111 CORCORAN BOND FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED MAY 31, 1997
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
The 111 Corcoran Bond Fund had a total return of 8.37%* based on net
asset value for the fiscal year ended May 31, 1997. Bond prices rallied in
May, 1997, on the assumption that the Federal Reserve Board would not raise
interest rates. Also helping the market were large foreign purchases.
Intermediate treasury yields closed the fiscal year with little
change. The economic recovery that began in 1991 is ongoing and still looks
quite healthy. Most astonishing is the fact that inflation has continued to
be benign.
Looking forward, we are optimistic on the bond market and think the
fund offers an excellent way to invest in high quality bonds.
The portfolio has a market value of approximately $85 million and is
invested approximately 80% in governments. The average maturity is 5 1/2
years with AA1 average portfolio quality. We anticipate that maturities
will be extended somewhat in the next few months.
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. The fund's total return based on offering price for
the period was 3.50%.
111 CORCORAN BOND FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN 111 CORCORAN BOND FUND SINCE
INCEPTION AS OF MAY 31, 1997.
The graph below illustrates the hypothetical investment of $10,000 in the
111 Corcoran Bond Fund (the "Fund") from July 15, 1992 (start of performance) to
May 31, 1997, compared to the Lehman Brothers Aggregate Bond Index ("LBABI")+.
SEE APPENDIX
<TABLE>
<CAPTION>
Measurement Period Lehman Brothers
(Fiscal Year Covered) 111 Corcoran Bond Fund Aggregate Bond Index
<S> <C> <C>
7/15/92 9550 10000
5/31/93 10150 10980
5/31/94 10273 11058
5/31/95 11436 12326
5/31/96 11940 12866
5/31/97 12939 13936
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED MAY 31, 1997
<TABLE>
<S> <C>
1 Year....................................................................... 3.50%
Start of Performance, July 15, 1992.......................................... 5.42%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
This report must be preceded or accompanied by the Fund's prospectus dated July
31, 1997, and, together with the financial statements contained therein,
constitutes the Fund's annual report.
* Represents a hypothetical investment of $10,000 in the Fund, after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge
= $9,550). The Fund's performance assumes the reinvestment of all dividends
and distributions.
** Total return quoted reflects all applicable sales charges.
+ The LBABI is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The LBABI
has been adjusted to reflect reinvestment of dividends on securities. This
index is unmanaged.
LOGO
Cusip 682365200
G00315-01 (7/97)
111
CORCORAN
FUNDS
111 CORCORAN
EQUITY FUND
PROSPECTUS
A DIVERSIFIED PORTFOLIO OF
111 CORCORAN FUNDS, AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY
JULY 31, 1997
FEDERATED SECURITIES CORP. IS THE DISTRIBUTOR OF THE FUND.
CUSIP 682365200
2041604A (7/97) [RECYCLED PAPER LOGO]
111 CORCORAN BOND FUND
(A PORTFOLIO OF THE 111 CORCORAN FUNDS)
PROSPECTUS
The shares of 111 Corcoran Bond Fund (the "Fund") offered by this prospectus
represent interests in a diversified portfolio in the 111 Corcoran Funds (the
"Trust"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to achieve income. The Fund pursues this
objective by investing primarily in bonds rated A or better.
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 July 31,
1997, with the Securities and Exchange Commission ("SEC"). 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 or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-386-3111. To
obtain other information or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http:// www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated July 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Investment Limitations 10
THE 111 CORCORAN FUNDS INFORMATION 10
- ------------------------------------------------------
Management of the 111 Corcoran Funds 10
Distribution of Fund Shares 11
Administration of the Fund 11
NET ASSET VALUE 12
- ------------------------------------------------------
INVESTING IN THE FUND 12
- ------------------------------------------------------
Share Purchases 12
Minimum Investment Required 13
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
- ------------------------------------------------------
REDEEMING SHARES 17
- ------------------------------------------------------
Systematic Withdrawal Program 18
Accounts with Low Balances 18
Redemption in Kind 18
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
EFFECT OF BANKING LAWS 19
- ------------------------------------------------------
TAX INFORMATION 20
- ------------------------------------------------------
Federal Income Tax 20
State and Local Taxes 20
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
FINANCIAL STATEMENTS 21
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 32
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............................................... 4.50%
Maximum Sales Charge 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 average net assets)
Management Fee (after waiver)(1).................................................... 0.00%
12b-1 Fees.......................................................................... None
Total Other Expenses................................................................ 0.31%
Total Fund Operating Expenses (after waiver)(2)................................ 0.31%
</TABLE>
(1) The management fee has been reduced to reflect a voluntary waiver by the
adviser. The adviser can terminate this voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.75%.
(2) The Total Fund Operating Expenses in the table above are based on expenses
expected to be incurred during the fiscal year ending May 31, 1998, and are
expected to be 1.06% absent the voluntary waiver described above in note 1. The
Total Fund Operating Expenses for the fiscal year ended May 31, 1997, were 0.37%
and would have been 1.12% absent the voluntary waiver of the management fee.
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 5 years 10 years
- ------------------------------------------------------------------------------------------
<S> <C> <C> <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 charge. As noted in the
table above, the Fund charges no redemption fees....... $ 48 $ 55 $ 62 $ 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.
111 CORCORAN BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants, on page 32.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------------------------
1997 1996 1995 1994 1993 (A)
------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.78 $10.00 $ 9.63 $10.13 $ 10.00
- ----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------
Net investment income 0.66 0.66 0.66 0.63 0.49
- ----------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.14 (0.22) 0.37 (0.50) 0.13
--------
- ---------------------------------------------- ------ ------ ------ ------
Total from investment operations 0.80 0.44 1.03 0.13 0.62
- ----------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------
Distributions from net investment income (0.66) (0.66) (0.66) (0.63) (0.49)
--------
- ---------------------------------------------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.92 $ 9.78 $10.00 $ 9.63 $ 10.13
--------
- ---------------------------------------------- ------ ------ ------ ------
TOTAL RETURN (B) 8.37% 4.41% 11.32% 1.21% 6.28%
- ----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------
Expenses 0.37% 0.32% 0.34% 0.50% 0.70%*
- ----------------------------------------------
Net investment income 6.51% 6.65% 6.98% 6.32% 6.00%*
- ----------------------------------------------
Expense waiver/reimbursement (c) 0.75% 0.75% 0.75% 0.75% 0.78%*
- ----------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------
Net assets, end of period (000 omitted) $85,752 $87,883 $87,115 $97,823 $31,928
- ----------------------------------------------
Portfolio turnover 11% 32% 37% 76% 59%
- ----------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 15, 1992 (date of initial
public investment) to
May 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
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' fixed income portfolio, known as 111
Corcoran Bond Fund. The Fund is for trust clients of Central Carolina Bank and
Trust Company ("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 bonds rated
A or better. Central Carolina Bank is the investment adviser to the Fund. 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
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to achieve income. In pursuing this
objective the Fund's investment adviser intends to purchase portfolio securities
which it deems to be undervalued in an effort to obtain appreciation of capital.
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 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 in a
professionally managed portfolio consisting primarily of bonds rated A or
better. The average maturity of the Fund is 3 to 10 years. As a matter of
investment policy, which may be changed without shareholder approval, the Fund
will invest so that, under normal circumstances, at least 65% of the value of
its total assets are invested in bonds rated A or better. A description of the
rating categories is contained in the Appendix to the Statement of Additional
Information.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in a professionally managed, diversified portfolio of
bonds rated A or better. The securities in which the Fund may invest are as
follows:
- domestic issues of corporate debt obligations (rated Aaa, Aa, A or Baa by
Moody's Investors Service, Inc. ("Moody's"); AAA, AA, A or BBB by
Standard & Poor's Ratings Group ("S&P"); or AAA, AA, A or BBB by Fitch
Investors Service, Inc. ("Fitch"). Bonds rated BBB by S&P or Fitch 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 adviser. The
adviser will determine whether or not the security continues to be an
acceptable investment. If not, the security will be sold;
- obligations of the United States government;
- mortgage-backed securities, including Adjustable Rate Mortgage Securities
("ARMS") and collateralized mortgage obligations ("CMOs"), and asset
backed securities;
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives and Banks for Cooperatives; Federal Home
Loan Banks; Federal Home Loan Mortgage Corporation ("FHLMC"); Federal
National Mortgage Association ("FNMA"); Government National Mortgage
Association ("GNMA"); Export-Import Bank of the United States; Commodity
Credit Corporation; Federal Financing Bank; The Student Loan Marketing
Association; National Credit Union Administration; and Tennessee Valley
Authority;
- 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;
- zero coupon bonds;
- bankers' acceptances;
- repurchase agreements collateralized by eligible investments; and
- foreign securities which are traded publicly in the United States.
The obligations of U.S. government agencies or instrumentalities which the Fund
may buy are backed in a variety of ways by the U.S. government, its agencies or
instrumentalities. Some of these obligations, such as Government National
Mortgage Association, mortgage-backed securities and obligations of the Farmers
Home Administration, are backed by the full faith and credit of the U.S.
Treasury. Obligations of the Farmers Home Administration , are also backed by
the issuer's right to borrow from the U.S. Treasury. Obligations of Federal Home
Loan Banks and The Student Loan Marketing Association are backed by the
discretionary authority of the U.S. government to purchase certain obligations
of agencies or instrumentalities. Obligations of Federal Home Loan Banks, Farm
Credit Banks, Federal National Mortgage Association, and Federal Home Loan
Mortgage Corporation, are backed by the credit of the agency or instrumentality
issuing the obligations.
MORTGAGE-BACKED SECURITIES. Some of the U.S. Government Securities in which the
Fund will invest can represent an undivided interest in a pool of residential
mortgages or may be collateralized by a pool of residential mortgages
("Mortgage-backed securities"). Mortgage-backed securities have yield and
maturity characteristics corresponding to the underlying mortgages.
Distributions to holders of Mortgage-backed securities include both interest and
principal payments. Principal payments represent the amortization of the
principal of the underlying mortgages and any prepayments of principal due to
prepayment, refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective maturities of
Mortgage-backed securities. Due to these features, Mortgage-backed securities
are less effective as a means of "locking-in" attractive long-term interest
rates than fixed-income securities which pay only a stated amount of interest
until maturity, when the entire principal amount is returned. Prepayments, which
become more likely as mortgage interest rates decline, create a need to reinvest
distribution of principal at then-current lower rates. Since comparatively high
interest rates cannot be effectively "locked in," Mortgage-backed securities may
have less potential for capital appreciation during periods of declining
interest rates than other non-callable fixed-income government securities of
comparable stated maturities. However, Mortgage-backed securities may experience
less pronounced declines in value during periods of rising interest rates.
Mortgage-backed securities utilizing ARMs may fluctuate less in value and suffer
fewer prepayments than Mortgage-backed securities utilizing fixed rate
mortgages.
ARMS. ARMS are Mortgage-backed securities representing interests in adjustable
rather than fixed interest rate mortgages. The Fund invests in ARMS issued by
the GNMA, the FNMA, the FHLMC, and by non-government and private entities and
are actively traded. The underlying mortgages which collateralize ARMS issued by
GNMA are fully guaranteed by the Federal Housing Administration ("FHA") or
Veterans Administration ("VA"), while those collateralizing ARMs issued by FHLMC
or FNMA are typically conventional residential mortgages conforming to strict
underwriting size and maturity constraints.
CMOS. CMOs are debt obligations collateralized by mortgage loans or
Mortgage-backed securities. Typically, CMOs are collateralized by GNMA, FNMA or
FHLMC certificates, but may be collateralized by whole loans or private
mortgage-backed securities.
The Fund will only invest in CMOs which are rated AAA by a Rating Agency, and
which may be: (a) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (b) collateralized by pools of mortgages
in which payment of principal and interest is guaranteed by the issuer and such
guarantee is collateralized by U.S. Government Securities; (c) securities in
which the proceeds of the issuance are invested in mortgage securities and the
payment of the principal and interest is supported by the credit of an agency or
instrumentality of the U.S. government; or (d) collateralized by pools of
mortgages or Mortgage-backed securities not guaranteed by the U.S. government or
any government agency.
ASSET-BACKED SECURITIES. Asset-backed securities are obligations of trusts or
special purpose corporations that directly or indirectly represent a
participation in, or are secured by and payable from various types of assets. At
the present time, automobile and credit card receivables are among the most
common collateral supporting asset-backed securities. In general, the collateral
supporting asset-backed
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. As with Mortgage-backed securities,
asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties and use similar credit enhancement
techniques.
Asset-backed securities present certain risks that are not presented by
Mortgage-backed securities. Credit card receivables are generally unsecured and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due. Most
issuers of asset-backed securities backed by automobile receivables permit the
services of such receivables to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the related asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a recorded security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the Adviser considers any rating
given to such securities, the financial strength of the provider of credit
support, the type and extent of credit enhancement provided, as well as the
documentation and structure of the issue itself and the credit support.
INVERSE FLOATERS. Certain securities issued by agencies of the U.S. government
("agency securities") that include a class bearing a floating rate of interest
also may include a class whose yield floats inversely against a specified index
rate. These "inverse floaters" are more volatile than conventional fixed or
floating rate classes of an agency security and the yield thereon, as well as
the value thereof, will fluctuate in inverse proportion to changes in the index
on which interest rate adjustments are based. As a result, the yield on an
inverse floater class of an agency security will generally increase when market
yields (as reflected by the index) decrease and decrease when market yields
increase. The extent of the volatility of inverse floaters depends on the extent
of anticipated changes in market rates of interest. Generally, inverse floaters
provide for interest rate adjustments based upon a multiple of the specified
interest index, which further increases their volatility. The degree of
additional volatility will be directly proportional to the size of the multiple
used in determining interest rate adjustments.
RESETS OF INTEREST. The interest rates paid on certain agency securities in
which the Fund invests generally are readjusted at intervals of one year or less
to an increment over some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
constant maturity Treasury note rates, the three-month Treasury bill rate, the
180-day Treasury bill rate, rates on longer-term Treasury securities, the
National Media Cost of Funds, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a specific bank, or commercial paper
rates. Some
indices, such as the one-year constant maturity Treasury note rate, closely
mirror changes in market interest rate levels.
To the extent that the adjusted interest rate on the agency security reflects
current market rates, the market value of an adjustable rate agency security
will tend to be less sensitive to interest rate changes than a fixed rate debt
security on the same stated maturity.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other 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 short-term
cash which has not yet been invested in other portfolio instruments. It should
be noted that investment companies incur certain expenses such as management
fees and, therefore, any investment by the Fund in shares of another investment
company would be subject to such duplicate expense.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its total
assets in restricted securities. Certain restricted securities which the
Trustees deem to be liquid will be excluded from this limitation. The
restriction is not applicable to commercial paper issued under Section 4(2) of
the Securities Act of 1933. Restricted securities are any securities in which
the Fund may otherwise invest pursuant to its investment objective and policies
but which are subject to restriction on resale under federal securities law. The
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, repurchase agreements providing for settlement in more than seven days
after notice, and over-the-counter options, to 15% of its net assets.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under the federal
securities law, and is generally sold to institutional investors, such as the
Fund, who agree that they are purchasing the paper for investment purposes and
not with a view for public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Fund believes that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Fund intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the Fund's investment adviser, as liquid and not subject to the
investment limitations applicable to illiquid securities.
TEMPORARY INVESTMENTS. From time to time, when the adviser determines that
market conditions call for a temporary defensive posture, the Fund may invest in
acceptable investments with short-term maturities.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/ dealers, and other recognized financial institutions sell
U.S. government securities or certificates of deposit 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 of any sale of such securities.
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 these transactions 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.
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 basis up to one-third of the
value of its total assets 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.
PUT AND CALL OPTIONS. The Fund may purchase put and call options on its
portfolio securities. These options will be used as a hedge to attempt to
protect securities which the Fund holds, or will be purchasing, against
decreases or increases in value. The Fund may also write (sell) put and call
options on all or any portion of its portfolio to generate income for the Fund.
The Fund will write call options on securities either held in its portfolio or
for which it has the right to obtain without payment of further consideration or
for which it has segregated cash in the amount of any additional consideration.
In the case of put options, the Fund will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the exercise price of the
underlying securities.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since 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.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio of
long-term debt securities against changes in interest rates. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government at
a certain time in the future. The seller of the contract agrees to make delivery
of the type of instrument called for in the contract and the buyer agrees to
take delivery of the instrument at the specified future time.
The Fund may write call options and purchase put options on financial futures
contracts as a hedge to attempt to protect securities in its portfolio against
decreases in value resulting from anticipated increases in market interest
rates. When the Fund writes a call option on a futures contract, it is
undertaking the obligation of selling the futures contract at a fixed price at
any time during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, the Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option.
The Fund may also write put options and purchase call options on financial
futures contracts as a hedge against rising purchase prices of portfolio
securities resulting from anticipated decreases in market interest rates. The
Fund will use these transactions to attempt to protect its ability to purchase
portfolio securities in the future at price levels existing at the time it
enters into the transactions. When the Fund writes a put option on a futures
contract, it is undertaking to buy a particular futures contract at a fixed
price at any time during a specified period if the option is exercised. As a
purchaser of a call option on a futures contract, the Fund is entitled (but not
obligated) to purchase a futures contract at a fixed price at any time during
the life of the option.
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. When the Fund purchases futures
contracts, an amount of cash and cash equivalents and/or Treasury bills, equal
to the underlying commodity value of the futures contracts (less any related
margin deposits), will be deposited in a segregated account with the Fund's
custodian (or the broker, if legally permitted) to collateralize the position
and thereby insure that the use of such futures contracts is unleveraged.
RISKS. When the Fund uses financial futures and options on financial
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 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 for
options will exist at all times. Although the investment adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange 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.
FOREIGN SECURITIES. The Fund reserves the right to invest in foreign securities
which are traded publicly in the United States. Investments in foreign
securities, particularly those of non-governmental issuers, involve
considerations which are not ordinarily associated with investments in domestic
issuers. These considerations include the possibility of expropriation, the
unavailability of financial
information or the difficulty of interpreting financial information prepared
under foreign accounting standards, less liquidity and more volatility in
foreign securities markets, the impact of political, social or diplomatic
developments, and the difficulty of assessing economic trends in foreign
countries. It may also be more difficult to enforce contractual obligations
abroad than would be the case in the United States because of differences in the
legal systems. Transaction costs in foreign securities may be higher. The Fund's
investment adviser will consider these and other factors before investing in
foreign securities and will not make such investments unless, in its opinion,
such investments will meet the Fund's standards and objectives. The Fund will
only purchase securities issued in U.S. dollar denominations. The Fund will not
invest more than 15% in foreign 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 agreement 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 up
to 10% of the value of those assets to secure such borrowings; or
- sell securities short except, under strict limitations, it may maintain
open short positions so long as not more than 5% of the value of its net
assets is held as collateral for those positions.
The above limitations cannot be changed without shareholder approval.
THE 111 CORCORAN FUNDS INFORMATION
- --------------------------------------------------------------------------------
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 0.75% of the Fund's average daily net
assets. 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, 1997, the
Trust Division managed assets in excess of $1.3 billion. The Trust Division
manages two commingled funds with assets of approximately $175 million. The
Bank has managed the 111 Corcoran Funds since their inception in July,
1992. As of June 30, 1997, total assets in the 111 Corcoran Funds were $150
million.
As part of their regular banking operations, CCB 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 CCB.
The lending relationship will not be a factor in the selection of
securities.
James S. Agnew has been the Fund's portfolio manager since the Fund's
inception in July, 1992. Mr. Agnew joined CCB in 1969 and has, for more
than the past six years, been Vice President and Senior Trust Officer of
CCB, responsible for managing approximately $250 million in fixed income
assets. Mr. Agnew received a B.A. and M.S. in Industrial Management from
Georgia Institute of Technology and an L.L.B. from Woodrow Wilson Law
College.
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.
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
--------------------- ------------------------------------
<S> <C>
0.150% of the first $250 million
0.125% of the next $250 million
0.100% of the next $250 million
0.075% 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.
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 1-800-386-3111.)
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 three 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 A SALES CHARGE AS A
PERCENTAGE OF PERCENTAGE OF NET
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE 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 as of the close of trading (normally 4:00
p.m., Eastern time) on 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.
