111 CORCORAN EQUITY FUND
(A PORTFOLIO OF THE 111 CORCORAN FUNDS)
PROSPECTUS
The shares of 111 Corcoran Fund (the "Fund") offered by this prospectus
represent interests in a diversified portfolio in the 111 Corcoran Funds (the
"Trust"), an open-end management investments company (a mutual fund). The
investment objective of the Fund is to provide high total return over longer
periods of time through appreciation of capital and current income provided by
dividends and interest payments. The Fund pursues this objective by investing
primarily in dividend paying common stocks.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF CENTRAL
CAROLINA BANK AND TRUST COMPANY OR ITS AFFILIATES, ARE NOT ENDORSED OR
GUARANTEED BY CENTRAL CAROLINA BANK AND TRUST COMPANY OR ITS AFFILIATES, AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 2,
1994 with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
writing or calling at 1-800-422-2080.
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.
Prospectus dated December 2, 1994
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Investment Limitations 7
Portfolio Turnover 8
THE 111 CORCORAN FUNDS INFORMATION 8
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Management of the 111 Corcoran Funds 8
Distribution of Fund Shares 10
Administration of the Fund 10
BROKERAGE TRANSACTIONS 11
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EXPENSES OF THE FUND 11
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NET ASSET VALUE 12
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INVESTING IN THE FUND 12
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Share Purchases 12
Minimum Investment Required 12
What Shares Cost 13
Purchases at Net Asset Value 13
Sales Charge Reallowance 13
Reducing the Sales Charge 14
Systematic Investment Program 15
Certificates and Confirmations 15
Dividends 15
Capital Gains 15
EXCHANGE PRIVILEGE 15
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REDEEMING SHARES 17
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Systematic Withdrawal Program 18
Accounts with Low Balances 18
SHAREHOLDER INFORMATION 18
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Voting Rights 18
Massachusetts Partnership Law 19
EFFECT OF BANKING LAWS 19
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TAX INFORMATION 20
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Federal Income Tax 20
PERFORMANCE INFORMATION 20
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ADDRESSES 21
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SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................. 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)...................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as
applicable)............................................................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable).......................................... None
Exchange Fee................................................................................................ None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1)........................................................................... 0.58%
12b-1 Fee (2)............................................................................................... 0.00%
Total Other Expenses........................................................................................ 0.67%
Shareholder Services Fee (2)................................................................. 0.00%
Total Fund Operating Expenses (3).................................................................. 1.25%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver and/or reimbursement by the investment adviser. The
investment adviser, at its sole discretion, can terminate this voluntary
waiver and/or reimbursement at any time. The maximum management fee is
0.85%.
(2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
or shareholder servicing agent fees. The Fund will not pay or accrue 12b-1
or shareholder servicing agent fees until a separate class of shares has
been created for certain trust and institutional investors, including
qualified employee benefit plans. At that point the Fund will be able to pay
up to 0.35% of the Fund's average daily net assets for 12b-1 fees and up to
0.25% of the Fund's average daily net assets for shareholder servicing agent
fees. See "The 111 Corcoran Funds Information."
(3) The Total Fund Operating Expenses are estimated to be 1.52% absent the
anticipated voluntary waivers and/or reimbursement by the Fund's adviser.
* Total Fund Operating Expenses are estimated based on average expenses
expected to be incurred during the period ending May 31, 1995. During the
course of this period, expenses may be more or less than the average amount
shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY, FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "INVESTING IN THE FUND" AND "THE 111 CORCORAN FUNDS INFORMATION."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return; (2)
redemption at the end of each time period; and (3) payment of the maximum sales load. As noted
in the table above, the Fund charges no redemption fees........................................ $57 $83
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDED MAY 31,
1995.
GENERAL INFORMATION
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The 111 Corcoran Funds was established as a Massachusetts business trust under a
Declaration of Trust dated December 11, 1991. The Declaration of Trust permits
the 111 Corcoran Funds to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. This prospectus
relates only to the 111 Corcoran Funds' equity portfolio, known as 111 Corcoran
Equity Fund (the "Fund"). The Fund is for trust clients of Central Carolina Bank
and its affiliates and individual investors who desire a convenient means of
accumulating an interest in a professionally managed, diversified portfolio
investing primarily in dividend paying common stocks. Central Carolina Bank is
the investment adviser to the Fund, and Franklin Street Advisors, Inc. is the
Fund's sub-adviser. A minimum initial investment of $1,000 is required.
Subsequent investments must be in amounts of at least $100.
Fund shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide high total return over longer
periods of time through appreciation of capital and current income provided by
dividends and interest payments. While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus. The investment objective
cannot be changed without approval of shareholders. Unless indicated otherwise,
the investment policies described below may be changed by the Board of Trustees
(the "Trustees") without the approval of shareholders. Shareholders will be
notified before any material changes in these policies become effective.
INVESTMENT POLICIES
The Fund attempts to achieve its investment objective by investing primarily in
a broad, diversified range of dividend paying common stocks. As a matter of
investment policy, the Fund will invest so that, under normal circumstances, at
least 65% of its total assets are invested in equity securities.
ACCEPTABLE INVESTMENTS
The securities in which the Fund invests include, but are not limited to:
common stocks of U.S. companies which are either listed on the New York
or American Stock Exchanges or traded in over-the-counter markets,
preferred stocks of such companies, warrants, and preferred stocks
convertible into common stocks of such companies;
convertible bonds rated, at the time of purchase, at least BBB by
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch") , or at least Baa by Moody's Investors Service, Inc.
("Moody's"), or, if not rated, determined by the Fund's adviser to be of
comparable quality;
domestic issues of corporate debt obligations, including zero coupon
bonds, rated, at the time of purchase, at least Baa by Moody's or at
least BBB by S&P or Fitch, or, if not rated, determined by the Fund's
adviser to be of comparable quality;
American Depositary Receipts ("ADRs") of foreign companies traded on the
New York Stock Exchange or in the over-the-counter market;
obligations of the United States government;
notes, bonds (including zero coupon bonds), and discount notes of the
following U.S. government agencies or instrumentalities: Federal Home
Loan Bank System, Federal National Mortgage Association, Government
National Mortgage Association, Bank for Cooperatives (including Central
Bank for Cooperatives), Federal Land Banks, Federal Intermediate Credit
Banks, Tennessee Valley Authority, Export-Import Bank of the United
States, Commodity Credit Corporation, Federal Financing Bank, The Student
Loan Marketing Association, Federal Home Loan Mortgage Corporation, or
National Credit Union Administration;
money market instruments rated, at the time of purchase, A-1 or A-2 by
S&P, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch, or, if not
rated, determined by the adviser to be of comparable quality; and
repurchase agreements collateralized by eligible investments.
