SOUTHTRUST VULCAN BOND FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED APRIL 30, 1994
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
At the beginning of the fiscal year, the yield on the 30-year U.S.
Treasury bond was at 6.9% and declined to 5.7% over the next six months.
While many of the key economic barometers of growth have pointed to an
accelerating economy, recent concerns over economic growth have shifted to
concerns of inflation. As economic data has been released confirming
positive news, bond prices have declined causing the 30-year U.S. Treasury
bond yield to increase to 7.3% at the fiscal year end. Through the first
four months of 1994, the fixed-income markets have focused on the Federal
Reserve's promise to further raise interest rates should inflationary
pressures increase. The uncertainty of the Federal Reserve's timing for
this action has contributed to bond prices dropping. Through this period
the most attractive investments were found in the shorter end of the yield
curve. Over the past four months, the SouthTrust Vulcan Bond Fund made
purchases of U.S. Treasury STRIPS across a diversified maturity range of
two through ten years.
We continue to emphasize the importance of a well-diversified
portfolio of high-quality securities. Future investments will be in
securities that complement the present structure of the portfolio.
SOUTHTRUST VULCAN BOND FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN SOUTHTRUST VULCAN BOND FUND
The graph below illustrates the hypothetical investment of $10,000 in the
SouthTrust Vulcan Bond Fund (the "Fund") from May 8, 1992 (start of performance)
to April 30, 1994, compared to the Lehman Brothers Intermediate
Government/Corporate Index ("LBG/C")./
"Graphic representation "A" omitted. See Appendix."
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED APRIL 30, 1994\\
<TABLE>
<S> <C>
1 Year....................................................(4.67%)
Start of Performance (5/8/92)..............................4.57%
</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 THEIR 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 June
30, 1994, 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 4.00% ($10,000 investment minus
$400 sales charge = $9,600). The Fund's performance assumes the
reinvestment of all dividends and distributions. The LBG/C has been
adjusted to reflect reinvestment of dividends on securities in the
index.
\The LBG/C is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance.
\\Reflects maximum applicable fees.
[LOGO] FEDERATED SECURITIES CORP.
------------------------------------------------------------------------
Distributor
G00204-01 (6/94)
SOUTHTRUST VULCAN STOCK FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED APRIL 30, 1994
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
The U.S. economic recovery continued to gain momentum during the
SouthTrust Vulcan Stock Fund's (the "Fund") past fiscal year. Most of the
key economic indicators showed continuous progress, with both consumption
and production exhibiting marked improvements. New orders for durable
goods, exports, imports, and many industrial production measures have hit
all-time highs. Given slow growth in employment and an increase in
corporate profits, many explanations for the growth center around
improvements in technology and productivity.
The year has also brought its share of surprises, some negative, but
many on the positive side. For example, oil prices fell below $15 a barrel
to a level not seen since 1974 (inflation adjusted). Mortgage rates hit a
twenty-year low in mid-October; and free trade took an unexpected leap
forward with both the passage of NAFTA and completion of the GATT talks.
However, the role that the government plays in the U.S. economy
continued to grow and the budget deficit does not appear to be sustainable.
The August '93 budget agreement is designed to bring the deficit down over
the next few years, and it may, but it will not eliminate it. In fact,
increasing marginal tax rates have historically dampened economic growth to
the point that tax revenues received showed little change from prior
levels. At the same time, the cost of entitlements has risen in recent
years and with the new health care package should continue to grow in 1994.
The end result may be slow growth, more government and reduced worldwide
competitiveness.
On the positive side, some good things come from recessions. In a
competitive environment the strong survive and in many cases become more
resilient. Corporate profits have improved this year, due in large part to
effective corporate restructuring and lower rates on debt. In fact,
improved productivity caused profit growth to outpace sales growth in 1993.
With health care and other mandated payroll costs surging, companies have
chosen to substitute capital for labor. Capital goods spending hit its
largest percentage increase in nine years. This has been a boon for capital
goods manufacturers.
Sales growth for capital goods manufacturers averaged 3.8%, up from
only 0.5% a year before. Similarly, technology companies enjoyed a solid
year overall in 1993, despite a reorganization period by some of the
industry leaders. Demand for technology products was brisk as reflected by
the U.S. semiconductor industry which grew at a 35% pace for the year.
Other industries, such as homebuilding and related industries such as
cement and building materials began to gain momentum due mainly to low
mortgage rates. The U.S. auto industry saw sales of cars and light trucks
increase to 13.9 million units from 12.9 million in 1992. This was largely
due to productivity gains and improved price competitiveness as the dollar
weakened versus the yen.
SOUTHTRUST VULCAN STOCK FUND
- --------------------------------------------------------------------------------
Recently, this economic growth has caused renewed inflationary
concerns, especially on the part of the Federal Reserve, which embarked on
what was said to be preemptive moves against inflation by raising
short-term interest rates three times since the start of 1994. Under the
shadow of rising interest rates and inflation concerns, the stock market
sustained a substantial retreat from its early 1994 highs, negatively
affecting the Fund.
Over the past fiscal year, portfolio emphasis has been reduced in the
electric utility, telephone utility, financial, and healthcare industries.
Areas of increased emphasis have been the technology, energy, and capital
goods industries.
The Fund continues to invest in common stocks of those companies
believed to offer the best potential for long term growth.
SOUTHTRUST VULCAN STOCK FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN SOUTHTRUST VULCAN STOCK FUND
The graph below illustrates the hypothetical investment of $10,000 in the
SouthTrust Vulcan Stock Fund (the "Fund") from May 8, 1992 (start of
performance) to April 30, 1994, compared to the Standard & Poor's Composite
Index ("S&P 500").\
"Graphic representation "B" omitted. See Appendix."
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED APRIL 30, 1994\\
<TABLE>
<S> <C>
1 Year....................................................(6.32%)
Start of Performance (5/8/92).............................(0.06%)
</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 THEIR 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 June
30, 1994, 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. The S&P 500 has been
adjusted to reflect reinvestment of dividends on securities in the
index.
\The S&P 500 is not adjusted to reflect sales loads, expenses, or
other fees that the SEC requires to be reflected in the Fund's
performance.
\\Reflects maximum applicable fees.
[LOGO] FEDERATED SECURITIES CORP.
------------------------------------------------------------------------
Distributor
G00204-02 (6/94)
[LOGO OF SOUTHTRUST VULCAN FUNDS]
Prospectus Dated June 30, 1994
- --------------------------------------------------------------------------------
The SouthTrust Vulcan Funds (the "Company") is an open-end investment company
- -- a mutual fund-- that currently offers a selection of three investment
portfolios. Each investment portfolio ("Fund") offered by the Company and its
investment objective is described below:
. Treasury Obligations Money Market Fund -- to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal.
. Bond Fund -- to provide a level of total return consistent with a
portfolio of high-quality debt securities (see page 4 of this
Prospectus).
. Stock Fund -- to provide long-term capital appreciation, with income a
secondary consideration.
SouthTrust Bank of Alabama, N.A., is the investment adviser (the "Adviser")
of each Fund.
Shares of the Company are not deposits or obligations of SouthTrust Bank of
Alabama, N.A., are not endorsed, insured, nor guaranteed by, nor otherwise
supported by, SouthTrust Bank of Alabama, N.A., any bank, or the Federal
Deposit Insurance Corporation (the "FDIC"), the Federal Reserve Board, or any
other government agency. Although the Treasury Obligations Money Market Fund
attempts to maintain a stable net asset value of $1.00 per share, there can be
no assurance that the Fund will be able to do so. Investments in the shares of
the Bond Fund and the Stock Fund offered by this Prospectus involve investment
risks, including the possible loss of principal.
This Prospectus contains information that a prospective investor should know
before investing. Investors are encouraged to read this Prospectus and retain
it for future reference. A Statement of Additional Information dated June 30,
1994 has been filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus. It may be obtained free of
charge by calling the Company at 1-800-239-7470.
- --------------------------------------------------------------------------------
SECURITIES OFFERED BY THIS PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
EXPENSE SUMMARY
Below is a summary of the projected expenses of each Fund for the current
fiscal year.
<TABLE>
<CAPTION>
Treasury Obligations
Money Market Fund Stock Fund Bond Fund
Shareholder Transaction Expenses -------------------- ---------- ---------
<S> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................... None 4.50% 4.00%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price)..... None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds, as
applicable)....................... None None None
Redemption Fee (as a percentage of
amount redeemed, if applicable)... None 1%* 1%*
Exchange Fee....................... None None None
</TABLE>
- --------
* Applies only to shares of the Stock Fund and the Bond Fund purchased at net
asset value which are redeemed within one year of purchase. See "How to
Purchase, Exchange, and Redeem Shares."
The following Expense Table and Example are intended to assist investors in
understanding the expenses the Funds pay and that investors bear directly or
indirectly.
<TABLE>
<CAPTION>
Treasury Obligations
Money Market Fund Stock Fund Bond Fund
-------------------- ---------- ---------
Annual Operating Expenses (as a percentage of projected
average net assets)+
<S> <C> <C> <C>
Advisory Fees After Waivers*....... 0.20% 0.13% 0.13%
12b-1 Fees......................... None None None
Other Expenses..................... 0.20% 0.52% 0.57%
---- ---- ----
Total Fund Operating Expenses After 0.40% 0.65% 0.70%
Waivers.............................. ==== ==== ====
</TABLE>
*As stated below under "Management of the Funds," the Company has agreed to
pay an advisory fee to the Adviser at an annual rate of .50% of the average
daily net assets of the Treasury Obligations Money Market Fund, .75% with
respect to the Stock Fund, and .60% with respect to the Bond Fund. Absent the
anticipated voluntary fee waivers by the Adviser; and by the Administrator for
Treasury Obligations Money Market, Total Fund Operating Expenses for the
current fiscal year are expected to be 0.73%, 1.27% and 1.17% for the Treasury
Obligations Money Market, Stock and Bond Funds, respectively.
