name of Fund Account No.
---------------------------------------- --------------
Name of Registered Owner
--------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Registered Owner is a [ ] Corporation/Incorporated Association* [ ] Trust
[ ] Partnership [ ] Other
(such as Non-Profit Organization, Religious
Organization, Sole Proprietorship, Invest-
ment Club, Non-Incorporated Association,
etc.)
</TABLE>
The following named persons are currently officers/trustees/general
partners/other authorized signatories of the Registered Owner, and any
________ ** of them ("Authorized Person(s)") is/are currently authorized under
the applicable governing document to act with full power to sell, assign or
transfer securities of the above named Fund (the "Trust") for the Registered
Owner and to execute and deliver any instrument necessary to effectuate the
authority hereby conferred:
<TABLE>
<CAPTION>
Name Title Specimen Signature
<S> <C> <C>
- ---------------------------------- ---------------------------------- ----------------------------------
- ---------------------------------- ---------------------------------- ----------------------------------
- ---------------------------------- ---------------------------------- ----------------------------------
- ---------------------------------- ---------------------------------- ----------------------------------
</TABLE>
First Data may, without inquiry, act only upon the instruction of any
person(s) purporting to be (an) Authorized Person(s) as named in the
Certification form last received by First Data. First Data and the Trust shall
not be liable for any claims, expenses (including legal fees) or losses
resulting from First Data having acted upon any instruction reasonably believed
genuine.
*FOR CORPORATIONS AND INCORPORATED ASSOCIATIONS ONLY. NOTE: EITHER SIGNATURE
GUARANTEE OR SEAL IS REQUIRED.
I, ___________________________________________, Secretary of the above-named
Registered Owner, do hereby certify that at a meeting on at which a quorum was
present throughout, the Board of Directors of the corporation/the officers of
the association duly adopted a resolution, which is in full force and effect and
in accordance with the Registered Owner's charter and by-laws, which resolution
did the following: (1) empowered the above-named Authorized Person(s) to effect
securities transactions for the Registered Owner on the terms described above;
(2) authorized the Secretary to certify, from time to time, the names and titles
of the officers of the Registered Owner and to notify First Data when changes in
office occur; and (3) authorized the Secretary to certify that such a resolution
has been duly adopted and will remain in full force and effect until First Data
receives a duly executed amendment to the Certification form.
<TABLE>
<S> <C>
Witness my hand on behalf of the
SIGNATURE corporation/association
GUARANTEED*** this _______________ day of _______________ ,
(or Corporate Seal) 19 .
----
Secretary***
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the
corporation/association.
</TABLE>
<TABLE>
<S> <C>
SIGNATURE
GUARANTEED*** -----------------------------------------------------
Certifying Officer of the Corporation or Incorporated
(or Corporate Seal) Association***
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FOR ALL OTHER INSTITUTIONAL INVESTORS -----------------------------------------------------
SIGNATURE(S) Certifying Trustee(s)/General Partner(s)/Other(s)***
GUARANTEED***
-----------------------------------------------------
Certifying Trustee(s)/General Partner(s)/Other(s)***
</TABLE>
- --------------------------------------------------------------------------------
**INSERT NUMBER. UNLESS OTHERWISE INDICATED, FIRST DATA MAY HONOR INSTRUCTIONS
OF ANY ONE OF THE PERSONS NAMED ABOVE.
***SIGNATURE(S) MUST BE GUARANTEED BY AN "ELIGIBLE GUARANTOR INSTITUTION"
(GENERALLY, FDIC MEMBER BANKS, BROKERS, DEALERS, CREDIT UNIONS, NATIONAL
SECURITIES EXCHANGES AND SAVINGS ASSOCIATIONS). NOTARIZATION IS NOT
ACCEPTABLE.
<PAGE> 42
===================================
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................... 2
Summary...................................... 3
Financial Highlights......................... 4
Investment Objectives and Policies........... 8
Certain Investment Strategies................ 11
Investment Restrictions...................... 13
Special Considerations....................... 13
Investment Management........................ 14
Performance.................................. 15
How to Invest................................ 17
How to Redeem Shares......................... 21
Net Asset Value.............................. 24
Distributions................................ 25
Taxes........................................ 25
Shareholder Services......................... 28
Yield Calculations........................... 30
Description of the Trusts.................... 30
Custodian and Transfer Agent................. 32
</TABLE>
---------------
No person is authorized to give any
information or to make any
representations not contained in
this Prospectus or in the Trusts'
official sales literature; and any
information or representation not
contained herein must not be relied
upon as having been authorized by
the Trusts. The Trusts are
registered as open-end management
investment companies under the
Investment Company Act of 1940.
Such registration does not imply
that the Trusts or any of their
shares have been guaranteed,
sponsored, recommended or approved
by the United States or any state
or any agency or officer thereof.
---------------
This Prospectus does not constitute
an offer to sell, or a solicitation
of an offer to buy, securities in
any state to any person to whom it
is not lawful to make such offer in
such state.
===================================
THE CARNEGIE
FUNDS GROUP
--------------------------------------
CARNEGIE TAX EXEMPT INCOME TRUST
Ohio General Municipal Fund
CARNEGIE GOVERNMENT SECURITIES TRUST
Money Market Series
LIQUID CAPITAL INCOME TRUST
CARNEGIE TAX FREE INCOME TRUST
=======================================
Prospectus
November 30, 1998
---------------------------------------
<TABLE>
<C> <S>
(LOGO) Carnegie Capital
Management Company
1100 The Halle Building
1228 Euclid Avenue
Cleveland, Ohio 44115
</TABLE>
<PAGE> 43
NOVEMBER 30, 1998
THE CARNEGIE FUNDS GROUP
- --------------------------------------------------------------------------------
1100 THE HALLE BUILDING, 1228 EUCLID AVENUE
- --------------------------------------------------------------------------------
CLEVELAND, OHIO 44115-1831
- --------------------------------------------------------------------------------
PHONE: TOLL FREE 1-800-321-2322
- --------------------------------------------------------------------------------
The four registered investment companies (the "Trusts") and the four
separate portfolios (the "Funds") of the Carnegie Funds Group described in this
Statement of Additional Information are as follows:
CARNEGIE TAX EXEMPT INCOME TRUST ("CTE") -- Ohio General Municipal Fund
CARNEGIE GOVERNMENT SECURITIES TRUST ("CGST") -- Money Market Series
LIQUID CAPITAL INCOME TRUST ("LCI")
CARNEGIE TAX FREE INCOME TRUST ("CTF")
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the Trusts and the Funds, dated
November 30, 1998, which has been filed with the Securities and Exchange
Commission. To obtain a copy of the Prospectus, please call Carnegie Capital
Management Company.
<PAGE> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE LOCATION IN PROSPECTUS
---- ----------------------
<S> <C> <C>
Investment Policies......................................... 3 Investment Objectives and Policies;
Certain Investment Strategies; and Special
Considerations
Investment Restrictions..................................... 12 Certain Investment Strategies; and
Investment Restrictions
Taxes....................................................... 14 Taxes
Certain Factors Affecting the Ohio Fund..................... 19 --
Portfolio Transactions...................................... 24 Investment Management
Reduced Sales Charges....................................... 25 How to Invest
Reinvestment Privilege...................................... 26 --
Exchange Privilege.......................................... 26 Shareholder Services
IRAs and SEPs............................................... 27 Shareholder Services
Management and Distribution Agreements...................... 29 Investment Management; Management Fees
Determination of Net Asset Value............................ 33 Net Asset Value
Calculation of Performance Data............................. 35 Performance; Yield Calculations
Trustees and Officers....................................... 37 Description of the Trusts
General Information......................................... 39 Description of the Trusts
Principal Holders of Securities............................. 39 --
Independent Auditors........................................ 40 Financial Highlights
Financial Statements........................................ 40 --
Appendix.................................................... 41 --
</TABLE>
2
<PAGE> 45
INVESTMENT POLICIES
The following information supplements that set forth under "Investment
Objectives and Policies", "Certain Investment Strategies" and "Special
Considerations" in the Prospectus and does not, standing alone, present a
complete or accurate explanation of the matters disclosed. You must refer to the
Prospectus for a complete presentation of the matters disclosed below.
THE OHIO GENERAL MUNICIPAL FUND (THE "OHIO FUND")
The Ohio Fund invests in municipal obligations issued by or on behalf of
the state of Ohio or, in certain cases, a territory or possession of the United
States, or Ohio's political subdivisions, agencies or instrumentalities, and
participation interests therein, the interest on which is exempt from Federal
income taxation and state personal income taxation for residents of Ohio.
The Ohio Fund may invest in municipal bonds and participation interests
therein, including industrial development revenue bonds and pollution control
revenue bonds, and other types of tax-exempt municipal obligations, including
bond anticipation notes, construction loan notes, revenue anticipation notes,
tax anticipation notes and short-term discount notes. The applicable rating
criteria for the Ohio Fund is as follows:
Baa or better, MIG-2 or better or Prime-2 or better by Moody's
Investors Service, Inc. ("Moody's");
BBB or better, SP-2 or better or A-2 or better by Standard & Poor's
Corporation ("S&P"); and
Equivalent rating by any other nationally recognized statistical
rating organization ("NRSRO").
The Ohio Fund also may invest in municipal obligations which are unrated, but
which are considered by Carnegie Capital Management Company ("CCMC" or the
"Adviser"), the Trust's investment adviser, in accordance with policies
established by the Board of Trustees, to have characteristics and quality
comparable to rated municipal obligations which such Fund is permitted to
purchase. The Ohio Fund also may purchase municipal obligations backed by the
full faith and credit of the United States.
Municipal obligations purchased by the Ohio Fund may be of any maturity.
Under normal market conditions, it is expected that the average weighted
maturities of the portfolio of the Ohio Fund will be in excess of 20 years;
under abnormal conditions, the average portfolio maturity of such Fund may be
substantially shorter.
Subsequent to the Ohio Fund's purchase of a security, it may be assigned a
lower rating or cease to be rated. Except in the case of variable rate demand
municipal obligations, such an event does not require the elimination of the
security from the Ohio Fund portfolio, but the Adviser will consider such an
event in determining whether the Ohio Fund should continue to hold the security
in its portfolio. Other factors to be considered by the Adviser include the
financial history and condition of the issuer, its revenue and expense
prospects, and, in the case of revenue bonds, the financial history and
condition of the source of revenue to service the bonds.
3
<PAGE> 46
Municipal bonds are usually issued to obtain funds for various public
purposes, to refund outstanding obligations, to meet general operating expenses
or to obtain funds to lend to other public institutions and facilities. They are
generally classified as either "general obligation" or "revenue" bonds and
frequently have maturities in excess of one year at the time of issuance,
although a number of such issues now have variable or floating interest rates
and demand features that may permit the Trust to treat them as having maturities
of less than one year. There are many variations in the terms of, and the
underlying security for, the various types of municipal bonds. General
obligation bonds are issued by states, counties, regional districts, cities,
towns and school districts for a variety of purposes including mass
transportation, highway, bridge, school, road, and water and sewer system
construction, repair or improvement. Payment of these bonds is secured by a
pledge of the issuer's full faith and credit and taxing (usually property tax)
power.
Revenue bonds are payable solely from the revenues generated from the
operations of the facility or facilities being financed or from other non-tax
sources. These bonds are often secured by debt service revenue funds, rent
subsidies and/or mortgage collateral to finance the construction of housing,
highways, bridges, tunnels, hospitals, university and college buildings, port
and airport facilities, and electric, water, gas and sewer systems. Industrial
development revenue bonds and pollution control revenue bonds are usually issued
by local government bodies or their authorities to provide funding for
commercial or industrial facilities, privately operated housing, sports
facilities, health care facilities, convention and trade show facilities, port
facilities and facilities for controlling or eliminating air and water
pollution. Payment of principal and interest on such bonds is not secured by the
taxing power of the governmental body. Rather, payment is dependent solely upon
the ability of the users of the facilities financed by the bonds to meet their
financial obligations and the pledge, if any, of real and personal property
financed as security for payment.
Although the Ohio Fund may invest more than 25% of its net assets in
municipal obligations, the interest upon which is paid solely from revenues of
similar projects, management of the Trust does not presently intend that the
Ohio Fund will do so on a regular basis. The Ohio Fund will not invest more than
25% of its assets in (i) taxable securities of issuers in any one industry or
(ii) tax exempt securities of non-governmental users in any one industry. This
restriction may not be changed without shareholder approval as described in the
first paragraph under "Investment Restrictions". The District of Columbia, each
state, each of its political subdivisions, agencies, instrumentalities and
authorities, and each multi-state agency of which a state is a member, is a
separate "issuer" as that term is used in the Prospectus and this Statement of
Additional Information with respect to the Ohio Fund, and the non-governmental
user of facilities financed by industrial development or pollution control
revenue bonds is also considered to be the issuer.
The Ohio Fund may invest in repurchase agreements as temporary investments.
Management of the Trust currently does not expect that the Ohio Fund will invest
more than five percent of its assets in repurchase agreements. See "Certain
Investment Strategies -- Repurchase Agreements" in the Prospectus.
4
<PAGE> 47
VARIABLE AND FLOATING RATE DEMAND MUNICIPAL OBLIGATIONS
Variable and floating rate demand municipal obligations are tax-exempt
obligations that provide for a periodic adjustment in the interest rate paid on
the obligations and permit the holder to demand payment of the unpaid principal
balance plus accrued interest upon a specified number of days' notice either
from the issuer or by drawing on a bank letter of credit or comparable guarantee
issued with respect to such obligations. The issuer of such an obligation may
have a corresponding right to prepay in its discretion the outstanding principal
of the obligation plus accrued interest upon notice comparable to that required
for the holder to demand payment.
The variable or floating rate demand municipal obligations in which the
Ohio Fund may invest are payable on demand at any time on no more than 30 days'
notice or at specified intervals not exceeding one year and upon no more than 30
days' notice. The terms of such obligations must provide that interest rates are
adjustable at intervals ranging from weekly up to annually. The adjustments are
based upon the prime rate of a bank or other appropriate interest rate
adjustment index as provided in the respective obligations. Such obligations are
subject to the quality characteristics for municipal obligations set forth above
and described in the Appendix. The Ohio Fund may invest, without limitation, in
such obligations.
The principal and accrued interest payable to the Ohio Fund on demand will
be supported by an irrevocable letter of credit or comparable guarantee of a
financial institution (generally a commercial bank) whose short-term taxable
debt meets the quality criteria for investment by the Ohio Fund in municipal
obligations, except in cases where the security itself meets the credit criteria
of the Ohio Fund without such letter of credit or comparable guarantee. Thus,
although the underlying variable or floating rate demand obligation may be
unrated, the Ohio Fund of the Trust in such cases will have at all times an
alternate credit source to draw upon for payment with respect to such security.
The Ohio Fund may also purchase participation interests in variable or
floating rate obligations. Such participation interests will have, as part of
the participation agreement between the Ohio Fund and the selling financial
institution, a demand feature which permits the Ohio Fund to demand payment from
the seller of the principal amount of the Ohio Fund's participation plus accrued
interest thereon. This demand feature always will be supported by a letter of
credit or comparable guarantee provided by the selling financial institution.
Such financial institution will retain a service and a letter of credit fee and
a fee for issuing commitments to purchase on demand in an amount equal to the
excess of the interest paid on the variable or floating rate obligation in which
the Ohio Fund has a participation interest over the negotiated yield at which
the participation interest was purchased. Accordingly, the Ohio Fund will
purchase such participation interests only when the yield to it, net of such
fees, is equal to or greater than the yield then available on other variable
rate demand securities or short-term, fixed rate, tax-exempt securities of
comparable quality and where the fees are reasonable in relation to the services
provided by the financial institution and the security and liquidity provided by
the letter of credit or guarantee.
5
<PAGE> 48
"WHEN-ISSUED" OBLIGATIONS
The Ohio Fund may make commitments to purchase municipal obligations on a
"when-issued" basis, that is, delivery and payment for the obligations normally
takes place at a date after the commitment to purchase, although the payment
obligation and the coupon rate have been established before the time a Fund
enters into the commitment. The settlement date usually occurs within one week
of the purchase of notes and within one month of the purchase of bonds. The
Trust intends that the Ohio Fund will make commitments to purchase obligations
with the intention of actually acquiring them, but may sell the obligations
before settlement date if such action is advisable or necessary as a matter of
investment strategy. At the time the Ohio Fund makes a commitment to purchase an
obligation, it will record the transaction and reflect the value of the
obligation in determining its net asset value. The Custodian will maintain on a
daily basis a separate account for the Fund consisting of cash or liquid debt
securities with a value at least equal to the amount of the Ohio Fund's
commitments to purchase "when-issued" obligations.
Obligations purchased on a "when-issued" basis or held in a Fund's
portfolio are subject to changes in market value based not only upon the
public's perception of the creditworthiness of the issuer but also upon changes
in the level of interest rates. In the absence of a change in credit
characteristics, which, of course, will cause changes in value, the value of
portfolio investments can be expected to decline in periods of rising interest
rates and to increase in periods of declining interest rates.
When payment is made for "when-issued" securities, the Ohio Fund will meet
its obligations from its then-available cash flow, sale of securities held in
the separate account, sale of other securities or, although it would normally
not expect to do so, from sale of the "when-issued" securities themselves (which
may have a market value greater or lesser than the Ohio Fund's obligation). Sale
of securities to meet such obligations would involve a greater potential for the
realization of capital gains, which could cause the Ohio Fund to realize income
not exempt from Federal income taxation.
OTHER OBLIGATIONS
The municipal obligations described herein represent those which the Ohio
Fund currently expects to purchase. However, several new types of municipal
bonds and notes, particularly those with shorter maturities, have been
introduced in recent years, and the Trust's Adviser believes that others may be
offered in the future. Therefore, in order to preserve maximum flexibility in
seeking to attain its investment objective, the Trust has determined not to
limit the purchases of the Ohio Fund to the types of securities described
herein, although the Ohio Fund will purchase only obligations which have the
credit characteristics described herein. In addition, the Ohio Fund may not
purchase any municipal bonds or notes having characteristics or terms that are
inconsistent with the investment objective of the Fund.
Legislation to restrict or eliminate the Federal or state income tax
exemption for interest on certain municipal obligations that may be purchased by
the Trust may be introduced in the future by Congress or by state legislatures.
If enacted, any such legislation could adversely affect the availability of
municipal obligations for the Ohio Fund's portfolio. Upon the effectiveness of
any such legislation that materially affects the Ohio Fund's ability to achieve
its
6
<PAGE> 49
investment objective, the Trust will re-evaluate the Ohio Fund's investment
objective and submit to its shareholders for approval necessary changes in its
objectives and policies.
CGST (THE "MONEY MARKET SERIES")
The Money Market Series invests in U. S. Treasury bills, notes, bonds and
other obligations issued or guaranteed by the U. S. Government, its agencies or
instrumentalities and repurchase agreements secured by such obligations. All
securities mature within 397 days from the date of purchase or have quality
characteristics under applicable law which permit the securities to be treated
as if they mature in 397 days or less from the date of purchase. Repurchase
agreements may be collateralized by securities maturing in longer than 397 days.
Direct obligations issued by the U. S. Treasury include bills, notes and
bonds which differ from each other only in interest rates, maturities and times
of issuance: Treasury bills have maturities of one year or less, Treasury notes
have maturities of one to ten years and Treasury bonds generally have maturities
of greater than ten years.
Examples of obligations issued by agencies or instrumentalities established
or sponsored by the U.S. Government include, among others, securities issued by
the Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Housing Administration, Federal National Mortgage Association, Government
National Mortgage Association and Student Loan Mortgage Association. See
"Special Considerations" in the Prospectus for information regarding the credit
risk of such obligations. The Fund may also invest in securities issued by
agencies or instrumentalities of the U.S. Government which may be organized in
the future, provided it is satisfied that the credit risk with respect to the
issuer is minimal.