In addition, the Fund may borrow money, lend portfolio securities, invest in
securities of other investment companies, and engage in when-issued and delayed
delivery transactions. The Fund may also invest in put and call options,
futures, and options on futures, for hedging purposes.
Obligations rated BBB by S&P or Baa by Moody's have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher rated
bonds. Downgraded securities will be evaluated on a case-by-case basis by the
Fund's adviser. The Fund's adviser will determine whether or not the security
continues to be an acceptable investment. If not, the security will be sold. A
description of the rating categories is contained in the Appendix to the
Statement of Additional Information.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
COMMON STOCKS. As described above, the Fund invests primarily in dividend
paying common stocks. As with other mutual funds that invest primarily in common
stocks, the Fund is subject to market risks. That is, the possibility exists
that common stocks will decline over short or even extended periods of time, and
the United States equity market tends to be cyclical, experiencing both periods
when stock prices generally increase and periods when stock prices generally
decrease. In addition, the Fund may, from time to time, invest in issuers with
smaller capitalization. Small capitalization stocks have historically been more
volatile in price than larger capitalization stocks, such as those included in
the Standard & Poor's 500 Index. This is because, among other things, smaller
companies have a lower degree of liquidity in the equity market and tend to have
a greater sensitivity to changing economic conditions. Further, in addition to
exhibiting greater volatility, these stocks may, to some degree, fluctuate
independently of the stocks of large companies. That is, the stocks of small
capitalization companies may decline in price as the price of large company
stocks rises or vice versa. Therefore, investors should expect that there will
be periods of time when the Fund will exhibit greater volatility than broad
stock market indices such as the Standard & Poor's 500 Index.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities
which may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest in the securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of depositary receipts. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of a foreign issuer if any such risk appears to the investment
adviser to be substantial. The Fund will not invest more than 10% of its total
assets in securities of foreign issuers.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon bonds and zero
coupon convertible securities. The Fund may invest in zero coupon bonds in order
to receive the rate of return through the appreciation of the bond. This
application is extremely attractive in a falling rate environment as the price
of the bond rises rapidly in value a opposed to regular coupon bonds. A zero
coupon bond makes no periodic interest payments and the entire obligation
becomes due only upon maturity.
Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities accretes at a stated yield until the security reaches its
face amount at maturity. Zero coupon convertible securities are convertible into
a specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the holder
with the opportunity to sell the bonds back to the issuer at a stated price
before maturity.
Generally, the price of zero coupon securities are more sensitive to fluctuation
in interest than are conventional bonds and convertible securities.
Additionally, federal tax law requires the holder of a zero coupon security to
recognize income from the security prior to the receipt of cash payments. To
maintain its qualification as a regulated investment company and avoid liability
of federal income taxes, the Fund will be required to distribute income accrued
from zero coupon securities which it owns, and may have to sell portfolio
securities (perhaps at disadvantageous times) in order to generate cash to
satisfy these distribution requirements.
U.S. GOVERNMENT OBLIGATIONS. These securities include but are not limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
notes, bonds and discount notes of U.S. government agencies or
instrumentalities.
Some of these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full faith and credit of the U.S.
Treasury. No assurances can be given that the U.S. government will provide
financial support to other agencies or instrumentalities, since it is not
obligated to do so. These agencies and instrumentalities are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other open-end investment companies and in the securities of
closed-end investment companies, but it will not own more than 3% of the total
outstanding voting stock of any investment company, invest more than 5% of its
total assets in any one investment company, or invest more than 10% of its total
assets in investment companies in general. The Fund will invest in other
investment companies primarily for the purpose of investing its short-term cash
which has not yet been invested in other portfolio instruments. However, from
time to time, on a temporary basis, the Fund may invest exclusively in one other
investment company managed similarly to it. Shareholders should realize that,
when the Fund invests in other investment companies, certain fund expenses, such
as custodian fees and administrative fees, may be duplicated. The adviser will
waive its investment advisory fee on assets invested in securities of other
investment companies.
PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities as a hedge to attempt to protect securities which the Fund holds, or
will be purchasing, against decreases in value. The Fund may also write (sell)
call options on all or any portion of its portfolio to generate income. The Fund
will write call options on securities either held in its portfolio or which it
has the right to obtain without payment of further consideration, or for which
it has segregated cash or U.S. government securities in the amount of any
additional consideration.
The Fund may purchase and write over-the-counter options on portfolio securities
in negotiated transactions with the buyers or writers of the options when
options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Fund's adviser.
Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market, while over-the-counter options may not.
FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures and stock index futures contracts to hedge all or a portion of
its portfolio against changes in the price of its portfolio securities, but will
not engage in futures transactions for speculative purposes.
The Fund may also write call options and purchase put options on financial
futures and stock index futures contacts as a hedge to attempt to protect
securities in its portfolio against decreases in value.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
RISKS. When the Fund writes a call option, the Fund risks not
participating in any rise in the value of the underlying security. In
addition, when the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the Fund's investment adviser could be
incorrect in its expectations about the direction or extent of market
factors, such as interest rate and stock price movements. In these events,
the Fund may lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or options will exist at all times. Although the investment
adviser will consider liquidity before entering into option transactions,
there is no assurance that a liquid secondary market will exist for any
particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on
this secondary market.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its
investment adviser, prevailing market conditions warrant, the Fund may, for
temporary defensive purposes, invest in:
commercial paper which matures in 270 days or less so long as at least
two ratings are high quality ratings by nationally recognized statistical
rating organizations. Such ratings would include: A-1 or A-2 by S&P,
Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch;
time and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"), or in institutions whose accounts are
insured by the Savings Association Insurance Fund ("SAIF"), which is also
administered by the FDIC, including certificates of deposit issued by and
other time deposits in foreign branches of BIF-insured banks; and
bankers' acceptances.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies, but which
are subject to restrictions on resale under federal securities laws. However,
the Fund will limit investments in illiquid securities, including certain
restricted securities not determined by the Trustees to be liquid, to 15% of its
net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous. Settlement dates may be
a month or more after entering into these transactions, and the market values of
the securities purchased may vary from the purchase prices. Accordingly, the
Fund may pay more/less than the market value of the securities on the settlement
date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or long-term basis, or both,
to broker/dealers, banks, or other institutional borrowers of securities. The
Fund will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the investment adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
REPURCHASE AGREEMENTS. The U.S. government securities and other securities in
which the Fund invests may be purchased pursuant to repurchase agreements.