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 Shareholder 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 are paid monthly. Dividends are declared just
prior to determining net asset value. If an order for shares is placed on the
preceding business day, shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
shares and payment by wire are received on the same day, shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted into federal funds.
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 will be made
at least annually.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
All shareholders of the Fund are shareholders of the 111 Corcoran Funds, which
consists of the Fund, 111 Corcoran Equity Fund, and 111 Corcoran North Carolina
Municipal Securities Fund. Shareholders of the Fund have access to 111 Corcoran
Equity 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 for which affiliates of Federated Investors serve as investment
adviser and which are distributed by Federated Securities Corp., a subsidiary of
Federated Investors ("Federated Funds"). Shareholders have access to the
following Federated Funds:
- Liberty U.S. Government Money Market Trust--a U.S. government money
market fund; and
- Federated 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.
Upon receipt by Federated Shareholder 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 1-800-386-3111. 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 Shareholder 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 Shareholder 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 1-800-386-3111) 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.
SIGNATURES. Shareholders requesting 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
Exchanges;
- a savings bank or savings 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, other than retirement accounts subject to required
minimum distributions. 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.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000, or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Fund will pay all
or a portion of the remainder of the redemption in portfolio instruments, valued
in the same way that net asset value is determined. The portfolio instruments
will be selected in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
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 of July 7,
1997, Central Carolina Bank, acting in various capacities for numerous accounts,
was owner of record of 8,026,215 shares (95.34%) of 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.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other 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.
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.
STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
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 charge
which, if excluded, would increase the total return and yield.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
111 CORCORAN BOND FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--16.1%
- -----------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--0.5%
----------------------------------------------------------------
$ 500,000 Discover Card Trust, 6.25%, Series 1996 3B, 8/18/2008 $ 465,940
---------------------------------------------------------------- ------------
AUTO/TRUCK MANUFACTURER--1.3%
----------------------------------------------------------------
1,000,000 Ford Motor Co., 9.00%, 9/15/2001 1,076,350
---------------------------------------------------------------- ------------
CONSUMER PRODUCTS--3.3%
----------------------------------------------------------------
1,000,000 Philip Morris Cos., Inc., 9.00%, 1/1/2001 1,059,490
----------------------------------------------------------------
1,000,000 Philip Morris Cos., Inc., 7.125%, 8/15/2002 997,000
----------------------------------------------------------------
750,000 RJR Nabisco, Inc., 8.00%, 1/15/2000 771,173
---------------------------------------------------------------- ------------
Total 2,827,663
---------------------------------------------------------------- ------------
FINANCE--INSURANCE--1.9%
----------------------------------------------------------------
500,000 CIGNA Corp., 7.40%, 1/15/2003 505,090
----------------------------------------------------------------
1,000,000 Continental Corp., 7.25%, 3/1/2003 999,970
----------------------------------------------------------------
150,000 Ford Motor Credit Corp., 7.50%, 4/25/2011 148,536
---------------------------------------------------------------- ------------
Total 1,653,596
---------------------------------------------------------------- ------------
FINANCIAL SECURITIES--1.1%
----------------------------------------------------------------
1,000,000 Salomon, Inc., 6.875%, 12/15/2003 974,930
---------------------------------------------------------------- ------------
METALS--0.6%
----------------------------------------------------------------
500,000 Reynolds Metals Co., 9.00%, 8/15/2003 543,765
---------------------------------------------------------------- ------------
MULTI-INDUSTRY--1.0%
----------------------------------------------------------------
750,000 Loews Corp., 8.875%, 4/15/2011 821,130
---------------------------------------------------------------- ------------
RETAIL TRADE--1.2%
----------------------------------------------------------------
1,000,000 Penney (J.C.) Co., Inc., 7.375%, 8/15/2008 1,003,010
---------------------------------------------------------------- ------------
UTILITIES--5.2%
----------------------------------------------------------------
1,000,000 Gulf States Utilities Co., 6.77%, 8/1/2005 956,650
----------------------------------------------------------------
1,000,000 Pacific Gas & Electric Co., MTN, 7.75%, 6/30/2004 1,027,990
----------------------------------------------------------------
</TABLE>
111 CORCORAN BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
UTILITIES--CONTINUED
----------------------------------------------------------------
$ 1,500,000 Southwestern Bell Telephone Co., 7.375%, 5/1/2012 $ 1,424,295
----------------------------------------------------------------
1,000,000 West Penn Power Co., 7.875%, 12/1/2004 1,023,220
---------------------------------------------------------------- ------------
Total 4,432,155
---------------------------------------------------------------- ------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $14,027,255) 13,798,539
---------------------------------------------------------------- ------------
GOVERNMENT OBLIGATIONS--79.1%
- -----------------------------------------------------------------------------------
FARM CREDIT SYSTEM FINANCIAL ASSISTANCE CORP.--0.6%
----------------------------------------------------------------
500,000 9.20%, 9/27/2005 532,700
---------------------------------------------------------------- ------------
FEDERAL HOME LOAN BANK--11.0%
----------------------------------------------------------------
500,000 4.461%, Structured Note, 9/3/1997 497,375
----------------------------------------------------------------
1,000,000 (a) 6.25% Step-Up, 5/11/1998 1,003,170
----------------------------------------------------------------
750,000 3.701%, Structured Note, 6/2/1998 732,679
----------------------------------------------------------------
1,000,000 3.868%, Structured Note, 8/25/1998 972,398
----------------------------------------------------------------
1,250,000 4.914%, Structured Note, 12/2/1998 1,215,862
----------------------------------------------------------------
1,000,000 5.613%, Structured Note, 2/23/1999 979,230
----------------------------------------------------------------
500,000 5.05%, Structured Note, 3/29/2000 484,520
----------------------------------------------------------------
1,550,000 (a) 5.20% Step-Up, 10/20/2000 1,508,398
----------------------------------------------------------------
1,000,000 6.48%, 3/27/2001 991,099
----------------------------------------------------------------
1,000,000 6.33%, 11/20/2001 985,300
---------------------------------------------------------------- ------------
Total 9,370,031
---------------------------------------------------------------- ------------
FEDERAL HOME LOAN MORTGAGE CORPORATION--29.8%
----------------------------------------------------------------
2,500,000 5.00%, Structured Note, 3/10/2000 2,418,075
----------------------------------------------------------------
1,000,000 5.90%, 4/21/2000 983,350
----------------------------------------------------------------
1,000,000 5.50%, Structured Note, 9/20/2000 981,330
----------------------------------------------------------------
1,000,000 5.69%, 11/29/2000 970,140
----------------------------------------------------------------
500,000 6.80%, 9/18/2002 494,485
----------------------------------------------------------------
1,000,000 8.19%, 10/6/2004 1,025,010
----------------------------------------------------------------
100,079 5.00%, Series 1194F, 11/15/2005 98,616
----------------------------------------------------------------
</TABLE>
111 CORCORAN BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
GOVERNMENT OBLIGATIONS--CONTINUED
- -----------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION--CONTINUED
----------------------------------------------------------------
$ 1,000,000 8.00%, Series 1033G, 1/15/2006 $ 1,026,130
----------------------------------------------------------------
1,000,000 6.00%,Series 1366G, 5/15/2006 972,300
----------------------------------------------------------------
4,000,000 8.00%, Series 1171G, 11/15/2006 4,118,640
----------------------------------------------------------------
1,490,000 6.00%, Series 1337C, 12/15/2006 1,436,271
----------------------------------------------------------------
1,000,000 7.00%, Series 1187H, 12/15/2006 995,530
----------------------------------------------------------------
84,445 6.50%, REMIC, Series 1422E, 2/15/2007 80,687
----------------------------------------------------------------
1,000,000 7.00%, Series 1338J, 2/15/2007 994,300
----------------------------------------------------------------
1,500,000 6.25%, Series 1553E, 4/15/2007 1,467,885
----------------------------------------------------------------
1,000,000 7.00%, Series 1458J, 8/15/2007 997,910
----------------------------------------------------------------
1,000,000 7.00%, Series 1341K, 8/15/2007 982,420
----------------------------------------------------------------
1,000,000 6.50%, Series 1551E, 9/15/2007 988,460
----------------------------------------------------------------
176,459 6.50%, Series 1452C, 12/15/2007 166,672
----------------------------------------------------------------
1,000,000 7.00%, Series 1465GA, 2/15/2008 957,840
----------------------------------------------------------------
400,000 7.00%, Series 1324VE, 8/15/2008 389,756
----------------------------------------------------------------
1,000,000 7.00%, Series 1477ID, 11/15/2009 980,160
----------------------------------------------------------------
595,000 7.00%, Series 1468M, 1/15/2010 580,714
----------------------------------------------------------------
1,000,000 6.85%, Series 1808VB, 10/15/2010 951,922
----------------------------------------------------------------
500,000 7.00%, Series 1228H, 2/15/2022 470,685
---------------------------------------------------------------- ------------
Total 25,529,288
---------------------------------------------------------------- ------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--14.1%
----------------------------------------------------------------
2,000,000 7.30%, 10/28/2002 1,994,180
----------------------------------------------------------------
2,000,000 6.625%, 4/10/2003 1,954,740
----------------------------------------------------------------
1,000,000 7.00%, 9/3/2003 996,710
----------------------------------------------------------------
1,000,000 6.48%, 2/18/2004 962,860
----------------------------------------------------------------
2,000,000 8.25%, 10/12/2004 2,053,680
----------------------------------------------------------------
2,775,000 8.50%, 2/1/2005 2,882,309
----------------------------------------------------------------
</TABLE>
111 CORCORAN BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
GOVERNMENT OBLIGATIONS--CONTINUED
- -----------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--CONTINUED
----------------------------------------------------------------
$ 1,500,000 Principal STRIPS, 4/12/2006 (Callable 4/12/1999 @ 100) $ 1,309,965
---------------------------------------------------------------- ------------
Total 12,154,444
---------------------------------------------------------------- ------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--REMIC--19.9%
----------------------------------------------------------------
1,000,000 7.00%, REMIC, Series 199479G, 11/25/2004 997,840
----------------------------------------------------------------
1,450,000 7.50%, REMIC, Series 199248G, 11/25/2005 1,466,066
----------------------------------------------------------------
1,000,000 7.00%, REMIC, Series 199270H, 4/25/2006 998,580
----------------------------------------------------------------
1,000,000 7.50%, REMIC, Series 199336J, 5/25/2006 1,005,340
----------------------------------------------------------------
2,000,000 7.00%, REMIC, Series 1993139KD, 7/25/2006 1,990,200
----------------------------------------------------------------
1,000,000 8.00%, REMIC, Series 1991150G, 11/25/2006 1,030,880
----------------------------------------------------------------
1,000,000 7.25%, REMIC, Series 199250J, 12/25/2006 1,000,230
----------------------------------------------------------------
1,000,000 7.00%, REMIC, Series 199253G, 4/25/2007 988,540
----------------------------------------------------------------
1,000,000 6.00%, REMIC, Series 1993209H, 3/25/2008 945,800
----------------------------------------------------------------
996,078 6.00%, REMIC, Series 199376B, 6/25/2008 890,813
----------------------------------------------------------------
2,500,000 6.50%, REMIC, Series 199427CB, 9/25/2008 2,411,247
----------------------------------------------------------------
1,500,000 6.50%, REMIC, Series 1993181O, 9/25/2008 1,406,265
----------------------------------------------------------------
1,000,000 6.75%, REMIC, Series 199333H, 9/25/2008 976,790
----------------------------------------------------------------
1,000,000 7.00%, REMIC, Series 1992124D, 4/25/2010 967,550
---------------------------------------------------------------- ------------
Total 17,076,141
---------------------------------------------------------------- ------------
MORTGAGE BACKED SECURITIES--1.4%
----------------------------------------------------------------
1,250,000 CMC CMO, 6.48%, Series 1994CA14, 3/25/2024 1,199,812
---------------------------------------------------------------- ------------
STUDENT LOAN MARKETING ASSOCIATION--2.3%
----------------------------------------------------------------
2,000,000 6.38%, 12/11/2001 1,959,346
---------------------------------------------------------------- ------------
TOTAL GOVERNMENT OBLIGATIONS (IDENTIFIED COST $67,947,857) 67,821,762
---------------------------------------------------------------- ------------
U.S. TREASURY--0.6%
----------------------------------------------------------------
500,000 United States Treasury Note, 5.75%, 8/15/2003 (IDENTIFIED
COST $478,672) 479,600
---------------------------------------------------------------- ------------
</TABLE>
111 CORCORAN BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
MUTUAL FUND--3.9%
----------------------------------------------------------------
3,391,747 Goldman Sachs Money Market Fund (AT NET ASSET VALUE) $ 3,391,747
---------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $85,845,531)(B) $ 85,491,648
---------------------------------------------------------------- ------------
</TABLE>
(a) Current rate and next reset date shown.
(b) The cost of investments for federal tax purposes amounts to $85,845,531. The
net unrealized depreciation of investments on a federal tax basis amounts to
$353,883 which is comprised of $1,058,874 appreciation and $1,412,757
depreciation at May 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($85,751,618) at
May 31, 1997.
The following abbreviations are used in this portfolio:
CMO -- Collateralized Mortgage Obligation
MTN --Medium Term Note
REMIC --Real Estate Mortgage Investment Conduit
STRIPS --Seperate Trading of Registered Interest and Principal Securities
(See Notes which are an integral part of the Financial Statements)
111 CORCORAN BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $85,845,531) $85,491,648
- --------------------------------------------------------------------------------
Income receivable 913,902
- --------------------------------------------------------------------------------
Receivable for shares sold 7,231
- -------------------------------------------------------------------------------- -----------
Total assets 86,412,781
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for shares redeemed $173,672
- ---------------------------------------------------------------------
Income distribution payable 446,850
- ---------------------------------------------------------------------
Accrued expenses 40,641
- --------------------------------------------------------------------- --------
Total liabilities 661,163
- -------------------------------------------------------------------------------- -----------
Net Assets for 8,648,341 shares outstanding $85,751,618
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $90,152,775
- --------------------------------------------------------------------------------
Net unrealized depreciation of investments (353,883)
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (4,047,274)
- -------------------------------------------------------------------------------- -----------
Total Net Assets $85,751,618
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
Net Asset Value and Redemption Proceeds Per Share
($85,751,618 / 8,648,341 shares outstanding) $9.92
- -------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/95.50 of $9.92)* $10.39
- -------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
111 CORCORAN BOND FUND
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest $6,071,482
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $ 661,225
- ---------------------------------------------------------------------
Administrative personnel and services fee 130,476
- ---------------------------------------------------------------------
Custodian fees 23,226
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 32,776
- ---------------------------------------------------------------------
Directors'/Trustees' fees 6,850
- ---------------------------------------------------------------------
Auditing fees 15,925
- ---------------------------------------------------------------------
Legal fees 4,779
- ---------------------------------------------------------------------
Portfolio accounting fees 60,993
- ---------------------------------------------------------------------
Share registration costs 21,163
- ---------------------------------------------------------------------
Printing and postage 8,519
- ---------------------------------------------------------------------
Insurance premiums 8,212
- ---------------------------------------------------------------------
Miscellaneous 16,389
- --------------------------------------------------------------------- ---------
Total expenses 990,533
- ---------------------------------------------------------------------
Waivers--
- ---------------------------------------------------------------------
Waiver of investment advisory fee (661,225)
- --------------------------------------------------------------------- ---------
Net expenses 329,308
- --------------------------------------------------------------------------------- ----------
Net investment income 5,742,174
- --------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized gain on investments 116,265
- ---------------------------------------------------------------------------------
Net change in unrealized depreciation of investments 1,114,464
- --------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 1,230,729
- --------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $6,972,903
- --------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
111 CORCORAN BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------
Net investment income $ 5,742,174 $ 5,892,547
- ----------------------------------------------------------------
Net realized gain (loss) on investments ($85,572 net gain and $1,187,066 net
loss, respectively, as computed for federal tax
purposes) 116,265 107,010
- ----------------------------------------------------------------
Net change in unrealized appreciation/depreciation 1,114,464 (2,089,765)
- ---------------------------------------------------------------- ------------ ------------
Change in net assets resulting from operations 6,972,903 3,909,792
- ---------------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------
Distributions from net investment income (5,742,174) (5,902,091)
- ---------------------------------------------------------------- ------------ ------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------
Proceeds from sale of shares 11,643,600 14,489,005
- ----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 214,362 245,617
- ----------------------------------------------------------------
Cost of shares redeemed (15,220,474) (11,973,664)
- ---------------------------------------------------------------- ------------ ------------
Change in net assets resulting from share transactions (3,362,512) 2,760,958
- ---------------------------------------------------------------- ------------ ------------
Change in net assets (2,131,783) 768,659
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 87,883,401 87,114,742
- ---------------------------------------------------------------- ------------ ------------
End of period $ 85,751,618 $ 87,883,401
- ---------------------------------------------------------------- ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
111 CORCORAN BOND FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The 111 Corcoran Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act") as an open-end, management investment
company. The Trust consists of three portfolios. The financial statements
included herein are only those of 111 Corcoran Bond Fund (the "Fund"), a
diversified portfolio. The investment objective of the Fund is to achieve
income. The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. government securities, listed corporate bonds,
(other fixed income and asset-backed securities), and unlisted securities
and private placement securities are generally valued at the mean of the
latest bid and asked price as furnished by an independent pricing service.
Short-term securities are valued at the prices provided by an independent
pricing service. However, short-term securities with remaining maturities
of sixty days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value. Investments in other open-end
regulated investment companies are valued at net asset value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal taxes are necessary. At May 31, 1997 the Fund, for
federal tax purposes, had a capital loss carryforward of $3,999,487, which
will reduce the Fund's taxable income arising from future net realized gain
on investments, if any, to the extent permitted by the Code, and thus will
reduce the amount of the distributions to shareholders which would
otherwise be necessary to relieve the fund of any liability for federal
tax. Pursuant to the Code, such capital loss carryforward of $2,812,421
will expire in 2003 and $1,187,066 will expire in 2004. Additionally, net
capital losses of $47,672 attributable to security transactions incurred
after October 31, 1996, are treated as arising on June 1, 1997, the first
day of the Fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and
111 CORCORAN BOND FUND
- --------------------------------------------------------------------------------
maintains security positions such that sufficient liquid assets will be
available to make payment for the securities purchased. Securities
purchased on a when-issued or delayed delivery basis are marked to market
daily and begin earning interest on the settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, 1997 MAY 31, 1996
------------- -------------
<S> <C> <C>
Shares sold 1,173,277 1,440,835
- --------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 21,600 24,434
- --------------------------------------------------------------
Shares redeemed (1,535,150) (1,187,303)
- -------------------------------------------------------------- ------------ ------------
Net change resulting from share transactions (340,273) 277,966
- -------------------------------------------------------------- ------------ ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Central Carolina Bank and Trust Company, the Fund's
investment adviser, (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.75% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee paid to FAS is based
on the level of average aggregate net assets of the Trust for the period.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ"), through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee
paid to FSSC is based on the size, type, and number of accounts and transactions
made by shareholders.