+ The Annual Fund Operating Expenses for the Treasury Obligations Money
Market Fund, the Stock Fund and Bond Fund were 0.40%, 0.48% and 0.51%,
respectively, for the fiscal year ending April 30, 1994. Had the Adviser not
voluntarily waived its fee, the annual operating expenses would have been
0.73%, 1.17%, and 1.09%, respectively. The Annual Fund Operating Expenses in
the table above are based on expenses expected to be incurred during the fiscal
year ending April 30, 1995. During the course of this period, expenses may be
more or less than the average amount shown.
Example
An investor would pay the following expenses on a $1,000 investment, assuming
(1) a hypothetical 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Treasury Obligations Money Market Fund........ $ 4 $13 $22 $51
Stock Fund.................................... $51 $65 $80 $122
Bond Fund..................................... $47 $61 $77 $124
</TABLE>
SouthTrust Bank or a SouthTrust Vulcan Funds Dealer may charge customer
accounts for other services provided to investors.
The amount of "Other Expenses" in the table above is based on estimated
expenses and projected assets for the current fiscal year. See "Management of
the Funds" in this Prospectus and the Statement of Additional Information for a
further description of the Funds' operating expenses.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING
EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. THE HYPOTHETICAL RETURNS IN THE
EXAMPLE REFLECT FEE WAIVERS AT THE ANTICIPATED RATES. THIS EXAMPLE IS BASED ON
ESTIMATED DATA FOR THE COMPANY'S FISCAL YEAR ENDING APRIL 30, 1995.
SouthTrust Vulcan Funds
Financial Highlights
- -------------------------------------------------------------------------------
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 36.
<TABLE>
<CAPTION>
Treasury
Obligations
Money Market Fund Stock Fund Bond Fund
----------------- ---------------- ----------------
Year Ended April Year Ended Year Ended
30, April 30, April 30,
----------------- ---------------- ----------------
1994 1993* 1994 1993* 1994 1993*
- ------------------------ -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $1.00 $10.36 $10.00 $10.71 $10.00
- ------------------------
Income from investment
operations
- ------------------------
Net investment income 0.03 0.03 0.19 0.19 0.63 0.66
- ------------------------
Net realized and
unrealized gain (loss)
on
investments -- -- (0.28) 0.35 (0.58) 0.69
- ------------------------ -------- -------- ------- ------- ------- -------
Total from investment
operations 0.03 0.03 (0.09) 0.54 0.05 1.35
- ------------------------ -------- -------- ------- ------- ------- -------
Less distributions
- ------------------------
Dividends to
shareholders from net
investment income (0.03) (0.03) (0.19) (0.18) (0.65) (0.62)
- ------------------------
Dividends to
shareholders from net
realized gain on
investment transactions -- -- -- -- (0.07) (0.02)
- ------------------------ -------- -------- ------- ------- ------- -------
Total distributions (0.03) (0.03) (0.19) (0.18) (0.72) (0.64)
- ------------------------ -------- -------- ------- ------- ------- -------
Net asset value, end of
period $ 1.00 $1.00 $10.08 $10.36 $10.04 $10.71
- ------------------------ -------- -------- ------- ------- ------- -------
Total Return** 2.83% 2.93% (0.90)% 5.54% 0.33% 13.44%
- ------------------------
Ratios to Average Net
Assets
- ------------------------
Expenses 0.40% 0.39%(a) 0.48% 0.39%(a) 0.51% 0.39%(a)
- ------------------------
Net investment income 2.81% 2.93%(a) 1.82% 1.91%(a) 5.97% 6.53%(a)
- ------------------------
Expense waiver/
reimbursement (b) 0.33% 0.36%(a) 0.69% 0.74%(a) 0.58% 0.59%(a)
- ------------------------
Supplemental Data
- ------------------------
Net assets, end of the
period
(000 omitted) $278,924 $194,771 $37,114 $30,935 $32,767 $25,989
- ------------------------
Portfolio turnover rate -- -- 46% 34% 6% 19%
- ------------------------
</TABLE>
* Reflects operations for the period from May 8, 1992 (date of initial
public investment) to April 30, 1993.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expenses and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
Further information about the performance of the Stock Fund and the Bond Fund
is contained in the annual report dated April 30, 1994, which can be obtained
free of charge.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The Company currently offers shares in three investment portfolios -- each
with its own investment objective and investment policies. The purchase of
shares of any Fund should not be considered a complete investment program, but
an important segment of a well-diversified investment program.
Treasury Obligations Money Market Fund
The Treasury Obligations Money Market Fund's investment objective is to
provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. In pursuing this investment
objective, the Treasury Obligations Money Market Fund (the "Treasury Money
Fund") invests solely in direct obligations of the U.S. Treasury, consisting of
Treasury bills and notes and repurchase agreements relating to direct Treasury
obligations.
All securities acquired by the Fund will have remaining maturities of
thirteen months or less (calculated in accordance with the rules of the
Securities and Exchange Commission), and the dollar-weighted average portfolio
maturity of the Fund will not exceed 90 days. Further information about the
Treasury Money Fund's investment policies is included under "Investment
Activities."
Bond Fund
The investment objective of the Bond Fund is to provide a level of total
return consistent with a portfolio of high-quality debt securities. In order to
comply with an undertaking made to certain states, the Bond Fund will pursue
this investment objective commencing on August 1, 1994. Until that date, the
Bond Fund will continue to pursue its present investment objective of providing
current income and, secondarily, capital appreciation. The Fund seeks to
achieve its objective by investing in corporate debt obligations and in U.S.
government securities, including obligations issued or guaranteed by agencies
or instrumentalities of the U.S. government. The Fund will purchase only those
securities that are considered to be at least "investment grade" (rated within
the four highest rating categories by a nationally recognized rating service
or, if unrated, are determined by the Adviser to be of comparable quality),
which may include securities having speculative characteristics. Descriptions
of each rating category are included as Appendix A to the Statement of
Additional Information. The Adviser expects that the weighted average maturity
of the Fund's portfolio securities will generally be between five and ten
years; however, the Fund's weighted average maturity of portfolio securities
may be adjusted in light of existing and anticipated market trends.
During normal market conditions, at least 65% of the Fund's total assets will
be invested in bonds. A further description of the types of obligations and the
various investment techniques used by the Bond Fund is provided under
"Investment Activities." Other securities in which the Fund may invest are U.S.
Treasury and agency obligations, commercial paper, certificates of deposit and
bankers' acceptances of domestic banks and repurchase agreements relating to
such obligations.
Stock Fund
The investment objective of the Stock Fund is to provide long-term capital
appreciation, with income a secondary consideration. The Fund seeks to achieve
its objective by investing in equity securities (i.e., common stocks),
securities convertible or exchangeable into common stocks and warrants to
purchase common stocks. The Fund's investment portfolio consists primarily of
the stocks of companies believed by the Adviser to offer the potential for
long-term growth. These companies generally are leaders in their industries and
characterized by sound management. The equity securities of such companies will
generally be dividend paying securities. The Adviser attempts to manage the
Fund's portfolio of investments to achieve total return that will generally
exceed the average return of securities included in the Standard & Poor's Daily
Price Index of 500 Common Stocks (the "S&P 500 Index"). In so doing, the
Adviser will make investment selections based on the analysis of the growth
potential of various industry sectors. The equity securities in which the Fund
will invest are traded on domestic stock exchanges or in the over-the-counter
market.
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in equity securities. In addition to investing in equity
securities, the Fund is authorized to invest in high-quality, short-term fixed-
income securities. See "Investment Activities" for a description of these and
other investment practices of the Fund, including limited investments in
warrants and American Depositary Receipts.
INVESTMENT ACTIVITIES
Repurchase Agreements. Each Fund may purchase portfolio securities subject to
the seller's agreement to repurchase them at a mutually specified date and
price ("repurchase agreements"). Repurchase agreements will be entered into
only with financial institutions, such as banks and broker/dealers, that are
deemed to be creditworthy by the Adviser under guidelines approved by the
Company's Board of Trustees (the "Trustees"). The seller under a repurchase
agreement will be required to maintain the value of the securities that are
subject to the agreement and held by a Fund in an amount that exceeds the
agreed upon repurchase price. A Fund's purchase of portfolio securities
pursuant to a repurchase agreement may be considered to be the making of a loan
to the seller. Default by or bankruptcy of the seller, however, would expose a
Fund to possible loss because of adverse market action, delays in connection
with the disposition of the underlying obligations or expenses of enforcing its
rights.
Income derived by the Treasury Money Fund from repurchase agreements may not
be exempt from taxation at the state level.
Reverse Repurchase Agreements. Each Fund may borrow funds for temporary
purposes by selling portfolio securities to financial institutions, such as
banks and broker/dealers, and agreeing to repurchase them at a mutually
specified date and price ("reverse repurchase agreements"). Reverse repurchase
agreements involve the risks that the market value of the securities sold by a
Fund may decline below the repurchase price and the other party to the
agreement may default, in which event there may be delays in recovering the
securities. The Fund would pay interest on amounts obtained pursuant to a
reverse repurchase agreement.