Repurchase agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government securities or other
securities to the Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price. To the extent that the original seller does
not repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge
assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in the Fund's portfolio will be sold whenever the
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. For the fiscal year ending May 31, 1995, the Fund does not expect its
portfolio turnover to exceed 125%. Generally, a high portfolio turnover rate
results in increased transaction costs and higher taxes paid by the Fund's
shareholders. In addition, a high rate of portfolio turnover may result in the
realization of a larger amount of capital gains which, when distributed to the
Fund's shareholders, are taxable to them. Nevertheless, transactions for the
Fund's portfolio will be based only upon investment considerations and will not
be limited by any other considerations when the Fund's adviser deems it
appropriate to make changes in the Fund's portfolio.
THE 111 CORCORAN FUNDS INFORMATION
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MANAGEMENT OF THE 111 CORCORAN FUNDS
BOARD OF TRUSTEES. The 111 Corcoran Funds are managed by a Board of Trustees.
The Board of Trustees is responsible for managing the business affairs of the
111 Corcoran Funds and for exercising all of the powers of the 111 Corcoran
Funds except those reserved for the shareholders. An Executive Committee of the
Board of Trustees handles the Board's responsibilities between meetings of the
Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the 111
Corcoran Funds, investment decisions for the Fund are made by Central Carolina
Bank and Trust Company (the "Bank"), the Fund's investment adviser, subject to
direction by the Trustees. The adviser continually conducts investment research
and supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser is entitled to receive an annual
investment advisory fee equal to 0.85 of 1% of the Fund's average daily net
assets. The fee paid by the Fund, while higher than the advisory fee paid
by other mutual funds in general, is comparable to fees paid by many mutual
funds with similar objectives and policies. The investment advisory
contract allows the voluntary waiver, in whole or in part, of the
investment advisory fee or the reimbursement of expenses by the adviser
from time to time. The adviser can terminate any voluntary waiver of its
fee or reimbursement of expenses at any time at its sole discretion.
Investment decisions for the Fund will be made independently from those of
any fiduciary or other accounts that may be managed by the Bank or its
affiliates. If, however, such accounts, the Fund, or the Bank for its own
account are simultaneously engaged in transactions involving the same
securities, the transactions may be combined and allocated to each account.
This system may adversely affect the price the Fund pays or receives, or
the size of the position it obtains. The Bank may engage, for its own
account or for other accounts managed by the Bank, in other transactions
involving fixed income securities which may have adverse effects on the
market for securities in the Fund's portfolio.
ADVISER'S BACKGROUND. The Bank was founded in 1903 as Durham Bank and
Trust Company. The Bank was created from Durham Bank and Trust Company on
September 30, 1961. The Bank is the lead bank within CCB Financial
Corporation, which is a multibank holding company that includes a
commercial bank subsidiary with offices also in North Carolina. CCB
Financial Corp. was incorporated in North Carolina in November 1982. The
principal executive offices of the Bank are located at 111 Corcoran Street,
Durham, North Carolina 27702. The activities of the Bank encompass a full
range of commercial banking services, including trust services.
The Bank has managed commingled funds since 1953. As of June 30, 1994, the
Trust Division managed assets in excess of $1.3 billion. The Trust Division
manages two commingled funds with assets of approximately $52.5 million.
The Bank has managed the 111 Corcoran Funds since their inception in July,
1992. As of June 30, 1994, total assets in the 111 Corcoran Funds were
$140.8 million.
As part of their regular banking operations, the Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are lending clients of
the Bank. The lending relationship will not be a factor in the selection of
securities.
SUB-ADVISER. Pursuant to the terms of an investment sub-advisory agreement
between the adviser and Franklin Street Advisors, Inc. (the "Sub-Adviser"),
the Sub-Adviser furnishes certain investment advisory Services to the
adviser, including investment research, statistical and other factual
information, and recommendations, based on the Sub-Adviser's analysis, and
assists the adviser in identifying securities for potential purchase and/or
sale on behalf of the Fund's portfolio. For the services provided and the
expenses incurred by the Sub-Adviser pursuant to the sub-advisory
agreement, the Sub-Adviser is entitled to receive an annual sub-advisory
fee equal to 0.65 of 1% of the Fund's advisory fee, payable by the adviser,
in quarterly installments. The Sub-Adviser may elect to waive some or all
of its fee. In no event shall the Fund be responsible for any fees due to
the Sub-Adviser for its services to the adviser.
SUB-ADVISER'S BACKGROUND. The Sub-Adviser, which is located at 1506 East
Franklin Street, Chapel Hill, North Carolina, 27514, is a registered
investment advisory firm founded in 1990. The Sub-Adviser manages assets in
excess of $300 million. The Sub-Adviser has not previously acted as an
investment adviser to an investment company. The Sub-Adviser is a
wholly-owned subsidiary of Franklin Street Partners, Inc., a
privately-owned holding company that also owns a private non-depository
trust bank. Franklin Street Partners, Inc. has guaranteed to the adviser
the performance of the Sub-Adviser's obligations under the sub-advisory
agreement.
Robert C. Eubanks, Jr. has been the Fund's portfolio manager since its
inception. Mr. Eubanks is the President of Franklin Street Advisors, Inc.,
and has served in that capacity since 1990. He is also vice-chairman and
chief investment officer of Franklin Street Trust, an affiliate of the
Sub-Adviser. Prior to founding Franklin Street Trust, he was co-founder and
president of McMillion Eubanks Capital Management in Greensboro, North
Carolina.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the distributor for shares of the Fund. It is a
Pennsylvania corporation organized on November 14, 1969, and is the principal
distributor for a number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund will pay to the distributor an amount computed at an annual rate of
0.35% of the Fund's average daily net assets to finance any activity which is
principally intended to result in the sale of shares subject to the Distribution
Plan. The distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales support services as agents for their clients or
customers.
The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to distributor except as described above. Therefore, the Fund does not
pay for unreimbursed expenses of the distributor, including amounts expended by
the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by shares
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "services
plan") with respect to shares. Under the services plan, financial institutions
will enter into shareholder service agreements with the Fund to provide
administrative support services to their customers who from time to time may be
owners of record or beneficial owners of the shares. In return for providing
these support services, a financial institution may receive payments from the
Fund at a rate not exceeding 0.25% of the average daily net assets of the shares
beneficially owned by the financial institution's customers for whom it is the
holder of record or with whom it has a servicing relationship.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Trustees
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with the administrative personnel and
services necessary to operate the Fund.