111 CORCORAN BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $46,033 were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following May 1, 1992 (the date the Fund became
effective). For the period ended May 31, 1997, the Fund paid $14,277 pursuant to
this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1997, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $ 9,708,890
- ------------------------------------------------------------------------------- -----------
SALES $14,890,736
- ------------------------------------------------------------------------------- -----------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
111 CORCORAN FUNDS (111 Corcoran Bond Fund):
We have audited the accompanying statement of assets and liabilities of 111
Corcoran Bond Fund (an investment portfolio of 111 Corcoran Funds, a
Massachusetts business trust), including the schedule of portfolio investments,
as of May 31, 1997, the related statement of operations for the year then ended,
and the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights (see page 2 of the prospectus) for
the periods presented. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of 111
Corcoran Bond Fund, an investment portfolio of 111 Corcoran Funds, as of May 31,
1997, and the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
July 7, 1997
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
111 Corcoran Bond 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
- -------------------------------------------------------------------------------------------------
Custodian
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8609
Boston, Massachusetts 02266-8609
- -------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- -------------------------------------------------------------------------------------------------
</TABLE>
111 Corcoran Bond 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 Bond Fund (the "Fund"), a portfolio of 111
Corcoran Funds (the "Trust") dated July 31, 1997. This Statement is not
a prospectus. You may request a copy of a prospectus or a paper copy of
this Statement, if you have received it electronically, free of charge
by calling 1-800-386-3111.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated July 31, 1997
[GRAPHIC OMITTED]
Cusip 682965200
2041604B (7/97)
<PAGE>
I
Table of Contents
<PAGE>
General Information About the Fund 1
Investment Objective and Policies 1
- -----------------------------------------------------
Types of Investments 1
Portfolio Turnover 6
Investment Limitations 6
111 Corcoran Funds Management 8
- -----------------------------------------------------
Fund Ownership 12
Trustees' Compensation 12
Trustee Liability 12
Investment Advisory Services 13
- -----------------------------------------------------
Adviser to the Fund 13
Advisory Fees 13
Brokerage Transactions 13
Other Services 13
- -----------------------------------------------------
Trust Administration 13
Custodian and Portfolio Accountant 14
Transfer Agent 14
Independent Public Accountants 14
Purchasing Shares 14
Additional Purchase Information
--Payment in Kind 14
Conversion to Federal Funds 14
Determining Net Asset Value 15
Determining Market Value of Securities 15
Exchange Privilege 15
Redeeming Shares 15
Redemption in Kind 16
Massachusetts Partnership Law 16
Tax Status 16
- -----------------------------------------------------
The Fund's Tax Status 16
Shareholders' Tax Status 16
Total Return 17
Yield 17
Performance Comparisons 17
Appendix 19
<PAGE>
General Information About the Fund
The Fund is a portfolio in the 111 Corcoran Funds, which was established as a
Massachusetts business trust under a Declaration of Trust dated December 11,
1991.
Investment Objective and Policies
The Fund's investment objective is to achieve income. The objective cannot be
changed without approval of shareholders.
Types of Investments
The Fund invests primarily in bonds rated A or better. Acceptable
investments include, among other investments:
o domestic issuers of corporate debt obligations (rated Aaa, Aa, A or
Baa by Moody's Investors Service, Inc.; AAA, AA, A or BBB by
Standard & Poor's Ratings Group; or AAA, AA, A or BBB by Fitch
Investors Service, Inc.);
o obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, mortgage-backed securities, which
represent an undivided interest in a pool of residential or other
mortgages or may be collateralized by a pool of residential
mortgages; asset-backed securities, which are obligations of trusts
or special purpose corporations that directly or indirectly
represent a participation in, or are secured by and payable from
various types of assets, principally loans, leases and other
receivables and may include asset-backed commercial paper; and CMOs,
which are issued by single-purpose stand-alone finance subsidiaries
or trusts, government agencies, investment banks, or companies
related to the construction industry.
U.S. Government Obligations
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S. Treasury
bills, notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
o the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
o Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks, and Banks for Cooperatives;
o Farmers Home Administration;
o Federal Home Loan Banks;
o Federal Home Loan Mortgage Corporation;
o Federal National Mortgage Association;
o Government National Mortgage Association; and
o Student Loan Marketing Association.
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 restriction
on resale under federal securities law. The Fund will not invest more
than 15% of the value of its total assets in restricted securities;
however, certain restricted securities which the Board of Trustees
("Trustees") deem to be liquid will be excluded from this limitation.
The ability of the Trustees to determine the liquidity of certain
restricted securities is permitted under an 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 Rule 144A. The Fund believes that the Staff
of the SEC has left the question of determining the liquidity of all
restricted securities (eligible for resale under Rule 144A) for
determination to the Trustees. The Trustees consider the following
criteria in determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the
security and the number of other potential buyers;
o dealer undertakings to make a market in the security; and
o 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
advantage price or 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 payments 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 is
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 or its custodian will take possession of the securities
subject to repurchase agreements and these securities will be marked to
market daily. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less
the repurchase price on any sale of 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.
Futures and Options Transactions
The Fund may attempt to hedge all or a portion of its portfolio by
buying and selling financial futures contracts and options on financial
futures contracts. Additionally, the Fund may buy and sell call and put
options on portfolio securities.
Financial 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.
Financial futures contracts call for the delivery of particular debt
securities issued or guaranteed by the U.S. Treasury or by specified
agencies or instrumentalities of the U.S. government.
In the fixed income securities market, price moves inversely to
interest rates. A rise in rates means a drop in price. Conversely, a
drop in rates means a rise in price. In order to hedge its holdings of
fixed income securities against a rise in market interest rates, the
Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may decline
during the Fund's anticipated holding period. The Fund would "go long"
(agree to purchase securities in the future at a predetermined price)
to hedge against a decline in market interest rates.
Purchasing Put Options on Financial Futures Contracts
The Fund may purchase listed put options on financial futures contracts
for U.S. government securities. 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.
The Fund would purchase put options on futures to protect portfolio
securities against decreases in value resulting from an anticipated
increase in market interest rates. 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 realized decrease in value of the hedged
securities.
Alternatively, the Fund may exercise its put option. 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 the premium paid for the contract
will be lost.
Writing Call Options on Financial Futures Contracts
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts for U.S. government securities
to hedge its portfolio against an increase in market interest rates.
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 market
interest rates rise, 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 offset the drop in value of
the Fund's fixed income 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 offset the
decrease in value of the hedged securities.
Writing Put Options on Financial Futures Contracts
The Fund may write listed put options on financial futures contracts
for U.S. government securities to hedge its portfolio against a
decrease in market interest rates. When the Fund writes a put option on
a futures contract, it receives a premium for undertaking the
obligation to assume a long futures position (buying a futures
contract) at a fixed price at any time during the life of the option.
As market interest rates decrease, the market price of the underlying
futures contract normally increases.
As the market value of the underlying futures contract increases, the
buyer of the put option has less reason to exercise the put because the
buyer can sell the same futures contract at a higher price in the
market. The premium received by the Fund can then be used to offset the
higher prices of portfolio securities to be purchased in the future due
to the decrease in market interest rates.
Prior to the expiration of the put option, or its exercise by the
buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of buying the second option will
be less than the premium received by the Fund for the initial option.
Purchasing Call Options on Financial Futures Contracts
An additional way in which the Fund may hedge against decreases in
market interest rates is to buy a listed call option on a financial
futures contract for U.S. government securities. When the Fund
purchases a call option on a futures contract, it is purchasing the
right (not the obligation) to assume a long futures position (buy a
futures contract) at a fixed price at any time during the life of the
option. As market interest rates fall, the value of the underlying
futures contract will normally increase, resulting in an increase in
value of the Fund's option position. When the market price of the
underlying futures contract increases above the strike price plus
premium paid, the Fund could exercise its option and buy the futures
contract below market price.
Prior to the exercise or expiration of the call option the Fund could
sell an identical call option and close out its position. If the
premium received upon selling the offsetting call is greater than the
premium originally paid, the Fund has completed a successful hedge.
Limitation on Open Futures Positions
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
futures contract initial margin 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 of 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.
Purchasing Put and Call Options on Portfolio Securities
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities. A put option
gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option. A call option gives the Fund, in return for a
premium, the right to buy the underlying security from the seller.
Writing Covered Put and Call Options on Portfolio Securities
The Fund may write covered put and call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of
the option during the option period to deliver the underlying security
upon payment of the exercise price. As a writer of a put option, the
Fund has the obligation to purchase a security from the purchaser of
the option upon the exercise of the option. The Fund may write covered
call options either on securities held in its portfolio or on
securities which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any additional
consideration). In the case of put options, the Fund will segregate
cash or U.S. Treasury obligations with a value equal to or greater than
the exercise price of the underlying securities.
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.
The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
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. The securities are
marked to market daily and maintained until the transaction is settled.
Zero-Coupon Securities
Zero-coupon securities in which a Fund may invest are debt obligations
which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest
prior to maturity. Zero-coupon securities usually trade at a deep
discount from their face or par value and are subject to greater market
value fluctuations from changing interest rates than debt obligations
of comparable maturities which make current distributions of interest.
As a result, the net asset value of shares of a Fund investing in
zero-coupon securities may fluctuate over a greater range than shares
of other Funds and other mutual funds investing in securities making
current distributions of interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly
by the U.S. Treasury or other short-term debt obligations, and
longer-term bonds or notes and their unmatured interest coupons which
have been separated by their holder, typically a custodian bank or
investment brokerage firm. A number of securities firms and banks have
stripped the interest coupons from the underlying principal (the
"corpus") of U.S. Treasury securities and resold them in custodial
receipt programs with a number of different names, including Treasury
Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes
themselves are held in book-entry form at the Federal Reserve Bank or,
in the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer of holder thereof), in trust on
behalf of the owners thereof.
In addition, the Treasury Department has facilitated transfers of
ownership of zero-coupon securities by accounting separately for the
beneficial ownership of particular interest coupons and corpus payments
on Treasury securities through the Federal Reserve book-entry record
keeping system. The Federal Reserve program as established by the
Treasury Department is known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities." Under the STRIPS
program, a fund will be able to have its beneficial ownership of U.S.
Treasury zero-coupon securities recorded directly in the book-entry
record keeping system in lieu of having to hold certificates or other
evidence of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The
principal or corpus is sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the
security and does not receive any rights to periodic cash interest
payments. Once stripped or separated, the corpus and coupons may be
sold separately. Typically, the coupons are sold separately or grouped
with other coupons with like maturity dates and sold in such bundled
form. Purchasers of stripped obligations acquire, in effect, discount
obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Portfolio Turnover
The Fund may trade or dispose of portfolio securities as considered necessary to
meet its investment objective. It is not anticipated that the portfolio trading
engaged in by the Fund will result in its annual rate of portfolio turnover
exceeding 100%. For the fiscal years ended May 31, 1997 and 1996 , the portfolio
turnover rates for the Fund were 11%, and 32%, respectively.
Investment Limitations
Buying on Margin
The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of
transactions. The 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 and engage in reverse repurchase agreements in amounts up
to one-third of the value of its net 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 or 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. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of total assets at the time of the
borrowing.
Investing in Real Estate
The Fund will not buy 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. However, the Fund may
purchase put and call options on portfolio securities and on financial
futures contracts. In addition, the Fund reserves the right to hedge
the portfolio by entering into financial futures contracts and to sell
puts and calls on financial futures contracts.
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, as
amended, in connection with the sale of securities in accordance with
its investment objective, policies, and limitations.
Lending Cash or Securities
The Fund will not lend any of its assets except portfolio securities up
to one-third the value of its total assets. This shall not prevent the
purchasing or holding of corporate bonds, debenture, notes,
certificates of indebtedness or other debt securities of an issuer,
repurchase agreements or other transactions which are permitted by the
Fund's investment objective, policies and limitations or the
Declaration of Trust.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets
in any one industry. However, investing in U.S. government obligations
shall not be considered investments in any one industry.
Selling Short
The Fund will not sell securities short unless:
o during the time the short position is open, it owns an equal amount
of the securities sold or securities readily and freely convertible
into or exchangeable, without payment of additional consideration,
for securities of the same issuer as, and equal in amount to, the
securities sold short; and
o not more than 5% of the Fund's net assets (taken at current value)
is held as collateral for such sales at any one time.
Diversification of Investments
With respect to 75% of the value of the Fund's total assets the Fund
will not invest more than 5% of the value of its total assets in any
one issuer (except cash and cash items, repurchase agreements, and U.S.
government obligations).
Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following restrictions, however, may be changed by the
Trustees without shareholder approval. Except as noted, shareholders will be
notified before any material change in these limitations becomes effective.
Investing in Securities of Other Investment Companies
The Fund 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 investment company, or invest more than 10% of its total
assets in investment companies in general. The Fund will purchase
securities of 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, or acquisition of assets.
Investing in Illiquid Securities
The Fund will not invest more than 15% of its net assets in securities
which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter
options, and certain restricted securities.
Writing Covered Call Option and Purchasing Put 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 purchase put options on securities unless the securities are held
in the Fund's portfolio.
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 has not borrowed
money in an amount exceeding 5% of the value of its net assets in the
preceding year and has no present intent to do so in the next coming
fiscal year. The use of short sales will allow the Fund to retain
certain bonds in its portfolio longer than it would without such sales.
To the extent the Fund receives the income produced by such bonds for a
longer period than it might otherwise, the Fund's investment objective
of achieving income is furthered.
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."
111 Corcoran Funds Management
Officers and Trustees are listed with their addresses, birthdates, present
positions with 111 Corcoran Funds, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp. and Federated Global Research
Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer
and Director or Trustee of the Funds. Mr. Donahue is the father
of J. Christopher Donahue, Executive Vice President of the
Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc.
and Northgate Village Development Corporation; Director or Trustee of the Funds.
<PAGE>
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
<PAGE>
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Former Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Treasurer, and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Chairman and Trustee of the Company.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 22, 1962
Vice President and Assistant Treasurer
Vice President and Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated Government
Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust
Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Wesmark Funds; and World Investment Series, Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of July 7, 1997, the following shareholder of record owned 5% or more of the
shares of the Fund: Central Carolina Bank & Trust Company, Durham, North
Carolina, owned approximately 8,026,215 shares (95.34%).
Trustees' Compensation
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
John F. Donahue $0
Chairman and Trustee
Thomas G. Bigley $412
Trustee
John T. Conroy, Jr. $402
Trustee
William J. Copeland $453
Trustee
James E. Dowd $453
Trustee
Lawrence D. Ellis, M.D. $412
Trustee
Edward L. Flaherty, Jr. $453
Trustee
Edward C. Gonzales $0
Trustee
Peter E. Madden $412
Trustee
Gregor F. Meyer $412
Trustee
John E. Murray, Jr. $412
Trustee
Wesley W. Posvar $412
Trustee
Marjorie P. Smuts $412
Trustee
* Information is furnished for the fiscal year ended May 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 3
portfolios.
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
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. For the fiscal years ended May 31, 1997,
1996 and 1995, the Adviser earned advisory fees of $661,225, $662,310, and
$670,819, respectively, all of which were voluntarily waived. 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 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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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 or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
During the fiscal years ended May 31, 1997, 1996, and 1995, the Fund paid no
brokerage commissions.
Other Services
Trust Administration
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. For the fiscal years ended May 31, 1997, 1996 and 1995, the
following administrative services fees were incurred on behalf of the Fund of
$130,476, $132,832, and $134,164.
Custodian and Portfolio Accountant
Fifth Third Bank, Cincinnati, Ohio, is custodian for the securities and cash of
the Fund. Federated Services Company, Pittsburgh, PA, provides certain
accounting and recordkeeping services with respect to the Fund's portfolio
investments. The fee paid for this service is based upon the level of the Fund's
average net assets for the period plus out-of-pocket expenses.
Transfer Agent
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records and
receives a fee based on the size, type and number of accounts and transactions
made by shareholders.
Independent Public Accountants
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, Pennsylvania.
Purchasing Shares
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."
Additional Purchase Information--Payment in Kind
In addition to payment by check, shares of the Fund may be purchased by
customers of Central Carolina Bank in exchange for securities held by an
investor which are acceptable to that Fund. Investors interested in exchanging
securities must first telephone Central Carolina Bank at 1-800- 386-3111 for
instructions regarding submission of a written description of the securities the
investor wishes to exchange. Within five business days of the receipt of the
written description, Central Carolina Bank will advise the investor by telephone
whether the securities to be exchanged are acceptable to the Fund whose shares
the investor desires to purchase and will instruct the investor regarding
delivery of the securities.
There is no charge for this review.
Securities accepted by the Fund are valued in the manner and on the days
described in the section entitled "Net Asset Value" as of 4:00 p.m. (Eastern
time). Acceptance may occur on any day during the five-day period afforded
Central Carolina Bank to review the acceptability of the securities. Securities
which have been accepted by the Fund must be delivered within five days
following acceptance.
The value of the securities to be exchanged and of the shares of the Fund may be
higher or lower on the day Fund shares are offered than on the date of receipt
by Central Carolina Bank of the written description of the securities to be
exchanged. The basis of the exchange of such securities for shares of the Fund
will depend on the value of the securities and the net asset value of Fund
shares next determined following acceptance of the day Fund shares are offered.
Securities to be exchanged must be accompanied by a transmittal form which is
available from Central Carolina Bank.
A gain or loss for federal income tax purposes may be realized by the investor
upon the securities exchange depending upon the cost basis of the securities
tendered. All interest, dividends, subscription or other rights with respect to
accepted securities which go "ex" after the time of valuation become the
property of the Fund and must be delivered to the Fund by the investor forthwith
upon receipt from the issuer. Further, the investor must represent and agree
that all securities offered to the Fund are not subject to any restrictions upon
their sale by the Fund under the Securities Act of 1933, or otherwise.
Conversion to Federal Funds
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Central Carolina Bank acts as the shareholder's agent in
depositing checks and converting them to federal funds.
Determining Net Asset Value
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.
Determining Market Value of Securities
Market values of the Fund's portfolio securities are determined as follows:
o according to the last sale price on a national securities exchange, if
available;
o in the absence of recorded sales for bonds and other fixed-income
securities, as determined by an independent pricing service;
o 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
o 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:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
Over-the-counter put options will be valued at the mean between the bid and the
asked prices.
Exchange Privilege
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
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.
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.
Tax Status
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:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o 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:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o 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
The Fund's average annual total returns for the one-year period ended May 31,
1997, and for the period from July 15, 1992 (date of inception) to May 31, 1997,
were 3.50% and 5.42%, respectively.
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 charge, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
Yield
The Fund's yield for the thirty-day period ended May 31, 1997, was 6.37%. The
yield for the Fund is determined 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 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 Securities and Exchange
Commission 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
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o 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:
o Lehman Brothers Government/Corporate (Total) Index is comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly
issued, fixed rate, non-convertible domestic bonds of companies in
industry, public utilities, and finance. The average maturity of these
bonds approximates nine years. Tracked by Lehman Brothers, the index
calculates total returns for one-month, three-months, twelve-month, and
ten-year periods and year- to-date.
o Lehman Brothers Aggregate Bond Index is a total return index measuring both
the capital price changes and income provided by the underlying universe of
securities, weighted by market value outstanding. The Aggregate Bond Index
is comprised of the Lehman Brothers Government Bond Index, Corporate Bond
Index, Mortgage-Backed Securities Index, and Yankee Bond Index. These
indices include: U.S. Treasury obligations, including bonds and notes; U.S.
agency obligations, including those of the Federal Farm Credit Bank,
Federal Land Bank, and the Bank for Cooperatives; foreign obligations; and
U.S. investment-grade corporate debt and mortgage-backed obligations. All
corporate debt included in the Aggregate Bond Index has a minimum Standard
& Poor's Ratings Group rating of BBB, a minimum Moody's Investors Service,
Inc. rating of Baa, or a minimum Fitch Investors Service, Inc. rating of
BBB.
o Salomon Brothers Aaa-Aa Corporate Index calculates total returns of
approximately 775 issues which include long-term, high-grade domestic
corporate taxable bonds rated AAA-AA with maturities of twelve years or
more and companies in industry, public utilities, and finance.
o Merrill Lynch Corporate & Government Master Index is an unmanaged index
comprised of approximately 4,821 issues which include corporate debt
obligations rated BBB or better and publicly issued, non- convertible
domestic debt of the U.S. government or any agency thereof. These quality
parameters are based on composites of ratings assigned by Standard &
Poor's Ratings Group and Moody's Investors Service, Inc. Only notes and
bonds with a minimum maturity of one year are included.
o Merrill Lynch Corporate Master Index is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or better. These
quality parameters are based on composites of ratings assigned by Standard
& Poor's Ratings Group and Moody's Investors Service, Inc. Only bonds with
a minimum maturity of one year are included.
o 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 charge.
Economic and Market Information
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.
<PAGE>
Appendix
Standard and Poor's Ratings Group 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.
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.
Standard and 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 rate 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.
111 CORCORAN EQUITY FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED MAY 31, 1997
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
The investment objective of the 111 Corcoran Equity 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 attempts to achieve its investment objective by investing primarily in
a broad, diversified range of dividend paying common stocks in companies
deemed to have above-average earnings growth prospects.