Investment Company Securities. In connection with the management of daily
cash positions, each Fund may invest in securities issued by other investment
companies that invest in short-term debt securities and that seek to maintain a
$1.00 net asset value per share (i.e., "money market funds"). Securities of
other investment companies will be acquired within limits prescribed by the
Investment Company Act of 1940, as amended (the "1940 Act"). These limitations,
among other matters, restrict investments in securities of other investment
companies to no more than 10% of the value of a Fund's total assets, with no
more than 5% invested in the securities of any one investment company. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the expenses
each Fund bears directly in connection with its own operations. The Treasury
Money Fund will invest only in money market funds which invest in securities of
the same or better quality as those in which the Treasury Money Fund may
invest.
When-Issued Securities and Delayed-Delivery Transactions. In order to secure
yields or prices deemed advantageous at the time, each Fund may purchase or
sell securities on a when-issued or a delayed-delivery basis. A Fund will not
enter into a when-issued or delayed-delivery transaction for speculative
purposes, but only in furtherance of its investment objective. In such
transactions, delivery of the securities occurs beyond the normal settlement
period, but no payment or delivery is made by, and no interest accrues to, the
Fund prior to, the actual delivery or payment by the other party to the
transaction, normally within seven days after the date of commitment to
purchase in the case of the Treasury Money Fund, and within 30 days of
commitment in the case of the other Funds. Due to fluctuations in the value of
securities purchased on a when-issued or delayed-delivery basis, the yields
obtained on such securities may be higher or lower than the yields available in
the market on the dates when the investments are actually delivered to the
Fund. Similarly, the sale of securities for delayed-delivery can involve the
risk that the prices available in the market when delivery is made may actually
be higher than those obtained in the transaction itself.
U.S. Government Obligations. The Bond Fund and the Stock Fund may purchase
obligations issued or guaranteed by the U.S. government or its agencies and
instrumentalities. The Treasury Money Fund invests solely in direct obligations
of the U.S. Treasury. Obligations of certain agencies and instrumentalities of
the U.S. government, such as those of the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury.
Others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the U.S. Treasury; still
others, such as those of the Student Loan Marketing Association, are supported
only by the credit of the agency or instrumentality issuing the obligation. No
assurance can be given that the U.S. government would provide financial support
to U.S. government-sponsored instrumentalities if it is not obligated to do so
by law.
Illiquid Securities. Each Fund may invest up to 15% (10% in the case of the
Treasury Money Fund) of the total value of its net assets in securities that
are illiquid. An illiquid security is one which may not be sold or disposed of
in the ordinary course of business within seven days at approximately the value
at which the Fund has valued it on its books. Repurchase agreements with
maturities in excess of seven days will be considered by the Funds to be
illiquid.
Variable and Floating Rate Instruments. Each Fund may purchase variable and
floating rate instruments. Variable and floating rate instruments may include
variable amount master demand notes that permit the amount of indebtedness to
vary in addition to providing for periodic adjustment in the interest rate. The
absence of an active secondary market, however, could make it difficult to
dispose of the instruments, and the Fund could suffer a loss if the issuer
defaulted or during periods that the Fund is not entitled to exercise its
demand rights. Variable and floating rate instruments held by a Fund may be
subject to the Fund's 15% (10% in the case of the Treasury Money Fund)
limitation on illiquid investments when the Fund can not demand payment of the
principal amount within seven days absent a reliable trading market.
Mortgage-Backed Securities. The Bond Fund may purchase mortgage-backed
securities that provide monthly payments of principal and interest. The average
life of mortgage-backed securities varies with the maturities of the underlying
instruments that have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgage pools underlying the securities as
the result of scheduled principal payments and mortgage prepayments. The rate
of such mortgage prepayments, and hence the life of the certificates, will be
primarily a function of current market rates and current conditions in the
relevant housing markets. In calculating the weighted average maturity of the
Bond Fund, the maturity of mortgage-backed instruments will be based on
estimates of average life of the underlying mortgages. The Fund will
continuously monitor and revise, as appropriate, its calculations of the
estimated average life of mortgage-backed instruments. The relationship between
mortgage prepayment and interest rates may give some high-yielding
mortgage-related securities less potential for appreciation than conventional
bonds with comparable maturities. In addition, in periods of falling interest
rates, the rate of mortgage prepayment tends to increase. During such periods,
the reinvestment of prepayment proceeds by the Fund will generally be at lower
rates than the rates that were carried by the obligations that have been
prepaid. Because of these and other reasons, a mortgage-backed security's total
return may be difficult to predict precisely. To the extent that the Fund
purchases mortgage-related or mortgage-backed securities at a premium, mortgage
prepayments (which may be made at any time without penalty) may result in some
loss of the Fund's principal investment to the extent of the premium paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. government agencies, including guaranteed mortgage pass-
through certificates, which provide the holder with a pro rata interest in the
underlying mortgages, and collateralized mortgage obligations ("CMOs"), which
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
ordinarily elect to be taxed as a pass-through entity known as real estate
mortgage investment conduits. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final distribution date. The
relative payment rights of the various CMO classes may be structured in many
ways. In most cases, however, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having
an earlier stated maturity date are paid in full. The classes may include
accrual certificates (also known as "Z-Bonds"), which only accrue interest at a
specified rate until other specified classes have been retired and are
converted thereafter to interest-paying securities. They may also include
planned amortization classes which generally require, within certain limits,
that specified amounts of principal be applied on each payment date, and
generally exhibit less yield and market volatility than other classes. The Fund
will not purchase "residual" CMO interests, which normally exhibit the greatest
price volatility.
Government Related Obligations. The Treasury Money Fund and the Bond Fund may
purchase participations in trusts that hold U.S. Treasury and agency securities
(such as TIGRs and CATs), and also may purchase Treasury receipts and other
"stripped" securities that evidence ownership in either the future interest
payments or the future principal payments on U.S. government obligations.
Participations other than those issued by the U.S. Treasury are not obligations
of the U.S. government. Stripped securities are issued at a discount to their
"face value" and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. Obligations of certain agencies and instrumentalities of
the U.S. government, such as the Government National Mortgage Association and
the Export-Import Bank of the United States, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Student Loan
Marketing Association, are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations; still others, such as those of
the Federal Farm Credit Banks or the Federal Home Loan Mortgage Corporation,
are supported only by the credit of the instrumentality. No assurance can be
given that the U.S. government would provide financial support to U.S.
government-sponsored agencies or instrumentalities if it is not obligated to do
so by law. Each Fund will invest in the obligations of such agencies or
instrumentalities and in stripped securities only when the Adviser deems the
credit risk with respect thereto to be minimal.
Zero Coupon Bonds. The Bond Fund may purchase zero coupon bonds (i.e.,
discount debt obligations that do not make periodic interest payments). Zero
coupon bonds held by a Fund are subject to greater market fluctuations from
changing interest rates than debt obligations of comparable maturities that
make current distributions of interest.
Equity Securities. The Stock Fund may invest in common stocks, convertible
bonds, convertible preferred stock and warrants to purchase common stock. A
convertible security is a security that may be converted either at a stated
price or rate within a specified period of time into a specified number of
shares of common stock. By investing in convertible securities, the Fund seeks
the opportunity, through the conversion feature, to participate in the capital
appreciation of the common stock into which the securities are convertible,
while earning higher current income than is available from the common stock.
Although the Stock Fund may acquire convertible securities that are rated below
investment grade, the Company does not expect that investments in lower-rated
convertible securities will exceed 5% of the value of the total assets of the
Fund at the time of purchase. The Stock Fund may invest up to 5% of its total
assets at the time of purchase in warrants (other than those that have been
acquired in units or attached to other securities). Warrants represent rights
to purchase securities at a specific price valid for a specific period of time.
The prices of warrants do not necessarily correlate with the prices of the
underlying securities.
American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). The Stock Fund may invest in securities of foreign issuers in the
form of ADRs, EDRs or similar securities representing securities of foreign
issuers. These securities may not be denominated in the same currency as the
securities they represent. ADRs are receipts, typically issued by a United
States bank or trust company, evidencing ownership of the underlying foreign
securities. The depositaries issuing ADRs in which the Fund will invest will be
those sponsored by the issuers of the underlying securities. EDRs are receipts
issued by a European financial institution evidencing a similar arrangement.
Generally, ADRs, in registered form, are designed for use in United States
securities markets, and EDRs, in bearer form, are designed for use in the
European securities markets. Investments in foreign securities involve higher
costs than investments in U.S. securities, including higher transaction costs
as well as the imposition of additional taxes by foreign governments. In
addition, foreign investments may include additional risks associated with the
level of currency exchange rates, less complete financial information about the
issuers, less market liquidity, and political instability. Future political and
economic developments, the possible imposition of withholding taxes on interest
income, the possible seizure or nationalization of foreign holdings, the
possible establishment of exchange controls, or the adoption of other
governmental restrictions might adversely affect the payment of principal and
interest on foreign obligations.
Liquidity Management. As a temporary defensive measure, if the Adviser
determines that market conditions warrant, the Bond Fund and the Stock Fund may
each invest without limitation in U.S. government obligations, notes, zero
coupon securities and repurchase agreements relating to U.S. government
obligations. Any strategy to manage the liquidity of the Treasury Money Fund is
subject to the Fund's policy of limiting investments to direct obligations of
the U.S. Treasury and repurchase agreements relating to such obligations.
Fixed-Income Securities. The market value of fixed-income obligations in the
Treasury Money Fund and the Bond Fund (and, consequently, in the case of the
Bond Fund, the net asset value per share) can be expected to fluctuate
inversely to changes in prevailing interest rates. Investors should also
recognize that, in periods of declining interest rates, the yields of Funds
composed primarily of fixed-income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. In addition, the Bond Fund may purchase securities
rated within the lowest category of investment grade (i.e., "Baa" by Moody's
Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's Corporation
("S&P")) and the Stock Fund may purchase securities rated below investment
grade. Securities rated in such categories may have speculative elements and
changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make principal and interest payments than is the case
with higher rated bonds.