Such services include shareholder servicing and certain legal and accounting
services. Federated Administrative Services provides these at an annual rate as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO RECORDKEEPER. Federated
Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated Investors,
is transfer agent for the shares of the Fund and dividend disbursing agent for
the Fund. Federated Services Company also provides certain accounting and
recordkeeping services with respect to the portfolio investments of the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P., Washington,
D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co. LLP, Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Trust. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
EXPENSES OF THE FUND
- --------------------------------------------------------------------------------
The Fund pays all of its own expenses and its allocable share of Trust expenses.
These expenses include, but are not limited to, the costs of: organizing the
Trust and continuing its existence; Trustees' fees; investment advisory and
administrative services; printing prospectuses and other Fund documents for
shareholders; registering the Trust and the Fund; taxes and commissions; issuing
purchasing, repurchasing, and redeeming shares; fees for custodian, transfer
agent, dividend disbursing agent, shareholder servicing agents, and registrars;
printing, mailing, auditing, accounting, and legal expenses; reports to
shareholders and government agencies; meeting of Trustees and shareholders and
proxy solicitations therefor; insurance premiums; association membership dues;
and such nonrecurring and extraordinary items as may arise. However, the
adviser may voluntarily waive and/or reimburse some expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange is open for
business. Shares of the Fund may be purchased through Central Carolina Bank or
through brokers or dealers which have a sales agreement with the distributor. In
connection with the sale of Fund shares, the distributor may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request.
THROUGH CENTRAL CAROLINA BANK. An investor may call Central Carolina Bank to
place an order to purchase shares of the Fund. (Call toll-free 1-800-422-2080.)
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573. Orders through Central Carolina Bank are considered received
when the Fund is notified of the purchase order. Purchase orders must be
received by Central Carolina Bank before 3:00 p.m. (Eastern time) and must be
transmitted by Central Carolina Bank to the Fund before 4:00 p.m. (Eastern time)
in order for shares to be purchased at that day's price. Payment is normally
required in five business days. It is the responsibility of Central Carolina
Bank to transmit orders promptly to the Fund.
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of the Fund. Shares will be
purchased at the public offering price next determined after the Fund receives
the purchase request. Purchase requests through registered broker/ dealers must
be received by the broker/dealer and transmitted by the broker/ dealer to
Central Carolina Bank before 3:00 p.m. (Eastern time) and then transmitted by
Central Carolina Bank to the Fund by 4:00 p.m. (Eastern time) in order for
shares to be purchased at that day's public offering price.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $1,000. Subsequent
investments must be in amounts of at least $100. These minimums may be waived
for purchases by the Trust Division of Central Carolina Bank for its fiduciary
or custodial accounts. An institutional investor's minimum investment will be
calculated by combining all accounts it maintains with the Fund.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received, plus a sales charge, as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million but less than $2 million 0.25% 0.25%
$2 million or more 0.00% 0.00%
</TABLE>
The net asset value is determined at or after the close of the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; and (iii)
the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
PURCHASES AT NET ASSET VALUE
Shares of the Fund may be purchased at net asset value, without a sales charge,
by the Trust Division of Central Carolina Bank for accounts in which the Trust
Division holds or manages assets, by trust companies, trust departments of other
financial institutions and by banks and savings and loans for their own
accounts. Trustees, emeritus trustees, employees and retired employees of the
Trust, CCB Financial Corp., Central Carolina Bank, or Federated Securities Corp.
or their affiliates, or any bank or investment dealer who has a sales agreement
with Federated Securities Corp. with regard to the Fund, and their spouses and
children under 21, may also buy shares at net asset value, without a sales
charge. In addition, customers, employee benefit plans, and employees of
Franklin Street Advisors, Inc. and its affiliated companies (other than Franklin
Street Securities) and their spouses and children under 21, may also buy shares
at net asset value, without a sales charge.
SALES CHARGE REALLOWANCE
For sales of shares of the Fund, a dealer will normally receive up to 85% of the
applicable sales charge. For shares sold with a sales charge, Central Carolina
Bank will receive 85% of the applicable sales charge for purchases of Fund
shares made directly through Central Carolina Bank.
The sales charge for shares sold other than through Central Carolina Bank or
registered broker/dealers will be retained by the distributor. However, the
distributor will, periodically, uniformly offer to pay to dealers additional
amounts in the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or
items of material value. Such payments, all or a portion of which may be paid
from the sales charge the distributor normally retains or any other source
available to it, will be predicated upon the amount of shares of the Fund that
are sold by the dealer.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Fund shares through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent; or
using the reinvestment privilege.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on the
previous page, larger purchases reduce the sales charge paid. The Fund will
combine purchases made on the same day by the investor, his spouse, and his
children under age 21 when it calculates the sales charge.
If an additional purchase of Fund shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$90,000 and he purchases $10,000 more at the current public offering price, the
sales charge on the additional purchase according to the schedule now in effect
would be 3.75%, not 4.50%.
To receive the sales charge reduction, Central Carolina Bank or the distributor
must be notified by the shareholder in writing or by his financial institution
at the time the purchase is made that Fund shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the Fund over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the custodian to hold
4.50% of the total amount intended to be purchased in escrow (in shares of the
Fund) until such purchase is completed.
The shares held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days; however, these previous purchases will not receive the reduced sales
charge.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge.
Central Carolina Bank or the distributor must be notified by the
shareholder in writing or by his financial institution of the reinvestment in
order to eliminate a sales charge. If the shareholder redeems his shares in the
Fund, there may be tax consequences.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
Central Carolina Bank and invested in Fund shares at the net asset value next
determined after an order is received by the Fund, plus the applicable sales
charge. A shareholder may apply for participation in this program through
Central Carolina Bank or through the distributor.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
in writing to the Fund.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS
Dividends are declared daily and paid quarterly to all shareholders invested in
the Fund on the record date. Unless cash payments are requested by contacting
Central Carolina Bank, dividends are automatically reinvested on payment dates
in additional shares of the Fund at the payment date's net asset value without a
sales charge.