LCI
LCI invests in marketable obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (described above under "CGST"),
corporate debt obligations which are rated AA or better by S&P, or Aa or better
by Moody's (or equivalently rated by another NRSRO), deposit obligations of
banks and savings and loans which are members of the Federal Deposit Insurance
Corporation ("FDIC"), bankers' acceptances and documented discount notes,
letters of credit, bank notes, high-grade commercial paper guaranteed or issued
by domestic corporations, federally taxable obligations issued by states or
their agencies, instrumentalities or political subdivisions and instruments
(including repurchase agreements) secured by such obligations. All securities
mature within 397 days from the date of purchase or have quality characteristics
under applicable law which permit the securities to be treated as if they mature
in 397 days or less from the date of purchase. Repurchase agreements may be
collateralized by securities maturing in longer than 397 days.
Investments in obligations of banks and savings and loans are limited to
(1) certificates of deposit issued by domestic banks with assets in excess of
five hundred million dollars or foreign branches of such banks, (2) certificates
of deposit or other deposit obligations of savings and loans with assets in
excess of five hundred million dollars, (3) bankers' acceptances and letters of
credit guaranteed by banks meeting the above criteria and (4) bank notes of
domestic banks meeting the above criteria. Bankers' acceptances are short-term
credit instruments used to finance the import, export, transfer or storage of
goods. They are termed "accepted" when a
7
<PAGE> 50
bank guarantees their payment at maturity. Bank notes are unsecured short-term
promissory notes that represent general obligations of the issuing bank.
Obligations issued or guaranteed by FDIC member institutions are not necessarily
guaranteed by the FDIC. Deposit obligations of domestic banks and savings and
loans are insured by the FDIC up to a maximum of $100,000, which limitation
applies to all funds which LCI may have on deposit at any one bank or savings
and loan. Bankers' acceptances, letters of credit and bank notes are not so
insured. Deposit obligations of foreign branches of domestic banks also are not
covered by FDIC insurance; and, in addition, if the Board of Trustees of LCI
authorizes investments in such obligations, such investments may involve other
risks different from investments in deposit obligations of domestic banks such
as future political and economic developments and the possible imposition of
governmental restrictions.
Permissible commercial paper investments consist of obligations rated
Prime-1 or A-1, or their subsequent equivalents, by Moody's or S&P (or
equivalently rated by another NRSRO), or unrated commercial paper issued by
companies with an unsecured debt issue outstanding which is rated Aa or better
by Moody's or AA or better by S&P (or equivalently rated by another NRSRO).
Commercial paper constitutes unsecured indebtedness of business or banking firms
issued to finance their short-term financial needs. LCI may also purchase
corporate debt obligations maturing within 397 days from the date of acquisition
with a minimum rating of Aa or AA, or equivalently rated by another NRSRO.
However, LCI may not purchase such securities if immediately after such purchase
more than 5% of its total assets would be invested in AA or Aa (or equivalently
rated by another NRSRO) securities or unrated securities deemed to be of
comparable quality at the time the securities were acquired.
Federally taxable obligations which are permissible investments consist of
obligations rated Prime-1 or A-1, or their subsequent equivalents, by Moody's or
S & P (or equivalently rated by another NRSRO). Federally taxable obligations
may include municipal bonds and participation interests therein, including
industrial development revenue bonds and pollution control revenue bonds, and
any other types of taxable municipal obligations, including bond anticipation
notes, construction loan notes, revenue anticipation notes and tax anticipation
notes.
Municipal bonds are usually issued to obtain funds for various public
purposes, to refund outstanding obligations, to meet general operating expenses
or to obtain funds to lend to other public institutions and facilities. They are
generally classified as either "general obligation" or "revenue" bonds and
frequently have maturities in excess of one year at the time of issuance,
although a number of such issues now have variable or floating interest rates
and demand features that may permit the Trust to treat them as having maturities
of less than one year. There are many variations in the terms of, and the
underlying security for, the various types of municipal bonds. General
obligation bonds are issued by states, counties, regional districts, cities,
towns and school districts for a variety of purposes including mass
transportation, highway, bridge, school, road, and water and sewer system
construction, repair or improvement. Payment of these bonds is secured by a
pledge of the issuer's full faith and credit and taxing (usually property tax)
power.
Revenue bonds are payable solely from the revenues generated from the
operations of the facility or facilities being financed or from other non-tax
sources. These bonds are often secured by debt service revenue funds, rent
subsidies and/or mortgage collateral to finance the construction of housing,
highways, bridges, tunnels, hospitals, university and college buildings,
8
<PAGE> 51
port and airport facilities, and electric, water, gas and sewer systems.
Industrial development revenue bonds and pollution control revenue bonds are
usually issued by local government bodies or their authorities to provide
funding for commercial or industrial facilities, privately operated housing,
sports facilities, health care facilities, convention and trade show facilities,
port facilities and facilities for controlling or eliminating air and water
pollution. Payment of principal and interest on such bonds is not secured by the
taxing power of the governmental body. Rather, payment is dependent solely upon
the ability of the users of the facilities financed by the bonds to meet their
financial obligations and the pledge, if any, of real and personal property
financed as security for payment.
CTF
CTF invests in debt obligations issued by or on behalf of any state,
territory or possession of the United States or the District of Columbia or
their political subdivisions, agencies or instrumentalities, and participation
interests therein, the interest on which is, in the opinion of counsel for the
issuer, wholly exempt from Federal income taxation.
Specific types of obligations which CTF may purchase include bond
anticipation notes, construction loan notes, revenue anticipation notes and tax
anticipation notes which, in each case (1) are rated MIG-1 or MIG-2, or
subsequent equivalents by Moody's (or equivalently rated by another NRSRO) or
(2) if the notes are not rated, they are, in the opinion of the Board of
Trustees, of a quality equivalent to MIG-1 or MIG-2.
CTF may also invest in municipal bonds and participation interests therein,
including industrial development revenue bonds and pollution control revenue
bonds, which are (1) rated Aaa or Aa by Moody's (or equivalently rated by
another NRSRO), (2) rated AAA or AA by S&P (or equivalently rated by another
NRSRO) or (3) if not rated, have, in the opinion of the Board of Trustees,
essentially the same characteristics and quality as bonds having the above
ratings. In addition, CTF may purchase other types of tax-exempt municipal
obligations, such as short-term discount notes. These investments must be (1)
rated Prime-1 or Prime-2 by Moody's (or equivalently rated by another NRSRO) or
(2) if not rated, possess equivalent characteristics and quality in the opinion
of the Board of Trustees.
Securities purchased by CTF mature within 397 days from the date of
purchase or carry variable or floating rates which are adjusted at least every
thirteen months and have demand features and/or other quality characteristics
which under applicable law permit the securities to be treated as if they mature
in 397 days or less from the date of purchase. Subsequent to CTF's purchase of a
security, it may be assigned a lower rating or cease to be rated. Such an event
requires the reassessment by the Board of Trustees of the security's minimal
credit risk analysis and shall cause the Fund to take such action as is
determined to be in the best interests of the Fund and its shareholders.
Bond anticipation notes are issued in anticipation of a later issuance of
bonds and are usually payable from the proceeds of the sale of the bonds
anticipated or of renewal notes. Construction loan notes, issued to provide
construction financing for specific projects, are often redeemed after the
projects are completed and accepted with funds obtained from the Federal Housing
Administration under "Fannie Mae" (Federal National Mortgage Association) or
"Ginnie Mae" (Government National Mortgage Association). Revenue anticipation
notes are
9
<PAGE> 52
issued by governmental entities in anticipation of revenues to be received later
in the then current fiscal year. Tax anticipation notes are issued by state and
local governments in anticipation of collection of taxes to finance the current
operations of such governments. These notes are generally returnable only from
tax collections and often only from the proceeds of the specific tax levy whose
collection they anticipate.
Municipal bonds are usually issued to obtain funds for various public
purposes, to refund outstanding obligations, to meet general operating expenses
or to obtain funds to lend to other public institutions and facilities. They are
generally classified as either "general obligation" or "revenue" bonds. For a
discussion of the types of municipal bonds, see "The Ohio General Municipal
Fund" above.
Although CTF may invest more than 25% of its net assets in (i) municipal
obligations whose issuers are in the same state, (ii) municipal obligations the
interest upon which is paid solely from revenues of similar projects, and (iii)
industrial development and pollution control revenue bonds which are not
variable or floating rate demand municipal obligations, it does not presently
intend to do so on a regular basis. The District of Columbia, each state, each
of its political subdivisions, agencies, instrumentalities and authorities, and
each multi-state agency of which a state is a member, is a separate "issuer" as
that term is used in the Prospectus and this Statement of Additional Information
with respect to CTF, and the non-governmental user of facilities financed by
industrial development or pollution control revenue bonds is also considered to
be the issuer.
The municipal obligations described herein represent those which CTF
currently expects to purchase. However, several new types of municipal bonds and
notes, particularly those with shorter maturities, have been introduced in
recent years and the Adviser believes that others may be offered in the future.
Therefore, in order to preserve maximum flexibility in seeking to attain its
investment objective, CTF has determined not to limit its purchases to the types
of municipal obligations discussed above, although it will purchase only
obligations which have the credit characteristics described above in this
section. In addition, CTF may not purchase any municipal bonds or notes having
characteristics or terms that are inconsistent with its investment objective or
investment policies.
VARIABLE AND FLOATING RATE DEMAND MUNICIPAL OBLIGATIONS
While variable and floating rate demand municipal obligations are expected
to have maturities in excess of one year, the Trustees have instructed the
Adviser to exercise its right to demand payment of principal and accrued
interest on such an obligation if it no longer meets CTF's quality standards,
unless, of course, the obligation can be sold for a greater amount in the
market. See also "Ohio Fund -- Variable and Floating Rate Demand Municipal
Obligations" above.
STAND-BY COMMITMENTS
Pursuant to an exemptive order, CTF may also acquire "stand-by commitments"
with respect to obligations held in its portfolio. Under a "stand-by
commitment", a dealer agrees to purchase, at CTF's option, specified obligations
at a specified price. "Stand-by commitments" are
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the equivalent of a "put" option acquired by CTF with respect to particular
obligations held in its portfolio.
The amount payable to CTF upon its exercise of a "stand-by commitment" will
normally be (i) CTF's acquisition cost of the obligation (excluding any accrued
interest which CTF paid on its acquisition), less any amortized market premium
or plus any amortized market or original issue discount during the period CTF
owned the obligation, plus (ii) all interest accrued on the obligations since
the last interest payment date during the period such obligation is owned by
CTF. "Stand-by commitments" may be acquired when the remaining maturity of the
underlying obligation is greater than 60 days, but will be exercisable by CTF
only during the 60-day period before the maturity of such obligation. Absent
unusual circumstances, CTF will value the underlying obligation on an amortized
cost basis. Accordingly, the amount payable by a dealer during the time a
"stand-by commitment" is exercisable is substantially the same as the value of
the underlying obligation. CTF's right to exercise "stand-by commitments" must
be unconditional and unqualified. A "stand-by commitment" is not transferable by
CTF, although it may sell the underlying obligation to a third party at any
time.
CTF expects that "stand-by commitments" will generally be available without
the payment of any direct or indirect consideration. However, if necessary and
advisable, it may pay for "stand-by commitments" either separately in cash or by
paying a higher price for obligations which are acquired subject to such a
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding "stand-by
commitments" held in CTF's portfolio may not exceed 1/2 of 1% of the value of
CTF's total assets calculated immediately after each "stand-by commitment" is
acquired.
CTF intends to enter into "stand-by commitments" only with dealers, banks
and broker-dealers which, in the opinion of the Adviser, present minimum credit
risks. CTF's reliance upon the credit of these dealers, banks and broker-dealers
is secured by the value of the underlying obligations that are subject to the
commitment. However, the failure of a party to honor a "stand-by commitment"
could have an adverse impact on the liquidity of CTF during periods of rising
interest rates.
CTF intends to acquire "stand-by commitments" solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a "stand-by commitment" will not affect the
valuation or maturity of the underlying obligation which will continue to be
valued in accordance with the amortized cost method. "Standby commitments" will
be valued at zero in determining net asset value. Where CTF pays directly or
indirectly for a "stand-by commitment," its cost will be reflected as unrealized
depreciation for the period during which the commitment is held. "Stand-by
commitments" will not affect the average weighted maturity of CTF's portfolio.
"WHEN-ISSUED" OBLIGATIONS
Obligations purchased on a "when-issued" basis or held in CTF's portfolio
are subject to changes in market value based not only upon the public's
perception of the creditworthiness of the issuer but also upon changes in the
level of interest rates. Such changes in value will generally result in both
changing in value in the same way, i.e. both appreciating when interest rates
decline and depreciating when interest rates rise. Therefore, if to achieve
higher interest
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income CTF remains substantially fully invested at the same time that it has
purchased obligations on a "when-issued" basis, there will be a greater
possibility that the market value of CTF's assets will vary from $1.00 per
share. (See "Determination of Net Asset Value".) However, CTF does not believe
that under normal circumstances its net asset value or income will be affected
by its purchase of obligations on a "when-issued" basis. See also "Ohio Fund --
"When-Issued" Obligations" above.
INVESTMENT RESTRICTIONS
Each of the Funds has adopted the following investment restrictions and
limitations which may not be changed without approval of shareholders owning a
majority of the outstanding shares (as defined in the Prospectus) of each such
Fund.
APPLICABLE TO ALL FUNDS
None of the Funds may:
(1) borrow money, except for temporary or emergency purposes such as
to accommodate abnormally heavy redemption requests, and then only in an
amount not exceeding 5% of the value of its total assets at the time of
borrowing;
(2) pledge, mortgage or hypothecate its assets, except that to secure
borrowings, as described above, it may pledge securities having a market
value at the time of pledge not exceeding 15% of its total assets;
provided, however, that so long as certain state law restrictions are
applicable, the market value of securities subject to any such pledge will
not exceed 10% of the market value of its total assets;
(3) sell securities short or purchase any securities on margin, except
for such short-term credits as are necessary for clearance of portfolio
transactions;
(4) write, purchase or sell put or call options except that the Ohio
Fund and CTF may acquire rights to resell obligations as set forth herein
under "Ohio Fund -- Variable and Floating Rate Demand Municipal
Obligations"; and "CTF -- Variable and Floating Rate Demand Municipal
Obligations" and "Stand-By Commitments", respectively.
(5) underwrite any securities issued by others;
(6) purchase or sell real estate (although the Ohio Fund and CTF may
invest in municipal obligations or temporary investments secured by
interests in real estate), real estate mortgage loans, commodities,
commodity contracts (including futures contracts) or oil and gas interests;
(7) make loans, other than by entering into repurchase agreements and
through the purchase of other permitted investments in accordance with its
investment objective and policies; provided, however, that it may not enter
into a repurchase agreement if, as a result thereof, more than 10% of its
total assets would be subject to repurchase agreements maturing in more
than seven days;
(8) invest in companies for the purpose of exercising control or
management of another company;
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(9) invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of
assets;
(10) purchase or retain securities of any issuer if its officers and
trustees or officers and directors of its Adviser, who individually own
more than 1/2 of 1% of the outstanding securities of such issuer, together
beneficially own more than 5% of such outstanding securities;
(11) purchase from, or sell to, any of its officers or trustees or the
officers or directors of its Adviser, its portfolio securities; or
(12) issue any class of securities senior to any other class of
securities, except insofar as the Ohio Fund may be deemed to have issued a
senior security by reason of: (a) entering into any repurchase agreement;
(b) permitted borrowings of money; or (c) purchasing securities on a
"when-issued" or delayed delivery basis.
With respect to each of the Funds of the Carnegie Funds Group, if a
percentage restriction or limitation is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
net assets will not be considered a violation thereof.
APPLICABLE TO THE OHIO FUND
In addition to the above restrictions and limitations, the Ohio Fund, as a
matter of fundamental policy, may not purchase securities which are not
municipal obligations and the income from which is subject to Federal income
tax, if such purchase would cause more than 20% of the Ohio Fund's total assets
to be invested in such securities, except that the Ohio Fund may invest more
than 20% of its total assets in such securities during other than normal market
conditions. The Ohio Fund, as a matter of fundamental policy, may not engage in
arbitrage transactions.
In addition to the above restrictions and limitations and as a matter of
fundamental policy, the Ohio Fund may not purchase municipal obligations the
income from which is subject to personal income tax to residents of Ohio, if
such purchase would cause more than 20% of the Ohio Fund's total assets to be
invested in such securities, except that the Ohio Fund may invest more than 20%
of its total assets in such securities for temporary defensive purposes.
APPLICABLE TO THE MONEY MARKET FUNDS
In addition, none of the Money Market Funds (the Money Market Series,
Liquid Capital Income Trust and Carnegie Tax Free Income Trust) may:
A. purchase securities, if immediately after such purchase more than
5% of its total assets would be invested in the securities of any one
issuer (excluding securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities which securities include project notes
for purposes of this restriction), except that up to 25% of its total
assets may be invested without regard to this 5% limitation; or
B. invest more than 25% of its total assets in any one industry,
except that with respect to CTF this restriction shall not apply to
municipal obligations and with respect to LCI this restriction shall not
apply to securities issued or guaranteed by banks or bank holding
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companies, and further excepting that this restriction shall not apply to
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
With respect to the application of the 5% limitation contained in
restriction (A) above to CTF, the non-governmental user of facilities financed
by industrial development or pollution control revenue bonds and a financial
institution issuing a letter of credit or comparable guarantee supporting a
variable rate demand municipal obligation are considered to be issuers. In
addition to the above restrictions and limitations, CTF may not purchase
securities which are not municipal obligations and the income from which is
subject to Federal income tax, if such purchase would cause more than 20% of
CTF's total assets to be invested in such securities, except that CTF may invest
more than 20% of its total assets in such securities during other than normal
market conditions.
With respect to the application of restriction (A) above to the Money
Market Series and LCI (and with respect to CTF with certain conduit securities),
according to the rules and regulations of the Securities and Exchange
Commission, no more than 5% of each Fund's total assets may be invested in AA or
Aa (or equivalently rated) securities or unrated securities deemed to be of
comparable quality and only 1% of each Fund's total assets may be invested in
such securities from any one issuer.
TAXES
The following federal income tax discussion, which is based on the advice
of Squire, Sanders & Dempsey L.L.P., reflects applicable federal tax laws as of
the date of this Statement of Additional Information.
TAXATION -- GENERAL
Each of the Trusts intends to qualify each year and to elect to be treated
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). To qualify as a regulated investment
company, each Trust must comply with certain requirements of the Code relating
to, among other things, the source of its income and diversification of its
assets.
If a Trust so qualifies and distributes each year to its shareholders at
least 90% of its net investment income, it will not be required to pay federal
income taxes on any income distributed to shareholders. (Net investment income
includes tax-exempt interest, dividends, and other taxable income, including net
short-term capital gain in excess of long-term capital loss, but not net capital
gains, which are the excess of net long-term capital gains over net short-term
capital losses.) Each Trust intends to distribute at least the minimum amount of
net investment income necessary to satisfy the 90% distribution requirement. In
addition, a Trust will not be subject to federal income tax on any net capital
gains distributed to shareholders.
In order to avoid a 4% excise tax, each Trust will be required to
distribute, by December 31 of each year, at least 98% of its ordinary income
(not including tax-exempt income) for such year and at least 98% of its capital
gain net income (the latter of which generally is computed on the basis of the
one-year period ending on October 31 of such year), plus any amounts that were
not distributed in previous taxable years.