Lending of Portfolio Securities. From time to time, each of the Funds may
lend portfolio securities to brokers/dealers and other financial organizations.
Such loans will not exceed 20% of a Fund's total assets. Loans of portfolio
securities by a Fund will be collateralized by cash, letters of credit or U.S.
government securities which are maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. The risks
in lending portfolio securities, like those associated with other extensions of
secured credit, consist of possible decline in value of collateral, possible
delays in receiving additional collateral or in the recovery of the loaned
securities or expenses of enforcing the Fund's rights. Loans will be made to
firms deemed by the Adviser to be of good standing and will not be made unless,
in the judgment of the Adviser, the consideration to be earned from such loans
would justify the risk. In order to generate additional income, each Fund may
lend portfolio securities, on a short-term or long-term basis, up to one-third
of the value of its total assets to broker/dealers, banks or other
institutional borrowers of securities.
Portfolio Transactions and Turnover
All orders for the purchase or sale of securities on behalf of a Fund are
placed by the Adviser with broker/dealers that the Adviser selects. The Company
cannot accurately predict the turnover rate for any Fund, but expects that the
annual turnover rate will generally not exceed 75% for the Bond Fund and 50%
for the Stock Fund. Short-term capital gains realized from portfolio
transactions are taxable to shareholders as ordinary income. In addition,
higher portfolio turnover rates can result in corresponding increases in
brokerage commissions and other transaction costs. The Funds will not consider
portfolio turnover rates a limiting factor in making investment decisions
consistent with their respective objectives and policies.
Investment Limitations
A Fund's investment objective and policies, except as otherwise indicated,
may be changed by the Trustees without shareholder approval. However,
shareholders will be notified in writing at least 30 days prior to any change
in the investment objective. Any such change may result in a Fund having an
investment objective different from the investment objective which the
shareholder considered appropriate at the time of investment in the Fund. No
assurance can be provided that a Fund will achieve its investment objective.
Each Fund has also adopted certain fundamental investment limitations that
may be changed only with the approval of a majority of a Fund's outstanding
shares. The following descriptions summarize several of the Funds' fundamental
investment policies, which are set forth in full in the Statement of Additional
Information.
No Fund may:
(1) purchase securities, except U.S. government securities, if more than 5%
of its total assets will be invested in the securities of any one
issuer, except that up to 25% of the Bond Fund's or the Stock Fund's
total assets may be invested without regard to this 5% limitation;
(2) subject to the foregoing 25% exception, purchase more than 10% of the
outstanding voting securities of any issuer;
(3) invest 25% or more of its total assets in one or more issuers
conducting their principal business activities in the same industry;
and
(4) borrow money except for temporary purposes in amounts up to one-third
of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will
not make any additional investments.
These investment limitations are applied at the time investment securities
are purchased.
HOW TO PURCHASE, EXCHANGE AND REDEEM SHARES
Purchase of Shares -- General
Federated Securities Corp. (the "Distributor") has established several
procedures for purchasing shares of the Company. Shares may be purchased
through SouthTrust Bank of Alabama, N.A., or its affiliated and correspondent
banks ("SouthTrust"), or Fund shares may be purchased through a broker/dealer
that has entered into a sales agreement with the Distributor (a "SouthTrust
Vulcan Funds Dealer"). SouthTrust or a SouthTrust Vulcan Funds Dealer will be
responsible for transmitting purchase and redemption orders directly to the
Distributor in a timely manner. Orders may be placed by contacting the Fund at
1-800-239-7470. Texas residents should purchase shares through Federated
Securities Corp. at 1-800-356-2805. Purchases will be effected at the net asset
value next determined after the purchase order is received in proper form by
the transfer agent and the custodian has federal funds available immediately to
it. SouthTrust (or a SouthTrust Vulcan Funds Dealer) will normally be the
holder of record of Fund shares and will reflect a customer's beneficial
ownership of shares in the customer's account statements. Investors wishing to
purchase shares of any Fund should contact their SouthTrust account
representative or a SouthTrust Vulcan Funds Dealer.
The minimum initial investment in each Fund is $1,000. The minimum subsequent
investment is $50. With respect to investments made in the Funds through a
sweep program, initial investment minimums may be modified under the relevant
account agreement. Purchases may be effected on business days when the Adviser,
Distributor, and the custodian are open for business. The Company reserves the
right to reject any purchase order. Account applications may be obtained by
calling the Fund at 1-800-239-7470. SouthTrust or a SouthTrust Vulcan Funds
Dealer may set different minimums for its customers.
Purchase of Shares -- The Treasury Money Fund
Shares of the Treasury Money Fund are sold without a sales charge or
redemption fee. Purchase orders for shares of the Treasury Money Fund must be
received by the Distributor no later than 12:00 noon (Eastern time) on any
business day. Orders received before 12:00 noon (Eastern time) will be executed
at 12:00 noon; however, if federal funds for such orders are not received by
4:00 p.m. (Eastern time), the order will be canceled with notice to the
institution placing the order. Orders received in proper form after 12:00 noon
(Eastern time) will be executed on the next business day.
Purchase of Shares -- Bond Fund and Stock Fund
Shares of the Bond Fund and the Stock Fund are purchased at the net asset
value per share plus any applicable sales charge (the "Public Offering Price")
next determined on the day the purchase order is received. Net asset value is
determined at the close of regular trading hours of the New York Stock Exchange
(currently 4:00 p.m. Eastern time). Immediately available funds in payment of
the purchase price must be received by the Funds' custodian no later than 4:00
p.m. (Eastern time) by the fifth business day following receipt of the order.
If federal funds are not received by such date, the order will be canceled and
notice thereof will be given, and the institution placing the order will be
responsible for any loss to the Funds or their shareholders. Payment for orders
which are not received or accepted will be returned after prompt inquiry to the
sending institution.
Automatic Investment Program ("AIP"). Once an account has been opened in a
Fund, shareholders may add to their investment on a monthly basis in a minimum
amount of $50. Under the AIP, funds may be automatically withdrawn from the
shareholder's checking account, via Automated Clearing House ("ACH")
processing, through the shareholder's financial institution. Such funds are
invested in shares at the net asset value next determined plus any applicable
sales charges on the day an order is effected by the transfer agent. An
investor may apply for participation in the AIP through SouthTrust or a
SouthTrust Vulcan Funds Dealer servicing his or her SouthTrust Vulcan account
and by completing the supplementary AIP authorization form. In order to
participate in the AIP, the investor must determine that his or her financial
institution is an ACH participant and will clear and process ACH transactions.
The AIP may be modified or terminated by a shareholder on 30-days' written
notice to SouthTrust, a SouthTrust Vulcan Funds Dealer, or by the Fund at any
time.
Sales Charge
The Public Offering Price of shares of the Bond Fund or the Stock Fund equals
the Fund's net asset value per share plus any applicable sales charge. No sales
charge will be assessed on the reinvestment of distributions. The following
tables illustrate the applicable front-end sales charge at various investment
levels.
<TABLE>
<CAPTION>
Sales Dealer
Charge Concession
Bond Fund ------ ----------
<S> <C> <C>
$0 but less than $100,000................................. 4.00% 3.50%
$100,000 but less than $250,000........................... 3.00% 2.50%
$250,000 but less than $500,000........................... 2.50% 2.00%
$500,000 but less than $1,000,000......................... 2.00% 1.50%
$1,000,000 or more........................................ 0* 0%
<CAPTION>
Sales Dealer
Charge Concession
Stock Fund ------ ----------
<S> <C> <C>
$0 but less than $50,000.................................. 4.50% 4.00%
$50,000 but less than $100,000............................ 4.00% 3.50%
$100,000 but less than $250,000........................... 3.25% 2.75%
$250,000 but less than $500,000........................... 2.75% 2.25%
$500,000 but less than $1,000,000......................... 1.75% 1.25%
$1,000,000 or more........................................ 0* 0%
</TABLE>
- --------
* A redemption fee of 1% may be imposed on certain redemptions made within one
year of purchase. See "Redemption of Shares" -- "Redemption Fee."
The Distributor will pay the appropriate dealer concession to SouthTrust
Vulcan Fund Dealers. Upon notice, the Distributor may also elect to reallow a
higher percentage of the sales charge stated above to selected brokers and
dealers for all sales made during a particular period. From time to time, the
Distributor will conduct sales programs and contests that compensate SouthTrust
Vulcan Funds Dealers with cash or non-cash items, such as payments of certain
expenses of qualified SouthTrust Vulcan Funds Dealers and their spouses to
attend informational meetings about the Bond or Stock Funds or other special
events at recreational facilities, or items of material value. In some
instances, these incentives will be made available only to SouthTrust Vulcan
Funds Dealers who have sold or may sell significant amounts of shares. The cost
of such compensation is borne by the Distributor and is not borne by the Bond
Fund or Stock Fund.
Reduced Sales Charges
The sales charge on purchases of the Bond Fund and the Stock Fund may be
reduced through the following:
. right of accumulation;
. quantity discounts;
.letter of intent; and
.reinvestment privilege.
Right of Accumulation. Under the Right of Accumulation, the current value of
an investor's existing shares in the Bond Fund or the Stock Fund may be
combined with the amount of the investor's current purchases in determining the
applicable sales charge. In order to receive the cumulative quantity reduction,
previous purchases of Fund shares must be called to the attention of the Fund
at the time of the current purchase.
Quantity Discounts. As shown on the prior page, larger purchases reduce the
sales charge paid. The Company will combine purchases made on the same day by
the investor, spouse and any children under age 21 when calculating the sales
charge.