For the fiscal year ended May 31, 1997, the fund produced a total
return, based on net asset value, of 28.25%.* The fund's performance during
this period was driven by the market strength in growth-oriented large
capitalization stocks and by above-average performance in the fund's most
heavily weighted sectors--technology, healthcare and financial services.
Over the past twelve months technology stocks were significantly more
volatile than the overall market, which offered opportunities to acquire
stocks in leading companies at attractive prices. A number of the fund's
technology holdings generated exceptional returns including EMC Corp.,
Intel and Data General.
Healthcare stocks, primarily drug and pharmaceutical companies, have
been another area of emphasis for the fund. These leading multinational
companies were among the market's better performers in the past year and we
believe the specific companies in the fund's portfolio continue to have
outstanding potential. Financial stocks were also a sector of emphasis for
most of this past year and contributed positively to the fund's
performance. Management recently reduced the fund's exposure to financial
service companies exercising caution against the possibility of a series of
preemptive monetary tightenings by the Federal Reserve Board.
As of May 31, 1997, the fund's portfolio was 98% invested in common
stocks and had a cash position of less than 1%. Total fund assets, based on
market value, were approximately $168 million. The fund's ten largest
holdings were:
<TABLE>
<S> <C>
Federal National Mortgage Association 4.3%
General Electric Co. 3.4
Jefferson-Pilot Corp. 3.3
Mobil Corp. 2.9
Intel Corp. 2.9
K Mart Corp. 2.5
EMC Corp. Mass 2.4
Halliburton Co. 2.3
Praxair, Inc. 2.3
British Petroleum Co. PLC, ADR 2.2
</TABLE>
We remain positive on the long-term outlook for the market's prospects
while acknowledging that current valuations (by most traditional measures) imply
limited short-term appreciation potential. However, continued modest rates of
economic growth and relatively low inflation do not suggest material downside
risk for share prices over the near to intermediate term.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. The fund's total return based on offering price for the period
was 22.48%.
111 CORCORAN EQUITY FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN 111 CORCORAN EQUITY FUND SINCE
INCEPTION AS OF MAY 31, 1997.
The graph below illustrates the hypothetical investment of $10,000 in the
111 Corcoran Equity Fund (the "Fund") from December 5, 1994 (start of
performance) to May 31, 1997 compared to the Standard & Poor's 500 Index ("S&P
500")+.
SEE APPENDIX
<TABLE>
<CAPTION>
Measurement Period Standard & Poor's 500
(Fiscal Year Covered) 111 Corcoran Bond Fund Index
<S> <C> <C>
12/5/94 9550 10000
5/31/95 11035 11923
5/31/96 13673 15314
5/31/97 17535 19819
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED MAY 31, 1997
<TABLE>
<S> <C>
1 Year....................................................................... 22.48%
Start of Performance, December 5, 1994....................................... 25.30%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
This report must be preceded or accompanied by the Fund's prospectus dated July
31, 1997, and, together with the financial statements contained therein,
constitutes the Fund's annual report.
* Represents a hypothetical investment of $10,000 in the Fund, after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge
= $9,550). The Fund's performance assumes the reinvestment of all dividends
and distributions.
** Total return quoted reflects all applicable sales charges.
+ The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The S&P 500
has been adjusted to reflect reinvestment of the dividends on securities.
This index is unmanaged.
LOGO
Cusip 682365309
G00925-01 (7/97)
111
CORCORAN
FUNDS
111 CORCORAN
EQUITY FUND
PROSPECTUS
A DIVERSIFIED PORTFOLIO OF
111 CORCORAN FUNDS, AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY
JULY 31, 1997
FEDERATED SECURITIES CORP. IS THE DISTRIBUTOR OF THE FUND.
CUSIP 682365309
005826 (7/97) [RECYCLED PAPER LOGO]
111 CORCORAN EQUITY FUND
(A PORTFOLIO OF THE 111 CORCORAN FUNDS)
PROSPECTUS
The shares of 111 Corcoran Equity Fund (the "Fund") offered by this prospectus
represent interests in a diversified portfolio in the 111 Corcoran Funds (the
"Trust"), an open-end management investment 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 July 31,
1997, with the Securities and Exchange Commission ("SEC"). 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 or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-386-3111. To
obtain other information or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated July 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Investment Limitations 8
Portfolio Turnover 8
THE 111 CORCORAN FUNDS INFORMATION 9
- ------------------------------------------------------
Management of the 111 Corcoran Funds 9
Distribution of Fund Shares 10
Administration of the Fund 11
BROKERAGE TRANSACTIONS 12
- ------------------------------------------------------
NET ASSET VALUE 12
- ------------------------------------------------------
INVESTING IN THE FUND 12
- ------------------------------------------------------
Share Purchases 12
Minimum Investment Required 13
What Shares Cost 13
Purchases at Net Asset Value 13
Sales Charge Reallowance 14
Reducing the Sales Charge 14
Systematic Investment Program 15
Certificates and Confirmations 15
Dividends 15
Capital Gains 15
EXCHANGE PRIVILEGE 16
- ------------------------------------------------------
REDEEMING SHARES 17
- ------------------------------------------------------
Systematic Withdrawal Program 18
Accounts with Low Balances 18
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
EFFECT OF BANKING LAWS 19
- ------------------------------------------------------
TAX INFORMATION 20
- ------------------------------------------------------
Federal Income Tax 20
State and Local Taxes 20
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
FINANCIAL STATEMENTS 21
- ------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 33
- ------------------------------------------------------
ADDRESSES 34
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................. 4.50%
Maximum Sales Charge 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 average net assets)
Management Fee (after waiver)(1)............................................................... 0.70%
12b-1 Fees(2).................................................................................. 0.00%
Total Other Expenses (after waiver)(3)......................................................... 0.33%
Shareholder Services Fees(2)...................................................... 0.00%
Total Fund Operating Expenses (after waivers)(4)(5)................................... 1.03%
</TABLE>
(1) The management fee has been reduced to reflect a voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any time
at its sole discretion. 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) Total Fund Other Expenses would have been reduced to reflect the voluntary
waiver of a portion of the administrative fee. The administrator can terminate
this voluntary waiver at any time at its sole discretion.
(4) Total Fund Operating Expenses would have been 1.19% absent the voluntary
waivers described above in notes 1 and 3.
(5) The Total Fund Operating Expenses in the table above are based on expenses
incurred during the fiscal year ended May 31, 1997, and are expected to be 0.93%
absent the voluntary waiver described in note 1 above.
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.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS INC.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ----------------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <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.......... $ 55 $76 $ 99 $165
</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.
111 CORCORAN EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------
1997 1996 1995(A)
------ ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.80 $11.48 $10.00
- ------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------
Net investment income 0.13 0.14 0.11
- ------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
options 3.72 2.57 1.44
- ------------------------------------------------------------ ------ ------ -------
Total from investment operations 3.85 2.71 1.55
- ------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------
Distributions from net investment income (0.13) (0.16) (0.07)
- ------------------------------------------------------------
Distributions from net realized gain on investments and
options (0.19) (0.23) --
- ------------------------------------------------------------ ------ ------ -------
Total distributions (0.32) (0.39) (0.07)
- ------------------------------------------------------------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $17.33 $13.80 $11.48
- ------------------------------------------------------------ ------ ------ -------
TOTAL RETURN (b) 28.25% 23.91% 15.55%
- ------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------
Expenses 1.03% 1.25% 1.25% *
- ------------------------------------------------------------
Net investment income 0.81% 1.08% 3.00% *
- ------------------------------------------------------------
Expense waiver/reimbursement (c) 0.16% 0.20% 1.42% *
- ------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------
Net assets, end of period (000 omitted) $167,503 $29,194 $24,581
- ------------------------------------------------------------
Average commission rate paid (d) $0.0598
- ------------------------------------------------------------
Portfolio turnover 55% 69% 4 %
- ------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 5, 1994 (date of initial
public investment) to May 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
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 is for trust clients of Central Carolina Bank and Trust
Company ("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
- --------------------------------------------------------------------------------
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, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the National
Bank for Cooperatives and Banks for Cooperatives; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; Export-Import Bank
of the United States; Commodity Credit Corporation; Federal Financing
Bank; The Student Loan Marketing Association; National Credit Union
Administration; and Tennessee Valley Authority;
-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. 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 as 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 management fees may be duplicated.
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 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.
DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has traditionally
been applied to certain contracts (including, futures, forward, option and swap
contracts) that "derive" their value from changes in the value of an underlying
security, currency, commodity or index. Certain types of securities that
incorporate the performance characteristics of these contracts are also referred
to as "derivatives." The term has also been applied to securities "derived" from
the cash flows from underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response of
certain derivative contracts and securities to market changes may differ from
traditional investments, such as stock and bonds, derivatives do not necessarily
present greater market risks than traditional investments. The Fund will only
use derivative contracts for the purposes disclosed in the applicable prospectus
sections above. To the extent that the Fund invests in securities that could be
characterized as derivatives, it will only do so in a manner consistent with its
investment objectives, policies, and limitations.
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 these transactions 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.
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.
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. 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
- --------------------------------------------------------------------------------
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 the Fund's average daily net
assets. 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, 1997, the
Trust Division managed assets in excess of $1.3 billion. The Trust Division
manages two commingled funds with assets of approximately $175 million. The
Bank has managed the 111 Corcoran Funds since their inception in July,
1992. As of June 30, 1997, total assets in the 111 Corcoran Funds were $150
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 the daily assets of the Fund payable by the
investment adviser from the Advisory fees. 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 6330
Quadrangle Drive, Chapel Hill, North Carolina, 27514, is a registered
investment advisory firm founded in 1990. The Sub-Adviser manages assets in
excess of $575 million. 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.
William B. Thompson, Jr. has been a co-portfolio manager to the Fund since
November, 1995. Mr. Thompson is a partner with Franklin Street Partners,
Inc., the parent company of Franklin Street Advisors, Inc. Prior to joining
Franklin Street Partners, he was co-founder and President of
Peacock-Thompson Investment Management in Cary, 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 the 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.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may also pay financial
institutions a fee based on the average net asset value of shares of their
customers invested in the Fund for providing administrative services. This fee
is in addition to the amounts paid under the Distribution Plan for
administrative services, and, if paid, will be reimbursed by the Bank and not by
the Fund.
The Bank or its affiliates may also offer to pay a fee from their own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
shares furnished by the financial institution. These payments will be made by
the Bank and will not be made from the assets of the Fund.
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
- --------------------- -------------------------------------
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% 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.
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.
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 1-800-368-3111.)
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 three 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 A SALES CHARGE AS A
PERCENTAGE OF PERCENTAGE OF NET
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE 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 as of the close of trading (normally 4:00
p.m., Eastern time) on 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 Shareholder 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 quarterly 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 dateIs 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, 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 through an
exchange program. In addition, shares of the Fund may be exchanged for shares of
certain funds for which affiliates of Federated Investors serve as investment
adviser and which are distributed by Federated Securities Corp., a subsidiary of
Federated Investors ("Federated Funds"). Shareholders have access to the
following Federated Funds:
- Liberty U.S. Government Money Market Trust--a U.S. government money
market fund; and
- Federated 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.
Upon receipt by Federated Shareholder 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 1-800-386-3111. 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 Shareholder 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 Shareholder 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 1-800-386-3111) 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.
SIGNATURES. Shareholders requesting 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 their signatures 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
Exchanges;
- a savings bank or savings 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, other than retirement accounts subject to required
minimum distributions. 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 of July 7,
1997, Central Carolina Bank, acting in various capacities for numerous accounts
was the owner of record of 9,451,002 shares (97.7%) of 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.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other 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.
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.
STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
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 charge
which, if excluded, would increase the total return and yield.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
111 CORCORAN EQUITY FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ --------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--96.8%
- -----------------------------------------------------------------------------------
AEROSPACE--3.0%
---------------------------------------------------------------
20,000 Allied-Signal, Inc. $ 1,535,000
---------------------------------------------------------------
43,000 United Technologies Corp. 3,456,125
--------------------------------------------------------------- ------------
Total 4,991,125
--------------------------------------------------------------- ------------
CHEMICALS--5.1%
---------------------------------------------------------------
20,000 Du Pont E.I. de Nemours & Co. 2,177,500
---------------------------------------------------------------
30,900 Eastman Kodak Co. 2,560,838
---------------------------------------------------------------
71,600 Praxair, Inc. 3,767,950
--------------------------------------------------------------- ------------
Total 8,506,288
--------------------------------------------------------------- ------------
COMPUTER SERVICES--2.0%
---------------------------------------------------------------
90,000 Electronic Data Systems Corp. 3,363,750
--------------------------------------------------------------- ------------
CONSUMER GOODS--5.3%
---------------------------------------------------------------
60,000 Emerson Electric Co. 3,240,000
---------------------------------------------------------------
94,400 General Electric Co. 5,699,400
--------------------------------------------------------------- ------------
Total 8,939,400
--------------------------------------------------------------- ------------
CONSUMER NON-DURABLES--1.3%
---------------------------------------------------------------
40,000 Nike, Inc., Class B 2,280,000
--------------------------------------------------------------- ------------
ELECTRONICS--15.0%
---------------------------------------------------------------
25,000 (a) Ascend Communications Inc. 1,393,750
---------------------------------------------------------------
30,000 Boeing Co. 3,157,500
---------------------------------------------------------------
30,000 (a) Cisco Systems, Inc. 2,032,500
---------------------------------------------------------------
25,000 (a) Compaq Computer Corp. 2,706,250
---------------------------------------------------------------
150,000 (a) Data General Corp. 3,206,250
---------------------------------------------------------------
100,000 (a) EMC Corp. Mass 3,987,500
---------------------------------------------------------------
32,000 Intel Corp. 4,848,000
---------------------------------------------------------------
</TABLE>
111 CORCORAN EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ --------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
ELECTRONICS--CONTINUED
---------------------------------------------------------------
50,000 (a) Seagate Technology, Inc. $ 2,031,250
---------------------------------------------------------------
20,000 (a) U.S. Robotics Corp. 1,680,000
--------------------------------------------------------------- ------------
Total 25,043,000
--------------------------------------------------------------- ------------
ENTERTAINMENT--1.0%
---------------------------------------------------------------
45,000 Carnival Corp., Class A 1,710,000
--------------------------------------------------------------- ------------
FINANCE--4.3%
---------------------------------------------------------------
48,700 American Express Co. 3,384,650
---------------------------------------------------------------
16,000 American International Group, Inc. 2,166,000
---------------------------------------------------------------
20,000 MGIC Investment Corp. 1,780,000
--------------------------------------------------------------- ------------
Total 7,330,650
--------------------------------------------------------------- ------------
FOOD & BEVERAGE--2.9%
---------------------------------------------------------------
28,600 Coca-Cola Co. 1,951,950
---------------------------------------------------------------
80,000 PepsiCo, Inc. 2,940,000
--------------------------------------------------------------- ------------
Total 4,891,950
--------------------------------------------------------------- ------------
HEALTH TECHNOLOGY--12.6%
---------------------------------------------------------------
40,000 Abbott Laboratories 2,520,000
---------------------------------------------------------------
40,000 American Home Products Corp. 3,050,000
---------------------------------------------------------------
25,000 (a) Amgen, Inc. 1,671,875
---------------------------------------------------------------
52,000 Johnson & Johnson 3,113,500
---------------------------------------------------------------
25,000 Merck & Co., Inc. 2,246,875
---------------------------------------------------------------
35,000 Novartis AG, ADR 2,375,110
---------------------------------------------------------------
30,000 Pfizer, Inc. 3,086,250
---------------------------------------------------------------
110,000 (a) Tenet Healthcare Corp. 3,025,000
--------------------------------------------------------------- ------------
Total 21,088,610
--------------------------------------------------------------- ------------
</TABLE>
111 CORCORAN EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ --------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
INSURANCE--4.4%
---------------------------------------------------------------
53,400 Everest Re Holdings, Inc. $ 1,815,600
---------------------------------------------------------------
86,250 Jefferson-Pilot Corp. 5,487,656
--------------------------------------------------------------- ------------
Total 7,303,256
--------------------------------------------------------------- ------------
METALS--2.1%
---------------------------------------------------------------
48,000 Aluminum Co. of America 3,534,000
--------------------------------------------------------------- ------------
MORTGAGE--5.8%
---------------------------------------------------------------
80,000 Federal Home Loan Mortgage Corp. 2,640,000
---------------------------------------------------------------
165,000 Federal National Mortgage Association 7,198,125
--------------------------------------------------------------- ------------
Total 9,838,125
--------------------------------------------------------------- ------------
OFFICE EQUIPMENT--2.1%
---------------------------------------------------------------
40,000 International Business Machines Corp. 3,460,000
--------------------------------------------------------------- ------------
OIL--9.6%
---------------------------------------------------------------
25,000 British Petroleum Co. PLC, ADR 3,621,875
---------------------------------------------------------------
23,000 Chevron Corp. 1,610,000
---------------------------------------------------------------
34,000 Exxon Corp. 2,014,500
---------------------------------------------------------------
50,200 Halliburton Co. 3,884,225
---------------------------------------------------------------
35,000 Mobil Corp. 4,895,625
--------------------------------------------------------------- ------------
Total 16,026,225
--------------------------------------------------------------- ------------
PERSONAL CARE PRODUCTS--1.4%
---------------------------------------------------------------
25,876 Gillette Co. 2,299,730
--------------------------------------------------------------- ------------
PHARMACEUTICALS--1.8%
---------------------------------------------------------------
75,000 (a) Watson Pharmaceuticals, Inc. 2,934,375
--------------------------------------------------------------- ------------
PROCESS INDUSTRIES--1.0%
---------------------------------------------------------------
35,500 International Paper Co. 1,704,000
--------------------------------------------------------------- ------------
PRODUCER MANUFACTURING--1.4%
---------------------------------------------------------------
25,000 Minnesota Mining & Manufacturing Co. 2,293,750
--------------------------------------------------------------- ------------
</TABLE>
111 CORCORAN EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- ------------ -------------------------------------------------------------- -------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
RAILROADS--1.0%
--------------------------------------------------------------
28,000 (a) North Carolina Railroad Co. $ 1,617,000
-------------------------------------------------------------- -------------
RETAIL--6.0%
--------------------------------------------------------------
50,000 (a) Federated Department Stores, Inc. 1,850,000
--------------------------------------------------------------
300,000 (a) K Mart Corp. 4,200,000
--------------------------------------------------------------
40,000 Sears, Roebuck & Co. 1,965,000
--------------------------------------------------------------
70,000 Wal-Mart Stores, Inc. 2,082,500
-------------------------------------------------------------- -------------
Total 10,097,500
-------------------------------------------------------------- -------------
UTILITIES--7.7%
--------------------------------------------------------------
50,000 BellSouth Corp. 2,268,750
--------------------------------------------------------------
55,000 North Carolina Natural Gas Corp. 1,698,125
--------------------------------------------------------------
50,000 SBC Communications, Inc. 2,925,000
--------------------------------------------------------------
140,000 Southern Co. 2,975,000
--------------------------------------------------------------
150,000 Union Texas Petroleum Holdings, Inc. 3,018,750
-------------------------------------------------------------- -------------
Total 12,885,625
-------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $132,802,090) 162,138,359
-------------------------------------------------------------- -------------
CORPORATE BONDS--1.5%
- ----------------------------------------------------------------------------------
ENERGY MINERALS--1.5%
--------------------------------------------------------------
$2,500,000 Ashland, Inc., Deb., 6.75%, 7/1/2014 2,562,500
-------------------------------------------------------------- -------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $2,560,625) 2,562,500
-------------------------------------------------------------- -------------
MUTUAL FUND SHARES--0.5%
- ----------------------------------------------------------------------------------
870,614 Goldman Sachs Money Market Fund (AT NET ASSET VALUE) 870,614
-------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $136,233,329)(B) $ 165,571,473
-------------------------------------------------------------- -------------
</TABLE>
(a) Non-income producing security.
(b) The cost of investments for federal tax purposes amounts to $136,249,852.
The net unrealized appreciation of investments on a federal tax basis
amounts to $29,321,621 which is comprised of $30,594,428 appreciation and
$1,272,807 depreciation at May 31, 1997.