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If a Trust failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, that Trust would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, a Trust that has failed to
satisfy the 90% distribution requirement may be required to pay an interest
charge on 50% of its earnings and profits attributable to nonregulated
investment company years and would be required to distribute such earnings and
profits to shareholders (less any interest charge).
Some of the Trusts' investment practices are subject to special provisions
of the Code that, among other things, may defer the use of certain losses of the
Trusts and affect the holding period of the securities held by the Trusts and
the character of the gains or losses realized by the Trusts. These provisions
may also require the Trusts to mark-to-market some of the positions in their
portfolios (i.e., treat them as if they were closed out), which may cause such
Trust to recognize income without receiving cash with which to make
distributions in amounts necessary to satisfy the 90% distribution requirement
and the distribution requirements for avoiding income and excise taxes. The
Trusts will monitor their transactions and may make certain tax elections in
order to mitigate the effect of these rules and prevent disqualification of the
Trusts as regulated investment companies.
Investments of a Trust in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to certain securities issued at a
discount, a Trust will be required to accrue as income each year a portion of
the discount and to distribute such income each year in order to maintain its
qualification as a regulated investment company and to avoid income and excise
taxes. In order to generate sufficient cash to make distributions necessary to
satisfy the 90% distribution requirement and to avoid income and excise taxes, a
Trust may have to dispose of securities that they would otherwise have continued
to hold. A portion of the discount relating to certain stripped tax-exempt
obligations may constitute taxable income when distributed to shareholders.
Shareholders receiving distributions in the form of additional shares
issued by the Trusts will be treated for federal income tax purposes as
receiving a distribution in an amount equal to the fair market value of the
shares received, determined as of the distribution date. The basis of such
shares will equal the fair market value of such shares on the distribution date.
Shareholders receiving distributions in the form of additional shares will be
treated for federal income tax purposes as receiving the amount of cash that
they would have received had they not reinvested in additional shares.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such a month and paid during January of the
following year will be treated as having been distributed by the Trust and
received by the shareholders on the December 31 prior to the date of payment. In
such case, shareholders will be treated as having received such dividends in the
taxable year in which such dividend was declared, rather than the taxable year
in which the distribution was actually made. In addition, certain other
distributions made after the close of a
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taxable year of a Trust may be "spilled back" and treated as paid by that Trust
(except for purposes of the 4% excise tax) during such taxable year.
The sale of shares (including through redemption of shares by a Trust) will
be a taxable transaction for federal income tax purposes. Selling shareholders
will generally recognize gain or loss in an amount equal to the difference
between their adjusted tax basis in the shares and the amount received. If such
shares are held as a capital asset, the gain or loss will be a capital gain or
loss and will be long-term if such shares have been held for more than one year.
If a shareholder sells shares at a loss after holding them for six months or
less, the loss is treated as a long-term capital loss to the extent of any
capital gain distributions made to the shareholder.
If a shareholder (i) incurs a sales load charge in acquiring shares in a
Fund, and (ii) by reason of incurring such charge or making such acquisition
acquires the right to acquire shares of one or more regulated investment
companies without the payment of a load charge or with the payment of a reduced
charge (a "reinvestment right"), and (iii) disposes of the shares before the
91st day after the date on which the shares were acquired, and (iv) subsequently
acquires shares in that regulated investment company or in another regulated
investment company and the otherwise applicable load charge is reduced pursuant
to the reinvestment right, then the load charge (to the extent it does not
exceed the amount of the reduction in load charge pursuant to the reinvestment
right) will not be taken into account for purposes of determining the
shareholder's gain or loss on the disposition described in (iii) above. To the
extent such charge is not taken into account in determining the amount of gain
or loss on the shares so disposed, the charge will be treated as incurred in
connection with the subsequently acquired shares and will have a corresponding
effect on the shareholder's basis in such shares.
From time to time, there are legislative proposals in Congress which, if
enacted, could alter or amend the federal tax matters described herein or
adversely affect the market value of securities the interest on which is exempt
from Federal income tax. It cannot be predicted whether or in what form any such
proposal might be enacted or whether, if enacted, it would apply to securities
(such as certain securities held by the Trusts) issued prior to enactment.
FEDERAL TAXATION OF THE SHAREHOLDERS OF THE MONEY MARKET SERIES AND LCI
Distributions of a Trust's investment company taxable income (which does
not include tax-exempt interest income) are taxable to shareholders as ordinary
income whether paid in cash or reinvested in additional shares. Distributions of
a Trust's net capital gains, if any, are taxable to shareholders at the rates
applicable to long-term capital gains regardless of the length of time shares of
that Trust have been held by such shareholders. Distributions in excess of a
Trust's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). It is not expected that any portion of the distributions from a
Trust will be eligible for the dividends received deduction for corporations.
The Trusts will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
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FEDERAL TAXATION OF THE SHAREHOLDERS OF THE OHIO FUND AND CTF
Provided the Ohio Fund and the CTF qualify as regulated investment
companies and satisfy the 90% distribution requirement, and, at the close of
each quarter of their taxable years, at least 50% of the total value of their
assets consist of obligations the interest on which is exempt from federal
income tax ("tax-exempt obligations"), those Funds will qualify to pay exempt-
interest dividends to their shareholders to the extent of their tax-exempt
interest income (less expenses applicable thereto). Exempt-interest dividends
are treated by shareholders as interest excludable from gross income for federal
income tax purposes, but can adversely affect the determination of what portion,
if any, of social security and railroad retirement benefits are includible in
gross income subject to federal income tax and the determination of whether an
individual is eligible for the earned income credit. Interest with respect to
indebtedness incurred or continued by a shareholder to purchase or carry shares
of the Ohio Fund or the CTF is not deductible to the extent that such interest
relates to exempt-interest dividends received from those Funds.
The Ohio Fund and the CTF may invest in "private activity bonds".
Exempt-interest dividends allocable to interest received by those Funds on
certain "private activity bonds" issued after August 7, 1986, will be treated as
interest on such obligations and thus will constitute an item of tax preference
that will increase the shareholder's alternative minimum taxable income. In
addition, for corporations, 75% of the excess of adjusted current earnings
(which includes tax-exempt interest and exempt-interest dividends) over other
alternative minimum taxable income is included in alternative minimum taxable
income. Accordingly, investment in the Ohio Fund or the CTF may cause
shareholders to be subject to (or result in an increased liability under) the
alternative minimum tax.
In addition, under the Code, exempt-interest dividends may be subject to a
branch profits tax imposed on certain foreign corporations doing business in the
United States and a tax imposed on excess net passive income of certain S
corporations. Furthermore, the exclusion of exempt-interest dividends from gross
income for federal income tax purposes may have certain adverse federal income
tax consequences on items of income or deduction for certain other taxpayers,
including financial institutions and certain insurance companies.
If the Ohio Fund or CTF purchases a tax-exempt obligation at a market
discount, any gain realized by the Fund upon sale or redemption of that
tax-exempt obligation will be treated as taxable interest income to the extent
such gain does not exceed the accrued market discount, and any gain realized in
excess of the market discount will be treated as capital gain.
Exempt-interest dividends will not be tax-exempt to the extent made to a
shareholder who is a "substantial user" (or "related person" thereto), within
the meaning of Section 147(a) of the Code, of the facilities financed by the
tax-exempt obligations to which the exempt interest dividend is attributable.
As mentioned above, the sale of shares (including through redemption of
shares by the Ohio Fund or the CTF) will be a taxable transaction for federal
income tax purposes. Any loss realized upon a taxable disposition of shares held
for six months or less will be disallowed to the extent of any exempt-interest
dividends received with respect to such shares. If such loss is not entirely
disallowed, it will be treated as a long-term capital loss to the extent of any
capital gain dividends received with respect to such shares.
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All distributions of investment income during the year will have the same
percentage designated as tax exempt. Since the Ohio Fund and CTF invest
primarily in tax exempt securities, the percentage will be substantially the
same as the amount actually earned during any particular distribution period.
Distributions of exempt-interest dividends by the Ohio Fund and CTF may be
subject to state and local taxes even though a substantial portion of such
distributions may be derived from interest on tax-exempt obligations that, if
realized directly, would be exempt from such taxes. The Ohio Fund and CTF will
report to their shareholders annually after the close of their taxable years the
percentage and source, on a state-by-state basis, of interest income earned on
tax-exempt obligations held by each such Fund during the preceding year.
Shareholders of the Ohio Fund and CTF are advised to consult their tax advisers
concerning the application of state and local taxes. (Certain Ohio state and
local tax consequences of investing in the Ohio Fund are described below.)
The discussion above under the heading "Federal Taxation of the
Shareholders of the Money Market Series and LCI" applies to shareholders of the
Ohio Fund and CTF with respect to any distributions from the Ohio Fund or CTF
that are not exempt-interest dividends.
OHIO TAXES -- SHAREHOLDERS OF THE OHIO FUND
In the opinion of Squire, Sanders & Dempsey L.L.P., special counsel to the
Trust on Ohio tax matters, under existing law and provided (i) the Ohio Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code and (ii) at all times at least 50% of the value of the total assets of the
Ohio Fund consists of obligations issued by or on behalf of the State of Ohio,
political subdivisions thereof, or agencies or instrumentalities thereof ("Ohio
Obligations"), or similar obligations of other states or their subdivisions:
1. The Ohio Fund is not subject to the Ohio personal income tax,
school district or municipal income taxes in Ohio. The Ohio Fund is not
subject to the Ohio corporation franchise tax or the Ohio dealers in
intangibles tax, provided that the Ohio Fund timely files the annual report
required under Section 5733.09(C) of the Ohio Revised Code.
2. Shareholders of the Ohio Fund ("Shareholders") who are subject to
the Ohio personal income tax or municipal or school district income taxes
in Ohio imposed on individuals and estates will not be subject to such
taxes on distributions with respect to shares of the Ohio Fund to the
extent that such distributions are properly attributable to interest on or
gain from the sale of Ohio Obligations.
3. Shareholders that are subject to the Ohio corporation franchise tax
will not be required to include distributions with respect to shares of the
Ohio Fund in their net income base for purposes of calculating their Ohio
corporation franchise tax liability to the extent that such distributions
(a) are properly attributable to interest on or gain from the sale of Ohio
Obligations, and/or (b) represent "exempt-interest dividends" for federal
income tax purposes. Shares of the Ohio Fund will be included in a
Shareholder's tax base for purposes of computing the Ohio corporation
franchise tax on the net worth basis.
4. Distributions with respect to shares of the Ohio Fund that are
properly attributable to interest on obligations of the United States or
its territories or possessions or of any
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authority, commission, or instrumentality of the United States, the
interest on which is exempt from state income taxes under the laws of the
United States ("Territorial Obligations"), are exempt from the Ohio
personal income tax, and municipal and school district income taxes in Ohio
and, provided, in the case of Territorial Obligations, such interest is
excluded from gross income for federal income tax purposes, are excluded
from the net income base of the Ohio corporation franchise tax.
5. Distributions with respect to the Ohio Fund properly attributable
to proceeds of insurance paid to the Ohio Fund that represent maturing or
matured interest on defaulted obligations held by the Ohio Fund that is
excluded from gross income for federal income tax purposes will be exempt
from the Ohio personal income tax and municipal and school district income
taxes in Ohio, and will be excluded from the net income base of the Ohio
corporation franchise tax.
SPECIAL FEDERAL TAX CONSIDERATIONS -- SHAREHOLDERS OF CTF
CTF may acquire variable and floating rate demand municipal obligations and
"stand-by commitments" or "puts" from banks and municipal securities dealers.
See "CTF -- Variable and Floating Rate Demand Municipal Obligations" and
"Stand-By Commitments" in this Statement of Additional Information. With respect
to each such acquisition, an opinion of counsel will be issued that CTF will be
treated for Federal income tax purposes as the owner of the municipal
obligations acquired subject to such demand features or to stand-by commitments;
the interest on such municipal obligations will be tax-exempt to CTF; and the
purchase prices of municipal obligations subject to stand-by commitments must be
allocated between such securities and stand-by commitments based upon their
relative fair market values.
CONSULT TAX ADVISER FOR ADDITIONAL INFORMATION
The foregoing is only a summary of some of the important Federal and state
tax considerations generally affecting the Funds and their shareholders. No
attempt is made to present a detailed explanation of the Federal or state income
tax treatment of the Funds or their shareholders, or any explanation of foreign
tax treatments of the Funds or their shareholders. This discussion is not
intended as a substitute for careful tax planning. You are urged to consult your
tax adviser with specific reference to your own tax situation.
CERTAIN FACTORS AFFECTING THE OHIO FUND
As described above, and except to the extent investments are in temporary
investments, the Ohio Fund will invest most of its net assets in securities
issued by or on behalf of (or in the certificates of participation in
lease-purchase obligations of) the State of Ohio, political subdivisions of the
State, or agencies or instrumentalities of the State or its political
subdivisions ("Ohio Obligations"). The Ohio Fund is therefore susceptible to
general or particular economic, political or regulatory factors that may affect
issuers of Ohio Obligations. The following information constitutes only a brief
summary of some of the many complex factors that may have an effect. The
information does not apply to "conduit" obligations on which the public issuer
itself has no financial responsibility. This information is derived from
official statements of certain Ohio issuers published in connection with their
issuance of securities and from other
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publicly available information, and is believed to be accurate. No independent
verification has been made of any of the following information.
Generally, the creditworthiness of Ohio Obligations of local issuers is
unrelated to that of obligations of the State itself, and the State has no
responsibility to make payments on those local obligations.
There may be specific factors that at particular times apply in connection
with investment in particular Ohio Obligations or in those obligations of
particular Ohio issuers. It is possible that the investment may be in particular
Ohio Obligations, or in those of particular issuers, as to which those factors
apply. However, the information below is intended only as a general summary, and
is not intended as a discussion of any specific factors that may affect any
particular obligation or issuer.
Ohio is the seventh most populous state; the 1990 Census count of
10,847,000 indicated a 0.5% population increase from 1980. The Census estimate
for 1996 is 11,173,000.
While diversifying more into the service and other non-manufacturing areas,
the Ohio economy continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity, as in many other
industrially-developed states, tends to be more cyclical than in some other
states and in the nation as a whole. Agriculture is an important segment of the
economy, with over half the State's area devoted to farming and approximately
16% of total employment in agribusiness.
In prior years, the State's overall unemployment rate was commonly somewhat
higher than the national figure. For example, the reported 1990 average monthly
State rate was 5.7%, compared to the 5.5% national figure. However, for the last
six years the State rates were below the national rates (4.6% versus 4.9% in
1997). The unemployment rate and its effects vary among geographic areas of the
State.
There can be no assurance that future national, regional or state-wide
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely affect the market value of Ohio
Obligations held in the Ohio Fund or the ability of particular obligors to make
timely payments of debt service on (or lease payments relating to) those
Obligations.
The State operates on the basis of a fiscal biennium for its appropriations
and expenditures, and is precluded by law from ending its July 1 to June 30
fiscal year (FY) or fiscal biennium in a deficit position. Most State operations
are financed through the General Revenue Fund (GRF), for which personal income
and sales-use taxes are the major sources. Growth and depletion of GRF ending
fund balances show a consistent pattern related to national economic conditions,
with the ending FY balance reduced during less favorable and increased during
more favorable economic periods. The State has well-established procedures for,
and has timely taken, necessary actions to ensure resource/expenditure balances
during less favorable economic periods. Those procedures included general and
selected reductions in appropriations spending.
The 1992-93 biennium presented significant challenges to State finances,
successfully addressed. To allow time to resolve certain budget differences, an
interim appropriations act was enacted effective July 1, 1991; it included GRF
debt service and lease rental appropriations
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for the entire biennium, while continuing most other appropriations for a month.
Pursuant to the general appropriations act for the entire biennium, passed on
July 11, 1991, $200 million was transferred from the Budget Stabilization Fund
(BSF, a cash and budgetary management fund) to the GRF in FY 1992.
Based on updated results and forecasts in the course of that FY, both in
light of a continuing uncertain nationwide economic situation, there was
projected and then timely addressed an FY 1992 imbalance in GRF resources and
expenditures. In response, the Governor ordered most State agencies to reduce
GRF spending in the last six months of FY 1992 by a total of approximately $184
million; the $100.4 million BSF balance and additional amounts from certain
other funds were transferred late in the FY to the GRF, and adjustments were
made in the timing of certain tax payments.
A significant GRF shortfall (approximately $520 million) was then projected
for FY 1993. It was addressed by appropriate legislative and administrative
actions, including the Governor's ordering $300 million in selected GRF spending
reductions and subsequent executive and legislative action (a combination of tax
revisions and additional spending reductions). The June 30, 1993 ending GRF fund
balance was approximately $111 million, of which, as a first step to
replenishment, $21 million was deposited in the BSF.
None of the spending reductions were applied to appropriations needed for
debt service or lease rentals relating to any State obligations.
The 1994-95 biennium presented a more affirmative financial picture. Based
on June 30, 1994 balances, an additional $260 million was deposited in the BSF.
The biennium ended June 30, 1995 with a GRF ending fund balance of $928 million,
of which $535.2 million was transferred into the BSF. The significant GRF fund
balance, after leaving in the GRF an unreserved and undesignated balance of $70
million, was transferred to the BSF and other funds including school assistance
funds and, in anticipation of possible federal program changes, a human services
stabilization fund.
From a higher than forecast 1996-97 mid-biennium GRF fund balance, $100
million was transferred for elementary and secondary school computer network
purposes and $30 million to a new State transportation infrastructure fund.
Approximately $400.8 million served as a basis for temporary 1996 personal
income tax reductions aggregating that amount. The 1996-97 biennium-ending GRF
fund balance was $834.9 million. Of that, $250 million went to school building
construction and renovation, $94 million to the school computer network, $44.2
million for school textbooks and instructional materials and a distance learning
program, $34 million to the BSF and the $263 million balance to a State income
tax reduction fund.
The GRF appropriations act for the 1998-99 biennium was passed on June 25,
1997 and promptly signed (after selective vetoes) by the Governor. All necessary
GRF appropriations for State debt service and lease rental payments then
projected for the biennium were included in that act. Subsequent legislation
increased the fiscal year 1999 GRF appropriation level for elementary and
secondary education, with the increase to be funded in part by mandated small
percentage reductions in State appropriations for various State agencies and
institutions. Expressly exempt from those reductions are all appropriations for
debt service, including lease rental payments.
The BSF had a September 17, 1998 balance of over $906 million.
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The State's incurrence or assumption of debt without a vote of the people
is, with limited exceptions, prohibited by current State constitutional
provisions. The State may incur debt, limited in amount to $750,000, to cover
casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. (An exception is made in both
cases for any debt incurred to repel invasion, suppress insurrection or defend
the State in war.)
By 14 constitutional amendments approved from 1921 to date (the last
adopted in 1995) Ohio voters have authorized the incurrence of State debt and
the pledge of taxes or excises to its payment. At September 17, 1998, $1.12
billion (excluding certain highway bonds payable primarily from highway use
receipts) of this debt was outstanding. The only such State debt at that date
still authorized to be incurred were portions of the highway bonds, and the
following: (a) up to $100 million of obligations for coal research and
development may be outstanding at any one time ($26.7 million outstanding); (b)
$240 million of obligations previously authorized for local infrastructure
improvements, no more than $120 million of which may be issued in any calendar
year (over $1 billion outstanding or awaiting delivery); and (c) up to $200
million in general obligations bonds for parks, recreation and natural resources
purposes which may be outstanding at any one time ($88.6 million outstanding,
with no more than $50 million to be issued in any one year).
The electors in 1995 approved a constitutional amendment extending the
local infrastructure bond program (authorizing an additional $1.2 billion of
State full faith and credit obligations to be issued over 10 years for the
purpose), and authorizing additional highway bonds (expected to be payable
primarily from highway use receipts). The latter supersedes the prior $500
million highway obligation authorization, and authorizes not more that $1.2
billion to be outstanding at any time and not more than $220 million to be
issued in a fiscal year.