Letter of Intent. An investor may qualify for a reduced sales charge
immediately by signing a non-binding Letter of Intent stating the investor's
intention to invest during the next 13 months a specified amount which, if made
at one time, would qualify for a reduced sales charge. Any redemptions made
during the 13-month period will be subtracted from the amount of purchases in
determining whether the terms of the Letter of Intent have been met. During the
term of a Letter of Intent, the Company's transfer agent will hold Fund shares
representing 5% of the specified amount in escrow for payment of a higher sales
load if the full amount specified in the Letter of Intent is not purchased. The
escrowed shares will be released when the full amount specified has been
purchased and an adjustment will be made to reflect any reduced sales charge
applicable to shares purchased during the 90 day period prior to submission of
the Letter of Intent. If the full amount specified is not purchased within the
13-month period, the investor will be required to pay an amount equal to the
difference in the dollar amount of sales charge actually paid and the amount of
sales charge the investor would have had to pay on his or her aggregate
purchases if the total of such purchases had been made at a single time. If
such remittance is not received within 20 days after such request is made, the
Fund's transfer agent, pursuant to the terms of the Letter of Intent, will
redeem a sufficient number of shares held in escrow to realize the difference.
Reinvestment Privilege. Upon redemption of Fund shares, a shareholder has a
one-time right, to be exercised within 30 days, to reinvest the redemption
proceeds without any sales charge at the next determined net asset value after
receipt of the purchase order. The shareholder must notify in writing
SouthTrust or his or her SouthTrust Vulcan Funds Dealer of the reinvestment in
order to eliminate a sales charge.
Miscellaneous. Reduced sales charges may be modified or terminated at any
time and are subject to confirmation of an investor's holdings. For more
information about reduced sales charges, an investor should contact his or her
SouthTrust account representative, a SouthTrust Vulcan Funds Dealer or the
Fund.
Sales Charge Waivers. The following classes of investors may purchase shares
of the Bond Fund and the Stock Fund with no sales charge in the manner
described below: (1) officers, trustees, directors, employees and retired
employees of SouthTrust Corporation and its affiliates, and employees of the
transfer agent, Distributor or an authorized SouthTrust Vulcan Funds Dealer
(and spouses and children of the foregoing); (2) investors for whom SouthTrust
Corporation or one of its affiliates acts in a fiduciary, advisory, custodial,
agency or similar capacity (this does not include self-directed Individual
Retirement Accounts' transactions executed by SouthTrust Securities, Inc.); and
(3) investors who purchase shares of the Bond Fund or the Stock Fund through a
401(k) plan or a 403(b) plan which by its terms permits purchases of shares.
Exchanges of Shares
The exchange privilege enables shareholders to exchange shares of a Fund for
shares in another Fund offered by the Company. Shareholders may also exchange
shares of a Fund for Class A Shares (or Liberty Shares, as the case may be) in
certain funds within the Liberty Family of Funds ("Liberty Funds"), which funds
are distributed by Federated Securities Corp. The Liberty Funds with net asset
value exchange privileges with the Company are:
.American Leaders Fund, Inc.;
.Fund for U.S. Government Securities, Inc.;
.International Bond Fund;
.International Equity Fund;
.Liberty Equity Income Fund, Inc.;
.Liberty Municipal Securities Fund, Inc.;
.Liberty Utility Fund, Inc.; and
.Tax-Free Instruments Trust.
Exchanging Shares. Shareholders who have purchased shares of the Bond Fund or
the Stock Fund (a "load Fund") (including shares acquired through a
reinvestment of a dividend or distribution on such shares) may exchange those
shares for shares of another load Fund or a Liberty Fund identified previously
without paying an additional exchange or sales charge, except that, in the case
of the Bond Fund, this privilege does not apply to exchanges into the Stock
Fund until an investor has owned shares in the Bond Fund for 90 days. The 90-
day holding period does not apply to exchanges in which the investor obtained
Bond Fund shares through a prior exchange of shares of the Stock Fund. When
shares of the Treasury Money Fund are exchanged for shares of a load Fund or a
Liberty Fund, the applicable sales charge (if any) will be assessed. However,
shareholders exchanging shares of the Treasury Money Fund which were received
in a previous exchange involving shares on which a load was paid will not be
required to pay an additional sales charge upon notification of the
reinvestment of the equivalent investment into a load Fund.
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 Fund or Liberty Fund into
which an exchange is to be effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of
proper instructions and all necessary supporting documents, shares submitted
for exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee (see "Redemption of
Shares"). Exercise of this privilege is treated as a sale for federal income
tax purposes and, depending on the circumstances, a short or long-term capital
gain or loss may be realized. The exchange privilege may be terminated at any
time upon 60 days' written notice to shareholders. A shareholder may obtain
further information on the exchange privilege by consulting the shareholder's
SouthTrust account representative, a SouthTrust Vulcan Funds Dealer, or the
Distributor.
Exchange-by-Telephone. An investor may telephone an exchange request by
calling the investor's SouthTrust account representative or SouthTrust Vulcan
Funds Dealer which is responsible for transmitting such exchange request to the
Distributor. Shares may be exchanged by telephone only between fund accounts
having identical shareholder registrations. Telephone exchange instructions may
be recorded.
An investor may have difficulty in making exchanges by telephone through a
SouthTrust account representative or SouthTrust Vulcan Funds Dealer during
times of drastic economic or market changes. If a shareholder cannot contact
the shareholder's SouthTrust account representative or SouthTrust Vulcan Funds
Dealer by telephone, it is recommended that an exchange request be made in
writing and sent by overnight mail.
An investor should be aware that a transaction initiated by telephone and
reasonably believed to be genuine by the above-named parties may subject the
investor to the risk of loss if such transaction is subsequently found not to
be genuine. If reasonable procedures are not followed by the Funds, they may be
liable for losses due to unauthorized or fraudulent telephone instructions.
Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent by the SouthTrust account representative or a
SouthTrust Vulcan Funds Dealer before an exchange request can be processed.
Redemption of Shares
An investor may redeem Fund shares in accordance with instructions and
limitations relating to the customer's account at SouthTrust or the investor's
SouthTrust Vulcan Funds Dealer. These procedures will vary in accordance with
the type of account, and a shareholder should contact the account
representative to redeem shares. A SouthTrust account representative or a
SouthTrust Vulcan Funds Dealer is responsible for transmitting redemption
orders promptly to the Fund.
No charge for wiring redemption payments is imposed by the Company, although
SouthTrust or a SouthTrust Vulcan Funds Dealer may charge customer accounts for
services provided in connection with the redemption of shares. Information
relating to such redemption services and charges, if any, may be obtained by
customers from their account representative. Except for certain redemptions
made within one year from the date of purchase, redemption orders are effected
at the net asset value per share next determined after receipt of the order by
the Distributor. See "Redemption Fee" below for a discussion of circumstances
in which a redemption fee may be assessed on redemptions.
With respect to the Bond Fund and the Stock Fund, redemption proceeds are
normally remitted in federal funds to the redeeming institution within five
business days following receipt of the order.
With respect to the Treasury Money Fund, if a redemption order is received by
the Distributor on a business day before 12:00 noon (Eastern time), payment is
normally wired the same day in federal funds. Payment for redemption orders
received between 12:00 noon (Eastern time) and 4:00 p.m. (Eastern time) is
normally wired on the next business day. The Fund reserves the right to wire
redemption proceeds within five business days after receiving the redemption
order if, in the judgment of the Adviser, an earlier payment could adversely
impact the Fund.
A written redemption request must identify the account number and be
accompanied by share certificates, if any have been issued, properly endorsed
for transfer. A signature guarantee is required with respect to written
redemption requests. If shares to be redeemed have a value of $5,000 or more,
the signature(s) must be guaranteed by an "eligible guarantor institution" as
that term is defined under Rule 17Ad-15 under the Securities Exchange Act of
1934. Such institutions may include domestic banks, savings and loan
institutions, credit unions, brokers, dealers, securities exchanges and
associations and clearing agencies, which are approved by the transfer agent.
Additional documentation may be required if the redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator.
Redemption Fee
In order to discourage short-term investments in the Bond Fund and the Stock
Fund, the Company charges a redemption fee in connection with redemptions of
shares held for less than one year which were purchased at net asset value
(investments in excess of $1,000,000). The charge is 1% of the lesser of the
value of the shares redeemed (exclusive of reinvested dividends and capital
gain distributions) or the total cost of such shares. In determining if a
charge applies and the amount of any such charge, the first shares redeemed are
those purchased with reinvested dividends and capital gain distributions,
followed by others held the longest. The redemption fee is not assessed on (i)
exchanges (except if shares acquired by exchange were then redeemed within 12
months of the initial purchase); (ii) redemptions made in connection with
distributions from qualified retirement plans, 403(b) plans or IRAs due to
death, disability or attainment of age 59 1/2; (iii) redemptions resulting from
the tax-free return of excess contributions to IRAs or employee benefit plans;
and (iv) redemptions through certain automatic withdrawals. The 1% redemption
fee is not a deferred sales charge but is rather a means to offset the
additional costs associated with short-term investments in the Funds.
Automatic Withdrawal Plan ("AWP"). An AWP may be established by a new or
existing shareholder of any Fund if the value of the shareholder's account
(valued at the net asset value at the time of the establishment of the AWP)
equals $10,000 or more. Shareholders who elect to establish an AWP may receive
a monthly, quarterly, semi-annual, or annual payment in a stated amount of not
less than $50. Fund shares will be redeemed as necessary to meet withdrawal
payments. Withdrawals may reduce principal and eventually deplete the
shareholder's account. If a shareholder desires to establish an AWP after
opening an account, a signature guarantee will be required. An AWP may be
terminated by a shareholder on 30-days' written notice to SouthTrust, a
SouthTrust Vulcan Funds Dealer, or by the Fund at any time.