CAPITAL GAINS
Distributions of net long-term capital gains realized by the Fund, if any, will
be made at least annually.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
All shareholders of the Fund are shareholders of the 111 Corcoran Funds (the
"Trust") which consists of the Fund, 111 Corcoran Bond Fund, and 111 Corcoran
North Carolina Municipal Securities Fund. Shareholders of the Fund have access
to 111 Corcoran Bond Fund and 111 Corcoran North Carolina Municipal Securities
Fund though an exchange program. In addition, shares of the Fund may be
exchanged for shares of certain funds in the Liberty Family of Funds
("Liberty"), a group of Funds distributed by Federated Securities Corp.
Shareholders have access to the following Liberty funds:
Liberty U.S. Government Money Market Trust--a U.S. government money
market fund; and
American Leaders Fund, Inc.--a high-quality equity fund.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which an
exchange is to be made.
Exchanges are made at net asset value plus the difference between the fund's
sales charge already paid and any applicable sales charge on shares of the fund
to be acquired in the exchange.
The exchange privilege is available to shareholders residing in any state in
which the participating fund shares being acquired may legally be sold. Upon
receipt by Federated Services Company of proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next-determined net asset value. If the exchanging shareholder does not have an
account in the participating fund whose shares are being acquired, a new account
will be established with the same registration, dividend and capital gain
options as the account from which shares are exchanged, unless otherwise
specified by the shareholder. In the case where the new account registration is
not identical to that of the existing account, a signature guarantee is
required. (See "Redeeming Shares by Mail").
Exercise of this privilege is treated as a redemption and new purchase for
federal income tax purposes and, depending on the circumstances, a short or
long-term capital gain or loss may be realized. The Fund reserves the right to
modify or terminate the exchange privilege at any time. Shareholders would be
notified prior to any modification or termination. Shareholders may obtain
further information on the exchange privilege by calling their Central Carolina
Bank representative or an authorized broker.
EXCHANGE BY TELEPHONE. Shareholders may provide instructions for exchanges
between participating funds by telephone to their Central Carolina Bank
representative by calling 1-800-422-2080. In addition, investors may exchange
shares by calling their authorized broker directly.
An authorization form permitting the Fund to accept telephone exchange requests
must first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can be
obtained through a Central Carolina Bank representative or authorized broker.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Telephone exchange instructions must be received by Central Carolina Bank, or an
authorized broker and transmitted to Federated Services Company before 4:00 p.m.
(Eastern time) for shares to be exchanged the same day. Shareholders who
exchange into shares of the Fund will not receive a dividend from the Fund on
the date of the exchange.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through banks, brokers and other financial institutions during times of drastic
economic or market changes. If shareholders cannot contact their Central
Carolina Bank representative or authorized broker by telephone, it is
recommended that an exchange request be made in writing and sent by mail for
next day delivery.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending it to: 111 Corcoran Funds, 111 Corcoran Street, P.O. Box
931, Durham, North Carolina 27702. In addition, an investor may exchange shares
by sending a written request to their authorized broker directly.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, the transfer agent, by a Central
Carolina Bank representative or authorized broker and deposited to the
shareholder's account before being exchanged.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemptions
must be received in proper form and can be made through Central Carolina Bank or
directly to the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by calling Central
Carolina Bank (call toll-free 1-800-422-2080) to request the redemption. Shares
will be redeemed at the net asset value next determined after the Fund receives
the redemption request from Central Carolina Bank. Redemption requests through
Central Carolina Bank must be received by Central Carolina Bank before 3:00 p.m.
(Eastern time) and must be transmitted by Central Carolina Bank to the Fund
before 4:00 p.m. (Eastern time) in order for shares to be redeemed at that day's
net asset value. Central Carolina Bank is responsible for promptly submitting
redemption requests and providing proper redemption instructions to the Fund.
Registered broker/dealers may charge customary fees and commissions for this
service. Telephone redemption instructions may be recorded. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
BY MAIL. Any shareholder may redeem Fund shares by sending a written request to
Central Carolina Bank. The written request should include the shareholder's
name, the Fund name, the account number, and the share or dollar amount
requested. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request to the Fund. Shareholders should call Central Carolina Bank for
assistance in redeeming by mail.
Shareholders requesting a redemption of $50,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record must have signatures
on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the FDIC;
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by SAIF, which is administered by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at anytime without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Fund
shares, and the fluctuation of the net asset value of Fund shares redeemed under
this program, redemptions may reduce, and eventually deplete, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in the Fund. To
be eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through his financial institution. For shares sold with a sales charge,
it is not advisable for shareholders to be purchasing shares while participating
in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $1,000 because of changes in the Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in the 111 Corcoran Funds have equal voting rights except that only shares of
the Fund are entitled to vote on matters affecting only the Fund.
As a Massachusetts business trust, the 111 Corcoran Funds are not required to
hold annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the 111
Corcoran Funds' or the Fund's operation and for the election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding shares of
the 111 Corcoran Funds.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of 111 Corcoran Funds
on behalf of the Fund. To protect shareholders of the Fund, 111 Corcoran Funds
has filed legal documents with Massachusetts that expressly disclaim the
liability of shareholders for such acts or obligations of 111 Corcoran Funds.
These documents require notice of this disclaimer to be given in each agreement,
obligation, or instrument 111 Corcoran Funds or its Trustees enter into or sign
on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for 111 Corcoran
Funds' obligations on behalf of the Fund, 111 Corcoran Funds is required to use
its property to protect or compensate the shareholder. On request, 111 Corcoran
Funds will defend any claim made and pay any judgment against a shareholder for
any act or obligation of 111 Corcoran Funds on behalf of the Fund. Therefore,
financial loss resulting from liability as a shareholder of the Fund will occur
only if 111 Corcoran Funds cannot meet its obligations to indemnify shareholders
and pay judgments against them from assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of such a customer. Central Carolina Bank is
subject to such banking laws and regulations.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
Central Carolina Bank believes that it may perform the services for the Fund
contemplated by its advisory agreement with the 111 Corcoran Funds without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of such or future statutes and
regulations, could prevent Central Carolina Bank from continuing to perform all
or a part of the above services for its customers and/or the Fund. If it were
prohibited from engaging in these customer-related activities, the Trustees
would consider alternative advisers and means of continuing available investment
services. In such event, changes in the operation of the Fund may occur,
including possible termination of any automatic or other Fund share investment
and redemption services then being provided by Central Carolina Bank. It is not
expected that existing shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Central Carolina
Bank is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal regular income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
other portfolios of 111 Corcoran Funds will not be combined for tax purposes
with those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distribution, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the shares.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield.
Total return represents the change, over a specific period of time, in the value
of an investment in the Fund after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load which,
if excluded, would increase the total return and yield.