111 CORCORAN EQUITY FUND
- --------------------------------------------------------------------------------
Note: The categories of investments are shown as a percentage of net assets
($167,503,233) at May 31, 1997.
The following acronyms are used throughout this portfolio:
ADR -- American Depository Receipt
PLC -- Public Limited Company
(See Notes which are an integral part of the Financial Statements)
111 CORCORAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $136,233,329 and tax
cost $136,249,852) $165,571,473
- -------------------------------------------------------------------------------
Income receivable 442,774
- -------------------------------------------------------------------------------
Receivable for investments sold 1,823,077
- -------------------------------------------------------------------------------
Receivable for shares sold 204,235
- -------------------------------------------------------------------------------
Deferred expenses 4,036
- ------------------------------------------------------------------------------- ------------
Total assets 168,045,595
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Options written, at value (Premium Received $185,889) $285,000
- --------------------------------------------------------------------
Accrued expenses 257,362
- -------------------------------------------------------------------- --------
Total liabilities 542,362
- ------------------------------------------------------------------------------- ------------
Net Assets for 9,666,031 shares outstanding $167,503,233
- ------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------
Paid in capital $132,178,423
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and options 29,239,033
- -------------------------------------------------------------------------------
Accumulated net realized gain on investments and options 5,843,550
- -------------------------------------------------------------------------------
Undistributed net investment income 242,227
- ------------------------------------------------------------------------------- ------------
Total Net Assets $167,503,233
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------
Net Asset Value and Redemption Proceeds Per Share
- -------------------------------------------------------------------------------
($167,503,233 / 9,666,031 shares outstanding) $17.33
- ------------------------------------------------------------------------------- ------------
Offering Price Per Share (100/95.50 of $17.33)* $18.15
- ------------------------------------------------------------------------------- ------------
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
111 CORCORAN EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Dividends $ 1,852,352
- -----------------------------------------------------------------------------------
Interest 128,705
- ----------------------------------------------------------------------------------- -----------
Total income 1,981,057
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $ 913,689
- ---------------------------------------------------------------------
Administrative personnel and services fee 160,784
- ---------------------------------------------------------------------
Custodian fees 13,580
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 32,570
- ---------------------------------------------------------------------
Directors'/Trustees' fees 3,337
- ---------------------------------------------------------------------
Auditing fees 12,062
- ---------------------------------------------------------------------
Legal fees 2,498
- ---------------------------------------------------------------------
Portfolio accounting fees 60,034
- ---------------------------------------------------------------------
Share registration costs 65,725
- ---------------------------------------------------------------------
Printing and postage 10,992
- ---------------------------------------------------------------------
Insurance premiums 3,192
- ---------------------------------------------------------------------
Miscellaneous 6,727
- --------------------------------------------------------------------- ----------
Total expenses 1,285,190
- ---------------------------------------------------------------------
Waivers--
- ---------------------------------------------------------
Waiver of investment advisory fee $(166,477)
- ---------------------------------------------------------
Waiver of administrative personnel and services fee (9,702)
- --------------------------------------------------------- ---------
Total waivers (176,179)
- --------------------------------------------------------------------- ----------
Net expenses 1,109,011
- ----------------------------------------------------------------------------------- -----------
Net investment income 872,046
- ----------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND OPTIONS:
- -----------------------------------------------------------------------------------
Net realized gain on investments and options 6,209,703
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and options 24,565,580
- ----------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments and options 30,775,283
- ----------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $31,647,329
- ----------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
111 CORCORAN EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------
1997 1996
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------
Net investment income $ 872,046 $ 294,032
- -----------------------------------------------------------------
Net realized gain (loss) on investments and options ($6,774,291 and $1,973,979
net gain, respectively, as computed for federal
tax purposes) 6,209,703 1,973,979
- -----------------------------------------------------------------
Net change in unrealized appreciation/depreciation 24,565,580 3,538,240
- ----------------------------------------------------------------- ------------ -----------
Change in net assets resulting from operations 31,647,329 5,806,251
- ----------------------------------------------------------------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------
Distributions from net investment income (676,030) (337,321)
- -----------------------------------------------------------------
Distributions from net realized gains (1,900,075) (479,791)
- ----------------------------------------------------------------- ------------ -----------
Change in net assets resulting from distributions to
shareholders (2,576,105) (817,112)
- ----------------------------------------------------------------- ------------ -----------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------
Proceeds from sale of shares 119,180,895 5,713,327
- -----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 311,240 47,934
- -----------------------------------------------------------------
Cost of shares redeemed (10,254,522) (6,136,880)
- ----------------------------------------------------------------- ------------ -----------
Change in net assets resulting from share transactions 109,237,613 (375,619)
- ----------------------------------------------------------------- ------------ -----------
Change in net assets 138,308,837 4,613,520
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of period 29,194,396 24,580,876
- ----------------------------------------------------------------- ------------ -----------
End of period (including undistributed net investment income of
$242,227 and $46,211, respectively) $167,503,233 $29,194,396
- ----------------------------------------------------------------- ------------ -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
111 CORCORAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
111 Corcoran Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act") as an open-end, management investment company.
The Trust consists of three portfolios. The financial statements included herein
are only those of 111 Corcoran Equity Fund (the "Fund"), a diversified
portfolio. The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. 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.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on a national securities exchange. Unlisted equity
securities are generally valued at the mean of the latest bid and asked
price as furnished by an independent pricing service. Listed corporate
bonds are generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at
the time of purchase may be valued at amortized cost, which approximates
fair market value. Investments in other open-end regulated investment
companies are valued at net asset value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
111 CORCORAN EQUITY FUND
- --------------------------------------------------------------------------------
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed five years from the Fund's
commencement date.
OPTIONS CONTRACTS--The Fund may write option contracts. A written option
obligates the Fund to deliver (a call), or to receive (a put), the contract
amount upon exercise by the holder of the option. The principal reason for
writing call or put options is to obtain, through receipt of premiums, a
greater current return that would be realized on underlying securities
alone. By writing call options, the Fund may forego potential gains on the
underling security. By writing a put option, the Fund risks becoming
obligated to purchase the underlying security for more than its current
market price upon exercise. Premiums received from writing options are
recorded as a liability and an unrealized gain or loss is measured and
recorded by the difference between the current value and the premium
received. For the period ended May 31, 1997, the Fund had a realized loss
of $335,372 on written options.
The following is a summary of the Fund's written options activity:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS CONTRACTS PROCEEDS
- ---------------------------- ---------- ----------
<S> <C> <C>
Outstanding at May 31, 1996 0 $ 0
Contracts open 6,800 1,441,226
Contracts expired (1,481) (417,257)
Contracts closed (3,799) (631,624)
Contracts exercised (1,270) (206,456)
---------- ----------
Outstanding at May 31, 1997 250 $ 185,889
=========== =========
</TABLE>
At May 31, 1997, the Fund had the following outstanding options:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION EXCERCISE NUMBER OF APPRECIATION MARKET
ISSUER TYPE DATE PRICE CONTRACTS (DEPRECIATION) VALUE
----------------- ---- ------------ ---------- ----------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
IBM Call June 1997 $80 100 $(45,706) $150,000
General Electric Call June 1997 57.50 150 (53,405) 135,000
-------------- --------
Total $(99,111) $285,000
============== ========
</TABLE>
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
111 CORCORAN EQUITY FUND
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------
1997 1996
- ---------------------------------------------------------------------- --------- --------
<S> <C> <C>
Shares sold 8,209,160 457,100
- ----------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 19,662 3,800
- ----------------------------------------------------------------------
Shares redeemed (678,535) (485,448)
- ---------------------------------------------------------------------- --------- --------
Net change resulting from share transactions 7,550,287 (24,548)
- ---------------------------------------------------------------------- --------- --------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Central Carolina Bank and Trust Company, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.85% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
Under the terms of an investment sub-advisory agreement between the Adviser and
Franklin Street Advisors, Inc., (the "Sub-Adviser"), the Sub-Adviser receives an
annual fee from the Adviser equal to 0.65% of the Fund's advisory fee. The
Sub-Adviser may voluntarily choose to waive any portion of its fee.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee paid to FAS is based
on the level of average aggregate net assets of the Trust for the period. FAS
may voluntarily choose to waive any portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund shares. The Plan provides that the Fund may incur distribution
expenses up to 0.35% of the average daily net assets of the Fund shares,
annually, to compensate FSC. The Fund did not pay or accrue distribution
expenses during the period ended May 31, 1997.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with FAS, the Fund will pay FAS up to 0.25% of average daily net assets of the
Fund for the period. The fee paid to FAS is used to finance certain services for
shareholders and to maintain shareholder accounts. The Fund did not pay or
accrue shareholder services expenses during the period ended May 31, 1997.
111 CORCORAN EQUITY FUND
- --------------------------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ"), through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee
paid to FSSC is based on the size, type, and number of accounts and transactions
made by shareholders.
PORTFOLIO ACCOUNTING FEES--Fserv maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $35,000 were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following December 2, 1994 (the date the Fund became
effective). For the period ended May 31, 1997, the Fund paid $4,106 pursuant to
this agreement.
INTERFUND TRANSACTIONS--During the period ended May 31, 1997, the Fund engaged
in purchase and sale transactions with funds that have a common investment
adviser (or affiliated investment advisers), common Directors/Trustees, and/or
common Officers. These purchase and sale transactions were made at current
market value pursuant to Rule 17a-7 under the Act amounting to $111,860,269 and
$0, respectively.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1997, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $80,361,547
- ------------------------------------------------------------------------------- -----------
SALES $29,682,892
- ------------------------------------------------------------------------------- -----------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
111 CORCORAN FUNDS (111 Corcoran Equity Fund):
We have audited the accompanying statement of assets and liabilities of 111
Corcoran Equity Fund (an investment portfolio of 111 Corcoran Funds, a
Massachusetts business trust), including the schedule of portfolio investments,
as of May 31, 1997, the related statement of operations for the year then ended,
and the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights (see page 2 of the prospectus) for
the periods presented. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
May 31, 1997 by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of 111
Corcoran Equity Fund, an investment portfolio of 111 Corcoran Funds, as of May
31, 1997, and the results of its operations, for the year then ended, the
changes in its net assets, for each of the two years in the period then ended,
and the financial highlights for the periods presented, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
July 7, 1997
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. 6330 Quadrangle Drive
Chapel Hill, North Carolina 27514
- ----------------------------------------------------------------------------------------------
Custodian
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- ----------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8609
Boston, Massachusetts 02266-8609
- ----------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ----------------------------------------------------------------------------------------------
</TABLE>
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"), a portfolio of 111
Corcoran Funds (the "Trust") dated July 31, 1997. This Statement is not
a prospectus. You may request a copy of a prospectus or a paper copy of
this Statement, if you have received it electronically, free of charge
by calling 1-800-386-3111.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated July 31, 1997
[GRAPHIC OMITTED]
Cusip 682365309
005902 (07/97)
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I
Table of Contents
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General Information About the Fund 1
Investment Objective and Policies 1
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Types of Investments 1
Portfolio Turnover 5
Investment Limitations 5
111 Corcoran Funds Management 7
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Fund Ownership 11
Trustees' Compensation 12
Trustee Liability 12
Investment Advisory Services 13
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Adviser to the Fund 13
Advisory Fees 13
Sub-Adviser to the Fund 13
Sub-Advisory Fees 13
Brokerage Transactions 13
Other Services 14
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Trust Administration 14
Custodian and Portfolio Accountant 14
Transfer Agent 14
Independent Public Accountants 14
Purchasing Shares 14
Distribution and Shareholder Services Plans 14
Determining Net Asset Value 14
Determining Market Value of Securities 15
Exchange Privilege 15
Redeeming Shares 15
Redemption in Kind 15
Massachusetts Partnership Law 16
Tax Status 16
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The Fund's Tax Status 16
Shareholders' Tax Status 16
Total Return 16
Yield 17
Performance Comparisons 17
Appendix 19
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General Information About the Fund
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
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:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o 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.
Portfolio Turnover
The Fund may trade or dispose of portfolio securities as considered necessary to
meet its investment objective. For the fiscal years ended May 31, 1997 and 1996,
the portfolio turnover rates for the Fund were 55%, and 69%, respectively.
Investment Limitations
The following limitations are fundamental [except that no investment limitation
of the Fund shall prevent the Fund from investing substantially all of its
assets (except for assets which are not considered "investment securities" under
the Investment Company Act of 1940, or assets exempted by the Securities and
Exchange Commission) in an open-end investment company with substantially the
same investment objectives].
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 [except that no investment limitation of the Fund shall
prevent the Fund from investing substantially all of its assets (except for
assets which are not considered "investment securities" under the Investment
Company Act of 1940, or assets exempted by the Securities and Exchange
Commission) in an open-end investment company with substantially the same
investment objectives]. Shareholders will be notified before any material
changes in these limitations become effective.
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.
Purchasing Securities to Exercise Control
The Fund will not purchase securities of a company for purpose of
exercising control or management.
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.
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."
111 Corcoran Funds Management
Officers and Trustees are listed with their addresses, birthdates, present
positions with 111 Corcoran Funds, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds. Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
<PAGE>
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc.
and Northgate Village Development Corporation; Director or Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee
of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Former Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
<PAGE>
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Treasurer and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Chairman and Trustee of the Company.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 22, 1962
Vice President and Assistant Treasurer
Vice President and Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated Government
Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust
Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Wesmark Funds; and World Investment Series, Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of July 7, 1997, the following shareholders of record owned 5% or more of the
outstanding shares of the Fund: Central Carolina Bank & Trust Company, Durham,
North Carolina, owned approximately 9,451,022 shares (97.70%).
<PAGE>
Trustees' Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
John F. Donahue $0
Chairman and Trustee
Thomas G. Bigley $382
Trustee
John T. Conroy, Jr. $421
Trustee
William J. Copeland $421
Trustee
James E. Dowd $421
Trustee
Lawrence D. Ellis, M.D. $382
Trustee
Edward L. Flaherty, Jr. $421
Trustee
Edward C. Gonzales $0
Trustee
Peter E. Madden $382
Trustee
Gregor F. Meyer $382
Trustee
John E. Murray, Jr. $382
Trustee
Wesley W. Posvar $382
Trustee
Marjorie P. Smuts $382
Trustee
* Information is furnished for the fiscal year ended May 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 3
portfolios.
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
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. For the fiscal years ended May 31, 1997,
1996, and for the period from December 5, 1994 (date of initial public
investment) to May 31, 1995, the Adviser earned advisory fees of $913,689,
$231,522, and $36,380, respectively, of which, $166,477, $54,476, and $36,380,
respectively, were voluntarily waived.
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. For the fiscal years ended May 31, 1997,
1996, and for the period from December 5, 1994 (date of initial public
investment) to May 31, 1995, the Sub-Adviser earned sub-advisory fees of
$747,211, $177,046, and $27,820, respectively, of which $0, $0, and $27,820,
respectively, were voluntarily waived.
Brokerage Transactions
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. Research services
provided by brokers and dealers may be used by the Adviser or its affiliates in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. 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.
During the fiscal years ended May 31, 1997, 1996, and for the period from
December 5, 1994 (date of initial public investment) to May 31, 1995, the Fund
paid total brokerage commissions of $205,818, $48,500, and $29,480,
respectively.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
Other Services
Trust Administration
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in the
prospectus. For the fiscal years ended May 31, 1997, 1996, and for the period
from December 5, 1994 (date of initial public investment) to May 31, 1995,
administrator fees were incurred on behalf of the Fund of $160,784, $50,000, and
$24,247, respectively, of which $9,702, $0, and $24,247, respectively, were
voluntarily waived.
Custodian and Portfolio Accountant
Fifth Third Bank, Cincinnati, Ohio, is custodian for the securities and cash of
the Fund. Federated Services Company, Pittsburgh, PA provides certain accounting
and recordkeeping services with respect to the Fund's portfolio investments. The
fee paid for this service is based upon the level of the Fund's average net
assets for the period plus out-of-pocket expenses.
Transfer Agent
Federated Services Company, through its subsidiary and registered transfer
agent, Federated Shareholder Services Company, maintains all necessary
shareholder records and receives a fee based on the size, type and number of
accounts and transactions made by shareholders.
Independent Public Accountants
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, Pennsylvania.
Purchasing Shares
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. For the
fiscal years ended May 31, 1997, 1996, and for the period from December 5, 1994
( date of initial public investment) to May 31, 1995, no payments were made
pursuant to the Distribution Plan and the Shareholder Services Plans.
Determining Net Asset Value
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.
<PAGE>
Determining Market Value of Securities
Market values of the Fund's portfolio securities are determined as follows:
o according to the last sale price on a national securities exchange, if
available;
o in the absence of recorded sales for bonds and other fixed-income
securities, as determined by an independent pricing service;
o 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
o 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:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
Over-the-counter put options will be valued at the mean between the bid and the
asked prices.
Exchange Privilege
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
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.
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.
Tax Status
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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o 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:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o 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
The Fund's average annual total return for the fiscal year ended May 31, 1997,
and for the period from December 5, 1994 (date of initial public investment) to
May 31, 1997, were 22.48% and 25.30%, respectively. 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 charge, adjusted over the period by any
additional shares, assuming the monthly reinvestment of all dividends and
distributions.
Yield
The Fund's yield for the thirty-day period ended May 31, 1997 was 0.49%. 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
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o 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:
o 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 S&P 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 S&P figures.
o 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.
o 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 charge.
Economic and Market Information
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.
<PAGE>
Appendix
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.
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED MAY 31, 1997
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
The 111 Corcoran North Carolina Municipal Fund had a total return of
7.13%* based on net asset value for the fiscal year ended May 31, 1997.
Tax-free rates fell more than did treasuries as the result of insurance
companies purchasing large quantities of municipals.
The average maturity of the fund is 8.42 years, which is shorter than
last year's. The average quality of the fund's portfolio securities is AA1.
While the small additional return does not justify lowering quality, we do
plan to lengthen maturities.
We believe that municipal bonds still represent good value versus
taxable issues**, especially in selected maturities. Your management will
work to capture the best opportunities as they become available.
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. The fund's total return based on offering price for
the period was 2.28%.
** Income may be subject to the federal alternative minimum tax.
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN 111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES
FUND
SINCE INCEPTION AS OF MAY 31, 1997.
The graph below illustrates the hypothetical investment of $10,000 in the
111 Corcoran North Carolina Municipal Securities Fund (the "Fund") from July 22,
1992 (start of performance) to May 31, 1997, compared to the Lehman Brothers
State General Obligation Bond Index ("LSGOB")+.
SEE APPENDIX
<TABLE>
<CAPTION>
Measurement Period Leham Brothers State GO
(Fiscal Year Covered) 111 Corcoran Bond Fund Bond Index
<S> <C> <C>
7/22/92 9550 10000
5/31/93 10254 10983
5/31/94 10530 11305
5/31/95 11352 12264
5/31/96 11774 12832
5/31/97 12652 12613
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED MAY 31, 1997
<TABLE>
<S> <C>
1 Year....................................................................... 2.28%
Start of Performance, July 22, 1992.......................................... 4.90%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
This report must be preceded or accompanied by the Fund's prospectus dated July
31, 1997, and, together with the financial statements contained therein,
constitutes the Fund's annual report.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge
= $9,550). The Fund's performance assumes the reinvestment of all dividends
and distributions.
** Total return quoted reflects all applicable sales charges.
+ The LSGOB is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The LSGOB has
been adjusted to reflect reinvestment of dividends on securities. This index
is unmanaged.
LOGO
Cusip 682365101
G00316-01 (7/97)
111
CORCORAN
FUNDS
111 CORCORAN
EQUITY FUND
PROSPECTUS
A DIVERSIFIED PORTFOLIO OF
111 CORCORAN FUNDS, AN OPEN-END,
MANAGEMENT INVESTMENT COMPANY
JULY 31, 1997
FEDERATED SECURITIES CORP. IS THE DISTRIBUTOR OF THE FUND.
CUSIP 682365101
2041605A (7/97) [RECYCLED PAPER LOGO]
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
(A PORTFOLIO OF THE 111 CORCORAN FUNDS)
PROSPECTUS
The shares of 111 Corcoran North Carolina Municipal Securities Fund (the "Fund")
offered by this prospectus represent interests in a non-diversified portfolio in
the 111 Corcoran Funds (the "Trust"), an open-end management investment company
(a mutual fund). The investment objective of the Fund is to provide income which
is exempt from federal regular income tax and North Carolina state income tax.