Purchase of Shares at Net Asset Value. From time to time, the Distributor may
offer special concessions to enable investors to purchase shares of a load Fund
offered by the Company at net asset value, without payment of a sales charge.
To qualify for a net asset value purchase, the investor must pay for such
purchase with proceeds from the redemption of shares of a non-affiliated mutual
fund on which a sales charge was paid. A qualifying purchase of shares must
occur within 30 days of the prior redemption and must be evidenced by a
confirmation of the redemption transaction. At the time of purchase, SouthTrust
or a SouthTrust Vulcan Funds Dealer must notify the Distributor that the
purchase qualifies for a purchase at net asset value. Proceeds from the
redemption of shares on which no sales charges or commissions were paid do not
qualify for a purchase at net asset value.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Treasury Money Fund are declared
daily and paid monthly. All dividends are paid in cash. Shareholders may elect
to have their dividends reinvested in additional shares of a Fund at the net
asset value of such shares on the payment date. Such election, or any
revocation thereof, must be communicated in writing by SouthTrust or a
SouthTrust Vulcan Funds Dealer on behalf of its customer to the transfer agent
and will become effective with respect to dividends paid after its receipt. The
crediting and payment of dividends will be in accordance with the procedures
governing the shareholder's account at SouthTrust or the SouthTrust Vulcan
Funds Dealer. Shareholders whose purchase orders are received and executed by
12:00 noon (Eastern time) receive dividends for that day. On the other hand,
shareholders whose redemption orders have been received by 12:00 noon (Eastern
time) will not receive dividends for that day, while shareholders whose
redemption orders have been received after 12:00 noon (Eastern time) will
receive that day's dividends. The Fund does not expect to realize net long-term
capital gains.
Dividends from net investment income are declared and paid monthly by the
Bond Fund. Dividends from net investment income are declared and paid quarterly
by the Stock Fund. Each Fund's net realized capital gains (including net short-
term capital gains) are distributed at least annually.
Each Fund's expenses are deducted from the total income of the Fund before
dividends are declared and paid. These expenses include, but are not limited
to, fees paid to the Adviser and the administrator, custodian and transfer
agent; fees and expenses of officers and Trustees; taxes; interest; legal and
auditing fees; brokerage fees and commissions; certain fees and expenses in
registering and qualifying each Fund and its shares for distribution under
federal and state securities laws; expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders;
the expense of reports to shareholders, shareholders' meetings, and proxy
solicitations; fidelity bond and trustees' and officers' liability insurance
premiums; and the expense of using independent pricing services and other
expenses which are not assumed by the administrator. Any general expenses of
the Company that are not readily identifiable as belonging to a particular Fund
will be allocated among all Funds by or under the direction of the Trustees in
a manner the Trustees determine to be fair and equitable. The Adviser,
administrator, custodian and transfer agent may voluntarily waive all or a
portion of their fees from time to time.
PRICING OF SHARES
The net asset value of shares in the Bond Fund and the Stock Fund for
purposes of pricing purchase and redemption orders is determined once daily as
of the close of regular trading hours on the New York Stock Exchange or 4:00
p.m. (Eastern time) on days the New York Stock Exchange is closed. The net
asset value of shares of the Treasury Money Fund is determined and the shares
are priced twice daily as of 12:00 noon (Eastern time) and as of the time the
Bond Fund and the Stock Fund are priced. Net asset value and pricing are
determined on each day the New York Stock Exchange and the Federal Reserve Bank
of Philadelphia ("FRB") are open for trading. Currently, the days on which the
New York Stock Exchange and/or the FRB are closed (other than weekends) are:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day (observed), Independence Day, Labor Day, Columbus Day (observed),
Veterans' Day, Thanksgiving Day, and Christmas Day. Each Fund's net asset value
is calculated by adding the value of all securities and other assets of the
Fund, subtracting its liabilities and dividing the result by the number of
outstanding shares.
With respect to the Bond Fund and the Stock Fund, securities which are traded
on a recognized stock exchange are valued at the last sales price on the
securities exchange on which such securities are primarily traded or at the
last sale price on the national securities market. Securities traded only on
over-the-counter markets are valued on the basis of closing over-the-counter
bid prices. Securities for which there were no transactions are valued at the
average of the current bid and asked prices. Restricted securities, securities
for which market quotations are not readily available, and other assets are
valued at fair value by the Adviser under the supervision of the Trustees. Debt
securities with remaining maturities of 60 days or less at the time of purchase
are valued on an amortized cost basis (unless the Trustees determine that such
basis does not represent fair value at the time). Under this method, such
securities are valued initially at cost on the date of purchase. Thereafter,
absent unusual circumstances, the Funds assume a constant proportionate
amortization of any discount or premium until maturity of the security. With
respect to the Treasury Money Fund, portfolio securities are valued on an
amortized cost basis in an effort to maintain a net asset value of $1.00 per
share.
MANAGEMENT OF THE FUNDS
Board of Trustees
The Company is managed under the direction of the Board of Trustees. The
Statement of Additional Information contains background information and the
name of each Trustee.
Investment Adviser
SouthTrust Bank of Alabama, N.A., a national banking association, serves as
the investment adviser for each of the Funds. The Adviser, headquartered in
Birmingham, Alabama, is a wholly-owned subsidiary of SouthTrust Corporation, a
publicly-held bank holding company. The Adviser and SouthTrust Corporation have
their principal offices at 420 North 20th Street, Birmingham, Alabama 35203.
The Adviser's experience includes the management of various collective and
common investment funds and the provision of investment management services to
banks and thrift institutions, corporate and profit-sharing trusts, municipal
and state retirement funds, and individual investors. As of June 1, 1994, the
Adviser had approximately $1.245 billion in assets under management. The
Adviser has not previously served as investment adviser to a mutual fund.
Subject to the supervision of the Trustees, the Adviser provides overall
investment management for each Fund, provides research and credit analysis, is
responsible for all purchases and sales of portfolio securities, maintains
books and records with respect to each Fund's securities transactions and
provides periodic and special reports to the Trustees as requested.
For the advisory services provided and expenses assumed by it, the Adviser is
entitled to receive a fee from each Fund, computed daily and payable monthly,
at an annual rate of .50% of the average daily net assets of the Treasury Money
Fund, .60% with respect to the Bond Fund, and .75% with respect to the Stock
Fund. Although the fee rate to be paid to the Adviser by the Stock Fund is
higher than that paid by most other investment companies, it is comparable to
the fee rate paid to advisers of many other investment companies having
investment objectives and policies similar to those of the Stock Fund.
Robert E. Hardin is the Stock Fund's portfolio manager, and has managed the
Fund since its inception on May 8, 1992. Mr. Hardin is a Chartered Financial
Planner, and is a Vice President and Senior Portfolio Manager in the Trust
Investment Division of SouthTrust Bank of Alabama, N.A. Mr. Hardin has been
employed by SouthTrust Bank of Alabama, N.A. since 1986. Mr. Hardin has a
bachelor's degree from the University of South Alabama. David J. Howell is the
Bond Fund's portfolio manager, and has managed the Fund since its inception on
May 8, 1992. Mr. Howell is a Senior Trust Investment Officer and Portfolio
Manager in the Trust Investment Division of SouthTrust Bank of Alabama, N.A.
Mr. Howell has been employed by SouthTrust Bank of Alabama, N.A. since 1987.
Mr. Howell has a bachelor's degree from the University of North Alabama.
As part of its regular banking operations, SouthTrust Bank of Alabama, N.A.
may make loans to public companies. Thus, it may be possible, from time to
time, for the Funds to hold or acquire the securities of issuers which are also
lending clients of SouthTrust Bank of Alabama, N.A. The lending relationship
will not be a factor in the selection of securities.
Administrator, Custodian, and Transfer Agent
Federated Administrative Services, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779, a subsidiary of Federated Investors, provides the
Funds with certain administrative personnel and services necessary to operate
the Funds, such as legal and accounting services. The administrator provides
these at an annual rate as specified below:
<TABLE>
<CAPTION>
Maximum Average Daily Net Assets
Administrative Fee of the Company
------------------ -----------------------------------
<S> <C>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. The administrator may voluntary waive a portion of its fee.
State Street Bank and Trust Company ("State Street"), whose principal office
is located in Boston, Massachusetts, serves as the custodian of the Company's
assets. State Street has served as the Company's custodian since November 5,
1993. The Company's prior custodian was Provident National Bank.
Federated Services Company is transfer agent and dividend disbursing agent
for the Company. It also provides certain accounting and recordkeeping services
with respect to each Fund's portfolio investments. The transfer agent, which is
a subsidiary of Federated Investors, has the same address as the administrator
and Distributor.
Distributor
Shares of each Fund are sold on a continuous basis for the Company by
Federated Securities Corp. It is a Pennsylvania corporation organized on
November 14, 1969, and is the distributor for a number of investment companies.
The Distributor, which is a subsidiary of Federated Investors, has the same
address as the administrator and transfer agent.
TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Such qualification relieves a Fund of liability for federal income taxes to the
extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that a Fund distribute to its shareholders
an amount equal to at least 90% of its investment company income (if any) net
of certain deductions for such year. In general, a Fund's investment company
income will be its taxable income (including dividends, interest, and short-
term capital gains) subject to certain adjustments and excluding the excess of
any net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. Each Fund intends to distribute
substantially all of its investment company income each taxable year. Such
distributions will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such income is received in cash or reinvested in additional shares. (Federal
income taxes for distributions to an IRA or qualified retirement plan are
deferred under the Code.) The dividends received deduction for corporations
will apply to such distributions by the Stock Fund to the extent of the total
qualifying dividends received by the distributing Fund from domestic
corporations for the taxable year.