The Constitution also authorizes the issuance of State obligations for
certain purposes, the owners of which do not have the right to have excises or
taxes levied to pay debt service. Those special obligations include obligations
issued by the Ohio Public Facilities Commission and the Ohio Building Authority,
and certain obligations issued by the State Treasurer, over $5.2 billion of
which were outstanding or awaiting delivery at September 17, 1998.
The State estimates that aggregate FY 1998 rental payments under various
capital lease and lease purchase agreements were approximately $9.1 million. In
recent years, State agencies have also participated in transportation and office
building projects that may have some local as well as State use and benefit, in
connection with which the State enters into lease purchase agreements with terms
ranging from 7 to 20 years. Certificates of participation, or special obligation
bonds of the State or a local agency, are issued that represent fractionalized
interests in or are payable from the State's anticipated payments. The State
estimates highest future FY payments under those agreements (as of September 17,
1998) to be approximately $27.3 million (of which $23.6 million is payable from
sources other than the GRF, such as federal highway money distributions). State
payments under all those agreements are subject to biennial appropriations, with
the lease terms being two years subject to renewal if appropriations are made.
A 1990 constitutional amendment authorizes greater State and political
subdivision participation (including financing) in the provision of housing. The
General Assembly may for that purpose authorize the issuance of State
obligations secured by a pledge of all or such portion as
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it authorizes of State revenues or receipts (but not by a pledge of the State's
full faith and credit).
A 1994 constitutional amendment pledges the full faith and credit and
taxing power of the State to meeting certain guarantees under the State's
tuition credit program which provides for purchase of tuition credits, for the
benefit of State residents, guaranteed to cover a specified amount when applied
to the cost of higher education tuition. (A 1965 constitutional provision that
authorized student loan guarantees payable from available State moneys has never
been implemented, apart from a "guarantee fund" approach funded essentially from
program revenues.)
State and local agencies issue obligations that are payable from revenues
from or relating to certain facilities (but not from taxes). By judicial
interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued) are
limited in duration to the agency's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal period.
Local school districts in Ohio receive a major portion (state-wide
aggregate approximately 44% in recent years) of their operating moneys from
State subsidies, but are dependent on local property taxes, and in 119 districts
(as of September 17, 1998) from voter-authorized income taxes, for significant
portions of their budgets. Litigation, similar to that in other states, has been
pending questioning the constitutionality of Ohio's system of school funding.
The Ohio Supreme Court has concluded that aspects of the system (including basic
operating assistance and the loan program referred to below) are
unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution, staying its order to permit time for
responsive corrective actions. The parties await eventual trial court decision
on the adequacy of steps taken to date by the State to enhance school funding
consistent with the Supreme Court decision. A small number of the State's 612
local school districts have in any year required special assistance to avoid
year-end deficits. A program has provided for school district cash need
borrowing directly from commercial lenders, with diversion of State subsidy
distributions to repayment if needed. Recent borrowings under this program
totalled $71.1 million for 29 districts in FY 1995 (including $29.5 million for
one), $87.2 million for 20 districts in FY 1996 (including $42.1 million for
one), $113.2 million for 12 districts in FY 1997 (including $90 million to one
for restructuring its prior loans), and $23.4 million for 10 districts in FY
1998.
Ohio's 943 incorporated cities and villages rely primarily on property and
municipal income taxes for their operations. With other subdivisions, they also
receive local government support and property tax relief moneys distributed by
the State.
For those few municipalities that on occasion have faced significant
financial problems, there are statutory procedures for a joint State/local
commission to monitor the fiscal affairs and for development of a financial plan
to eliminate deficits and cure any defaults. (Similar procedures have recently
been extended to counties and townships.) Since inception for municipalities in
1979, these "fiscal emergency" procedures have been applied to 25 cities and
villages; for 18 of them the fiscal situation was resolved and the procedures
terminated (one village and three cities are in preliminary "fiscal watch"
status). As of September 17, 1998, the 1996 school district "fiscal emergency"
provision was applied to six districts, and 10 districts were on preliminary
"fiscal watch" status.
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At present the State itself does not levy ad valorem taxes on real or
tangible personal property. Those taxes are levied by political subdivisions and
other local taxing districts. The Constitution has since 1934 limited to 1% of
true value in money the amount of the aggregate levy (including a levy for
unvoted general obligations) of property taxes by all overlapping subdivisions,
without a vote of the electors or a municipal charter provision, and statutes
limit the amount of that aggregate levy to 10 mills per $1 of assessed valuation
(commonly referred to as the "ten-mill limitation"). Voted general obligations
of subdivisions are payable from property taxes that are unlimited as to amount
or rate.
PORTFOLIO TRANSACTIONS
As provided in the investment advisory agreements with respect to each of
the Trusts, CCMC makes investment decisions and decisions as to the execution of
portfolio transactions for the Funds, subject to the general supervision of the
Trust's Board of Trustees. At times, investment decisions may be made to
purchase or sell the same investment security for any one or more Funds. If any
of such Funds are simultaneously engaged in the purchase or sale of the same
security, the transactions will be allocated as to amount and price in a manner
considered equitable to each. In some cases this procedure may possibly have a
detrimental effect on the price or volume of the security as far as certain
Funds are concerned. On the other hand, the ability of the Trusts in the
Carnegie Funds Group to participate in volume transactions may produce better
executions for these Funds in some cases. It is the opinion of the Board of
Trustees of each Trust that the benefits available because of the Adviser's
organization outweigh any disadvantages that may arise from exposure to
simultaneous transactions.
Most purchase and sale transactions with respect to the Ohio Fund and the
Money Market Funds are with the issuer or an underwriter or with major dealers
of securities acting as principals. Such transactions are normally on a net
basis and generally do not involve payment of brokerage commissions. However,
the cost of securities purchased from an underwriter normally includes a
commission paid by the issuer to the underwriter. Purchases or sales from or to
dealers will normally reflect the spread between bid and ask prices.
The Adviser, in effecting purchases and sales of portfolio securities for
the accounts of the Ohio Fund and the Money Market Funds, will place orders in
such manner as in the opinion of their management will offer the best price and
market for the execution of each transaction. In seeking the best price and
market for securities traded only in the over-the-counter market, the Ohio Fund
generally will deal directly with the issuer or with major dealers acting as
principals. Given the best price and market obtainable, it is the practice of
such Funds when purchasing through dealers to select them primarily on the basis
of the furnishing by such dealers, in addition to satisfactory execution of the
transaction, of research information and statistical and other services to CCMC.
It is not always possible to place a dollar value on information and services
received from dealers. Since it is only supplementary to the Adviser's own
research efforts, the receipt of research information is not expected to reduce
significantly the Adviser's expenses. Such Funds may also consider, subject to
the requirement of best execution, dealers' sales of the Funds' shares when
selecting dealers to execute portfolio transactions. While the Adviser will be
primarily responsible for the placement of such Funds' business, the policies
and practices of the Funds in this regard must be consistent with the foregoing
and will at all times be subject to review by the Board of Trustees of the
applicable Trust.
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No commissions were paid in connection with portfolio transactions for the
Ohio Fund or the Money Market Funds during the three fiscal years ended July 31,
1998.
PORTFOLIO TURNOVER (APPLICABLE TO THE OHIO FUND)
A change in securities held by a Fund is known as "portfolio turnover". A
100% portfolio turnover rate would occur if all the securities in the Fund's
portfolio were replaced in a period of one year. As the portfolio turnover
increases, a Fund can be expected to incur greater brokerage commission expenses
and transaction costs, which will be borne by its shareholders. Portfolio
turnover may vary greatly from year to year.
For the fiscal years ended July 31, 1998 and 1997, the portfolio turnover
rate for the Ohio Fund was 5.36% and 3.88%, respectively.
REDUCED SALES CHARGES (APPLICABLE TO THE OHIO FUND)
As described under "How to Invest", in the Prospectus, the applicable sales
charge may be reduced or waived on certain purchases. Such sales charge
variations are offered in order to pass on to qualifying investors the lower
costs of marketing to such investors and in recognition of the economies of
scale involved in large purchases. In order for any of the following privileges
to be made available, you or your dealer must notify First Data Investor
Services Group, a subsidiary of First Data Corp. ("First Data"), or Carnegie
Fund Distributors, Inc. (the "Distributor") of the total holdings in the Ohio
Fund at the time each order is placed.
COMBINED PURCHASE PRIVILEGE
The table of reduced sales charges for larger-sized investments contained
under "How To Invest" in the Prospectus is applicable to purchases of $50,000 or
more of the Ohio Fund if such purchases are made at any one time by any
"person". A "person" includes (1) an individual, his spouse and their children
under the age of 21 purchasing securities for his or their own account; (2) a
trustee or other fiduciary purchasing for a single trust estate or single
fiduciary account; (3) a pension, profit sharing or other employee benefit plan
qualified or non-qualified under Section 401 of the Internal Revenue Code (the
"Code"); (4) a tax-exempt organization enumerated in the Code; (5) an employee
benefit plan qualified under Section 401 of the Code of a single employer or of
employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(C) of the 1940 Act; or (6) any other organized group of persons,
whether incorporated or not, provided the organization has been in existence for
at least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount.
CUMULATIVE QUANTITY DISCOUNT
A person (as defined above) may also add the value (at the current offering
price on the date of purchase) of his existing shares of the Ohio Fund to his
investment in additional shares of the Ohio Fund when determining whether a
reduced sales charge applies.
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LETTER OF INTENT
Reduced sales charges are applicable to investments in shares of the Ohio
Fund described above made over a thirteen-month period pursuant to a Letter of
Intent on a form provided by the Distributor or any broker entering into a
dealer's agreement with the Distributor, which should be read carefully prior to
its execution. Sales charges applicable to all amounts invested under the Letter
of Intent are computed as if the aggregate amount intended to be invested had
been invested immediately. If such aggregate amount is not actually invested,
the difference in the sales charge actually paid and the sales charge payable
had the Letter of Intent not been in effect is due from the investor. However,
for purchases actually made within the thirteen-month period, the sales charge
applicable will not be higher than that which would have applied (including
accumulations) had the Letter of Intent been for the amount actually invested.
If the goal under the Letter of Intent is exceeded in an amount which qualifies
for a lower sales charge, a price adjustment will be made by refunding to the
investor the amount of excess sales commissions, if any, paid during the
thirteen-month period.
The Letter of Intent authorizes First Data to hold in escrow sufficient
shares to make up any difference in sales charges on the amount intended to be
invested and the amount actually invested, until such investment is completed
within the thirteen-month period, at which time the escrow shares will be
released. If the total investment specified in the Letter of Intent is not
completed, the shares held in escrow may be redeemed and the proceeds used as
required to pay such sales charges as may be due. However, the sales charges
applicable to the investment will in no event be higher (always taking into
account accumulations) than if the investor had not submitted a Letter of
Intent. A Letter of Intent does not constitute a binding commitment by the
investor to purchase or by the Trust to sell additional shares, and may be
terminated at any time.
REINVESTMENT PRIVILEGE (APPLICABLE TO THE OHIO FUND)
If you redeem all of your shares in the Ohio Fund, you may reinvest all or
part of the proceeds of such redemption in additional shares of the Fund without
paying any sales charge if such reinvestment is effected within 30 days after
the redemption and you or your dealer notify First Data at the time of such
reinvestment that you are exercising the reinvestment privilege. If you use the
reinvestment privilege following a redemption which resulted in a loss, some or
all of the loss will not be allowed as a tax deduction, depending on the amount
reinvested.
EXCHANGE PRIVILEGE
An Exchange Privilege among the Funds in the Carnegie Funds Group is
available to shareholders of each Fund.
Shares of the Money Market Series, LCI, and CTF (collectively, the "Money
Market Funds") are sold to the public without a sales charge. Shares of the Ohio
Fund are sold to the public with a sales charge. When shares of a Money Market
Fund are exchanged for shares of the Ohio Fund, the applicable sales charge will
be deducted. If shares have been purchased by check and are being exchanged, the
purchase check must be collected by First Data before the exchange can be made,
which may take up to 15 days or more after investment.
In the event that you exchange shares of the Ohio Fund for shares of a
Money Market Fund, a record will be maintained by First Data of such exchanged
shares in order to separate the shares upon which a sales charge was at one time
paid. Subsequent to the exchange, you may re-
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exchange the shares of the Money Market Fund for shares of the Ohio Fund without
payment of duplicate sales charges.
The shares of the Fund being exchanged must have a value of at least the
minimum initial investment required for the Fund into which the exchange is
being made, which is currently $1,000 for all Funds in the Carnegie Funds Group.
Any exchange will be based on the respective net asset values of the shares
involved.
An exchange request to redeem shares of the Ohio Fund for shares of a Money
Market Fund will be effective on the fifth business day following the date of
the net asset value next determined for such Fund after receipt of such request.
A request to exchange shares of a Money Market Fund for shares of the Ohio Fund
will be effective on the next business day following the date of the net asset
value next determined for such Fund after receipt of such request.
Written exchange instructions may be given to First Data at the following
address: Carnegie Funds Group, Post Office Box 60447, King of Prussia,
Pennsylvania 19406-0447. Exchanges also may be effected by telephone request to
First Data (1-800-558-5835) unless the Fund has received prior written
instructions from the investor not to effect such exchanges. Without such
instructions an investor automatically authorizes First Data to honor telephone
instructions for exchange of shares received by First Data from the investor or
his/her agent and believed by First Data to be genuine. (This telephone service
is not available for accounts held through certain dealers). Neither the Trusts
nor First Data will be liable for any loss to the shareholder resulting from an
unauthorized transaction as long as the Trusts and First Data are following
instructions communicated by telephone reasonably believed to be genuine. The
Trusts and First Data will employ reasonable procedures, including recording all
telephone calls requesting telephone exchanges and testing the caller's
identity, to ensure that instructions communicated by telephone are genuine.
Before making an exchange, you should consider the investment objective and
policies of the Fund to be purchased and other relevant information which can be
found in the Prospectus, a copy of which can be obtained by telephoning the
Trust.
An exchange pursuant to the Exchange Privilege is, for Federal income tax
purposes, a sale on which you may realize a taxable gain or loss. See "Taxes".
The Exchange Privilege is available only in states where legally allowed, and
may be modified or terminated at any time and any Fund may limit or discontinue
the exchange of its shares.
IRAS AND SEPS
You may purchase shares of each Fund within the Carnegie Group of Funds,
with exception of the Ohio Fund and CTF, in conjunction with the establishment
of a Carnegie Individual Retirement Account ("IRA"). You may obtain from the
Trust the necessary Internal Revenue Service forms to establish a Carnegie IRA,
together with important information about IRAs. Additional information regarding
IRAs may be obtained from IRS Publication 590.
An individual may establish an IRA to receive certain distributions from an
employer-sponsored tax-qualified plan or a 403(b) annuity or custodial account.
Individuals also may contribute to their own IRA or, in certain circumstances,
the IRA of a spouse. The contributions are subject to certain limits and may be
deductible for federal income tax purposes.
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The maximum contribution of an individual is the lesser of $2,000 or the
amount his or her annual compensation. Thus, if married individuals both work
and each receive compensation of at least $2,000, each individual may contribute
up to $2,000 to an IRA. In addition, if spouses file a joint return, as much as
$2,000 may be contributed to the IRA of both spouses, even if one spouse does
not work or has less than $2,000 of compensation. Lesser maximum limits also
apply that are based on the maximum annual compensation of the spouses. Consult
your tax advisor or IRS Publication 590 for additional details regarding the
contribution limits.
Generally, IRA contributions are deductible for Federal individual income
tax purposes. However, your ability to claim a deduction on your individual
income tax return for a contribution to an IRA may be limited if you or your
spouse are an active participant in a tax-qualified retirement plan. This limit
does not affect the amount you may contribute to your IRA or the IRA of a spouse
(described above), only the amount you may deduct on your income tax return.
If you or your spouse are a participant in a tax-qualified retirement plan,
a portion of your deduction will be phased out if your Federal adjusted gross
income, without the IRA deduction, exceeds certain limits. The phase out of the
deduction begins at $30,000 for a single individual and at $0 for a married
individual filing a separate return. It generally begins at $50,000 for married
individuals filing joint returns. However, if a married individual filing a
joint return was not an active participant in a tax-qualified retirement plan,
the phase out of the deduction of that individual begins at $150,000. If you are
married, file separate returns and live apart at all times during the calendar
year, you are not treated as a married person for this purpose.
If you are an employee, you also could have contributions made to an IRA
for you by your employer. An employer may make such contributions under a
simplified employee pension plan (SEP) or, for certain small employers, under a
"SIMPLE" IRA plan. Employers that sponsor a SEP or SIMPLE IRA must meet certain
tax-qualification requirements and there are maximum limits on the amounts that
may be contributed. You do not pay Federal income tax on contributions made by
your employer to your IRA if they are made within the limits. A SEP or SIMPLE
IRA can be established using standard forms provided by the Internal Revenue
Service. These forms are available from the Fund. However, you should consult
your tax adviser for further details regarding these provisions.
The earnings accumulating in an IRA are not taxed until distributed.
Distributions from an IRA are taxed as ordinary income but the distribution of
your nondeductible IRA contributions will be excluded from tax. If a
distribution is received by a participant prior to attainment of age 59 1/2,
death or permanent disability, the taxable portion also will be subject to a 10%
excise tax unless it is one of a series of substantially equal periodic payments
over a period which is equal to the life or life expectancy of the participant
or the joint lives or life expectancies of the participant and a designated
beneficiary, or qualify for another exception to the 10% excise tax. Other
exceptions could include certain distributions during the year that do not
exceed the amount of certain expenses incurred by the IRA owner during the year,
including medical insurance premiums paid during certain periods of
unemployment, certain higher educational expenses of the IRA owner, spouse,
children or grandchildren, and certain first-time homebuyer expenses of the IRA
owner, spouse, children, grandchildren, or ancestors. Failure to satisfy the
minimum distribution rules that apply to your IRA under the Internal Revenue
Code can result in significant adverse tax consequences to you, including tax
penalties.
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As Custodian for the Carnegie IRA or SEP, First Data charges a $5 one-time
acceptance fee, $10.00 annual maintenance fee and $5 distribution fee for each
distribution prior to age 59 1/2. Unless these fees are paid directly to the
Custodian, payment of these fees may require redemption of shares held in your
Carnegie IRA.
If you are considering a Carnegie IRA, you should read the IRA form and
related materials for further details concerning IRAs, service fees and tax
implications and should consult with your tax adviser concerning the tax
consequences of establishing an IRA.
MINIMUM INVESTMENT
The minimum initial investment to establish an IRA or SEP through the Trust
is $250; subsequent investments are subject to a minimum of $50 for each
account. An IRA or SEP established under a payroll deduction arrangement are
subject to an initial and subsequent minimum purchase of $20 for each
participant.
MANAGEMENT AND DISTRIBUTION AGREEMENTS
INVESTMENT ADVISER
Carnegie Capital Management Company ("CCMC" or the "Adviser") serves as
investment adviser to each Trust. All the outstanding shares of CCMC are owned
by certain officers of CCMC. CCMC owns all of the outstanding shares of Carnegie
Fund Distributors, Inc., principal underwriter of the Ohio Fund. See "How To
Invest" in the Prospectus.