From time to time, the Fund may advertise its performance using certain
financial publications and/ or compare its performance to certain indices.
ADDRESSES
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
111 Corcoran Equity Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Central Carolina Bank and Trust Company 111 Corcoran Street
Durham, North Carolina 27702
- ---------------------------------------------------------------------------------------------------------------------
Sub-Adviser
Franklin Street Advisors, Inc. 1506 East Franklin Street
Chapel Hill, North Carolina 27514
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8602
Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent and
Portfolio Recordkeeper
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
111 CORCORAN EQUITY FUND
PROSPECTUS
A Diversified Portfolio
of 111 Corcoran Funds,
an Open-End Management
Investment Company
Prospectus dated December 2, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
005826 (12/94)
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
___________________________________________________________________
111 CORCORAN EQUITY FUND
(A PORTFOLIO OF THE 111 CORCORAN FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of 111 Corcoran Equity Fund (the "Fund") dated December 2,
1994. This Statement is not a prospectus itself. To receive a copy of
the prospectus, write the Fund or call toll-free 1-800-422-2080.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 2, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
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Types of Investments 1
Convertible Securities 1
Warrants 1
Futures and Options Transactions 1
Futures Contracts 2
Put Options on Financial Futures
Contracts 2
Call Options on Financial Futures
Contracts 2
"Margin" in Futures Transactions 3
Restricted and Illiquid Securities 3
When-Issued and Delayed Delivery
Transactions 3
Repurchase Agreements 4
Reverse Repurchase Agreements 4
Lending of Portfolio Securities 4
Investment Limitations 4
THE 111 CORCORAN FUNDS MANAGEMENT 7
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Officers and Trustees 7
The Funds 9
Fund Ownership 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
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Adviser to the Fund 10
Advisory Fees 10
Sub-Adviser to the Fund 10
Sub-Advisory Fees 10
State Expense Limitations 10
ADMINISTRATIVE SERVICES 11
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BROKERAGE TRANSACTIONS 11
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PURCHASING SHARES 11
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Distribution and Shareholder Services Plans 11
DETERMINING NET ASSET VALUE 11
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Determining Market Value of Securities 12
EXCHANGE PRIVILEGE 12
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REDEEMING SHARES 12
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Redemption in Kind 12
TAX STATUS 12
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The Fund's Tax Status 12
Shareholders' Tax Status 13
Capital Gains 13
TOTAL RETURN 13
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YIELD 13
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PERFORMANCE COMPARISONS 13
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APPENDIX 15
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GENERAL INFORMATION ABOUT THE FUND
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The Fund is a portfolio in the 111 Corcoran Funds (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
December 11, 1991.
INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide high total return over longer
periods of time through appreciation of capital and current income provided by
dividends and interest payments. The objective cannot be changed without
approval of shareholders. Unless otherwise indicated, the investment policies
described below may be changed by the Board of Trustees ("Trustees") without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
TYPES OF INVESTMENTS
The Fund invests principally in a professionally-managed and diversified
portfolio of dividend paying common stocks. Although the Fund may invest in
other securities and in money market instruments, it is the Fund's policy, under
normal market conditions, to invest at least 65% of its assets in equity
securities. The securities in which the Fund may invest include foreign
securities, as described in the prospectus.
CONVERTIBLE SECURITIES
When owned as part of a unit along with warrants, which are options to buy the
common stock, convertible securities function as convertible bonds, except that
the warrants generally will expire before the bond's maturity. Convertible
securities are senior to equity securities, and therefore, have a claim to
assets of the corporation prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally subordinated to
similar nonconvertible securities of the same company. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream of
income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the investment adviser's opinion, the investment characteristics of the
underlying common shares will assist the Fund in achieving its investment
objective. Otherwise, the Fund will hold or trade the convertible securities. In
selecting convertible securities for the Fund, the Fund's adviser evaluates the
investment characteristics of the convertible security as a fixed income
instrument, and the investment potential of the underlying equity security for
capital appreciation. In evaluating these matters with respect to a particular
convertible security, the Fund's adviser considers numerous factors, including
the economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
WARRANTS
Warrants are basically options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock at
issuance) valid for a specific period of time. Warrants may have a life ranging
from less than a year to twenty years or may be perpetual. However, most
warrants have expiration dates after which they are worthless. In addition, if
the market price of the common stock does not exceed the warrant's exercise
price during the life of the warrant, the warrant will expire as worthless.
Warrants have no voting rights, pay no dividends, and have no right with respect
to the assets of the corporation issuing them. The percentage increase or
decrease in the market price of the warrant may end to be greater than the
percentage increase or decrease in the market price of the optioned common
stock.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge its portfolio by buying and selling
financial futures contracts and stock index futures contracts, buying put
options on portfolio securities and listed put options on futures contracts, and
writing call options on futures contracts. The Fund may also write covered call
options on portfolio securities to attempt to increase its current income.
The Fund will maintain its positions in securities, options and segregated cash
subject to puts and calls until the options are exercised, closed, or have
expired. An option position on financial futures contracts may be closed out
over-the-counter or on a nationally-recognized exchange which provides a
secondary market for options of the same series.
In addition to purchasing put options and writing call options as described in
the prospectus, the Fund may purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the buyers or writers of
the options when options on the portfolio securities held by the Fund are not
traded on an exchange.
The Fund purchases and writes options only with investment dealers and other
financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Fund's investment adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.
The Fund may also write call options and purchase put options on financial
futures and stock index futures contracts as a hedge to attempt to protect
securities in its portfolio against decreases in value.
FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future.
A stock index futures contract is a bilateral agreement which obligates
the seller to deliver (and the purchaser to take delivery of) an amount
of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of trading of the
contract and the price at which the agreement is originally made. There
is no physical delivery of the stocks constituting the index and no price
is paid upon entering into a futures contract. In general, contracts are
closed out prior to their expiration.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles (but
does not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, the
Fund will normally close out its option by selling an identical option.