The Fund pursues this objective by investing primarily in a portfolio of North
Carolina municipal securities.
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 July 31,
1997, with the Securities and Exchange Commission ("SEC"). 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 or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-386-3111. To
obtain other information or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http:// www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated July 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 4
Investment Limitations 9
THE 111 CORCORAN FUNDS INFORMATION 9
- ------------------------------------------------------
Management of the 111 Corcoran Funds 9
Distribution of Fund Shares 10
Administration of the Fund 10
NET ASSET VALUE 11
- ------------------------------------------------------
INVESTING IN THE FUND 11
- ------------------------------------------------------
Share Purchases 11
Minimum Investment Required 11
What Shares Cost 12
Purchases at Net Asset Value 12
Sales Charge Reallowance 12
Reducing the Sales Charge 13
Systematic Investment Program 14
Certificates and Confirmations 14
Dividends 14
Capital Gains 14
EXCHANGE PRIVILEGE 14
- ------------------------------------------------------
REDEEMING SHARES 16
- ------------------------------------------------------
Systematic Withdrawal Program 17
Accounts with Low Balances 17
Redemption in Kind 17
SHAREHOLDER INFORMATION 18
- ------------------------------------------------------
Voting Rights 18
EFFECT OF BANKING LAWS 18
- ------------------------------------------------------
TAX INFORMATION 19
- ------------------------------------------------------
Federal Income Tax 19
North Carolina Taxes 20
Other State and Local Taxes 20
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
FINANCIAL STATEMENTS 21
- ------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 32
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............................................... 4.50%
Maximum Sales Charge 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 average net assets)
Management Fee (after waiver)(1).................................................... 0.00%
12b-1 Fees.......................................................................... None
Total Other Expenses................................................................ 0.52%
Total Fund Operating Expenses (after waiver)(2)................................ 0.52%
</TABLE>
(1) The management fee has been reduced to reflect a voluntary waiver by the
adviser. The adviser can terminate this voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.75%.
(2) The Total Fund Operating Expenses in the table above are based on expenses
expected to be incurred during the fiscal year ending May 31, 1998, and are
expected to be 1.27% absent the voluntary waiver described above in note 1. The
Total Fund Operating Expenses for the fiscal year ended May 31, 1997, were 0.63%
and would have been 1.38% absent the voluntary waiver of a portion of the
management fee.
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 5 years 10 years
- ------------------------------------------------------------------------------------------
<S> <C> <C> <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 charge. As noted in the
table above, the Fund charges no redemption fees....... $ 50 $ 61 $ 73 $ 107
</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.
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants, on page 32.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993(A)
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.34 $ 10.44 $ 10.17 $ 10.36 $ 10.00
- ------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------
Net investment income 0.49 0.49 0.48 0.47 0.37
- ------------------------------------------
Net realized and unrealized gain (loss)
on investments 0.23 (0.10) 0.27 (0.18) 0.36
- ------------------------------------------ ------- ------- ------- ------- -------
Total from investment operations 0.72 0.39 0.75 0.29 0.73
- ------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------
Distributions from net investment income (0.49) (0.49) (0.48) (0.47) (0.37)
- ------------------------------------------
Distributions from net realized gain on
investments -- -- -- (0.01) --
- ------------------------------------------ ------- ------- ------- ------- -------
Total distributions (0.49) (0.49) (0.48) (0.48) (0.37)
- ------------------------------------------ ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.57 $ 10.34 $ 10.44 $ 10.17 $ 10.36
- ------------------------------------------ ------- ------- ------- ------- -------
TOTAL RETURN (B) 7.13% 3.72% 7.71% 2.68% 7.37%
- ------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------
Expenses 0.63% 0.52% 0.57% 0.69% 0.70%*
- ------------------------------------------
Net investment income 4.60% 4.73% 4.82% 4.42% 4.51%*
- ------------------------------------------
Expense waiver/reimbursement (c) 0.75% 0.75% 0.75% 0.75% 0.99%*
- ------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------
Net assets, end of period (000 omitted) $35,892 $36,872 $39,803 $45,864 $28,152
- ------------------------------------------
Portfolio turnover 30% 61% 47% 24% 17%
- ------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 22, 1992 (date of initial
public investment) to May 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
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' North Carolina municipal securities
portfolio, known as 111 Corcoran North Carolina Municipal Securities Fund. The
Fund is for trust clients of Central Carolina Bank and Trust Company ("Central
Carolina Bank") and its affiliates and individual investors who desire a
convenient means of accumulating an interest in a professionally managed,
non-diversified portfolio investing primarily in North Carolina municipal
securities. Central Carolina Bank is the investment adviser to the Fund. A
minimum initial investment of $1,000 is required. Subsequent investments must be
in amounts of at least $100. The Fund is not likely to be a suitable investment
for retirement plans since it intends to invest primarily in North Carolina
municipal securities which are tax-exempt.
Fund shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide income which is exempt from
federal regular income tax and North Carolina state income tax. (Federal regular
income tax does not include the federal individual alternative minimum tax or
the federal alternative minimum tax for corporations.) Interest income of the
Fund that is exempt from federal regular income tax and North Carolina state
income tax described above retains its tax-exempt status when distributed to the
Fund's shareholders. However, income distributed by the Fund may not necessarily
be exempt from state or municipal taxes in states other than North Carolina.
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 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 in a
professionally managed portfolio consisting primarily of municipal securities
exempt from North Carolina state income taxes and/or federal regular income tax.
The average maturity of the Fund is 5 to 15 years. As a matter of fundamental
investment policy which may not be changed without shareholder approval, the
Fund will invest its assets so that, under normal circumstances, at least 80% of
its annual interest income is exempt from federal regular income tax or that at
least 80% of its net assets are invested in obligations, the interest income
from which is exempt from federal regular income tax. In addition, the Fund will
invest its assets so that, under normal circumstances, at least 65% of the value
of its total assets will be invested in North Carolina municipal securities
which are exempt from federal regular income tax and North Carolina state income
tax.
ACCEPTABLE INVESTMENTS
MUNICIPAL SECURITIES. The North Carolina municipal securities in which the Fund
invests are obligations, including industrial development bonds, issued on
behalf of the state of North Carolina and its political subdivisions.
In addition, the Fund may invest in obligations issued by or on behalf of any
state, territory or possession of the United States, including the District of
Columbia, or any political subdivision or agency of any of these; and
participation interests, as described below, in any of the above obligations,
the interest from which is, in the opinion of bond counsel for the issuers or in
the opinion of officers of the Fund and/or the investment adviser to the Fund,
exempt from the personal income tax imposed by the state of North Carolina
and/or federal regular income tax. It is likely that shareholders who are
subject to alternative minimum tax will be required to include interest from a
portion of the municipal securities owned by the Fund in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.
CHARACTERISTICS. The municipal securities which the Fund buys are subject to
the following quality standards:
- rated A or above by either Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"). A description of the rating
categories is contained in the Appendix to the Statement of Additional
Information; insured by a municipal bond insurance company which is rated
AAA by S&P or Aaa by Moody's;
- guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest;
- fully collateralized by an escrow of U.S. government securities; or
-unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Fund's adviser.
If a security loses its rating or has its rating reduced after the Fund has
purchased it, the Fund is not required to sell or otherwise dispose of the
security, but may consider doing so. If ratings made by Moody's or S&P change
because of changes in those organizations or in their ratings systems, the Fund
will attempt to obtain comparable ratings as substitute standards in accordance
with the investment policies of the Fund.
PARTICIPATION INTERESTS. The Fund may purchase participation interests in
municipal securities from financial institutions such as commercial banks,
savings and loan associations, and insurance companies. These interests may take
the form of participations, beneficial interests in a trust, partnership
interests or any other form of indirect ownership that allows the Fund to treat
the income from the investment as exempt from federal and state tax. The
financial institutions from which the Fund purchases participation interests
frequently provide or secure irrevocable letters of credit or guarantees to
assure that the participation interests are of high quality. The Trustees will
determine that participation interests meet the prescribed quality standards for
the Fund.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the North Carolina municipal
securities which the Fund purchases may have variable interest rates. Variable
interest rates are ordinarily based on a published interest rate, interest rate
index, or a similar standard, such as the 91-day U.S. Treasury bill rate. Many
variable rate municipal securities are subject to payment of principal on demand
by the Fund, usually in not more than seven days. All variable rate municipal
securities will meet the quality standards for the Fund. The Fund's investment
adviser has been instructed by the Trustees to monitor the pricing, quality, and
liquidity of the variable rate municipal securities, including participation
interests held by the Fund, on the basis of published financial information and
reports of the nationally recognized statistical rating organizations and other
analytical services.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, or a conditional sales contract.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other 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 short-term
cash which has not yet been invested in other portfolio instruments. It should
be noted that investment companies incur certain expenses such as management
fees and, therefore, any investment by the Fund in shares of another investment
company would be subject to such duplicate expense.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its total
assets 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. Certain restricted securities which the Trustees deem to be
liquid will be excluded from this limitation. The Fund will limit investments in
illiquid securities, including certain restricted securities or municipal leases
not determined by the Trustees to be liquid, non-negotiable time deposits,
repurchase agreements providing for settlement in more than seven days after
notice, and over-the-counter options, 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 these transactions 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.
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 basis up to one-third of the
value of its total assets 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.
PUT AND CALL OPTIONS. The Fund may purchase put and call options on its
portfolio securities. These options will be used as a hedge to attempt to
protect securities which the Fund holds, or will be purchasing, against
decreases or increases in value. The Fund may also write (sell) put and call
options on all or any portion of its portfolio to generate income for the Fund.
The Fund will write call options on securities either held in its portfolio or
for which it has the right to obtain without payment of further consideration or
for which it has segregated cash in the amount of any additional consideration.
In the case of put options, the Fund will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the exercise price of the
underlying securities.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since 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.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio of
longterm debt securities against changes in interest rates. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government at a certain time in the future. The seller of the contract
agrees to make delivery of the type of instrument called for in the contract and
the buyer agrees to take delivery of the instrument at the specified future
time.
The Fund may write call options and purchase put options on financial futures
contracts as a hedge to attempt to protect securities in its portfolio against
decreases in value resulting from anticipated increases in market interest
rates. When the Fund writes a call option on a futures contract, it is
undertaking the obligation of selling the futures contract at a fixed price at
any time during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, the Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option.
The Fund may also write put options and purchase call options on financial
futures contracts as a hedge against rising purchase prices of portfolio
securities resulting from anticipated decreases in market interest rates. The
Fund will use these transactions to attempt to protect its ability to purchase
portfolio securities in the future at price levels existing at the time it
enters into the transactions. When the Fund writes a put option on a futures
contract, it is undertaking to buy a particular futures contract at a fixed
price at any time during a specified period if the option is exercised. As a
purchaser of a call option on a
futures contract, the Fund is entitled (but not obligated) to purchase a futures
contract at a fixed price at any time during the life of the option.
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. When the Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contracts is unleveraged.
RISKS. When the Fund uses financial futures and options on financial
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 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 for
options will exist at all times. Although the investment adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange 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. The Fund normally invests its assets so that at least 80%
of its annual interest income is exempt from federal regular income tax or that
at least 80% of its net assets are invested in obligations, the interest income
from which is exempt from federal regular income tax. In addition, the Fund will
invest its assets so that, under normal circumstances, at least 65% of the value
of its total assets will be invested in North Carolina municipal securities
which are exempt from federal regular income tax and North Carolina state income
tax. However, from time to time, when the investment adviser determines that
market conditions call for a temporary defensive posture, the Fund may invest in
short-term tax-exempt or taxable temporary investments. These temporary
investments include: notes issued by or on behalf of municipal or corporate
issuers; obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; shares of other investment companies; and repurchase
agreements (arrangements in which the organization selling the Fund a bond or
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those it considers to
be of comparable quality to the acceptable investments of the Fund.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.
However, it is anticipated that certain temporary investments will generate
income which is subject to North Carolina state income tax.
NORTH CAROLINA MUNICIPAL BONDS. North Carolina municipal bonds are generally
issued to finance public works, such as airports, bridges, highways, housing,
hospitals, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities. North Carolina
municipal bonds include industrial development bonds issued by or on behalf of
public authorities to provide financing aid to acquire sites or construct or
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. However, interest on and principal of revenue bonds are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds; the industry which is the beneficiary of such bonds
is generally the only source of payment for the bonds. The prices of fixed
income securities fluctuate inversely to the direction of interest rates.
INVESTMENT RISKS. Yields on North Carolina municipal securities depend on a
variety of factors, including: the general conditions of the municipal bond
market; the size of the particular offering; the maturity of the obligations;
and the rating of the issue. Further, any adverse economic conditions or
developments affecting the state of North Carolina or its municipalities could
impact the Fund's portfolio. The Fund's concentration in securities issued by
the state of North Carolina and its political subdivisions provides a greater
level of risk than a fund which is diversified across numerous states and
municipal entities. North Carolina's dependence on agriculture, manufacturing
and tourism leaves it vulnerable to both the business cycle and longterm
national economic trends. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of North
Carolina municipal securities and participation interests, or the guarantors of
either, to meet their obligations for the payment of interest and principal when
due. Investing in North Carolina municipal securities which meet the Fund's
quality standards may not be possible if the state of North Carolina or its
municipalities do not maintain their current credit ratings. In addition, the
issuance, tax exemption and liquidity of North Carolina municipal securities may
be adversely affected by judicial, legislative or executive action, including,
but not limited to, rulings of state and federal courts, amendments to the state
and federal constitutions, changes in statutory law, and changes in
administrative regulations, as well as voter initiatives.
NON-DIVERSIFICATION. The Fund is a non-diversified portfolio of an investment
company. As such, there is no limit on the percentage of assets which can be
invested in any single issuer. An investment in the Fund, therefore, will entail
greater risk than would exist in a diversified investment company because the
higher percentage of investments among fewer issuers may result in greater
fluctuation in the total market value of the Fund's portfolio. Any economic,
political, or regulatory developments affecting the value of the securities in
the Fund's portfolio will have a greater impact on the total value of the
portfolio than would be the case if the portfolio were diversified among more
issuers. The Fund may purchase an issue of municipal securities in its entirety.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, the
aggregate value of all investments in any one issuer (except U.S. government
obligations, cash, and cash items) which exceed 5% of the Fund's total assets
shall not exceed 50% of the value of its total assets.
In addition, not more than 25% of its total assets will be invested in the
securities of any one issuer, except government securities or securities of
regulated investment companies.
INVESTMENT LIMITATIONS
The Fund will not:
-borrow money or pledge securities except, under certain circumstances,
the Fund may borrow up to one-third of the value of its total assets and
pledge up to 10% of the value of those assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
THE 111 CORCORAN FUNDS INFORMATION
- --------------------------------------------------------------------------------
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 0.75% of the Fund's average daily net
assets. 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 North Carolina municipal 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, 1997, the
Trust Division managed assets in excess of $1.3 billion. The Trust Division
manages two commingled funds with assets of approximately $175 million. The
Bank has managed the 111 Corcoran Funds since their inception in July,
1992. As of June 30, 1997, total assets in the 111 Corcoran Funds were $150
million.
As part of their regular banking operations, CCB may make loans to cities,
counties and other public enterprises. Thus, it may be possible, from time
to time, for the Fund to hold or acquire the securities of issuers which
are also lending clients of CCB. The lending relationship will not be a
factor in the selection of securities.
James S. Agnew has been the Fund's portfolio manager since the Fund's
inception in July, 1992. Mr. Agnew joined the Bank in 1969 and has, for
more than the past six years, been Vice President and Senior Trust Officer
of the Bank, responsible for managing approximately $250 million in fixed
income assets. Mr. Agnew received a B.A. and M.S. in Industrial Management
from Georgia Institute of Technology and an L.L.B. from Woodrow Wilson Law
College.
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.
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 Services Company
provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- --------------------- -------------------------------------
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% 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.
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 1-800-386-3111.)
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-3573. 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 three 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 A SALES CHARGE AS A
PERCENTAGE OF PERCENTAGE OF NET
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE 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 as of the close of trading (normally 4:00
p.m., Eastern time) on 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 associations 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.
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 Shareholder 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 are paid monthly. Dividends are declared just
prior to determining net asset value. If an order for shares is placed on the
preceding business day, shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
shares and payment by wire are received on the same day, shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted into federal funds.
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 will be made
at least annually.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
All shareholders of the Fund are shareholders of the 111 Corcoran Funds, which
consists of the Fund, 111 Corcoran Bond Fund, and 111 Corcoran Equity Fund.
Shareholders of the Fund have access to 111 Corcoran Bond Fund and 111 Corcoran
Equity Fund through an exchange program. In addition, shares of the Fund may be
exchanged for shares of certain funds for which affiliates of Federated
Investors serve as investment adviser and which are distributed by Federated
Securities Corp., a subsidiary of Federated Investors ("Federated Funds").
Shareholders have access to the following Federated Funds:
- Liberty U.S. Government Money Market Trust--a U.S. government money
market fund; and
- Federated 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.
Upon receipt by Federated Shareholder 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 1-800-386-3111. 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 Shareholder 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 Shareholder 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 1-800-386-3111) 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.
SIGNATURES. Shareholders requesting 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 their signatures guaranteed by:
-a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
-a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("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 any time 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 redemption 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, other than retirement accounts subject to required
minimum distributions. 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.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000, or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Fund will pay all
or a portion of the remainder of the redemption in portfolio instruments, valued
in the same way that net asset value is determined. The portfolio instruments
will be selected in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
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 of July 7,
1997, Central Carolina Bank, acting in various capacities for numerous accounts,
was the owner of record of 2,862,943 shares (84.29%) of 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.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other 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.
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.
Shareholders are not required to pay federal regular income tax on any dividends
received from the Fund that represent net interest on tax-exempt municipal
bonds. However, under the Tax Reform Act of 1986, dividends representing net
interest income earned on some municipal bonds may be included in calculating
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons, and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds will become subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of the taxpayer's "adjusted current earnings" over the taxpayer's
alternative minimum taxable income as a tax preference item. "Adjusted current
earnings" is based upon the concept of a corporation's "earnings and profits."
Since "earnings and profits" generally includes the full amount of any Fund
dividend, and alternative minimum taxable income does not include the portion of
the Fund's dividend attributable to municipal bonds which are not private
activity bonds, the difference will be included in the calculation of the
corporation's alternative minimum tax.
Shareholders should consult with their tax advisers to determine whether they
are subject to the individual alternative minimum tax or the corporate
alternative minimum tax and, if so, the tax treatment of dividends paid by the
Fund.
Dividends of the Fund representing net interest income earned on some temporary
investments, income earned on options transactions, and any realized net
short-term gains are taxed as ordinary
income. Distributions representing net long-term capital gains realized by the
Fund, if any, will be taxable as long-term capital gains regardless of the
length of time shareholders have held their shares.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
NORTH CAROLINA TAXES
North Carolina residents and North Carolina corporations are not required to pay
North Carolina income tax on any dividends received from the Fund that represent
interest on obligations issued by North Carolina and political subdivisions
thereof or upon the obligations of the United States or its possessions.