INVESTMENT ADVISORY CONTRACTS
Pursuant to separate investment advisory contracts, the Adviser performs
and bears the cost of research, statistical analysis and continuous supervision
of the investment portfolio of each Fund and furnishes office facilities and
certain clerical and administrative services to the Trusts. In addition, the
Adviser bears all promotional expenses, including the costs of printing and
distributing prospectuses utilized for promotional purposes. Other expenses are
borne by whichever Trust incurs the expense and such expenses include taxes,
interest, brokerage fees and commissions, fees of Trustees not affiliated with
the Adviser, expenses of registration of the Trusts and of their shares with the
Securities and Exchange Commission and the various states, charges of the
custodian, dividend and transfer agent fees, outside auditing and legal
expenses, certain insurance premiums, costs of maintenance of business trust
existence, preparation of prospectuses (including typesetting) and printing and
distribution thereof to existing shareholders, share certificates, shareholders'
reports, Trust meetings, portfolio pricing services, if any, and certain
distribution expenses (see "Distribution Expense Plans"). Expenses which are not
specifically allocable will be allocated to each Fund in a manner and on a basis
determined in good faith by the Trustees, including a majority of the Trustees
who are not "interested" persons of the Trust or CCMC, to be fair and equitable.
In the event that the aggregate operating expenses of any Fund (excluding
certain expenses and, where permitted by applicable state securities
regulations, expenses incurred as part of a Distribution Expense Plan as
described below) exceed any expense limitation imposed by
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applicable state securities regulations, the Adviser has agreed to reimburse (or
otherwise bear the cost) such Fund for such excess expenses.
Each of the investment advisory agreements described above continue in
effect from year to year, if specifically approved at least annually by a vote
cast in person at a meeting called for such purpose of a majority of the
Trustees, and a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of any of the Trusts or CCMC and who had no direct or
indirect financial interest in the operation of the individual Trust's Rule
12b-1 Distribution Expense Plans or any agreements related to such Plans
("Independent Trustees") of the applicable Trust. The investment advisory
agreement may be terminated by either party thereto, by the Independent Trustees
of the applicable Trust or by a vote of the holders of a majority of the
outstanding securities of the Trust, at any time, without penalty, upon 60 days'
written notice, and automatically terminates in the event of an assignment.
Termination will not affect the right of the Adviser to receive payment of any
unpaid balance of the compensation earned prior to termination.
CTE
Pursuant to an investment advisory agreement between CCMC and the Trust,
CCMC manages the investment and reinvestment of the assets of the Ohio Fund in
accordance with such Fund's investment objective, policies and limitations,
subject to the general supervision and control of the Trust's Board of Trustees.
In addition, CCMC furnishes the services of executive and clerical personnel for
the Trust to the extent necessary to prepare the various Trust reports and
statements and conduct the Trust's day-to-day administrative operations.
As compensation for its services, CCMC receives monthly from the Ohio Fund
an advisory fee based upon the average value of the Fund's daily net assets at
an annual rate of .50 of 1% on all amounts.
During the years ended July 31, 1998, 1997 and 1996, the Ohio Fund paid
CCMC advisory fees of $47,508, $53,238, and $59,047, respectively.
The investment advisory agreement was last approved by the shareholders of
the Ohio Fund on June 1, 1993, and was last approved by the Trustees, including
a majority of the Independent Trustees, at a meeting held for such purpose on
April 3, 1998.
MONEY MARKET FUNDS
Pursuant to separate investment advisory contracts, the Adviser manages the
investment and reinvestment of the assets of the Money Market Series, LCI and
CTF in accordance with each such Fund's investment objective, policies and
limitations, subject to the general supervision and control of each Fund's Board
of Trustees.
As compensation for its services to the Money Market Funds, the Adviser
receives monthly an advisory fee based upon the average value of each Fund's
daily net assets at the following annual rates:
30
<PAGE> 73
Money Market Series:
<TABLE>
<S> <C>
.50 of 1% on the first $100,000,000;
.40 of 1% on the next $200,000,000; and
.35 of 1% on any amounts exceeding $300,000,000.
LCI: .50 of 1% on the first $700,000,000;
.45 of 1% on the next $500,000,000;
.40 of 1% on the next $800,000,000; and
.35 of 1% on any amounts exceeding $2,000,000,000.
CTF: .50 of 1% on all amounts.
</TABLE>
For each of the years ended July 31, 1998, 1997 and 1996, CCMC earned
advisory fees of $72,460, $61,567, and $71,083; $1,091,375, $982,614, and
$1,144,869; and $103,404, $111,775, and $123,510 from the Money Market Series,
LCI and CTF, respectively.
The investment advisory contracts of each such Fund were last approved by
the shareholders of LCI, the Money Market Series and CTF on June 1, 1993 and
were last approved by the Trustees of each Fund, including a majority of the
Independent Trustees, at a meeting held for such purpose on April 3, 1998.
THE DISTRIBUTOR
Shares of the Ohio Fund are offered continuously and are distributed
through such Fund's principal underwriter, Carnegie Fund Distributors, Inc. (the
"Distributor"). Under the terms of the distribution agreement between the
Distributor and CTE, the Distributor, as agent of the Trust, accepts orders for
the purchase and redemption of shares of the Ohio Fund and, as compensation
therefor, receives the amount of the sales charge described in the Prospectus.
The Distributor is not obligated to sell any certain number of shares of the
Ohio Fund. The Distributor has entered into Dealer's Agreements with other
dealers, pursuant to which such dealers also sell shares of the Ohio Fund. The
Distributor may enter into similar agreements with additional dealers. The
distribution agreements permit the Distributor to reallow up to the full amount
of the sales charge, as shown in the Prospectus, to dealers entering into
Dealer's Agreements with the Distributor; accordingly, such dealers may be
deemed to be underwriters of the Trusts, as that term is defined in the
Securities Act of 1933, as amended (the "1933 Act"). The Ohio Fund has agreed to
indemnify the Distributor, to the extent permitted by applicable law, against
certain liabilities under the 1933 Act.
The following table shows total sales charges paid by investors in the Ohio
Fund and amounts retained by the Distributor during the three years ended July
31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
TOTAL SALES CHARGES TOTAL SALES CHARGES
FOR FISCAL YEAR ENDED PAID BY INVESTORS RETAINED BY THE DISTRIBUTOR
--------------------- ------------------- ---------------------------
<S> <C> <C>
July 31, 1998 $ 711 $ 79
July 31, 1997 $ 8,266 $ 360
July 31, 1996 $19,282 $ 3,247
</TABLE>
31
<PAGE> 74
DISTRIBUTION EXPENSE PLANS
Each Fund has adopted a Distribution Expense Plan (the "Plans") under Rule
12b-1 of the Investment Company Act of 1940, as amended. Rule 12b-1 permits an
investment company to finance, directly or indirectly, any activity which is
primarily intended to result in the sale of its shares only if it does so in
accordance with the provisions of such Rule. The amount of the distribution fee
paid by a Fund to the Distributor, and the distribution activities for which
such fee may be used, are described in the Prospectus under "Distribution
Expense Plan". The terms and conditions of the continuing payments to
broker-dealers referred to under such heading are set forth in the dealer's
agreement between the Distributor and such securities dealers. Payments are
based upon the daily average value of a Fund's assets attributable to each such
dealer. The Plans of the Money Market Funds are "defensive" type plans and do
not authorize the payment of expenses by such Funds other than those incurred
under their respective investment advisory contracts.
The respective Plans were last approved by the vote of a majority of the
Board of Trustees of CTE and each of the Money Market Funds, including a
majority of the Trustees who are Independent Trustees, at a meeting held for
such purpose on April 3, 1998. The respective Plans were approved by the
shareholders of CTE on November 12, 1985; and by the shareholders of the Money
Market Funds on May 4, 1983.
The Plans (together with any agreements relating to implementation of the
Plans) shall continue in effect from year to year only so long as such
continuance is specifically approved at least annually by the vote of a majority
of the appropriate Trust's Board of Trustees, including the vote of a majority
of the Independent Trustees, cast in person at a meeting called for such
purpose. The Plans may not be amended to materially increase the amount to be
spent by any Fund for distribution expenses without the approval of a majority
of the outstanding voting securities of such Fund, and all material amendments
to the Plan must be approved by a majority of the Board of Trustees and a
majority of the Independent Trustees by votes cast in person at a meeting called
for the purpose of voting on such amendment. The Plans may be terminated at any
time by a vote of a majority of the Independent Trustees or by a vote of a
majority of the outstanding voting securities of the applicable Fund. Any
agreement implementing the Plan may be terminated at any time, without the
payment of any penalty, by a vote of a majority of the Independent Trustees or
by a vote of a majority of the outstanding voting securities of the applicable
Fund, on not more than sixty days' written notice to the other party to the
agreement, and any related agreement will terminate automatically in the event
of its assignment. The Plans require that each Board of Trustees receive at
least quarterly written reports as to the amounts expended during each quarter
pursuant to a Plan and the purposes for which such amounts were expended. While
a Plan is in effect, the selection and nomination of those Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust shall be
committed to the discretion of the disinterested Trustees then in office.
The Plans do not provide for reimbursement of the Distributor's overhead
expenses, or for carry-over of distribution expenses incurred in a given year to
a later year (expenses incurred in excess of the annual ceiling will be borne by
the Distributor or the Adviser) or related interest or financing charges.
32
<PAGE> 75
Sales which resulted from the Plans benefited CCMC because their fees are
based upon the amount of assets in the applicable Trust. George R. Mateyo, who
is Chairman of the Board, President and Chief Executive Officer of CCMC,
Chairman of the Board, President and Chief Executive Officer of the Distributor
and President, Chief Executive Officer and a Trustee of the Trusts, is an
"interested person" as defined in the 1940 Act and may be considered to have a
direct or indirect financial interest in the operation of the respective Plans
or related agreements because of the respective position he holds with CCMC and
the Distributor. No "disinterested" Trustee of the Trusts had a direct or
indirect financial interest in the operation of the Plans or related agreements.
The Trust may have benefited from any larger asset levels resulting from the
Plans through economies of scale and enhanced portfolio management capabilities.
DETERMINATION OF NET ASSET VALUE
Shares of each Fund may be purchased at the net asset value per share next
computed after the purchase order is received, plus, in the case of the Ohio
Fund, the applicable sales charge. Shares of each Fund may be redeemed at the
net asset value per share next computed after the redemption request is
received. For purposes of computing the net asset value of each Fund's portfolio
(i) securities listed or traded on a national securities exchange or securities
listed on the Nasdaq Stock Market are valued at the last sales price on the
exchange or market where primarily traded or listed, or if there has been no
sale on that date, at the last bid quotation, provided, however, if CCMC
determines that a particular security is too thinly traded to permit an accurate
valuation using this method, then such security will be valued pursuant to
clause (ii); (ii) securities not so traded or listed for which over-the-counter
market quotations are available are valued at the average of the bid and asked
price or, if there has been no sale on that date, as the last bid quotation;
(iii) options are valued at the last sale price unless the bid price is higher
or the asked price is lower, in which event such bid or asked price is used;
(iv) fixed-income securities are valued by using market quotations or
independent pricing services; and (v) any securities for which current market
quotations are not readily available and any other assets are valued at fair
value as determined in good faith by the Board of Trustees of the applicable
Trust.
Generally, with respect to the Ohio Fund trading in fixed income securities
is substantially completed each day at various times prior to 4:00 p.m. Eastern
time. The values of such securities used in determining the net value of a
Fund's shares are computed as of such times. Events affecting the value of such
securities may occur between such times and 4:00 p.m., Eastern time, which
events will not be reflected in the computation of such a Fund's net asset
value. When events that materially affect the value of the Ohio Fund's
securities occur during such a period, the tax-exempt securities will be valued
at their fair value as determined in good faith by the CTE Trustees.
Securities maturing less than 60 days from the date of purchase are valued
at amortized cost when it is determined by the Board of Trustees that amortized
cost approximates fair value.
The net asset value per share of each Fund of each Trust is calculated
separately for each Fund. The assets and liabilities of each Fund are determined
in accordance with generally accepted accounting principles and the applicable
rules and regulations of the Securities and Exchange Commission. Assets and
liabilities attributable to a specific Fund are allocated to that
33
<PAGE> 76
Fund. Assets and liabilities not readily identifiable to a Fund will be
allocated among the Funds in a manner and on a basis determined in good faith by
the Trustees, including a majority of the Trustees who are not "interested
persons" of the Trust or the Adviser, to be fair and equitable.
The Money Market Funds value their portfolio securities using the amortized
cost method. This method involves valuing a security at its cost and thereafter
accruing any discount or premium at a constant rate to maturity. By declaring
these accruals to the Trusts' shareholders in the daily dividend, the value of
the Trusts' assets and, thus, their net asset values per share, will generally
remain constant. Although this method provides certainty in valuation, it may
result in periods during which the value of the Trust's securities, as
determined by amortized cost, is higher or lower than the price the Funds would
receive if they sold the securities. During such periods, the yields on shares
of the Funds may differ somewhat from that obtained in similar funds with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of their portfolio securities. For
example, if the use of amortized cost by any Fund resulted in lower aggregate
portfolio value on a particular day, prospective investors in such Fund would be
able to obtain a somewhat higher yield than would result from investments in a
similar fund utilizing solely market values. The converse would apply during a
period of rising interest rates.
In connection with the use of the amortized cost method, the Money Market
Funds maintain a dollar-weighted average portfolio maturity of 90 days or less
and purchase only portfolio securities having remaining maturities of generally
397 days or less. With respect to CTF, and as described under "CTF -- Variable
and Floating Rate Demand Municipal Obligations" in this Statement of Additional
Information, securities having a stated maturity of more than 397 days may be
purchased by CTF if they have demand and variable or floating rate features,
together with appropriate quality characteristics, that permit determination
that such securities may be deemed to have a maturity of less than 397 days. The
Board of Trustees of each such Fund has also established procedures designed to
stabilize, to the extent reasonably possible, each such Fund's net asset value
per share, as computed for purposes of sales and redemptions, at $1.00. Such
procedures include review of each such Fund's portfolio holdings by its Board of
Trustees at such intervals as it may deem appropriate to determine whether each
Fund's net asset value calculated by using available market quotations deviates
from $1.00 per share and, if so, whether such deviation may result in material
dilution or may be otherwise unfair to existing shareholders. With respect to
CTF, these procedures also include a review by the Adviser, in accordance with
policies established by CTF's Board of Trustees and not less frequently than
monthly, of the quality of certain municipal obligations having variable or
floating interest rates and demand features that permit CTF to calculate the
maturity of such obligations to a point in time prior to their stated maturity.
In the event that any Board of Trustees determines that a material deviation
from net asset value exists, such Board will take such corrective action as it
deems necessary and appropriate, which action might include selling portfolio
securities prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends, or establishing net asset
values per share by using available market quotations.
34
<PAGE> 77
CALCULATION OF PERFORMANCE DATA
YIELD
As stated in the Prospectus, each Fund from time to time may advertise its
yield. Any performance advertising by the Ohio Fund will include total return
data.
The current yield for the Money Market Funds is computed by determining the
net change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of a
seven-day period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting yield figure
carried to at least the nearest hundredth of one percent.
Following are yield quotations based on the seven days ended on July 31,
1998:
<TABLE>
<CAPTION>
LCI MMS CTF
--- --- ---
<S> <C> <C>
4.63% 4.50% 2.90%
</TABLE>
The effective or compounded yield for the Money Market Funds is computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of a seven-day period, subtracting a hypothetical charge reflecting deductions
from shareholder accounts, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base period return,
and then compounding the base period return by adding 1, raising the sum to a
power equal to 365 divided by 7, and subtracting 1 from the result, according to
the following formula:
Effective yield = [(Base period return + 1) 365] -1
7
Following are effective or compounded yield quotations based on the seven
days ended July 31, 1998:
<TABLE>
<CAPTION>
LCI MMS CTF
--- --- ---
<S> <C> <C>
4.73% 4.61% 2.94%
</TABLE>
The yield for the Ohio Fund is computed by dividing the net investment
income per share earned during a 30-day (or one month) period by the maximum
offering price per share on the last day of the period according to the
following formula:
Yield = 2 [(a-b + 1)6 - 1]
----
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
35
<PAGE> 78
The yield quotation based upon the 30-day (or one month) period ended on
July 31, 1998 for the Ohio Fund was 3.92%.
TOTAL RETURN
Average total return reflects overall change in value, assuming all
dividend and gains distribution are reinvested and deduction of the maximum
sales charge. It is computed by finding the average annual compounded rates of
return over one-, five- and 10-year periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P (1 + T) n = ERV
<TABLE>
<C> <C> <S>
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, and 10
year periods at the end of the 1, 5, or 10 year
periods.
</TABLE>
Following is an average annual total return quotation for periods ended
July 31, 1998:
<TABLE>
<CAPTION>
ONE YEAR FIVE YEAR TEN YEAR
-------- --------- --------
<S> <C> <C> <C>
Ohio Fund .07% 4.04% 6.05%
</TABLE>
PERFORMANCE TO DATE SINCE INCEPTION
Performance to date since inception is defined as the cumulative rate of
investment growth excluding any sales charges and including the reinvestment of
income dividends and capital gains distributions as of the ex-dividend date. It
is determined by assuming a hypothetical investment at the net asset value on
the date of inception of the Fund, adding in the reinvestment of all income
dividends and capital gains distributions at the net asset value on the
ex-dividend date, calculating the ending value of the investment at the net
asset value as of the end of the specified time period, subtracting the amount
of the original investment, and dividing this amount by the amount of the
original investment. This calculated amount is then expressed as a percentage by
multiplying by 100.
Expressed as a formula, performance to date since inception is calculated
by:
Performance = [ [ [ EN + the sum of (D+C) ] - BN ] / BN ] x 100
<TABLE>
<C> <C> <S>
where BN = Beginning Net Asset Value
D = Reinvested Dividends at Net Asset Value
C = Reinvested Capital Gains at Net Asset Value
EN = Ending Net Asset Value
</TABLE>
36
<PAGE> 79
PERFORMANCE TO DATE SINCE INCEPTION TO JULY 31, 1998
<TABLE>
<CAPTION>
ONE YEAR FIVE YEAR TEN YEAR LIFE OF FUND(1)
-------- --------- -------- ---------------
<S> <C> <C> <C> <C>
Ohio Fund 4.84% 27.70% 88.46% 104.37%
</TABLE>
(1) From commencement of operations September 22, 1986 through July 31, 1998.
PERFORMANCE TO DATE
Performance to date is defined as the rate of investment growth for this
calendar year excluding any sales charges and including the reinvestment of
income dividends and capital gains distributions as of the ex-dividend date. It
is determined by assuming a hypothetical investment at the net asset value on
the last day of the previous calendar year, adding in the reinvestment of all
income dividends and capital gains distributions at the net asset value on the
ex-dividend date, calculating the ending value of the investment at the net
asset value as of the end of the specified time period, subtracting the amount
of the original investment, and dividing this amount by the amount of the
original investment. This calculated amount is then expressed as a percentage by
multiplying by 100.
Expressed as a formula:
Performance to date = [ [ [ EN + the sum of (D+C) ] - BN] / BN ] x 100
<TABLE>
<C> <C> <S>
where BN = Beginning Net Asset Value
D = Reinvested Dividends at Net Asset Value
C = Reinvested Capital Gains at Net Asset Value
EN = Ending Net Asset Value
</TABLE>
PERFORMANCE TO DATE 12/31/97 TO 7/31/98
CARNEGIE TAX EXEMPT INCOME TRUST
Ohio Fund 2.56%
TRUSTEES AND OFFICERS
TRUSTEES
Trustees and officers of the Trust, together with information as to their
principal occupations during the past five years, are set forth below. Each
Trustee and officer of the Trusts holds a similar position with each Trust in
the Carnegie Funds Group. On November 4, 1998, the Trustees and officers of the
Trust, as a group, owned less than 1% of the shares of each Fund outstanding on
that date.
DAVID S. BAKER -- is a partner of the law firm of Powell, Goldstein, Frazer &
Murphy, Atlanta, Georgia (1968 to present). From August 1986 to August 1987, Mr.