If the hedge is successful, the proceeds received by the Fund upon the
sale of the second option will be large enough to offset both the premium
paid by the Fund for the original option plus the decrease in value of
the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio. When the
Fund writes a call option on a futures contract, it is undertaking the
obligation of assuming a short futures position (selling a futures
contract) at the fixed strike price at any time during the life of the
option if the option is exercised. As stock prices fall, causing the
prices of futures to go down, the Fund's obligation under a call option
on a future (to sell a futures contract) costs less to fulfill, causing
the value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can substantially offset the drop in value of the Fund's fixed income or
indexed portfolio which is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then substantially offset the
decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Fund will
take prompt action to close out a sufficient number of open contracts
to bring its open futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that initial
margin in futures transactions does not involve the borrowing of funds by
the Fund to finance the transactions. Initial margin is in the nature of
a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price or the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will mark to
market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
The Fund will comply with the following restrictions when purchasing and
selling futures contracts. First, the Fund will not participate in
futures transactions if the sum of its initial margin deposits on open
contracts will exceed 5% of the market value of the Fund's total assets,
after taking into account the unrealized profits and losses on those
contracts it has entered into. Second, the Fund will not enter into these
contracts for speculative purposes. Third, since the Fund does not
constitute a commodity pool, it will not market itself as such, nor serve
as a vehicle for trading in the commodities futures or commodity options
markets. Connected with this, the Fund will disclose to all prospective
investors, the limitations on its futures and option transactions, and
make clear that these transactions are entered into only for bona fide
hedging purposes, or other permissible purposes pursuant to regulations
promulgated by the Commodity Futures Trading Commission ("CFTC").
Finally, because the Fund will submit to the CFTC special calls for
information, the Fund will not register as a commodities pool operator.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission (the "SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under the
Rule. The Trust, on behalf of the Fund, believes that the Staff of the SEC has
left the question of determining the liquidity of all restricted securities for
determination to the Trustees. The Trustees consider the following criteria in
determining the liquidity of certain restricted securities:
.the frequency of trades and quotes for the security;
.the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
.dealer undertakings to make a market in the security; and
.the nature of the security and the nature of the marketplace trades.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements and these securities are marked to market daily. To the
extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that, under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund in a
dollar amount sufficient to make payment for the obligations to be purchased are
segregated at the trade date. These securities are marked to market daily and
are maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, other than in connection with buying stock index futures
contracts, put options on stock index futures, put options on financial
futures and portfolio securities, and writing covered call options, but
may obtain such short-term credits as may be necessary for clearance of
purchases and sales of portfolio securities. A deposit or payment by the
Fund of initial or variation margin in connection with futures contracts
or related options transactions is not considered the purchase of a
security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets:
(a) the deposit of assets in escrow in connection with the writing of
covered put or call options and the purchase of securities on a
when-issued basis; and (b) collateral arrangements with respect to (i)
the purchase and sale of stock options (and options on stock indices)
and (ii) initial or variation margin for futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. However, the Fund may purchase put options
on stock index futures, put options on financial futures, stock index
futures contracts, and put options on portfolio securities, and may write
covered call options.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities which the Fund may purchase
pursuant to its investment objective, policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items, or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if, as a result,
at the time of such purchase, more than 5% of the value of its total
assets would be invested in the securities of that issuer, or if it would
own more than 10% of the outstanding voting securities of any one issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry. However, the Fund may invest 25% or more of the value
of its assets in cash or cash items, securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, or instruments
secured by these money market instruments, such as repurchase agreements.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding money market
instruments, repurchase agreements, obligations of the U.S. government,
its agencies or instrumentalities, variable rate demand notes, bonds
debentures, notes, certificates of indebtedness, or certain debt
instruments as permitted by its investment objective, policies, and
limitations or the Trust's Declaration of Trust.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 5% of its total assets in securities
subject to restrictions on resale under the Securities Act of 1933,
except for commercial paper issued under Section 4(2) of the Securities
Act of 1933 and certain other restricted securities which meet the
criteria for liquidity as established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, over-the-counter options,
and certain securities not determined by the Trustees to be liquid.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for purpose of
exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its net assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on the New York or American Stock
Exchanges to 2% of its net assets. (If State restrictions change, this
latter restriction may be revised without notice to shareholders). For
purposes of this investment restriction, warrants acquired by the Fund in
units with or attached to securities may be deemed to be without value.
INVESTING IN OPTIONS
The Fund will not purchase put or call options on securities or on
futures contracts if more than 5% of the value of the Fund's total assets
would be invested in premiums on open option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment. The Fund will not write call options
in excess of 5% of the value of its total assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, will invest no more than 5% of its total assets in any one
investment company, and will invest no more than 10% of its total assets
in investment companies in general. The Fund will purchase securities of
closed-end investment companies only in open market transactions
involving only customary broker's commissions. However, these limitations
are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not intend to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
To comply with registration requirements in certain states, the Fund (1) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (2) will
limit the premiums paid for options purchased by the Fund to 5% of its net
assets, (3) will limit the margin deposits on futures contracts entered into by
the Fund to 5% of its net assets, and (4) will limit investments in warrants to
5% of its net assets. No more than 2% will be in warrants which are listed on
the New York or American Stock Exchanges. (If state requirements change, these
restrictions may be revised without shareholder notification.)
THE 111 CORCORAN FUNDS MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Central Carolina Bank,
Federated Investors, Federated Services Company, Federated Securities Corp.,
Federated Administrative Services, and the Funds (as defined below.)
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John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing General
Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Vice
President of the Trust.
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Thomas G. Bigley
28th Floor
One Oxford Centre
Pittsburgh, PA 15219
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
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John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
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William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
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James E. Dowd
571 Hayward Mill Road
Concord, MA
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.
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Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Trustee
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Professor of Medicine and Trustee, University of Pittsburgh; Director of
Corporate Health, University of Pittsburgh Medical Center; Director, Trustee, or
Managing General Partner of the Funds.
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Edward L. Flaherty, Jr.+
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park Restaurants,
Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing
General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A.,
Western Region.
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Peter E. Madden
225 Franklin Street
Boston, MA
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation and Trustee,
Lahey Clinic Foundation, Inc.
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Gregor F. Meyer
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General
Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A.
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Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie Endowment
for International Peace, RAND Corporation, Online Computer Library Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center; Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council for
Environmental Policy and Technology.
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Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.
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J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative
Services, Federated Services Company, and Federated Shareholder Services;
President or Vice President of the Funds; Director, Trustee, or Managing General
Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Trustee of the Trust.
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Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director, Federated
Research Corp.; Chairman and Director, Federated Securities Corp.; President or
Vice President of some of the Funds; Director or Trustee of some of the Funds.
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Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
President, Treasurer and Trustee
Vice President, Treasurer, and Trustee, Federated Investors; Vice President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated Services
Company and Federated Shareholder Services; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
Vice President and Treasurer of the Funds.
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John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary, Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Trustee, Federated Administrative
Services; Secretary and Trustee, Federated Shareholder Services; Executive Vice
President and Director, Federated Securities Corp.; Vice President and Secretary
of the Funds.