Dividends received from the Fund by such shareholders must be included in North
Carolina taxable income to the extent that such dividends represent interest on
obligations of states other than North Carolina and their political
subdivisions. The Fund will annually furnish to its shareholders a statement
supporting the proper allocation.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from state income taxes in states
other than North Carolina or from personal property taxes. State laws differ on
this issue, and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return, yield, and
tax-equivalent 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 tax-equivalent yield of the Fund is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a specific tax rate. The yield and
the tax-equivalent yield do 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 charge
which, if excluded, would increase the total return, yield, and tax-equivalent
yield.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <C> <S> <C> <C>
MUNICIPAL SECURITIES--96.3%
- ---------------------------------------------------------------------------
NORTH CAROLINA--94.8%
---------------------------------------------------------
$ 550,000 Alamance County, NC, 4.90% GO UT Bonds, 4/1/2010 AA- $ 531,701
---------------------------------------------------------
250,000 Alamance County, NC, 5.90% GO UT, 5/1/2006 AA- 265,587
---------------------------------------------------------
500,000 Cabarrus County, NC, 4.80% GO UT Bonds, (FGIC
INS)/(Original Issue Yield: 4.85%), 3/1/2009 AAA 481,645
---------------------------------------------------------
865,000 Cabarrus County, NC, 4.80% GO UT Refunding Bonds, (FGIC
INS), 3/1/2010 AAA 824,362
---------------------------------------------------------
250,000 Catawba County, NC, 5.70% GO UT Bonds, 6/1/2003 AA- 263,145
---------------------------------------------------------
500,000 Catawba County, NC, 5.75% GO UT Bonds, 6/1/2007 AA- 530,435
---------------------------------------------------------
500,000 Catawba County, NC, 5.85% Hospital Refunding Revenue
Bond, (Catawba Memorial Hospital)/(AMBAC INS)/(Original
Issue Yield: 5.90%), 10/1/2004 AAA 532,550
---------------------------------------------------------
500,000 Catawba County, NC, 5.95% Hospital Refunding Revenue
Bonds, (Catawba Memorial Hospital)/(AMBAC INS)/(Original
Issue Yield: 6.00%), 10/1/2005 AAA 533,660
---------------------------------------------------------
500,000 Charlotte, NC, 5.30% GO UT Bonds, 4/1/2008 AAA 514,715
---------------------------------------------------------
500,000 Charlotte, NC, 6.50% GO UT Bonds, (United States Treasury
PRF), 2/1/2008 (@102) AAA 542,200
---------------------------------------------------------
750,000 Charlotte, NC, 5.30% GO UT Public Improvement Bonds,
4/1/2008 AAA 772,072
---------------------------------------------------------
500,000 Charlotte, NC, 5.50% GO UT Refunding Bonds (Series A),
7/1/2004 AAA 522,180
---------------------------------------------------------
500,000 Chatham County, NC, 5.40% GO UT Bonds, 4/1/2007 A+ 520,260
---------------------------------------------------------
500,000 Chatham County, NC, 5.40% GO UT Bonds, 4/1/2010 A+ 509,480
---------------------------------------------------------
1,000,000 Craven County, NC, 5.50% GO UT Bonds, (MBIA INS),
6/1/2010 AAA 1,031,440
---------------------------------------------------------
600,000 Cumberland County, NC, 5.80% GO UT Bonds, (MBIA INS),
2/1/2007 AAA 635,064
---------------------------------------------------------
</TABLE>
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <C> <S> <C> <C>
NORTH CAROLINA--CONTINUED
---------------------------------------------------------
$ 470,000 Duplin County, NC, 5.30% GO UT Hospital Bonds, (MBIA
INS)/(Original Issue Yield: 5.40%), 4/1/2007 AAA $ 485,430
---------------------------------------------------------
500,000 Durham & Wake Counties Special Airport District, NC,
5.75% GO UT Refunding Bonds, (Original Issue Yield:
5.80%), 4/1/2002 AAA 526,080
---------------------------------------------------------
250,000 Fayetteville, NC, Public Works Commission, 5.90% Revenue
Bonds (Series B), (FSA LOC)/(Original Issue Yield:
6.00%), 3/1/2007 AAA 264,573
---------------------------------------------------------
1,250,000 Forsyth County, NC, 5.70% Public Improvement GO UT,
8/1/2010 AAA 1,299,575
---------------------------------------------------------
500,000 Forsyth County, NC, 5.60% Public Improvement GO UT Bonds,
8/1/2009 AAA 519,485
---------------------------------------------------------
500,000 Gastonia, NC, 5.50% GO UT, (MBIA INS)/(Original Issue
Yield: 5.55%), 5/1/2013 AAA 509,830
---------------------------------------------------------
500,000 Greensboro, NC, 6.30% Public Improvement GO UT Bonds,
(Original Issue Yield: 6.50%), 3/1/2012 AAA 544,265
---------------------------------------------------------
500,000 Guilford County, NC, 5.30% GO UT Bonds, (Original Issue
Yield: 5.40%), 5/1/2010 AA+ 507,035
---------------------------------------------------------
500,000 Guilford County, NC, 5.30% GO UT Bonds, 5/1/2009 AA+ 510,305
---------------------------------------------------------
1,000,000 Guilford County, NC, 5.40% GO UT Bonds, (Original Issue
Yield: 5.55%), 4/1/2009 AA+ 1,028,040
---------------------------------------------------------
500,000 Iredell County, NC, 5.50% Certificates of Participation,
(FGIC INS)/(Original Issue Yield: 5.60%), 6/1/2001 AAA 517,480
---------------------------------------------------------
350,000 Iredell County, NC, 6.125% Certificates of Participation,
(FGIC INS)/(Original Issue Yield: 6.23%), 6/1/2007 AAA 373,751
---------------------------------------------------------
500,000 Mecklenburg County, NC, 5.90% GO UT Refunding Bonds,
(Original Issue Yield: 6.05%), 3/1/2004 AAA 529,150
---------------------------------------------------------
350,000 Mecklenburg County, NC, 5.50% Public Improvement GO UT,
(Original Issue Yield: 5.60%), 4/1/2011 AAA 359,720
---------------------------------------------------------
500,000 Mooresville, NC, Grade School District Facilities Corp.,
6.30% Certificates of Participation, (AMBAC
INS)/(Original Issue Yield: 6.348%), 10/1/2009 AAA 538,610
---------------------------------------------------------
</TABLE>
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <C> <S> <C> <C>
NORTH CAROLINA--CONTINUED
---------------------------------------------------------
$ 500,000 Morganton, NC, 5.60% Water & Sewer GO UT Revenue Bonds,
(FGIC INS), 6/1/2007 AAA $ 527,525
---------------------------------------------------------
500,000 Morganton, NC, 5.70% Water & Sewer GO UT Revenue Bonds,
(FGIC INS)/(Original Issue Yield: 5.80%), 6/1/2012 AAA 520,920
---------------------------------------------------------
500,000 Morganton, NC, 5.60% Water & Sewer GO UT Revenue Bonds,
6/1/2008 AAA 525,825
---------------------------------------------------------
1,000,000 New Hanover County, NC, (Project R-5) 5.40% GO UT Bonds,
(Original Issue Yield: 5.45%), 3/1/2009 A+ 1,026,640
---------------------------------------------------------
500,000 New Hanover County, NC, 5.50% GO UT Bonds, (Original
Issue Yield: 5.70%), 3/1/2012 A+ 509,845
---------------------------------------------------------
200,000 North Carolina Medical Care Commission Hospital, 5.95%
Revenue Bonds, (Presbyterian Health Services Corp)
/(Original Issue Yield: 6.00%), 10/1/2007 AA 211,006
---------------------------------------------------------
500,000 North Carolina Medical Care Commission Hospital, 6.25%
Revenue Refunding Bonds, (Rex Hospital)/(Original Issue
Yield: 6.33%), 6/1/2017 A+ 523,190
---------------------------------------------------------
1,750,000 North Carolina Municipal Power Agency No. 1, 10.50%
Revenue Bonds, (Catawba Electric)/(United States Treasury
COL), 1/1/2010 AAA 2,416,523
---------------------------------------------------------
500,000 North Carolina Municipal Power Agency No. 1, 5.25%
Revenue Refunding Bonds, (Catawba Electric)/(AMBAC
INS)/(Original Issue Yield: 5.55%), 1/1/2008 AAA 510,775
---------------------------------------------------------
500,000 North Carolina Municipal Power Agency No. 1, 5.75%
Revenue Refunding Bonds, (Catawba Electric)/(AMBAC
INS)/(Original Issue Yield: 5.80%), 1/1/2002 AAA 522,775
---------------------------------------------------------
535,000 North Carolina State, 6.20% GO UT Bonds (Series A),
(United States Treasury PRF)/(Original Issue Yield:
6.40%), 3/1/2009 (@102) AAA 580,106
---------------------------------------------------------
500,000 North Carolina State, 5.00% GO UT, 6/1/2004 AAA 509,310
---------------------------------------------------------
1,000,000 North Carolina State, 5.10% GO UT, 3/1/2002 AAA 1,023,840
---------------------------------------------------------
250,000 Pitt County, NC, 6.05% Certificate of Participation,
(FGIC INS), 4/1/1998 AAA 254,735
---------------------------------------------------------
</TABLE>
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <C> <S> <C> <C>
NORTH CAROLINA--CONTINUED
---------------------------------------------------------
$ 500,000 Randolph County, NC, 6.20% GO UT Bonds, 5/1/2005 A+ $ 536,835
---------------------------------------------------------
500,000 Rowan County, NC, 5.60% GO UT Bonds, (FGIC INS), 5/1/2011 AAA 516,855
---------------------------------------------------------
500,000 Rowan County, NC, 5.60% GO UT Bonds, (MBIA INS), 4/1/2009 AAA 521,745
---------------------------------------------------------
500,000 Union County, NC, 5.80% GO UT School Bonds, 3/1/2006 A+ 527,980
---------------------------------------------------------
600,000 Wake County, NC Industrial Facilities & PCFA, 6.90%
Revenue Bonds, (Carolina Power & Light Co.), 4/1/2009 A 642,732
---------------------------------------------------------
1,000,000 Wake County, NC, 4.80% Public Improvement Bonds GO UT,
2/1/2010 AAA 959,470
---------------------------------------------------------
500,000 Wilmington, NC, 6.30% Water & Sewer GO UT Bonds, 3/1/2005 A+ 537,985
---------------------------------------------------------
500,000 Wilmington, NC, 4.80% GO UT Refunding Bonds, 3/1/2008 A+ 489,650
---------------------------------------------------------
1,000,000 Winston-Salem, NC Water & Sewer System, 6.25% Bonds,
(Original Issue Yield: 6.299%), 6/1/2005 AA+ 1,080,750
---------------------------------------------------------
500,000 Winston-Salem, NC, 5.40% GO UT Bonds, (Original Issue
Yield: 5.30%), 6/1/2009 AAA 514,200
---------------------------------------------------------
500,000 Winston-Salem, NC, 5.40% GO UT Bonds, (Original Issue
Yield: 5.50%), 6/1/2011 AAA 508,810
--------------------------------------------------------- -----------
TOTAL 34,023,852
--------------------------------------------------------- -----------
PUERTO RICO--1.5%
---------------------------------------------------------
500,000 Puerto Rico Electric Power Authority, 5.75% Refunding
Revenue Bonds (Series V), (FSA INS)/(Original Issue
Yield: 6.00%), 7/1/2007 AAA 524,420
--------------------------------------------------------- -----------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST $33,671,661) 34,548,272
--------------------------------------------------------- -----------
</TABLE>
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
SHARES RATING* VALUE
- ---------- -------------------------------------------------------- -------- ------------
<C> <C> <S> <C> <C>
MUTUAL FUND SHARES--2.5%
- --------------------------------------------------------------------------
5,000 North Carolina Daily Municipal Fund $ 5,000
--------------------------------------------------------
902,625 PNC Funds North Carolina Municipal Money Market Fund 902,625
-------------------------------------------------------- ------------
TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) 907,625
-------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $34,579,286)(A) $ 35,455,897
-------------------------------------------------------- ------------
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $34,579,286. The
net unrealized appreciation of investments on a federal tax basis amounts to
$876,611 which is comprised of $926,301 appreciation and $49,690
depreciation at May 31, 1997. Represents a delayed delivery security.
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of net assets
($35,891,607) at May 31, 1997.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond Assurance Corporation COL -- Collateralized
FGIC -- Financial Guaranty Insurance Company FSA -- Financial Security Assurance
GO -- General Obligation INS -- Insured LOC -- Letter of Credit MBIA --
Municipal Bond Investors Assurance PCFA -- Pollution Control Finance Authority
PRF -- Prerefunded UT -- Unlimited Tax </TABLE>
(See Notes which are an integral part of the Financial Statements)
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $34,579,286) $35,455,897
- ---------------------------------------------------------------------------------
Income receivable 584,501
- --------------------------------------------------------------------------------- -----------
Total assets 36,040,398
- ---------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------
Income distribution payable $ 124,911
- --------------------------------------------------------------------
Accrued expenses 23,880
- -------------------------------------------------------------------- ----------
Total liabilities 148,791
- --------------------------------------------------------------------------------- -----------
Net Assets for 3,395,875 shares outstanding $35,891,607
- --------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid in capital $35,334,897
- ---------------------------------------------------------------------------------
Net unrealized appreciation of investments 876,611
- ---------------------------------------------------------------------------------
Accumulated net realized loss on investments (319,901)
- --------------------------------------------------------------------------------- -----------
Total Net Assets $35,891,607
- --------------------------------------------------------------------------------- -----------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- ---------------------------------------------------------------------------------
Net Asset Value per share ($35,891,607 / 3,395,875 shares outstanding) $10.57
- --------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/95.50 of $10.57)* $11.07
- --------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest $1,910,354
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------
Investment advisory fee $ 273,979
- ---------------------------------------------------------------------
Administrative personnel and services fee 54,052
- ---------------------------------------------------------------------
Custodian fees 25,001
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 32,365
- ---------------------------------------------------------------------
Directors'/Trustees' fees 2,894
- ---------------------------------------------------------------------
Auditing fees 13,207
- ---------------------------------------------------------------------
Legal fees 3,050
- ---------------------------------------------------------------------
Portfolio accounting fees 57,757
- ---------------------------------------------------------------------
Share registration costs 17,318
- ---------------------------------------------------------------------
Printing and postage 5,074
- ---------------------------------------------------------------------
Insurance premiums 3,926
- ---------------------------------------------------------------------
Miscellaneous 13,884
- --------------------------------------------------------------------- ---------
Total expenses 502,507
- ---------------------------------------------------------------------
Waiver--
- ---------------------------------------------------------------------
Waiver of investment advisory fee (273,979)
- --------------------------------------------------------------------- ---------
Net expenses 228,528
- --------------------------------------------------------------------------------- ----------
Net investment income 1,681,826
- --------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized gain on investments 8,210
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 816,069
- --------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 824,279
- --------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $2,506,105
- --------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------
1997 1996
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------
Net investment income $ 1,681,826 $ 1,765,532
- -----------------------------------------------------------------
Net realized gain (loss) on investments ($8,210 net gain and $54,981 net loss,
respectively, as computed for federal tax
purposes) 8,210 452,751
- -----------------------------------------------------------------
Net change in unrealized appreciation/depreciation 816,069 (780,988)
- ----------------------------------------------------------------- ----------- ------------
Change in net assets resulting from operations 2,506,105 1,437,295
- ----------------------------------------------------------------- ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------
Distributions from net investment income (1,681,826) (1,766,573)
- ----------------------------------------------------------------- ----------- ------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------
Proceeds from sale of shares 5,209,295 6,836,955
- -----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 203,101 255,401
- -----------------------------------------------------------------
Cost of shares redeemed (7,217,065) (9,694,151)
- ----------------------------------------------------------------- ----------- ------------
Change in net assets resulting from share transactions (1,804,669) (2,601,795)
- ----------------------------------------------------------------- ----------- ------------
Change in net assets (980,390) (2,931,073)
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of period 36,871,997 39,803,070
- ----------------------------------------------------------------- ----------- ------------
End of period $35,891,607 $ 36,871,997
- ----------------------------------------------------------------- ----------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The 111 Corcoran Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act") as an open-end, management investment
company. The Trust consists of three portfolios. The financial statements
included herein are only those of 111 Corcoran North Carolina Municipal
Securities Fund (the "Fund"), a non-diversified portfolio. The investment
objective of the Fund is to provide income which is exempt from federal regular
income tax and North Carolina state income tax. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant. Short-term securities are valued at the
prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value. Investments in other open-end regulated investment companies are
valued at net asset value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At May 31, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $319,766, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward of $264,785 will expire in 2003 and $54,981 will expire in
2004.
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
- --------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------
1997 1996
- --------------------------------------------------------------------- -------- ----------
<S> <C> <C>
Shares sold 496,835 651,305
- ---------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 19,318 24,282
- ---------------------------------------------------------------------
Shares redeemed (687,147) (923,053)
- --------------------------------------------------------------------- -------- ----------
Net change resulting from share transactions (170,994) (247,466)
- --------------------------------------------------------------------- -------- ----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Central Carolina Bank and Trust Company, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.75% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee paid to FAS is based
on the level of average aggregate net assets of the Trust for the period.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund.
The fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
111 CORCORAN NORTH CAROLINA MUNICIPAL SECURITIES FUND
- --------------------------------------------------------------------------------
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $43,033 were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following May 1, 1992 (the date the Fund became
effective). For the period ended May 31, 1997, the Fund paid $13,148 pursuant to
this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1997, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $10,642,311
- ------------------------------------------------------------------------------- -----------
SALES $13,139,100
- ------------------------------------------------------------------------------- -----------
</TABLE>
(6) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
May 31, 1997, 30.0% of the securities in the portfolio of investments are backed
by letters of credit or bond insurance of various financial institutions and
financial guaranty assurance agencies. The percentage of investments insured by
or supported (backed) by a letter of credit from any one institution or agency
did not exceed 11.7% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
111 CORCORAN FUNDS (111 Corcoran North Carolina Municipal Securities Fund):
We have audited the accompanying statement of assets and liabilities of 111
Corcoran North Carolina Municipal Securities Fund (an investment portfolio of
111 Corcoran Funds, a Massachusetts business trust), including the schedule of
portfolio investments, as of May 31, 1997, the related statement of operations
for the year then ended, and the statement of changes in net assets for each of
the two years in the period then ended, and financial highlights (see page 2 of
the prospectus) for the periods presented. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of 111
Corcoran North Carolina Municipal Securities Fund, an investment portfolio of
111 Corcoran Funds, as of May 31, 1997, and the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
July 7, 1997
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
111 Corcoran North Carolina Federated Investors Tower
Municipal Securities Fund 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
- -------------------------------------------------------------------------------------------------
Custodian
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8609
Boston, Massachusetts 02266-8609
- -------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- -------------------------------------------------------------------------------------------------
</TABLE>
111 Corcoran North Carolina Municipal Securities 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 Municipal Securities Fund (the "Fund"), a
portfolio of 111 Corcoran Funds (the "Trust") dated July 31, 1997. This
Statement is not a prospectus. You may request a copy of a prospectus or
a paper copy of this Statement, if you have received it electronically,
free of charge by calling 1-800-386-3111.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated July 31, 1997
[GRAPHIC OMITTED]
Cusip 682365101
2041605B (7/97)
<PAGE>
I
Table of Contents
<PAGE>
General Information About the Fund 1
Investment Objective and Policies 1
- ------------------------------------------------------------
Portfolio Turnover 5
Investment Limitations 5
111 Corcoran Funds Management 7
- ------------------------------------------------------------
Fund Ownership 11
Trustees' Compensation 11
Trustee Liability 12
Investment Advisory Services 12
- -------------------------------------------------------------
Adviser to the Fund 12
Advisory Fees 12
Brokerage Transactions 12
Other Services 13
- -------------------------------------------------------------
Trust Administration 13
Custodian and Portfolio Accountant 13
Transfer Agent 13
Independent Public Accountants 13
Purchasing Shares 13
Additional Purchase Information
--Payment in Kind 13
Conversion to Federal Funds 14
Determining Net Asset Value 14
- -------------------------------------------------------------
Valuing Municipal Bonds 14
Use of Amortized Cost 14
Exchange Privilege 14
Redeeming Shares 14
Redemption in Kind 14
Massachusetts Partnership Law 15
Tax Status 15
- -------------------------------------------------------------
The Fund's Tax Status 15
Shareholders' Tax Status 15
Total Return 15
Yield 16
Tax-Equivalent Yield 16
Tax-Equivalency Table 17
Performance Comparisons 18
Appendix 19
<PAGE>
General Information About the Fund
The Fund is a portfolio in the 111 Corcoran Funds which was established as a
Massachusetts business trust under a Declaration of Trust dated December 11,
1991.
Investment Objective and Policies
The Fund's investment objective is to provide for its shareholders income which
is exempt from federal regular income tax and North Carolina state income tax.
The objective cannot be changed without approval of shareholders.