Baker served as Chairman, General Practice Section, American Bar Association,
and he served as Chairman of the American Bar Association Standing Committee on
Environmental Law from August 1993 to August 1996. Mr. Baker has served as a
Trustee of the Rich Foundation, Inc. since 1983 and served as Director of the
Harvard Legal Aid Bureau from 1958 to 1961. Mr. Baker is the Chairman of the
Board of Trustees of The Howard School. His address is 191 Peachtree Street, NE,
16th Floor, Atlanta, Georgia.
37
<PAGE> 80
DEANE R. BEMAN -- is a member of the PGA SENIOR TOUR. He is the former
Commissioner of the PGA TOUR. He was elected in 1972 to the Tournament Players
Division Policy Board as Player Director. Mr. Beman previously served as a
Director of Florida National Bank and as a partner in Beman & Buppert Associates
(business insurance brokerage firm). Presently, he is a Director of the
International Golf Association (IGA). He also is a member of the National
Advisory Board of the Chi Chi Rodriquez Youth Foundation. His address is Ponte
Vedra, Florida.
JOHN C. BOOTH, JR. -- Owns and has been a financial consultant with J & K
Enterprises, Inc. since August 1985. He previously served as President and a
Director of NDX Corporation (computer software) from July 1981 to October 1983.
Prior thereto, he served as President, Chief Operating Officer and a Director of
the American Productivity Center (non-profit) from May 1979 until April 1981,
having previously been a partner of KPMG Peat Marwick. His address is 9333
Memorial Drive, Suite 303, Houston, Texas.
E. MANDELL DE WINDT -- Served as Chairman of the Board and Chief Executive
Officer of Eaton Corporation from September 1969 to April 1986. He is a Director
of Birmingham Steel Corporation. His address is 36 Riverview Road, Hobe Sound,
Florida.
GEORGE R. MATEYO* -- Is President and Chief Executive Officer of each Trust of
the Carnegie Funds Group and President, Chief Executive Officer and a Director
of CCMC. Prior to becoming President and Chief Executive Officer of CCMC in
February 1983, Mr. Mateyo was Senior Executive Vice President and Chief
Investment Officer of Mutual of Omaha Funds (1978-1983) and Vice President of
Investment of Scudder, Stevens & Clark (1973-1978). Mr. Mateyo is a Director of
CardTech, Inc., a past member of the Board of Governors of the Investment
Company Institute, and a Chartered Financial Analyst. He is on the Board of
Trustees of The Musical Arts Association, Clean-Land, Ohio, WCPN, The Hermit
Club and Baldwin Wallace College. His address is 1100 The Halle Building, 1228
Euclid Avenue, Cleveland, Ohio.
* An "interested" Trustee within the definition of Section 2(a)(19) of the 1940
Act.
Messrs. Baker and Booth are members of the Audit Committee of the Board of
Trustees of each Trust. The aggregate compensation earned by the Trustees from
CTE, CGST, LCI and CTF for the fiscal year ended July 31, 1998 was $8,000,
$8,000, $24,000 and $8,000, respectively. No compensation was paid by the Trusts
to their officers.
OFFICERS OF THE TRUSTS AND THE ADVISER
GEORGE R. MATEYO -- see "Trustees".
DAVID E. KARAM -- Chief Financial Officer, Treasurer, Secretary of the Trusts
and a Director, Executive Vice President and Chief Financial Officer of the
Adviser.
JAMES V. PEASE -- A Director and Executive Vice President of the Adviser. Mr.
Pease was the Managing Director of the Equity Group at McDonald & Company
Securities, Inc. prior to April 1991.
DAVID MUNOZ -- Vice President and Portfolio Manager, Fixed Income/Equities of
the Adviser.
38
<PAGE> 81
GEORGE K. MATEYO -- Vice President of the Adviser.
RUDOLPH J. POLZ, JR. -- Vice President of the Adviser.
SARA R. BINGGELI -- Assistant Vice President of the Adviser.
MICHAEL BIBLER -- Assistant Vice President -- Information Systems of the
Adviser.
The address of each of the officers of the Trusts and the Adviser is 1100
The Halle Building, 1228 Euclid Avenue, Cleveland, Ohio.
GENERAL INFORMATION
SERVICE FEES
Under the terms of each Trust's Custody Agreement, Boston Safe holds the
portfolio securities of each Trust and keeps all necessary related accounts and
records. For its services, Boston Safe receives from each Trust a monthly fee
based upon the month-end market value of such Trust's securities held in custody
plus securities transaction charges and is also reimbursed for certain
out-of-pocket expenses.
Under the terms of the Transfer Agency and Services Agreement, First Data
maintains the shareholder account records for each Trust, handles certain
communications between shareholders and each Trust, distributes dividends and
distributions payable by each Trust and produces statements with respect to
account activity for each Trust and its shareholders. For these services, First
Data receives a monthly fee computed on the basis of the number of shareholder
accounts First Data maintains for each Trust during the month and is also
reimbursed for certain out-of-pocket expenses.
For the fiscal year ended July 31, 1998, the Ohio Fund, the Money Market
Series, LCI and CTF incurred custody and dividend and transfer agent fees of
$7,270, $25,321, $510,975 and $20,710, respectively.
PRINCIPAL HOLDERS OF SECURITIES
The following table provides information regarding each person who owns of
record or is known by each Trust to own of record or beneficially five percent
or more of the outstanding shares of any Fund.
39
<PAGE> 82
<TABLE>
<CAPTION>
PERCENTAGE TYPE OF
OF OWNERSHIP
OWNERSHIP (OF RECORD,
AS OF BENEFICIALLY,
NAME AND ADDRESS FUND 11/12/98 OR BOTH)
---------------- ------------------- ---------- -------------
<S> <C> <C> <C>
University of Alabama Carnegie Government 27.29% of record
Huntsville Foundation Securities Trust
104 Alumni House
Huntsville, AL 35899
Harry E. Figgie Jr. Carnegie Tax Free 13.02% of record
37001 Shaker Blvd. Income Trust
Chagrin Falls, OH 44022
Ted G. Kolderie & Marjorie Carnegie Tax Free 5.92% of record
Q. Kolderie Income Trust
59 4th Street West
Saint Paul, MN 55102
Delaware Charter Guarantee & Trust FBO: Carnegie Government 5.75% of record
Alan Vaughan Securities Trust
PO Box 8963
Wilmington, DE 19899
</TABLE>
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 1500 National City Center, Cleveland, Ohio 44114,
served as the independent auditors for the Trusts for each of the years in the
nine-year period ended July 31, 1998 and has been selected as the independent
auditors for the Trusts for the fiscal year ending July 31, 1999.
FINANCIAL STATEMENTS
The financial statements of each Fund and the Auditors' Reports relating
thereto are set forth in such Funds' Annual Reports to Shareholders dated July
31, 1998 and are incorporated herein by reference. The Message from the
President contained in such reports is not incorporated by reference. The Trusts
will furnish, without charge, copies of such reports on request made in writing
to Carnegie Capital Management Company, 1100 The Halle Building, 1228 Euclid
Avenue, Cleveland, Ohio 44115 or by telephone toll free 1-800-321-2322.
40
<PAGE> 83
APPENDIX
The following is a description of Standard & Poor's Corporation ("S&P") and
Moody's Investors Service, Inc. ("Moody's") commercial paper, loan, note and
bond ratings. To the extent that ratings accorded by S&P or Moody's may change
as a result of changes in such organizations, the Trusts will attempt to use
comparable rating standards for their permissible investments.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER, LOAN AND NOTE RATINGS
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Notes bearing the designation MIG-1 by Moody's are of the best quality
enjoying strong protection by established cash flows, superior liquidity support
or demonstrated broadbased access to the market for refinancing.
Notes bearing the designation of MIG-2 are of high quality, with margins of
protection ample although not so large as in the preceding group.
Notes bearing the designation MIG-3 are of favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
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<PAGE> 84
DESCRIPTION OF S&P'S COMMERCIAL PAPER AND MUNICIPAL NOTE RATINGS
The rating A is the highest commercial paper rating assigned by S&P. Issues
in this category have the greatest capacity for timely payment and are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety.
The designation A-1 indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
The designation A-2 indicates that the capacity for timely payment on
issues with this designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated "A-1".
The designation A-3 indicates that issues carrying this designation have an
adequate capacity for timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the higher
designations.
Municipal notes rated SP-1 have a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
Municipal notes rated SP-2 have a satisfactory capacity to pay principal
and interest.
Municipal notes rated SP-3 have a speculative capacity to pay principal and
interest.
DESCRIPTION OF MOODY'S BOND RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judge to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally now as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
42
<PAGE> 85
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Within each rating classification from Aa through B, Moody's has assigned
the numerical modifiers 1, 2 and 3. The modifier 1 indicates that a security
ranks in the higher end of that rating category, 2 in the midrange of a category
and 3 in the lower end of the category.
DESCRIPTION OF S&P'S CORPORATE OR MUNICIPAL DEBT RATINGS
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
43
<PAGE> 86
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 87
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
Financial Highlights in Part A of this Registration Statement.
Incorporated by reference in Part B of this Registration Statement:
Statement of Net Assets as of July 31, 1998
Statement of Operations for the Year Ended July 31, 1998
Statement of Changes in Net Assets for the Years Ended July 31, 1998
and July 31, 1997
Notes to Financial Statements
Independent Auditors' Report
(B) EXHIBITS:
(1) Declaration of Trust (1)
Amendments to Declaration of Trust (2)
(2) Fourth Amended By-Laws (6)
(5) Investment Advisory Contract (7)
Investment Advisory Contract (8)
(8) Custody Agreement (2)
Custody Agreement Schedule of Remuneration (2, 3)
Schedule B, Schedule D to Custody Agreement (4, 5)
Schedule A, Schedule B to Custody Agreement (6)
(9) Dividend and Transfer Agency Agreement (4)
Schedule A, Schedule B to Dividend and Transfer Agency
Agreement (5)
Sub-Accounting Agreement (5)
Amendment to Dividend and Transfer Agency Agreement (6)
*Transfer Agency and Services Agreement
(10) Opinion of counsel as to the legality of shares (1)
(11)(a) *Consent of KPMG Peat Marwick LLP
(11)(b) *Consent of Squire, Sanders & Dempsey L.L.P.
(15) Distribution Expense Plan (4)
(27) *Financial Data Schedule
(99) Powers of Attorney (9)
- ---------------
*filed herewith
(1) Filed with initial filing of Registration Statement
(2) Included as an exhibit to Post-Effective Amendment No. 7
(3) Included as an exhibit to Post-Effective Amendment No. 12
(4) Included as an exhibit to Post-Effective Amendment No. 13
(5) Included as an exhibit to Post-Effective Amendment No. 14
(6) Included as an exhibit to Post-Effective Amendment No. 15
(7) Included as an exhibit to Post-Effective Amendment No. 16
(8) Included as an exhibit to Post-Effective Amendment No. 17
(9) Included as an exhibit to Post-Effective Amendment No. 18
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not Applicable.
C-1
<PAGE> 88
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
The following table indicates the number of record holders of each class of
securities of the Registrant at November 4, 1998:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
Shares of Beneficial Interest, 578
par value $.10 per share
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article V of the Declaration of Trust of the
Registrant, as amended, previously filed as Exhibit (1) to this Registration
Statement. The Trustees and Officers of the Trust are insured against certain
liability which may be incurred by them in such capacity by a Directors and
Officers and Errors and Omissions Liability Insurance Policy issued by the Chubb
Group of Insurance Companies.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Reference is made to the caption "Investment Management" contained in the
Prospectus which comprises Part A of this Registration Statement and to the
captions "Management and Distribution Agreements" and "Trustees and Officers,"
contained in the Statement of Additional Information which comprises Part B of
this Registration Statement.
In addition, the following table presents certain information with respect
to certain officers of Carnegie Capital Management Company ("CCMC"), the
investment adviser, and their respective positions in Carnegie Fund
Distributors, Inc. ("CFD"), a wholly-owned subsidiary of CCMC, which serves as
principal underwriter for the shares of the Carnegie Tax Exempt Income Trust
(Ohio General Municipal Fund) and in Carnegie Capital Asset Management Company
("CCAMC"), a wholly-owned subsidiary of CCMC, which serves as an investment
adviser for private asset management accounts:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND POSITIONS AND POSITIONS AND
BUSINESS ADDRESS OFFICES WITH CCMC OFFICES WITH CFD OFFICES WITH CCAMC
------------------ ----------------- ---------------- ------------------
<S> <C> <C> <C>
George R. Mateyo Chairman of the Board, Chairman of the Board, Chairman of the Board, Chief
1100 The Halle Building President, Chief Executive President, Chief Executive Executive Officer
1228 Euclid Avenue Officer Officer
Cleveland, OH 44115
David E. Karam Executive Vice President, Executive Vice President, Executive Vice President,
1100 The Halle Building Chief Financial Officer, Chief Financial Officer, Chief Financial Officer,
1228 Euclid Avenue Secretary, Treasurer Secretary, Treasurer Secretary, Treasurer
Cleveland, OH 44115
James V. Pease Executive Vice President Executive Vice President President, Chief Investment
1100 The Halle Building Officer
1228 Euclid Avenue
Cleveland, OH 44115
David Munoz Vice President, Portfolio Vice President, Portfolio Vice President, Portfolio
1100 The Halle Building Manager, Fixed Manager, Fixed Manager, Fixed
1228 Euclid Avenue Income/Equities Income/Equities Income/Equities
Cleveland, OH 44115
George K. Mateyo Vice President Vice President Vice President, Portfolio
1100 The Halle Building Manager, Equities
1228 Euclid Avenue
Cleveland, OH 44115
Rudolph J. Polz Jr. Vice President Vice President Vice President, Controller
1100 The Halle Building
1228 Euclid Avenue
Cleveland, OH 44115
Sara R. Binggeli Assistant Vice President Assistant Vice President --
1100 The Halle Building
1228 Euclid Avenue
Cleveland, OH 44115
</TABLE>
C-2
<PAGE> 89
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND POSITIONS AND POSITIONS AND
BUSINESS ADDRESS OFFICES WITH CCMC OFFICES WITH CFD OFFICES WITH CCAMC
------------------ ----------------- ---------------- ------------------
<S> <C> <C> <C>
Michael Bibler Assistant Vice President -- Assistant Vice President -- Assistant Vice President --
1100 The Halle Building Information Services Information Services Information Services
1228 Euclid Avenue
Cleveland, OH 44115
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER.
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
Rules 31a-1 through 31a-3 thereunder are maintained at the office of the
Registrant, 1100 Halle Building, 1228 Euclid Avenue, Cleveland, Ohio 44115,
except as indicated below opposite the applicable reference to the aforesaid
Rules:
<TABLE>
<CAPTION>
RULE IN POSSESSION OF:
---- -----------------
<S> <C>
31a-1(b)(1) Custodian (1) with respect to current information regarding
sales and redemptions of Registrant's securities
31a-1(b)(2)(d) Transfer Agent (2)
</TABLE>
- ------------------
(1) Boston Safe Deposit and Trust Company, One Cabot Road, Medford,
Massachusetts 02155-5159.
(2) First Data Investor Services Group, a division of First Data Corp., 3200
Horizon Drive, King of Prussia, Pennsylvania 19406-0903.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to call a meeting of shareholders for the purpose of
voting upon the question of removal of one or more Trustees when requested in
writing to do so by the holders of at least 10% of the Fund's outstanding
shares, and in connection with such meeting to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940 relating to shareholder
communications.
C-3
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant certifies that
this Amendment to the Registration Statement meets all of the requirements for
effectiveness under Rule 485(b), and the Registrant has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland and State of
Ohio on the 19th day of November, 1998.
CARNEGIE TAX FREE INCOME TRUST
(Registrant)
By: /s/ GEORGE R. MATEYO
-------------------------------
George R. Mateyo, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*JOHN C. BOOTH, JR. Chairman of the Board November 19, 1998
- ------------------------------------------
John C. Booth, Jr.
*GEORGE R. MATEYO President and Chief Executive Officer November 19, 1998
- ------------------------------------------ (Principal Executive Officer), Trustee
George R. Mateyo
*DAVID E. KARAM Chief Financial Officer (Principal November 19, 1998
- ------------------------------------------ Financial and Accounting Officer)
David E. Karam
*DAVID S. BAKER Trustee November 19, 1998
- ------------------------------------------
David S. Baker
*DEANE R. BEMAN Trustee November 19, 1998
- ------------------------------------------
Deane R. Beman
*E. MANDELL DE WINDT Trustee November 19, 1998
- ------------------------------------------
E. Mandell de Windt
</TABLE>
*By: /s/ GEORGE R. MATEYO
-------------------------------
George R. Mateyo,
Attorney-in-Fact
S-1
<PAGE> 91
CARNEGIE TAX FREE INCOME TRUST
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S> <C> <C>
(1) Declaration of Trust (1)
Amendments to Declaration of Trust (2)
(2) Fourth Amended By-Laws (6)
(5) Investment Advisory Contract (7)
Investment Advisory Contract (8)
(8) Custody Agreement (2)
Custody Agreement Schedule of Remuneration (2, 3)
Schedule B, Schedule D to Custody Agreement (4, 5)
Schedule A, Schedule B to Custody Agreement (6)
(9) Dividend and Transfer Agency Agreement (4)
Schedule A, Schedule B to Dividend and Transfer Agency
Agreement (5)
Sub-Accounting Agreement (5)
Amendment to Dividend and Transfer Agency Agreement (6)
*Transfer Agency and Services Agreement
(10) Opinion of counsel as to the legality of shares (1)
(11) (a) *Consent of KPMG Peat Marwick LLP
(11) (b) *Consent of Squire, Sanders & Dempsey L.L.P.
(15) Distribution Expense Plan (4)
(27) *Financial Data Schedule
(99) Powers of Attorney (9)
</TABLE>
- ---------------
*filed herewith
(1) Filed with initial filing of Registration Statement
(2) Included as an exhibit to Post-Effective Amendment No. 7
(3) Included as an exhibit to Post-Effective Amendment No. 12
(4) Included as an exhibit to Post-Effective Amendment No. 13
(5) Included as an exhibit to Post-Effective Amendment No. 14
(6) Included as an exhibit to Post-Effective Amendment No. 15
(7) Included as an exhibit to Post-Effective Amendment No. 16
(8) Included as an exhibit to Post-Effective Amendment No. 17
(9) Included as an exhibit to Post-Effective Amendment No. 18
<PAGE> 1
Exhibit 9
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 1st day of January, 1998 between those
entities identified on the execution page hereof (each a "Fund", and
collectively the "Funds"), each with its principal place of business at 1100 The
Halle Building, 1228 Euclid Avenue, Cleveland, Ohio 44115 and FIRST DATA
INVESTOR SERVICES GROUP, INC. ("Investor Services Group"), a Massachusetts
corporation with principal offices at 4400 Computer Drive, Westboro,
Massachusetts 01581.
WITNESSETH
----------
WHEREAS, the Funds are authorized to issue Shares in separate series,
with each such series representing interests in a separate portfolio of
securities or other assets.
WHEREAS, each Fund currently offers Shares in itself or in a series
identified in the attached Exhibit 1;
WHEREAS, each of the Funds desires to appoint Investor Services Group
as its transfer agent, dividend disbursing agent and agent in connection with
certain other activities and Investor Services Group desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, each Fund and Investor Services Group agree as follows:
Article 1 Definitions.
------------
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Authorized Person" shall be deemed to include (i) any
authorized officer of a Fund; or (ii) any person, whether or not such
person is an officer or employee of a Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of a Fund as
indicated in writing to Investor Services Group from time to time.
(b) "Board of Trustees" shall mean the Board of Trustees of a
Fund.