Substantially all of each of the Bond Fund and the Stock Fund's net realized
long-term capital gains, if any, will be distributed at least annually to such
Fund's shareholders. The Funds will generally have no tax liability with
respect to such gains, and the distributions will be taxable to such
shareholders who are not currently exempt from federal income taxes as long-
term capital gains, regardless of how long the shareholders have held such Fund
shares and whether such gains are received in cash or reinvested in additional
shares. The Treasury Money Fund does not expect to realize long-term capital
gains, and therefore, does not expect to distribute any capital gain dividends.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year if such dividends are actually paid during January of the following year.
Before purchasing shares in the Bond Fund or the Stock Fund, the impact of
dividends or distributions which are expected to be declared or have been
declared, but not paid, should be carefully considered. Any dividend or
distribution declared shortly after a purchase of such shares prior to the
record date will have the effect of reducing the per share net asset value by
the per share amount of the dividend or distribution. All or a portion of such
dividend or distribution, although in effect a return of capital, may be
subject to tax.
A taxable gain or loss may be realized by a holder of shares of the Bond Fund
or the Stock Fund upon the redemption or transfer of such Fund shares,
depending upon the tax basis of such shares and their price at the time of
redemption or transfer.
Distributions of net investment income may be taxable to shareholders as
dividend income under state or local law even though a substantial portion of
such distributions may be derived from interest on U.S. government obligations,
which, if realized directly, would be exempt from such income taxes.
Shareholders should consult their tax advisers concerning the application of
state and local taxes.
The Treasury Money Fund is structured to provide shareholders, to the extent
permissible by federal and state law, with income that is exempt or excluded
from taxation at the state and local level. Many states, by statute, judicial
decision or administrative action, have taken the position that dividends of a
regulated investment company, such as the Treasury Money Fund, that are
attributable to interest on direct U.S. Treasury obligations, are the
functional equivalent of interest from such obligations and are, therefore,
exempt from state and local taxes. Shareholders should consult their own tax
adviser about the status of distributions from the Fund in their own state.
Shareholders of the Treasury Money Fund will be informed of the percentage of
income distributed by the Fund which is attributable to U.S. government
obligations.
On an annual basis, the Company will send written notices to record owners of
shares regarding the federal tax status of distributions made by each Fund.
Since this is not an exhaustive discussion of applicable tax consequences,
investors may wish to contact their tax advisers concerning investments in the
Funds.
DESCRIPTION OF SHARES
The Company was organized as a Massachusetts business trust on March 4, 1992,
and is registered under the 1940 Act as an open-end management investment
company. Effective June 30, 1993, the Company changed its name from "Vulcan
Funds' to "SouthTrust Vulcan Funds.' The Master Trust Agreement authorizes the
Trustees to classify and reclassify any unissued shares into one or more
classes of shares. Pursuant to such authority, the Trustees have authorized the
issuance of an unlimited number of shares of beneficial interest in the
Company, representing interests in the Treasury Obligations Money Market Fund,
the Bond Fund and the Stock Fund, respectively, each of which is classified as
a diversified investment company under the 1940 Act.
Each share of a Fund has a par value of $.001, represents an equal
proportionate interest in the particular Fund involved and is entitled to such
dividends and distributions earned on such Fund's assets as are declared in the
discretion of the Trustees.
The Company's shareholders are entitled to one vote for each full share held
and proportionate fractional votes for fractional shares held, and will vote in
the aggregate and not by Fund, except where otherwise required by law or when
the Trustees determine that the matter to be voted upon affects only the
interests of the shareholders of a particular Fund. Under Massachusetts law and
the Company's Master Trust Agreement, the Company is not required and does not
currently intend to hold annual meetings of shareholders for the election of
Trustees except as required under the 1940 Act. The Trustees are required to
call a meeting of shareholders upon the written request of at least 10% of the
Company's outstanding shares. In addition, to the extent required by law, the
Company will assist in shareholder communications in connection with such a
meeting. For a further discussion of the voting rights of shareholders, see
"Additional Information Concerning Shares" in the Statement of Additional
Information. As of May 31, 1994, Lynspen & Company of Birmingham, Alabama,
acting in various capacities for numerous accounts, was the owner of record of
205,575,807 shares (85.31%) of the SouthTrust Vulcan Treasury Obligations Money
Market Fund; Lynspen & Company of Birmingham, Alabama, acting in various
capacities for numerous accounts, was the owner of record of 2,674,956 shares
(81.86%) of the SouthTrust Vulcan Bond Fund; Lynspen & Company of Birmingham,
Alabama, acting in various capacities for numerous accounts, was the owner of
record of 2,662,091 shares (71.90%) of the SouthTrust Vulcan Stock Fund, and
therefore, may, for certain purposes, be deemed to control the Funds and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TOTAL RETURNS AND YIELDS
Total Return. From time to time the Bond Fund and the Stock Fund may
advertise their average annual total return over various periods of time. Such
total return figures show the average percentage change in value of an
investment in a Fund from the beginning date of the measuring period to the end
of the measuring period. These figures reflect changes in the price of the
Fund's shares and assume that any income dividends and/or capital gain
distributions made by the Fund during the period were reinvested in shares of
the Fund. When considering average total return figures for periods longer than
one year, it is important to note that the relevant Fund's average annual total
return for any one year in the period might have been greater or less than the
average for the entire period. The Bond Fund and the Stock Fund may also use
aggregate total return figures for various periods representing the cumulative
share prices and assuming reinvestment of dividends and distributions.
Aggregate total returns may be shown by means of schedules, charts or graphs
and may indicate sub-totals of the various components of total return (i.e.,
change in value of initial investment, income dividends and capital gains
distributions).
Yield. From time to time, the Bond Fund may quote a 30-day yield in
advertisements or in communications to shareholders. The yield of a Fund refers
to the income generated by an investment in the Fund over a 30-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
the 30-day period is assumed to be earned and reinvested at a constant rate and
compounded semi-annually. The annualized income is then shown as a percentage
of the investment.
The Treasury Money Fund may advertise its yield and effective yield. Both
yield figures are based on historical earnings and are not intended to indicate
future performance. Yield refers to the income generated by an investment in
the Fund over a seven-day period (which period will be stated in the
advertisement). This income is then annualized. That is, the amount of income
generated by the investment during the week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment.
Effective yield is calculated similarly but, when annualized, the income earned
by an investment in the Fund is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of
this assumed reinvestment.
Quotations of yield and total return of each Fund represent a Fund's past
performance and should not be considered as representative of future results.
Any account fees charged by SouthTrust or a SouthTrust Vulcan Funds Dealer will
not be included in the Fund's calculations of yield and total return. Such
fees, if any, will reduce the investor's net return on an investment. The
methods used to compute each performance quotation are described in more detail
in the Statement of Additional Information.
SouthTrust Vulcan Treasury Obligations
Money Market Fund
Portfolio of Investments
April 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
----------- -------------------------------------------------- ------------
<C> <S> <C>
U.S. Treasury Bills--55.1%
- -------------------------------------------------------------------------------
$15,000,000 5/12/94 $ 14,985,173
--------------------------------------------------
20,000,000 6/2/94 19,939,822
--------------------------------------------------
10,000,000 6/9/94 9,965,388
--------------------------------------------------
10,000,000 6/16/94 9,958,856
--------------------------------------------------
15,000,000 7/7/94 14,908,713
--------------------------------------------------
10,000,000 7/21/94 9,921,475
--------------------------------------------------
15,000,000 7/28/94 14,885,050
--------------------------------------------------
15,000,000 8/4/94 14,873,333
--------------------------------------------------
5,000,000 8/11/94 4,952,117
--------------------------------------------------
5,000,000 8/25/94 4,941,919
--------------------------------------------------
10,000,000 9/1/94 9,874,096
--------------------------------------------------
10,000,000 9/15/94 9,856,531
--------------------------------------------------
10,000,000 9/22/94 9,848,100
--------------------------------------------------
5,000,000 10/6/94 4,913,428
-------------------------------------------------- ------------
Total U.S. Treasury Bills 153,824,001
-------------------------------------------------- ------------
*Repurchase Agreements--45.1%
- -------------------------------------------------------------------------------
30,000,000 First Boston Corp., 3.50%, dated 4/29/94, due
5/2/94 30,000,000
--------------------------------------------------
50,000,000 Kidder, Peabody & Co., Inc., 3.55%, dated 4/29/94,
due 5/2/94 50,000,000
--------------------------------------------------
45,807,000 Sanwa-BGK Securities Co., 3.40%, dated 4/29/94,
due 5/2/94 45,807,000
-------------------------------------------------- ------------
Total Repurchase Agreements (Note 2B) 125,807,000
-------------------------------------------------- ------------
Total Investments, at amortized cost (Note 2A) $279,631,001+
-------------------------------------------------- ------------
</TABLE>
+ Also represents cost for federal tax purposes.
* The repurchase agreements are fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio.