Participation Interests
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from another financial
institution irrevocable letters of credit or guarantees and give the
Fund the right to demand payment of the principal amounts of the
participation interests plus accrued interest on short notice (usually
within seven days).
Variable Rate Municipal Securities
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly,
as interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable rate municipal
securities than for fixed income obligations. Many municipal securities
with variable interest rates purchased by the Fund are subject to
repayment of principal (usually within seven days) on the Fund's
demand. The terms of these variable rate demand instruments require
payment of principal obligations by the issuer of the participation
interests, or a guarantor of either issuer.
Municipal Leases
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or non-profit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity
does not appropriate funds for future lease payments, the entity cannot
be compelled to make such payments. Furthermore, a lease may provide
that the certificate trustee cannot accelerate lease obligations upon
default. The trustee would only be able to enforce lease payments as
they become due. In the event of a default or failure of appropriation,
it is unlikely that the trustee would be able to obtain an acceptable
substitute source of payment or that the substitute source of payment
will generate tax-exempt income. When determining whether municipal
leases purchased by the Fund will be classified as a liquid or illiquid
security, the Board of Trustees ("Trustees") has directed the
investment adviser to consider certain factors such as: the frequency
of trades and quotes for the security; the volatility of quotations and
trade prices for the security; the number of dealers willing to
purchase or sell the security and the number of potential purchases;
dealer undertaking to make a market in the security; the nature of the
security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers, and
the mechanics of transfer); the rating of the security and the
financial condition and prospects of the issuer of the security;
whether the lease can be terminated by the lessee; the potential
recovery, if any, from a sale of the leased property upon termination
of the lease; the lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and prospects);
the likelihood that the lessee will discontinue appropriating funding
for the lease property because the property is no longer deemed
essential to its operations (e.g., the potential for an "event of non
appropriation"); any credit enhancement or legal recourse provided upon
an event of non appropriation of other termination of the lease; and
such other factors as may be relevant to the Fund's ability to dispose
of the security.
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 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 is
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.
Temporary Investments
The Fund may also invest in temporary investments from time to time for
defensive purposes. The Fund might invest in temporary investments:
o as a reaction to market conditions;
o while waiting to invest proceeds of sales of shares or portfolio
securities, although generally proceeds from sales of shares will be
invested in municipal bonds as quickly as possible; or
o in anticipation of redemption requests.
Repurchase Agreements
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree at the time
of sale to repurchase them at a mutually agreed upon time and price
within one year from the date of acquisition. The Fund or its custodian
will take possession of the securities subject to repurchase
agreements. 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 may only enter into repurchase agreements
with banks and other recognized financial institutions such as
broker/dealers which are found by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.
From time to time, such as when suitable North Carolina municipal
securities are not available, the Fund may invest a portion of its
assets in cash. Any portion of the Fund's assets maintained in cash
will reduce the amount of assets in North Carolina municipal securities
and thereby reduce the Fund's yield.
Futures and Options Transactions
The Fund may attempt to hedge all or a portion of its portfolio by
buying and selling financial futures contracts and options on financial
futures contracts. Additionally, the Fund may buy and sell call and put
options on portfolio securities.
Financial 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.
Financial futures contracts call for the delivery of particular debt
securities issued or guaranteed by the U.S. Treasury or by specified
agencies or instrumentalities of the U.S. government.
In the fixed income securities market, price moves inversely to
interest rates. A rise in rates means a drop in price. Conversely, a
drop in rates means a rise in price. In order to hedge its holdings of
fixed income securities against a rise in market interest rates, the
Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may decline
during the Fund's anticipated holding period. The Fund would "go long"
(agree to purchase securities in the future at a predetermined price)
to hedge against a decline in market interest rates.
Purchasing Put Options on Financial Futures Contracts
The Fund may purchase listed put options on financial futures contracts
for U.S. government securities. 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.
The Fund would purchase put options on futures to protect portfolio
securities against decreases in value resulting from an anticipated
increase in market interest rates. 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 realized decrease in value of the hedged
securities.
Alternatively, the Fund may exercise its put option. 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 the premium paid for the contract
will be lost.
Writing Call Options on Financial Futures Contracts
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts for U.S. government securities
to hedge its portfolio against an increase in market interest rates.
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 market
interest rates rise, 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 offset the drop in value of the Fund's fixed income
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 offset the
decrease in value of the hedged securities.
Writing Put Options on Financial Futures Contracts
The Fund may write listed put options on financial futures contracts
for U.S. government securities to hedge its portfolio against a
decrease in market interest rates. When the Fund writes a put option on
a futures contract, it receives a premium for undertaking the
obligation to assume a long futures position (buying a futures
contract) at a fixed price at any time during the life of the option.
As market interest rates decrease, the market price of the underlying
futures contract normally increases.
As the market value of the underlying futures contract increases, the
buyer of the put option has less reason to exercise the put because the
buyer can sell the same futures contract at a higher price in the
market. The premium received by the Fund can then be used to offset the
higher prices of portfolio securities to be purchased in the future due
to the decrease in market interest rates.
Prior to the expiration of the put option, or its exercise by the
buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of buying the second option will
be less than the premium received by the Fund for the initial option.
Purchasing Call Options on Financial Futures Contracts
An additional way in which the Fund may hedge against decreases in
market interest rates is to buy a listed call option on a financial
futures contract for U.S. government securities. When the Fund
purchases a call option on a futures contract, it is purchasing the
right (not the obligation) to assume a long futures position (buy a
futures contract) at a fixed price at any time during the life of the
option. As market interest rates fall, the value of the underlying
futures contract will normally increase, resulting in an increase in
value of the Fund's option position. When the market price of the
underlying futures contract increases above the strike price plus
premium paid, the Fund could exercise its option and buy the futures
contract below market price.
Prior to the exercise or expiration of the call option the Fund could
sell an identical call option and close out its position. If the
premium received upon selling the offsetting call is greater than the
premium originally paid, the Fund has completed a successful hedge.
Limitation on Open Futures Positions
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
futures contract initial margin 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 of 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.
Purchasing Put and Call Options on Portfolio Securities
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities. A put option
gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option. A call option gives the Fund, in return for a
premium, the right to buy the underlying security from the seller.
Writing Covered Put and Call Options on Portfolio Securities
The Fund may write covered put and call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of
the option during the option period to deliver the underlying security
upon payment of the exercise price. As a writer of a put option, the
Fund has the obligation to purchase a security from the purchaser of
the option upon the exercise of the option.
The Fund may write covered call options either on securities held in
its portfolio or on securities which it has the right to obtain without
payment of further consideration (or has segregated cash in the amount
of any additional consideration). In the case of put options, the Fund
will segregate cash or U.S. Treasury obligations with a value equal to
or greater than the exercise price of the underlying securities.
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.
The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
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 restriction
on resale under federal securities law. The Fund will not invest more
than 15% of the value of its total assets in restricted securities;
however, certain restricted securities which the Trustees deem to be
liquid will be excluded from this 15% limitation.
The ability of the Trustees to determine the liquidity of certain
restricted securities is permitted under an 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 Rule 144A. The Fund believes that the Staff
of the SEC has left the question of determining the liquidity of all
restricted securities (eligible for resale under Rule 144A) for
determination to the Trustees. The Trustees consider the following
criteria in determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Portfolio Turnover
The Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. It is not anticipated that
the portfolio trading engaged in by the Fund will result in its annual
rate of portfolio turnover exceeding 100%. For the fiscal years ended
May 31, 1997 and 1996, the portfolio turnover rates for the Fund were
30% and 61%, respectively.
Investment Limitations
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary
for clearance of purchases and sales of securities. The 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 in amounts up to one-third of the value of its total
assets, including the amounts borrowed. The Fund will not borrow money
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or 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 its assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge,
or hypothecate assets having a market value not exceeding 10% of the
value of its total assets at the time of the pledge.
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, as
amended, in connection with the sale of securities in accordance with
its investment objective, policies, and limitations.
Investing in Real Estate
The Fund will not buy or sell real estate including limited partnership
interests, although it may invest in municipal bonds secured by real
estate or interests in real estate.
Investing in Commodities
The Fund, will not purchase or sell commodities. However, the Fund may
purchase put and call options on portfolio securities and on financial
futures contracts. In addition, the Fund reserves the right to hedge
the portfolio by entering into financial futures contracts and to sell
puts and calls on financial futures contracts.
Lending Cash or Securities
The Fund will not lend any of its assets except portfolio securities up
to one-third of the value of its total assets. The Fund may, however,
acquire publicly or non-publicly issued municipal bonds or temporary
investments or enter into repurchase agreements in accordance with its
investment objective, policies, and limitations or the Declaration of
Trust.
Concentration of Investments
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any
one industry, or in industrial development bonds or other securities,
the interest upon which is paid from revenues of similar types of
projects. However, the Fund may invest as temporary investments more
than 25% 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.
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 Illiquid Securities
The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement
in more than seven days after notice, over-the-counter options and
certain restricted securities and municipal leases determined by the
Board of Trustees not to be liquid.
Writing Covered Call Option and Purchasing Put 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 purchase put options on securities unless the securities are held
in the Fund's portfolio.
Investing in Securities of Other Investment Companies
The Fund 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 investment company, or invest more than 10% of its total
assets in investment companies in general. The Fund will purchase
securities of 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, 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.
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."
111 Corcoran Funds Management
Officers and Trustees are listed with their addresses, birthdates, present
positions with 111 Corcoran Funds, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp. and Federated Global
Research Corp.; Chairman, Passport Research, Ltd.; Chief
Executive Officer and Director or Trustee of the Funds. Mr.
Donahue is the father of J. Christopher Donahue, Executive
Vice President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc.
and Northgate Village Development Corporation; Director or Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee
of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
<PAGE>
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Former Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Treasurer and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Chairman and Trustee of the Company.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 22, 1962
Vice President and Assistant Treasurer
Vice President and Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as
defined in the Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee
of the Board of Trustees handles the responsibilities of the
Board between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated Government
Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust
Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Wesmark Funds; and World Investment Series, Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of July 7, 1997, the following shareholder of record owned 5% or more of the
outstanding shares of the Fund: Central Carolina Bank & Trust Company, Durham,
North Carolina, owned approximately 2,862,943 shares (84.29%).
Trustees' Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
John F. Donahue $0
Chairman and Trustee
Thomas G. Bigley $366
Trustee
John T. Conroy, Jr. $402
Trustee
William J. Copeland $402
Trustee
James E. Dowd $402
Trustee
Lawrence D. Ellis, M.D. $366
Trustee
Edward L. Flaherty, Jr. $402
Trustee
Edward C. Gonzales $0
Trustee
Peter E. Madden $366
Trustee
Gregor F. Meyer $366
Trustee
John E. Murray, Jr. $366
Trustee
Wesley W. Posvar $366
Trustee
Marjorie P. Smuts $366
Trustee
* Information is furnished for the fiscal year ended May 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 3
portfolios.
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
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' relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
For the fiscal years ended May 31, 1997, 1996, and 1995, the Adviser earned
advisory fees of $273,979, $279,921, and $317,233, respectively, all of which
were voluntarily waived. 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 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 guidelines established
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. Research
services provided by brokers and dealers may be used by the Adviser or its
affiliates in advising the Fund and other accounts. To the extent that receipt
of these services may supplant services for which the Adviser or its affiliates
might otherwise have paid, it would tend to reduce their expenses. 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. During the fiscal years ended May 31, 1997, 1996 and 1995, the Fund
paid no brokerage commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
Other Services
Trust Administration
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. For the fiscal years ended May 31, 1997, 1996 and 1995, the
following administrative fees were incurred on behalf of the Fund of $54,052,
$55,986, and $63,447, none of which were waived.
Custodian and Portfolio Accountant
Fifth Third Bank, Cincinnati, Ohio, is custodian for the securities and cash of
the Fund. Federated Services Company, Pittsburgh, PA, provides certain
accounting and recordkeeping services with respect to the Fund's portfolio
investments. The fee paid for this service is based upon the level of the Fund's
average net assets for the period plus out-of-pocket expenses.
Transfer Agent
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records and
receives a fee based on the size, type and number of accounts and transactions
made by shareholders.
Independent Public Accountants
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, Pennsylvania.
Purchasing Shares
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."
Additional Purchase Information--Payment in Kind
In addition to payment by check, shares of the Fund may be purchased by
customers of Central Carolina Bank in exchange for securities held by an
investor which are acceptable to that Fund. Investors interested in exchanging
securities must first telephone Central Carolina Bank at 1-800- 386-3111 for
instructions regarding submission of a written description of the securities the
investor wishes to exchange. Within five business days of the receipt of the
written description, Central Carolina Bank will advise the investor by telephone
whether the securities to be exchanged are acceptable to the Fund whose shares
the investor desires to purchase and will instruct the investor regarding
delivery of the securities.
There is no charge for this review.
Securities accepted by the Fund are valued in the manner and on the days
described in the section entitled "Net Asset Value" as of 4:00 p.m. (Eastern
time). Acceptance may occur on any day during the five-day period afforded
Central Carolina Bank to review the acceptability of the securities. Securities
which have been accepted by the Fund must be delivered within five days
following acceptance.
The value of the securities to be exchanged and of the shares of the Fund may be
higher or lower on the day Fund shares are offered than on the date of receipt
by Central Carolina Bank of the written description of the securities to be
exchanged. The basis of the exchange of such securities for shares of the Fund
will depend on the value of the securities and the net asset value of Fund
shares next determined following acceptance of the day Fund shares are offered.
Securities to be exchanged must be accompanied by a transmittal form which is
available from Central Carolina Bank. A gain or loss for federal income tax
purposes may be realized by the investor upon the securities exchange depending
upon the cost basis of the securities tendered. All interest, dividends,
subscription or other rights with respect to accepted securities which go "ex"
after the time of valuation become the property of the Fund and must be
delivered to the Fund by the investor forthwith upon receipt from the issuer.
Further, the investor must represent and agree that all securities offered to
the Fund are not subject to any restrictions upon their sale by the Fund under
the Securities Act of 1933, or otherwise.
Conversion to Federal Funds
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Central Carolina Bank acts as the shareholder's agent in
depositing checks and converting them to federal funds.
Determining Net Asset Value
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.
Valuing Municipal Bonds
The Trustee uses an independent pricing service to value municipal bonds. The
independent pricing service takes into consideration yield, stability, risk,
quality, coupon rate, maturity, type of issue, trading characteristics, special
circumstances of a security or trading market, and any other factors or market
data it considers relevant in determining valuations for normal institutional
size trading units of debt securities, and does not rely exclusively on quoted
prices.
Use of Amortized Cost
The Trustees have decided that the fair value of debt securities authorized to
be purchased by the Fund with remaining maturities of 60 days or less shall be
their amortized cost value, unless the particular circumstances of the security
indicate otherwise. Under this method, portfolio instruments and assets are
valued at the acquisition cost as adjusted for amortization of premium or
accumulation of discount rather than at current market value. The Executive
Committee periodically assesses this method of valuation and recommends changes
where necessary to assure that the Fund's portfolio instruments are valued at
their fair value as determined in good faith by the Trustees.
Exchange Privilege
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
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.
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.
Tax Status
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:
o derive at least 90% of its gross income from dividends,
interest, and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o 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:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o 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
The Fund's average annual total returns for the one-year period ended May 31,
1997, and for the period from July 22, 1992 (date of inception) to May 31, 1997,
were 2.28% and 4.90%, respectively.
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 charge, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
Yield
The Fund's yield for the thirty-day period ended May 31, 1997, was 4.29%. The
yield for the Fund is determined 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 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 Securities and Exchange
Commission 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.
Tax-Equivalent Yield
The Fund's tax-equivalent yield for the thirty-day period ended May 31, 1997,
was 5.96%. The tax-equivalent yield of the Fund is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a 28% tax rate and assuming that
income is 100% tax-exempt.
<PAGE>
Tax-Equivalency Table
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's portfolio
generally remains free from federal regular income tax,* and is often free from
state and local taxes as well. As the table below indicates, a "tax-free"
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF NORTH CAROLINA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED
FEDERAL
AND STATE: 22.00% 35.00% 38.75% 43.75% 47.35%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
Tax-Exempt
Yield Taxable Yield Equivalent
1.50% 1.92% 2.31% 2.45% 2.67% 2.85%
2.00% 2.56% 3.08% 3.27% 3.56% 3.80%
2.50% 3.21% 3.85% 4.08% 4.44% 4.75%
3.00% 3.85% 4.62% 4.90% 5.33% 5.70%
3.50% 4.49% 5.38% 5.71% 6.22% 6.65%
4.00% 5.13% 6.15% 6.53% 7.11% 7.60%
4.50% 5.77% 6.92% 7.35% 8.00% 8.55%
5.00% 6.41% 7.69% 8.16% 8.89% 9.50%
5.50% 7.05% 8.46% 8.98% 9.78% 10.45%
6.00% 7.69% 9.23% 9.80% 10.67% 11.40%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local income taxes.
<PAGE>
Performance Comparisons
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o 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:
o 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 net as set value over a specific
period of time. From time to time, the Fund will quote its Lipper ranking
in the general municipal bond funds category in advertising and sales
literature.
o 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.
o Lehman Brothers State General Obligation Bond Index is comprised of state
general obligation debt issues. These bonds are rated "A" or better and
represent a variety of coupon ranges. Index figures are total returns
calculated for one, three, and twelve month periods as well as
year-to-date.
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 charge.
Economic and Market Information
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.
<PAGE>
Appendix
Standard and Poor's Ratings Group Municipal Bond Rating Definitions
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--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. 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. Municipal Bond Ratings Definitions
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.
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 or municipal 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. 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 the
"F-1+" and "F-1" categories.
APPENDIX
111 Corcoran Bond Fund
The graphic representation here displayed consists of a legend in the upper left
indicating the components of the corresponding line graph. 111 Corcoran Bond
Fund (the "Fund") is represented by a blue black line. Lehman Brothers Aggregate
Bond Index ("LBABI") is represented by a broken line. The line graph is a visual
representation of a comparison of a change in value of a hypothetical $10,000
investment in the Fund, and the LBABI. The "x" axis reflects computation periods
from 7/15/92 to 5/31/97. The "y" axis reflects the cost of investment in $1,000
increments ranging from $9000 to $14,000. The right margin reflects the ending
value of the hypothetical investment in the Fund as compared to the LBABI; the
ending values were $12,939 and $13,936, respectively. Below the legend are the
One Year and Start of Performance (July 15, 1992) Average Annual Total Returns
of the Fund, which were 3.50% and 5.42%, respectively.
111 Corcoran Equity Fund
The graphic representation here displayed consists of a legend in the upper left
indicating the components of the corresponding line graph. 111 Corcoran Equity
Fund (the "Fund") is represented by a blue black line. Standard & Poor's 500
Index ("S&P 500") is represented by a broken line. The line graph is a visual
representation of a comparison of a change in value of a hypothetical $10,000
investment in the Fund, and the S&P 500. The "x" axis reflects computation
periods from 12/5/94 to 5/31/97. The "y" axis reflects the cost of investment in
$1,000 increments ranging from $9000 to $20,000. The right margin reflects the
ending value of the hypothetical investment in the Fund as compared to the S&P
500; the ending values were $17,536 and $19,819, respectively. Below the legend
are the One Year and Start of Performance (December 5, 1994) Average Annual
Total Returns of the Fund, which were 22.48% and 25.30%, respectively.
111 Corcoran North Carolina Municipal Securities Fund
The graphic representation here displayed consists of a legend in the upper left
indicating the components of the corresponding line graph. 111 Corcoran North
Carolina Municipal Securities Fund (the "Fund") is represented by a blue black
line. Lehman Brothers State General Obligation Bond Index ("LSGOB") is
represented by a broken line. The line graph is a visual representation of a
comparison of a change in value of a hypothetical $10,000 investment in the
Fund, and the LSGOB. The "x" axis reflects computation periods from 7/22/92 to
5/31/97. The "y" axis reflects the cost of investment in $1,000 increments
ranging from $9000 to $14,000. The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to the LSGOB; the ending values
were $12,652 and $12,613, respectively. Below the legend are the One Year and
Start of Performance (July 22, 1992) Average Annual Total Returns of the Fund,
which were 2.28% and 4.90%, respectively.