(c) "Commission" shall mean the Securities and Exchange
Commission.
(d) "Custodian" refers to any custodian or subcustodian of
securities and other property which a Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
1
<PAGE> 2
(e) "Declaration of Trust" shall mean the Declaration of
Trust, or other similar organizational document as the case may be, of
a Fund as the same may be amended from time to time.
(f) "1934 Act" shall mean the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(g) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by Investor Services Group from
a person reasonably believed by Investor Services Group to be an
Authorized Person;
(i) "Prospectus" shall mean the most recently dated Prospectus
and Statement of Additional Information of a Fund, including any
supplements thereto if any, which has become effective under the
Securities Act of 1933 and the 1940 Act.
(j) "Shares" refers collectively to such shares of beneficial
interest or class thereof, of each respective Fund or Fund series, as
may be issued from time to time.
(k) "Shareholder" shall mean a record owner of Shares of a
Fund.
(l) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by Investor Services Group to be
an Authorized Person and actually received by Investor Services Group.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including telefacsimile of a
manually executed original or other process.
Article 2 Appointment of Investor Services Group.
---------------------------------------
Each Fund hereby appoints and constitutes Investor Services Group as
transfer agent and dividend disbursing agent for its Shares and as shareholder
servicing agent for the Fund and Investor Services Group hereby accepts such
appointments and agrees to perform the duties hereinafter set forth.
Article 3 Duties of Investor Services Group.
----------------------------------
3.1 Investor Services Group shall be responsible for:
(a) Administering and/or performing the customary services of
a transfer agent; acting as service agent in connection with dividend
and distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance,
transfer or redemption (including coordination with the Custodian) of
Shares of each Fund, as more fully described without limitation in the
written schedule of
2
<PAGE> 3
Duties of Investor Services Group annexed hereto as Schedule A and
incorporated herein, and in accordance with the terms of the Prospectus
of each Fund, applicable law and the procedures established from time
to time between Investor Services Group and each Fund.
(b) Recording the issuance of Shares and maintaining pursuant
to Rule 17Ad-10(e) of the 1934 Act a record of the total number of
Shares of each Fund which are authorized, based upon data provided to
it by each Fund, and issued and outstanding. Investor Services Group
shall provide the Fund on a regular basis with the total number of
Shares which are authorized and issued and outstanding and shall have
no obligation, when recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of any laws relating to
the issue or sale of such Shares, which functions shall be the sole
responsibility of the Fund.
(c) In addition to providing the foregoing services, each Fund
hereby engages Investor Services Group as its exclusive service
provider with respect to the Print/Mail Services as set forth in
Schedule B for the fees also identified in Schedule B. Investor
Services Group agrees to perform the services and its obligations
subject to the terms and conditions of this Agreement.
(d) Notwithstanding any of the foregoing provisions of this
Agreement, Investor Services Group shall be under no duty or obligation
to inquire into, and shall not be liable for: (i) the legality of the
issuance or sale of any Shares or the sufficiency of the amount to be
received therefor; (ii) the legality of the redemption of any Shares,
or the propriety of the amount to be paid therefor; (iii) the legality
of the declaration of any dividend by the Board of Trustees, or the
legality of the issuance of any Shares in payment of any dividend; or
(iv) the legality of any recapitalization or readjustment of the
Shares.
3.2 In addition, each Fund shall (i) identify to Investor Services
Group in writing those transactions and assets to be treated as exempt from blue
sky reporting for each State and (ii) verify the establishment of transactions
for each State on the system prior to activation and thereafter monitor the
daily activity for each State. The responsibility of Investor Services Group for
a Fund's blue sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the Fund and the
reporting of such transactions to the Fund as provided above.
3.3 In addition to the duties set forth herein, Investor Services Group
shall perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between a Fund and
Investor Services Group.
Article 4 Recordkeeping and Other Information.
------------------------------------
4.1 Investor Services Group shall create and maintain all records
required of it pursuant to its duties hereunder and as set forth in Schedule A
in accordance with all applicable
3
<PAGE> 4
laws, rules and regulations, including records required by Section 31(a) of the
1940 Act. Where applicable, such records shall be maintained by Investor
Services Group for the periods and in the places required by Rule 31a-2 under
the 1940 Act.
4.2 Investor Services Group agrees that all such records prepared or
maintained by Investor Services Group relating to the services to be performed
by Investor Services Group hereunder are the property of the respective Fund and
will be preserved, maintained and made available in accordance with Section 31
of the 1940 Act, and will be surrendered promptly to the appropriate Fund on and
in accordance with the Fund's request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of a Fund, Investor Services Group will endeavor to notify
the Fund of such request and secure Written Instructions as to the handling of
such request. Investor Services Group reserves the right, however, to exhibit
the Shareholder records to any person whenever it is advised by its counsel that
it may be held liable for the failure to comply with such request.
4.4 Investor Services Group shall at all times maintain a duplicate set
of records of each Fund (except those records copies of which are furnished
daily to the Fund) in a fire-safe facility and shall further maintain a back-up
computer capability sufficient to permit Investor Services Group to perform its
obligations hereunder under reasonably foreseeable circumstances.
Article 5 Fund Instructions.
------------------
5.1 Investor Services Group will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from a Fund. Investor Services Group will also have no liability when
processing Share certificates which it reasonably believes to bear the proper
manual or facsimile signatures of the officers of a Fund and the proper
countersignature of Investor Services Group.
5.2 At any time, Investor Services Group may request Written
Instructions from a Fund and may seek advice from legal counsel for a Fund, or
its own legal counsel, with respect to any matter arising in connection with
this Agreement, and it shall not be liable for any action taken or not taken or
suffered by it in good faith in accordance with such Written Instructions or in
accordance with the opinion of counsel for a Fund or for Investor Services
Group. Written Instructions requested by Investor Services Group will be
provided by a Fund within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees, shall
accept Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is an
Authorized Person. Each Fund agrees that all Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Fund's
failure to so confirm shall not impair in any respect Investor Services Group's
right to rely on Oral Instructions.
4
<PAGE> 5
Article 6 Compensation.
-------------
6.1 Each Fund will compensate Investor Services Group for the
performance of its obligations hereunder in accordance with the fees set forth
in the written Fee Schedule annexed hereto as Schedule B and incorporated
herein.
6.2 In addition to those fees set forth in Section 6.1 above, each Fund
agrees to pay, and will be billed separately for, out-of-pocket expenses
incurred by Investor Services Group in the performance of its duties hereunder.
Out-of-pocket expenses shall include, but shall not be limited to, the items
specified in the written schedule of out-of-pocket charges annexed hereto as
Schedule C and incorporated herein. Schedule C may be modified by written
agreement between the parties. Unspecified out-of-pocket expenses shall be
limited to those out-of-pocket expenses reasonably incurred by Investor Services
Group in the performance of its obligations hereunder.
6.3 Each Fund agrees to pay all fees and out-of-pocket expenses to
Investor Services Group within thirty (30) business days following the receipt
of the respective invoice. With respect to all fees under this Agreement,
Investor Services Group may charge a service fee equal to the lesser of (i) one
and one half percent (1 1/2%) per month or (ii) the highest interest rate
legally permitted on any past due invoiced amounts, provided however, the
foregoing service fee shall not apply if the Fund in good faith disputes any
invoice amount in which case the Fund shall do the following within thirty (30)
days of receipt of the invoice: (a) pay Investor Services Group the undisputed
amount of the invoice; and (b) provide Investor Services Group a detailed
written description of the disputed amount and the basis for the Fund's dispute
with such amount. In addition, the Fund shall cooperate with Investor Services
Group in resolving disputed invoice amounts and then promptly paying such
amounts determined to be due.
6.4 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule B, a revised Fee Schedule executed and dated by
the parties hereto.
Article 7 Documents.
----------
In connection with the appointment of Investor Services Group, each
Fund shall, on or before the date this Agreement goes into effect, within a
reasonable period of time for Investor Services Group to prepare to perform its
duties hereunder but only to the extent not previously delivered to Investor
Services Group, deliver or caused to be delivered to Investor Services Group the
documents set forth in the written schedule of Fund Documents annexed hereto as
Schedule D.
Article 8 Transfer Agent System.
----------------------
8.1 Investor Services Group shall retain title to and ownership of any
and all data bases, computer programs, screen formats, report formats,
interactive design techniques, derivative works, inventions, discoveries,
patentable or copyrightable matters, concepts, expertise, patents, copyrights,
trade secrets, and other related legal rights utilized by Investor
5
<PAGE> 6
Services Group in connection with the services provided by Investor Services
Group to a Fund herein (the "Investor Services Group System").
8.2 Investor Services Group hereby grants to each Fund a limited
license to the Investor Services Group System for the sole and limited purpose
of having Investor Services Group provide the services contemplated hereunder
and nothing contained in this Agreement shall be construed or interpreted
otherwise and such license shall immediately terminate with the termination of
this Agreement.
8.3 In the event that any Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the Investor Services Group System for either account inquiry or to
transmit transaction information, including but not limited to maintenance,
exchanges, purchases and redemptions, such direct access capability shall be
limited to direct entry to the Investor Services Group System by means of
on-line mainframe terminal entry or PC emulation of such mainframe terminal
entry and any other non-conforming method of transmission of information to the
Investor Services Group System is strictly prohibited without the prior written
consent of Investor Services Group.
Article 9 Representations and Warranties.
-------------------------------
9.1 Investor Services Group represents and warrants to each Fund that:
(a) it is a corporation duly organized, existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
9.2 Each Fund represents and warrants to Investor Services Group
that:
(a) it is duly organized and existing as a business trust
under the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its
Declaration of Trust and By-Laws to enter into this Agreement;
6
<PAGE> 7
(c) all corporate proceedings required by said Declaration of
Trust, By-Laws and applicable laws have been taken to authorize it to
enter into this Agreement;
(d) a registration statement under the Securities Act of 1933,
as amended, and the 1940 Act on behalf of the Fund is currently
effective and the Fund will use commercially reasonable efforts to
cause it to remain effective, and all appropriate state securities law
filings or notices have been made or filed and will continue to be made
or filed, with respect to all Shares of the Fund being offered for
sale; and
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with
the terms of the Fund's Declaration of Trust and its Prospectus, such
Shares shall be validly issued, fully paid and non-assessable.
Article 10 Indemnification.
----------------
10.1 Investor Services Group shall not be responsible for and each Fund
shall indemnify and hold Investor Services Group harmless from and against any
and all claims, costs, expenses (including reasonable attorneys' fees), losses,
damages, charges, payments and liabilities of any sort or kind (a "Claim") which
may be asserted against Investor Services Group or for which Investor Services
Group may be held to be liable arising out of or attributable to any of the
following:
(a) any actions of Investor Services Group required to be
taken pursuant to this Agreement unless such Claim resulted from a
negligent act or omission to act or bad faith by Investor Services
Group in the performance of its duties hereunder;
(b) Investor Services Group's reasonable reliance on, or
reasonable use of information, data, records and documents (including
but not limited to magnetic tapes, computer printouts, hard copies and
microfilm copies) received by Investor Services Group from a Fund, or
any authorized third party acting on behalf of a Fund, in the
performance of Investor Services Group's duties and obligations
hereunder;
(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of a Fund;
(d) the offer or sale of Shares in violation of any
requirement under the securities laws or regulations of any state or in
violation of any stop order or other determination or ruling by any
state with respect to the offer or sale of such Shares in such state;
and
(e) a Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of a Fund's negligence or
misconduct or the breach of any representation or warranty of that Fund
made herein.
7
<PAGE> 8
10.2 The Funds shall not be responsible for and Investor Services Group
shall indemnify and hold each Fund harmless from and against any and all Claims
which result from the negligence, bad faith or willful misconduct of Investor
Services Group in the performance of its duties hereunder.
10.3 In any case in which any party to this Agreement (the
"Indemnifying Party") may be asked to indemnify or hold another party (the
"Indemnified Party") harmless, the Indemnified Party will notify the
Indemnifying Party promptly after identifying any situation which it believes
presents or appears likely to present a claim for indemnification against the
Indemnifying Party although the failure to do so shall not prevent recovery by
the Indemnified Party, which shall keep the Indemnifying Party advised with
respect to all developments concerning such situation. The Indemnifying Party
shall have the option to defend the Indemnified Party against any Claim which
may be the subject of this indemnification, and, in the event that the
Indemnifying Party so elects, such defense shall be conducted by counsel chosen
by the Indemnifying Party and satisfactory to the Indemnified Party, and
thereupon the Indemnifying Party shall take over complete defense of the Claim
and the Indemnified Party shall sustain no further legal or other expenses in
respect of such Claim. The Indemnified Party will not confess any Claim or make
any compromise in any case in which the Indemnifying Party will be asked to
provide indemnification, except with the Indemnifying Party's prior written
consent. The obligations of the parties hereto under this Article 10 shall
survive the termination of this Agreement.
10.4 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
(a) one year after the respective Fund becomes aware of the
event for which indemnification is claimed; or
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.5 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
Investor Services Group's sole and exclusive remedy for claims or other actions
or proceedings to which a Fund's indemnification obligations pursuant to this
Article 10 may apply.
Article 11 Standard of Care.
----------------
11.1 Investor Services Group shall at all times act in good faith and
agrees to use its best efforts within commercially reasonable limits to ensure
the accuracy of all services performed under this Agreement, but assumes no
responsibility for loss or damage to a Fund unless said errors are caused by
Investor Services Group's own negligence, bad faith or willful misconduct or
that of its employees.
8
<PAGE> 9
11.2 Notwithstanding any provision in this Agreement to the contrary,
Investor Services Group's liability (to any Fund) for all losses, claims, suits,
controversies, breaches, or damages for any cause whatsoever arising out of or
related to this Agreement and regardless of the form of action or legal theory
in any given contract year shall not exceed the lesser of (i) $500,000 or (ii)
the fees received by Investor Services Group for services provided under this
Agreement during the twelve months immediately prior to the date of such loss or
damage. Fund understands the limitation on Investor Services Group's damages to
be a reasonable allocation of risk and Fund expressly consents with respect to
such allocation of risk.
11.3 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than two (2) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
11.4 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
----------------------
EXCEPT WITH RESPECT TO THE RESPONSIBILITY OF INVESTOR SERVICES GROUP
FOR DIRECT DAMAGES AS SET FORTH IN SECTION 10.2, IN NO EVENT SHALL INVESTOR
SERVICES GROUP, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF TORT,
CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST PROFITS,
OR EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF
WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
---------------------
13.1 This Agreement shall be effective on the date first written above
and shall continue for a period of five (5) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of three (3) years ("Renewal Terms")
each, unless one or more of the Funds or Investor Services Group provides
written notice to the other of its intent not to renew with respect to one or
more Funds. Such notice must be received not less than ninety (90) days and not
more than one-hundred eighty (180) days prior to the expiration of the Initial
Term or the then current Renewal Term.
13.3 In the event a termination notice is given by a Fund, all expenses
associated with movement of records and materials and conversion thereof to a
successor transfer agent will be borne by the Fund.
9
<PAGE> 10
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If Investor Services Group is the Non-Defaulting Party,
its termination of this Agreement shall not constitute a waiver of any other
rights or remedies of Investor Services Group with respect to services performed
prior to such termination or rights of Investor Services Group to be reimbursed
for out-of-pocket expenses. In all cases, termination by the Non-Defaulting
Party shall not constitute a waiver by the Non-Defaulting Party of any other
rights it might have under this Agreement or otherwise against the Defaulting
Party.
13.5 Notwithstanding anything contained in this Agreement to the
contrary, in the event of an acquisition, change of control (as defined under
the 1940 Act), merger, or consolidation involving one or more of the Funds or
any affiliate of a Fund ("Change of Control") and as a result a majority of the
accounts or assets of such Fund are transferred from such Fund to a mutual fund
for which Investor Services Group does not provide services similar to those
provided to such Fund hereunder, prior to the effective date of the Change of
Control each affected Fund shall pay to Investor Services Group the fee set
forth in Schedule B (the "Early Termination Fee").
13.6 Notwithstanding anything in this Agreement to the contrary, in the
event that Smith Barney, Inc. ("Smith Barney") terminates its relationship with
Investor Services Group and no longer utilizes the Investor Services Group
System in connection with shareholder record keeping for the Smith Barney
related mutual funds, each Fund shall have the right to terminate this
Agreement, provided however, that in such event (i) the terminating Fund shall
provide Investor Services Group with not less than 180 days prior written
notice; and (ii) the terminating Fund shall pay to Investor Services Group the
Early Termination Fee set forth in Schedule C. The Early Termination Fee set
forth in this Section 13.6 shall not apply if the Fund is dissolved.
Article 14 Additional Series
-----------------
In the event that a Fund establishes one or more Series in addition to
those identified in Exhibit 1, with respect to which the Fund desires to have
Investor Services Group render services as transfer agent under the terms
hereof, the Fund shall so notify Investor Services Group in writing, and Exhibit
1 shall be amended to include such additional series.
Article 15 Confidentiality.
----------------
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. Each
Fund and Investor Services Group shall exercise at least the same degree of
care, but not less than reasonable care, to safeguard the confidentiality of the
Confidential Information of the other as it would exercise to protect its own
confidential information of a similar nature. Except as required by law, the
Fund and Investor
10
<PAGE> 11
Services Group shall not duplicate, sell or disclose to others the Confidential
Information of the other, in whole or in part, without the prior written
permission of the other party. The Fund and Investor Services Group may,
however, disclose Confidential Information to their respective parent
corporation, their respective affiliates, their subsidiaries and affiliated
companies and employees, independent contractors, auditors, and professional
advisors, provided that each shall use reasonable efforts to ensure that the
Confidential Information is not duplicated or disclosed in breach of this
Agreement. Notwithstanding the previous sentence, in no event shall either a
Fund or Investor Services Group disclose the Confidential Information to any
competitor of the other without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating to
the past, present or future business activities of a Fund or Investor
Services Group, their respective subsidiaries and affiliated companies
and the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords a Fund or Investor
Services Group a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
15.4 The obligations of confidentiality and restriction on use herein
shall not apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this
Agreement or subsequently came into the public domain through no fault
of such party; or
(b) Was lawfully received by the party from a third party free
of any obligation of confidence to such third party; or
11
<PAGE> 12
(c) Was already in the possession of the party prior to
receipt thereof, directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or
administrative proceeding after all reasonable legal remedies for
maintaining such information in confidence have been exhausted
including, but not limited to, giving the other party as much advance
notice of the possibility of such disclosure as practical so the other
party may attempt to stop such disclosure or obtain a protective order
concerning such disclosure; or
(f) Is subsequently and independently developed by employees,
consultants or agents of the party without reference to the
Confidential Information disclosed under this Agreement.
Article 16 Force Majeure.
--------------
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country, (iii) any act or omission of the other party or
any governmental authority; (iv) any labor disputes (whether or not the
employees' demands are reasonable or within the party's power to satisfy); or
(v) nonperformance by a third party or any similar cause beyond the reasonable
control of such party, including without limitation, failures or fluctuations in
telecommunications or other equipment. In any such event, the non-performing
party shall be excused from any further performance and observance of the
obligations so affected only for as long as such circumstances prevail and such
party continues to use commercially reasonable efforts to recommence performance
or observance as soon as practicable.
Article 17 Assignment and Subcontracting.
------------------------------
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that
Investor Services Group may, in its sole discretion, assign all its right, title
and interest in this Agreement to an affiliate, parent or subsidiary, or to the
purchaser of substantially all of its business. Investor Services Group may, in
its sole discretion, engage subcontractors to perform any of the obligations
contained in this Agreement to be performed by Investor Services Group.
Article 18 Arbitration.