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Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and Assistant
Treasurer of some of the Funds.
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*This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940, as amended.
+Member of the Trust Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Cash
Management Trust; Automated Government Money Trust; California Municipal Cash
Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward
D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Intermediate Government
Trust; Federated Master Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty Term Trust, Inc.--1999; Liberty U.S. Government
Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; The Medalist Funds; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New
York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters
Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term
Municipal Trust; Star Funds; The Starburst Funds; The Starburst Funds II;
Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust
for Government Cash Reserves; Trust for Short-Term U.S. Government Securities;
Trust for U.S. Treasury Obligations; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
The 111 Corcoran Funds' Declaration of Trust provides that the Trustees are not
liable for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
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ADVISER TO THE FUND
The Fund's investment adviser is Central Carolina Bank (the "Adviser"). The
Adviser shall not be liable to the Fund or any shareholder for any losses that
may be sustained in the purchase, holding, lending, or sale of any security or
for anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Fund.
Because of internal controls maintained by Central Carolina Bank to restrict the
flow of non-public information, Fund investments are typically made without any
knowledge of Central Carolina Bank's or its affiliates' lending relationships
with an issuer.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
SUB-ADVISER TO THE FUND
The Fund's sub-adviser is Franklin Street Advisors, Inc. (the "Sub-Adviser").
The Sub-Adviser shall not be liable to the Fund or any shareholder for any
losses that may be sustained in the purchase, holding, lending, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.
Because of internal controls maintained by the Sub-Adviser to restrict the flow
of non-public information, Fund investments are typically made without any
knowledge of the Sub-Adviser's or its affiliates' lending relationships with an
issuer.
SUB-ADVISORY FEES
For its sub-advisory services, the Sub-Adviser receives an annual sub-advisory
fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with expense limitations established
by certain states for investment companies whose shares are registered
for sale in those states. If the Fund's normal operating expenses
(including the investment advisory fee, but not including brokerage
commissions, interest, taxes and extraordinary expenses) exceed 2-1/2%
per year of the first $30 million of average net assets, 2% per year of
the next $70 million of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus.
BROKERAGE TRANSACTIONS
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When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees. The Adviser may select brokers and dealers who offer
brokerage and research services. These services may be furnished directly to the
Fund or to the Adviser and may include:
.advice as to the advisability of investing in securities;
.security analysis and reports;
.economic studies;
.industry studies;
.receipt of quotations for portfolio evaluations; and
.similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser in advising the
Funds and other accounts. To the extent that receipt of these services may
supplant services for which the Adviser might otherwise have paid, it would tend
to reduce its expenses.
PURCHASING SHARES
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Except under certain circumstances described in the prospectus, shares are sold
at their net asset value plus a sales charge on days the New York Stock Exchange
is open for business. The procedure for purchasing shares of the Fund is
explained in the prospectus under "Investing in the Fund."
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to:
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Board of Trustees expects that the Fund
will be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objective. By
identifying potential investors whose needs are served by the Fund's objective,
and properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; and
(3) enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
DETERMINING NET ASSET VALUE
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Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus. Net asset value will not
be calculated on Good Friday and on certain federal holidays.
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DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
.according to the last sale price on a national securities exchange, if
available;
.in the absence of recorded sales for bonds and other fixed-income securities,
as determined by an independent pricing service;
.for short-term obligations, according to the mean between bid and asked prices,
as furnished by an independent pricing service, or for short-term obligations
with maturities of less than 60 days at the time of purchase, at amortized cost
unless the Trustees determine this is not fair value; or
.at fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices.
Pricing services may consider:
.yield;
.quality;
.coupon rate;
.maturity;
.type of issue;
.trading characteristics; and
.other market data.
Over-the-counter put options will be valued at the mean between the bid and the
asked prices.
EXCHANGE PRIVILEGE
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Shareholders using the exchange privilege must exchange shares having a new
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund.
Instructions for exchanges may be given in writing or by telephone. Exchange
procedures are explained in the prospectus under "Exchange Privilege."
REDEEMING SHARES
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The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. Redemption in kind will be
made in conformity with applicable Securities and Exchange Commission rules,
taking such securities at the same value employed in determining net asset value
and selecting the securities in a manner the Trustees determine to be fair and
equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
TAX STATUS
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THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
To qualify for this treatment, the Fund must, among other requirements:
.derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
.derive less than 30% of its gross income from the sale of securities held less
than three months;
.invest in securities within certain statutory limits; and
.distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
No portion of any income dividend paid by the Fund is eligible for the dividends
received deductions available to corporations.
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
the availability of higher relative yields;
differentials in market values;
new investment opportunities;
changes in creditworthiness of an issuer; or
an attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they are
taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares.
TOTAL RETURN
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The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
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The yield for the Fund is determined by dividing the net investment income per
share (as defined by the SEC) earned by the Fund over a thirty-day period by the
maximum offering price per share on the last day of the period. This value is
then annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The yield
does not necessarily reflect income actually earned by the Fund because of
certain adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
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The Fund's performance depends upon such variables as:
.portfolio quality;
.average portfolio maturity;
.type of instruments in which the portfolio is invested;
.changes in interest rates and market value of portfolio securities;
.changes in the Fund's expenses; and
.various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return as
described below.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of other
funds, and methods used to value portfolio securities and compute offering
price. The financial publications and/or indices which the Fund uses in
advertising may include:
.STANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS,
which is a composite index of common stocks in industry, transportation, and
financial and public utility companies, and can be used to compare to the total
returns of funds whose portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's index assumes reinvestments of all dividends
paid by stocks listed on its index. Taxes due on any of these distributions are
not included, nor are brokerage or other fees calculated in Standard & Poor's
figures.
.LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in the maximum offering price over a specific period of
time. From time to time, the Fund will quote its Lipper ranking in the "index
funds" category in advertising and sales literature.
.MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. The total returns
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
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STANDARD & POOR'S RATINGS GROUP CORPORATE BOND 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 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 effect 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.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. S&P may apply a plus (+) or
minus (-) to the above rating classifications to show relative standing within
the classifications.
PLUS (+) OR MINUS (-): The ratings from "AA to CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in "Aaa"
securities.
A--Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment 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.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from "Aa" through "B" in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rate "F-1+".
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment.
The likelihood that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category, Plus and
minus signs, however, are not used in the "AAA" category.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This highest category 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.
A-2--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.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
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 earning 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.
PRIME-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
005902 (12/94)
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