------------
18.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in Boston, Massachusetts in accordance with its
applicable rules, except that the Federal Rules of
12
<PAGE> 13
Evidence and the Federal Rules of Civil Procedure with respect to any discovery
process ordered by the arbitrators shall apply. The parties agree that the fees
of and authorized costs of the arbitrators shall be shared equally by the
parties.
18.2 The parties hereby agree that the decision of the arbitrator shall
be binding on the parties and that judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
Article 19 Notice.
------
Any notice or other instrument authorized or required by this Agreement
to be given in writing to a Fund or Investor Services Group, shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To any Fund:
Carnegie Capital Management Company
1100 The Halle Building
1228 Euclid Avenue
Cleveland, Ohio 44115
Attention: George R. Mateyo, President and CEO
To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
Article 20 Governing Law/Venue.
--------------------
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this agreement.
Article 21 Counterparts.
-------------
13
<PAGE> 14
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 22 Captions.
---------
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 Publicity.
----------
Neither Investor Services Group nor any Fund shall release or publish
news releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without the prior
review and written approval of the other party; provided, however, that either
party may make such disclosures as are required by legal, accounting or
regulatory requirements after making reasonable efforts in the circumstances to
consult in advance with the other party.
Article 24 Trustee/Shareholder Liability
-----------------------------
The shareholders, Trustees, officers, employees and agents of a Fund
shall not personally be bound by or liable under this Agreement, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim thereunder, as more fully provided under the terms of the Declaration
of Trust.
Article 25 Relationship of Parties/Non-Solicitation.
-----------------------------------------
25.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
25.2 During the term of this Agreement and for one (1) year afterward,
no Fund shall recruit, solicit, employ or engage, for the Fund or others,
Investor Services Group's employees, without the consent of Investor Services
Group.
Article 26 Entire Agreement; Severability.
-------------------------------
26.1 This Agreement, including Schedules and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against Investor Services Group unless said writing is executed by
a Senior Vice President, Executive Vice President, or President of Investor
Services Group. A party's waiver of a breach of any term or
14
<PAGE> 15
condition in the Agreement shall not be deemed a waiver of any subsequent breach
of the same or another term or condition.
26.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement
shall remain fully effective.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
LIQUID CAPITAL INCOME TRUST
By:
-------------------------------
Title:
CARNEGIE GOVERNMENT SECURITIES TRUST
By:
-------------------------------
Title:
----------------------------
CARNEGIE TAX FREE INCOME TRUST
By:
-------------------------------
Title:
----------------------------
CARNEGIE TAX EXEMPT INCOME TRUST
By:
-------------------------------
Title:
----------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
-------------------------------
Title:
----------------------------
16
<PAGE> 17
EXHIBIT 1
CARNEGIE FUNDS AND SERIES
Parties to Agreement
Liquid Capital Income Trust (Mass business trust)
Carnegie Government Securities Trust (Mass business trust) - Money Market Series
Carnegie Tax Free Income Trust (Mass business trust)
Carnegie Tax Exempt Income Trust - Ohio General Municipal Fund (Ohio business
trust)
17
<PAGE> 18
Schedule A
Duties of Investor Services Group
---------------------------------
1. SHAREHOLDER INFORMATION. Investor Services Group shall maintain a
record of the number of Shares held by each Shareholder of record which shall
include name, address, taxpayer identification and which shall indicate whether
such Shares are held in certificates or uncertificated form.
2. SHAREHOLDER SERVICES. Investor Services Group shall respond as
appropriate to all inquiries and communications from Shareholders relating to
Shareholder accounts with respect to its duties hereunder and as may be from
time to time mutually agreed upon between Investor Services Group and the Fund.
3. SHARE CERTIFICATES.
(a) At the expense of the Fund, the Fund shall supply Investor
Services Group with an adequate supply of blank share certificates to meet
Investor Services Group requirements therefor. Such Share certificates shall be
properly signed by facsimile. The Fund agrees that, notwithstanding the death,
resignation, or removal of any officer of the Fund whose signature appears on
such certificates, Investor Services Group or its agent may continue to
countersign certificates which bear such signatures until otherwise directed by
Written Instructions.
(b) Investor Services Group shall issue replacement Share
certificates in lieu of certificates which have been lost, stolen or destroyed,
upon receipt by Investor Services Group of properly executed affidavits and lost
certificate bonds, in form satisfactory to Investor Services Group, with the
Fund and Investor Services Group as obligees under the bond.
(c) Investor Services Group shall also maintain a record of
each certificate issued, the number of Shares represented thereby and the
Shareholder of record. With respect to Shares held in open accounts or
uncertificated form (i.e., no certificate being issued with respect thereto)
Investor Services Group shall maintain comparable records of the Shareholders
thereof, including their names, addresses and taxpayer identification. Investor
Services Group shall further maintain a stop transfer record on lost and/or
replaced certificates.
4. MAILING COMMUNICATIONS TO SHAREHOLDERS; PROXY MATERIALS. Investor
Services Group will address and mail to Shareholders of the Fund, all reports to
Shareholders, dividend and distribution notices and proxy material for the
Fund's meetings of Shareholders. In connection with meetings of Shareholders,
Investor Services Group will prepare Shareholder lists, mail and certify as to
the mailing of proxy materials, process and tabulate returned proxy cards,
report on proxies voted prior to meetings, act as inspector of election at
meetings and certify Shares voted at meetings.
5. SALES OF SHARES.
18
<PAGE> 19
(a) Investor Services Group shall not be required to issue any
Shares of the Fund where it has received a Written Instruction from the Fund or
official notice from any appropriate authority that the sale of the Shares of
the Fund has been suspended or discontinued. The existence of such Written
Instructions or such official notice shall be conclusive evidence of the right
of Investor Services Group to rely on such Written Instructions or official
notice.
(b) In the event that any check or other order for the payment
of money is returned unpaid for any reason, Investor Services Group will
endeavor to: (i) give prompt notice of such return to the Fund or its designee;
(ii) place a stop transfer order against all Shares issued as a result of such
check or order; and (iii) take such actions as Investor Services Group may from
time to time deem appropriate.
6. TRANSFER AND REDEMPTION.
(a) Investor Services Group shall process all requests to
transfer or redeem Shares in accordance with the transfer or redemption
procedures set forth in the Fund's Prospectus.
(b) Investor Services Group will transfer or redemption Shares
upon receipt of Oral or Written Instructions or otherwise pursuant to the
Prospectus and Share certificates, if any, properly endorsed for transfer or
redemption, accompanied by such documents as Investor Services Group reasonably
may deem necessary.
(c) Investor Services Group reserves the right to refuse to
transfer or redeem Shares until it is satisfied that the endorsement on the
instructions is valid and genuine. Investor Services Group also reserves the
right to refuse to transfer or redeem Shares until it is satisfied that the
requested transfer or redemption is legally authorized, and it shall incur no
liability for the refusal, in good faith, to make transfers or redemptions which
Investor Services Group, in its good judgment, deems improper or unauthorized,
or until it is reasonably satisfied that there is no basis to any claims adverse
to such transfer or redemption.
(d) When Shares are redeemed, Investor Services Group shall,
upon receipt of the instructions and documents in proper form, deliver to the
Custodian and the Fund or its designee a notification setting forth the number
of Shares to be redeemed. Such redeemed shares shall be reflected on appropriate
accounts maintained by Investor Services Group reflecting outstanding Shares of
the Fund and Shares attributed to individual accounts.
(e) Investor Services Group shall upon receipt of the monies
provided to it by the Custodian for the redemption of Shares, pay such monies as
are received from the Custodian, all in accordance with the procedures described
in the written instruction received by Investor Services Group from the Fund.
(f) Investor Services Group shall not process or effect any
redemption with respect to Shares of the Fund after receipt by Investor Services
Group or its agent of notification of the suspension of the determination of the
net asset value of the Fund.
19
<PAGE> 20
7. DIVIDENDS.
(a) Upon the declaration of each dividend and each capital
gains distribution by the Board of Trustees of the Fund with respect to Shares
of the Fund, the Fund shall furnish or cause to be furnished to Investor
Services Group Written Instructions setting forth the date of the declaration of
such dividend or distribution, the ex-dividend date, the date of payment
thereof, the record date as of which Shareholders entitled to payment shall be
determined, the amount payable per Share to the Shareholders of record as of
that date, the total amount payable on the payment date and whether such
dividend or distribution is to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution
of the Board of Trustees, the Fund will provide Investor Services Group with
sufficient cash to make payment to the Shareholders of record as of such payment
date.
(c) If Investor Services Group does not receive sufficient
cash from the Fund to make total dividend and/or distribution payments to all
Shareholders of the Fund as of the record date, Investor Services Group will,
upon notifying the Fund, withhold payment to all Shareholders of record as of
the record date until sufficient cash is provided to Investor Services Group.
8. In addition to and neither in lieu nor in contravention of the
services set forth above, Investor Services Group shall: (i) perform all the
customary services of a transfer agent, registrar, dividend disbursing agent and
agent of the dividend reinvestment and cash purchase plan as described in the
Fund's Prospectus and Statement of Additional Information and herein and
consistent with those requirements in effect as at the date of this Agreement.
The detailed definition, frequency, limitations and associated costs (if any)
set out in the attached fee schedule, include but are not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting lists,
mailing proxies, tabulating proxies, mailing Shareholder reports to current
Shareholders, withholding taxes on U.S. resident and non-resident alien accounts
where applicable, preparing and filing U.S. Treasury Department Forms 1099 and
other appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders.
20
<PAGE> 21
Schedule B
FEE SCHEDULE
------------
1. Standard Fees
Open Account Fees:
Bond Funds: $13.84 per account/per annum
Money Market Funds: $19.44 per account/per annum
Closed Account Fees: $2.20 per account/per annum
The following functionality shall be supported on the Investor Services
Group System:
- Second Cycle to SDI
- 6700 Smith Barney Account logic
- Pounding Daily Accrual
After the two year anniversary of the effective date of this Agreement, Investor
Services Group may adjust the above fees once every two calendar years, upon
thirty (30) days prior written notice in an amount not to exceed the cumulative
percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U)
U.S. City Average, All items (unadjusted) - (1982-84=100), published by the U.S.
Department of Labor since the last such adjustment in the Client's monthly fees
(or the Effective Date absent a prior such adjustment).
2. Retirement Plan Fees:
New Account Set Up: $ 5.00
Pre-Mature Distribution: $ 5.00
Annual Maintenance: $15.00 per social security
number per plan
3. Programming Costs
(a) Dedicated Team:
Programmer $100,000 per annum
BSA $ 85,000 per annum
Tester $ 65,000 per annum
(b) System Enhancements (Non Dedicated Team):
Programmer $135.00 per hour
1
<PAGE> 22
The above rates are subject to an annual 5% increase after the one year
anniversary of the effective date of this Agreement.
4. Early Termination Fee. In the event that this Agreement is terminated during
the Initial Term as set forth in either Section 13.5 or Section 13.6, the
following fee shall be paid by each affected Fund to Investor Services Group
prior to the effective date of termination:
<TABLE>
<CAPTION>
Termination Notice Fee
------------------ ---
Received During Year:
---------------------
<S> <C>
1 $50,000
2 $37,500
3 $25,000
4 $12,500
5 No Fee
</TABLE>
5. Print/Mail Fees.
(a) Standard Pricing:
IMPLEMENTATION FEE:
-------------------
$ 5000.00
$ 150.00 / hr. Multi-check and Non Standard
TESTING APPLICATION OR DATA REQUIREMENTS:
-----------------------------------------
$3.00 / fax to client or Record Keeper
WORK ORDER:
$15.00 per workorder
DAILY WORK (CONFIRMS):
Hand: $71/K with $75.00 minimum (includes 1 insert)
$0.07/each additional insert
Machine: $42/K with $50.00 minimum (includes 1 insert)
$0.01/each additional insert
DAILY CHECKS:
-------------
Hand: $91/K with $100.00 minimum daily (includes 1 insert)
$0.08/each additional insert
Machine: $52/K with $75.00 minimum (includes 1 insert)
$0.01/each additional insert
2
<PAGE> 23
* There is a $3.00 charge for each 3606 Form sent.
STATEMENTS:
-----------
Hand: $78/K with $75.00 minimum (includes 1 insert)
$0.08/each additional insert
$125/K for intelligent inserting
Machine: $52/K with $75.00 minimum (includes 1 insert) $0.01
each additional insert $58/K for intelligent
inserting
PERIODIC CHECKS:
----------------
Hand: $91/K with $100.00 minimum (includes 1 insert)
$0.08/each additional insert
Machine: $52/K with $100.00 minimum (includes 1 insert)
$0.01/each additional insert
12B1/DEALER COMMISSION CHECKS/STATEMENTS:
-----------------------------------------
$0.78/each envelope with $100.00 minimum
SPAC REPORTS/GROUP STATEMENTS:
------------------------------
$78/K with $75.00 minimum
LISTBILLS:
----------
$0.78 per envelope with $75.00 minimum
PRINTING CHARGES: (price ranges dependent on volumes)
----------------
$0.08/per confirm/statement/page
$0.10/per check
FOLDING (MACHINE):
------------------
$18/K
FOLDING (HAND):
---------------
$.12 each
PRESORT CHARGE:
---------------
$0.277 postage rate
$0.035 per piece
COURIER CHARGE:
---------------
3
<PAGE> 24
$15.00 for each on call courier trip/or actual cost
for on demand
OVERNIGHT CHARGE:
-----------------
$3.50 per package service charge plus Federal
Express/Airborne charge
INVENTORY STORAGE:
------------------
$20.00 for each inventory location as of the 15th of
the month
INVENTORY RECEIPT:
------------------
$20.00 for each SKU / Shipment
HOURLY WORK; SPECIAL PROJECTS, OPENING ENVELOPES, ETC...:
---------------------------------------------------------
$24.00 per hour
SPECIAL PULLS:
--------------
$2.50 per account pull
BOXES/ENVELOPES:
----------------
Shipping boxes $0.85 each
Oversized Envelopes $0.45 each
FORMS DEVELOPMENT/PROGRAMMING FEE:
----------------------------------
$100/hr
SYSTEMS TESTING:
----------------
$85/hr
CUTTING CHARGES:
----------------
$10.00/K
(b) Special Mailings.
The following pricing is based on appropriate notification
(standard of 30 day notification) and scheduling for special
mailings. Scheduling requirements include having materials
arrive at agreed upon times in advance of deadlines. Mailings
which arise with shorter time frames and turns will be billed
at a maximum premium of 25% based on turn around requirements.
WORK ORDER:
-----------
$30.00 per Workorder
DAILY WORK (CONFIRMS):
----------------------
Hand: $135.00 to create an admark tape
$10.00/K to zip + 4 data enhance with $125.00 minimum
4
<PAGE> 25
$80.00/hr for any data manipulation
$6.00/K combo charge
ADMARK & MACHINE INSERT
-----------------------
#10, #11, 6x9
$62/K to admark envelope and machine insert 1 piece,
with $125.00 min
$2.50/K for each additional insert $38/K to admark
only with $75.00 minimum
$25.00/K hand sort
9x12
$100/K to admark envelope and machine insert 1 piece,
with $125.00 min
$5.00/K for each additional insert $38/K to admark
only with $75.00 minimum
$0.08 for each hand insert
ADMARK & HAND INSERT
--------------------
#10, #11, 6x9
$0.08 for each hand insert
$25.00/K hand sort
9x12
$0.09 for each hand insert
$25.00/K hand sort
PRESSURE/SENSITIVE LABELS:
--------------------------
$0.32 each to create, affix and hand insert 1 piece,
with a $75.00 minimum
$0.08 for each hand insert $0.10 to affix labels only
$0.10 to create labels only
LEGAL DROP:
-----------
$150.00 / compliant legal drop per job and processing
fees
CREATE MAILING LIST:
--------------------
$0.40 per entry with $75.00 minimum
PRESORT FEE:
------------
$0.035 per piece
5
<PAGE> 26
Schedule C
OUT-OF-POCKET EXPENSES
----------------------
Each Fund shall reimburse Investor Services Group monthly for
applicable reasonable out-of-pocket expenses, including, but not limited to the
following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct pass
through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including all lease,
maintenance and line costs
- Ad hoc reports
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment and any
expenses incurred in connection with such terminals and lines
- Duplicating services
- Courier services
- Banking Services Fees, including but not limited to, Incoming and
Outgoing wires, and Federal Reserve charges for check clearance
- Overtime, as approved by the Fund
- Temporary staff, as approved by the Fund
- Travel and entertainment, as approved by the Fund
- Record retention, retrieval and destruction costs, including, but
not limited to exit fees charged by third party record keeping
vendors
- Third party audit reviews
- Ad hoc SQL time
- Insurance
- Such other miscellaneous expenses reasonably incurred by Investor
Services Group in performing its duties and responsibilities under
this Agreement.
Each Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with Investor Services Group. In addition,
each Fund will promptly reimburse Investor Services Group for any other
unscheduled expenses incurred by Investor Services Group whenever the Fund and
Investor Services Group mutually agree that such expenses are not otherwise
properly borne by Investor Services Group as part of its duties and obligations
under the Agreement.
6
<PAGE> 27
Schedule D
FUND DOCUMENTS
--------------
- Certified copy of the Declaration of Trust of the Fund, as amended
- Certified copy of the By-laws of the Fund, as amended,
- Copy of the resolution of the Board of Trustees authorizing the
execution and delivery of this Agreement
- Specimens of the certificates for Shares of the Fund, if applicable,
in the form approved by the Board of Trustees of the Fund, with a
certificate of the Secretary of the Fund as to such approval
- All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by
the Fund
- Certified list of Shareholders of the Fund with the name, address
and taxpayer identification number of each Shareholder, and the
number of Shares of the Fund held by each, certificate numbers and
denominations (if any certificates have been issued), lists of any
accounts against which stop transfer orders have been placed,
together with the reasons therefore, and the number of Shares
redeemed by the Fund
- All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Declaration of Trust or By-laws
of the Fund or as required by law.
7
<PAGE> 1
Exhibit 11(a)
KPMG Peat Marwick LLP
1500 National City Center
1900 East Ninth Street
Cleveland, OH 44114-3495
CONSENT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
Carnegie Tax Free Income Trust:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "FINANCIAL HIGHLIGHTS" in the
Prospectus and "INDEPENDENT AUDITORS" in the Statement of Additional
Information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Cleveland, Ohio
November 19, 1998
<PAGE> 1
Exhibit 11(b)
November 19, 1998
Carnegie Tax Free Income Trust
1100 The Halle Building
1228 Euclid Avenue
Cleveland, Ohio 44115-1831
Re: Registration Statement under the Securities Act of 1933
(Registration No. 2-76987)
Ladies and Gentlemen:
We hereby consent to the use of our name under the heading "Taxes" in the
Prospectus and in the Statement of Additional Information contained in the
captioned Registration Statement for the Carnegie Tax Free Income Trust.
Respectfully yours,
SQUIRE, SANDERS & DEMPSEY L.L.P.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000701816
<NAME> CARNEGIE TAX FREE INCOME TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 21,718,414
<INVESTMENTS-AT-VALUE> 21,718,414
<RECEIVABLES> 112,340
<ASSETS-OTHER> 6,489
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,837,243
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,541
<TOTAL-LIABILITIES> 31,541
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 21,805,702
<SHARES-COMMON-PRIOR> 20,188,763
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 21,805,702
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 755,228
<OTHER-INCOME> 0
<EXPENSES-NET> 184,731
<NET-INVESTMENT-INCOME> 570,497
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 570,497
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 570,497
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 41,751,665
<NUMBER-OF-SHARES-REDEEMED> 40,705,223
<SHARES-REINVESTED> 570,497
<NET-CHANGE-IN-ASSETS> 1,616,939
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 103,404
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 184,731
<AVERAGE-NET-ASSETS> 20,555,790
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .028
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .028
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