Note: The categories of investments are shown as a percentage of net assets
($278,924,255) at April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
SouthTrust Vulcan Stock Fund
Portfolio of Investments
April 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------- ---------------------------------------------------- -----------
<C> <S> <C>
Short-Term Investments--1.3%
- ---------------------------------------------------------------------------
Mutual Fund Shares
----------------------------------------------------
496,588 Federated Short-Term U.S. Government Securities Fund
(at net asset value) (Note 2A) $ 496,588
---------------------------------------------------- -----------
Common Stocks--98.8%
- ---------------------------------------------------------------------------
Business Equipment & Services--3.2%
----------------------------------------------------
16,900 Automatic Data Processing 870,350
----------------------------------------------------
5,200 Dun & Bradstreet Corp. 305,500
---------------------------------------------------- -----------
Total 1,175,850
---------------------------------------------------- -----------
Capital Goods--9.2%
----------------------------------------------------
3,500 Caterpillar, Inc. 384,562
----------------------------------------------------
11,900 Emerson Electric Co. 693,175
----------------------------------------------------
3,600 General Electric Co. 342,450
----------------------------------------------------
17,800 Illinois Tool Works, Inc. 736,475
----------------------------------------------------
5,100 PACCAR, Inc. 272,850
----------------------------------------------------
30,000 Pall Corp. 510,000
----------------------------------------------------
12,600 Rockwell International Corp. 491,400
---------------------------------------------------- -----------
Total 3,430,912
---------------------------------------------------- -----------
Consumer Durables--6.2%
----------------------------------------------------
18,400 Chrysler Corp. 880,900
----------------------------------------------------
28,300 Echlin, Inc. 735,800
----------------------------------------------------
12,000 Whirlpool Corp. 702,000
---------------------------------------------------- -----------
Total 2,318,700
---------------------------------------------------- -----------
Consumer Non-Durables--12.3%
----------------------------------------------------
24,700 Coca-Cola Co. 1,028,138
----------------------------------------------------
8,200 General Mills, Inc. 423,325
----------------------------------------------------
16,000 International Flavors & Fragrances, Inc. 584,000
----------------------------------------------------
23,200 Procter & Gamble Co. 1,319,500
----------------------------------------------------
</TABLE>
SouthTrust Vulcan Stock Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------- ------------------------------------- -----------
<C> <S> <C>
Common Stocks--continued
- ------------------------------------------------------------
20,200 Sara Lee Corp. $ 419,150
-------------------------------------
28,400 UST, Inc. 791,650
------------------------------------- -----------
Total 4,565,763
------------------------------------- -----------
Consumer Services--7.5%
-------------------------------------
14,900 Block, H&R, Inc. 633,250
-------------------------------------
26,300 Disney, Walt Co. 1,114,462
-------------------------------------
25,100 Reader's Digest Associates, Inc. 1,041,650
------------------------------------- -----------
Total 2,789,362
------------------------------------- -----------
Energy--13.2%
-------------------------------------
10,900 Amoco Corp. 611,763
-------------------------------------
3,900 Atlantic Richfield Co. 371,962
-------------------------------------
11,400 Chevron Corp. 1,014,600
-------------------------------------
19,100 Exxon Corp. 1,200,913
-------------------------------------
15,500 Mobil Corp. 1,212,875
-------------------------------------
8,800 Schlumberger, Ltd. 484,000
------------------------------------- -----------
Total 4,896,113
------------------------------------- -----------
Financial Services--6.2%
-------------------------------------
12,400 American International Group 1,057,100
-------------------------------------
4,600 Federal National Mortgage Association 382,950
-------------------------------------
4,900 Marsh & McLennan Co. 414,050
-------------------------------------
20,600 Marshall & Isley Corp. 427,450
------------------------------------- -----------
Total 2,281,550
------------------------------------- -----------
Health Care--2.9%
-------------------------------------
14,500 Merck & Company, Inc. 429,563
-------------------------------------
11,100 Pfizer, Inc. 654,900
------------------------------------- -----------
Total 1,084,463
------------------------------------- -----------
Multi-Industry--3.4%
-------------------------------------
18,200 Minnesota Mining & Manufacturing Co. 889,525
-------------------------------------
7,000 Tenneco, Inc. 358,750
------------------------------------- -----------
Total 1,248,275
------------------------------------- -----------
</TABLE>
SouthTrust Vulcan Stock Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------- ------------------------------------- -----------
<C> <S> <C>
Common Stocks--continued
- ---------------------------------------------------------------
Raw Materials--7.2%
-------------------------------------
17,400 Air Products & Chemicals, Inc. $ 752,550
-------------------------------------
14,100 Rohm & Haas 807,225
-------------------------------------
25,700 Sherwin Williams Co. 809,550
-------------------------------------
11,400 Union Carbide Corp. 300,675
------------------------------------- -----------
Total 2,670,000
------------------------------------- -----------
Retail--9.2%
-------------------------------------
11,500 Dillard Department Stores 385,250
-------------------------------------
30,200 Home Depot, Inc. 1,268,400
-------------------------------------
14,700 Toys R Us 508,988(a)
-------------------------------------
50,200 Wal-Mart Stores 1,267,550
------------------------------------- -----------
Total 3,430,188
------------------------------------- -----------
Shelter, Forest Product & Paper--1.5%
-------------------------------------
24,600 Shaw Industries 538,125
------------------------------------- -----------
Technology--13.7%
-------------------------------------
18,100 AT&T Corp. 925,362
-------------------------------------
6,900 Hewlett Packard Co. 553,725
-------------------------------------
19,500 Intel Corp. 1,189,500
-------------------------------------
26,600 MCI Communications 608,475
-------------------------------------
11,200 Microsoft Corp. 1,036,000(a)
-------------------------------------
12,000 Motorola, Inc. 535,500
-------------------------------------
13,200 Novell, Inc. 242,550(a)
------------------------------------- -----------
Total 5,091,112
------------------------------------- -----------
Transportation--1.7%
-------------------------------------
9,800 Norfolk Southern Corp. 625,975
------------------------------------- -----------
</TABLE>
SouthTrust Vulcan Stock Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------- ------------------------------------------------------- -----------
<C> <S> <C>
Common Stocks--continued
- -------------------------------------------------------------------------------
Utilities--1.4%
-------------------------------------------------------
12,800 Consolidated Natural Gas $ 504,000
------------------------------------------------------- -----------
Total Common Stocks (identified cost, $36,748,410) 36,650,388
------------------------------------------------------- -----------
Total Investments (identified cost, $37,244,998) (Note
2A) $37,146,976+
------------------------------------------------------- -----------
</TABLE>
(a)Non-income producing.
+ The cost of investments for federal tax purposes amounts to $37,247,466. The
net unrealized depreciation on a federal tax basis amounts to $100,490,
which is comprised of $1,527,993 appreciation and $1,628,483 depreciation at
April 30, 1994.
Note:The categories of investments are shown as a percentage of net assets
($37,114,072) at April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
SouthTrust Vulcan Bond Fund
Portfolio of Investments
April 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal
Amount Value
---------- ------------------------------------------------------ ----------
<C> <S> <C>
Short-Term Investments--0.1%
- -------------------------------------------------------------------------------
Mutual Fund Shares
- -------------------------------------------------------------------------------
26,813 Federated Short-Term U.S. Government Securities Fund
(at net asset value) (Note 2A) $ 26,813
------------------------------------------------------ ----------
Long-Term Investments--98.1%
- -------------------------------------------------------------------------------
Corporate Bonds--20.4%
- -------------------------------------------------------------------------------
Banking--4.2%
------------------------------------------------------
$ 500,000 State Street Boston Corp., 5.95%, 9/15/2003 446,690
------------------------------------------------------
1,000,000 Wachovia Corp., 6.375%, 4/15/2003 921,640
------------------------------------------------------ ----------
Total 1,368,330
------------------------------------------------------ ----------
Finance--3.0%
------------------------------------------------------
765,000 Associates Corp. of North America, 5.25%, 3/30/2000 691,552
------------------------------------------------------
275,000 International Lease Financing Corp., 5.75%, 1/15/96 274,343
------------------------------------------------------ ----------
Total 965,895
------------------------------------------------------ ----------
Electrical--3.6%
------------------------------------------------------
1,300,000 Motorola, Inc., 6.50%, 3/1/2008 1,186,874
------------------------------------------------------ ----------
Oil & Oil Finance--2.7%
------------------------------------------------------
900,000 Amoco CDA Pete Co., 6.75%, 2/15/2005 870,966
------------------------------------------------------ ----------
Retail--1.9%
------------------------------------------------------
750,000 Wal-Mart Stores, Inc., 6.75%, 10/15/2023 642,518
------------------------------------------------------ ----------
Telephones--3.0%
------------------------------------------------------
1,000,000 New England Telephone & Telegraph Co., 6.25%, 12/15/97 997,300
------------------------------------------------------ ----------
Utilities--2.0%
------------------------------------------------------
700,000 Baltimore Gas & Electric Co., 5.50%, 7/15/2000 645,043
------------------------------------------------------ ----------
Total Corporate Bonds 6,676,926
------------------------------------------------------ ----------
</TABLE>
SouthTrust Vulcan Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
---------- -------------------------------------------- -----------
<C> <S> <C>
Long-Term Investments--continued
- ----------------------------------------------------------------------
Federal National Mortgage Association--3.6%
- ----------------------------------------------------------------------
$ 200,000 6.50%, 10/25/2012 $ 199,976
--------------------------------------------
1,000,000 7.50%, 7/25/2020 990,450
-------------------------------------------- -----------
Total Federal National Mortgage Association 1,190,426
-------------------------------------------- -----------
Government National Mortgage Association--3.4%
- ----------------------------------------------------------------------
1,371,047 8.00%, 5/15/2022 1,108,656
-------------------------------------------- -----------
U.S. Treasury Bonds--12.5%
- ----------------------------------------------------------------------
1,500,000 7.25%, 5/15/2016 1,466,355
--------------------------------------------
1,000,000 7.875%, 12/15/2021 1,046,960
--------------------------------------------
1,000,000 8.00%, 11/15/2021 1,064,680
--------------------------------------------
600,000 6.25%, 8/15/2023 522,864
-------------------------------------------- -----------
Total U.S. Treasury Bonds 4,100,859
-------------------------------------------- -----------
U.S. Treasury Notes--40.5%
- ----------------------------------------------------------------------
550,000 8.625%, 8/15/94 556,974
--------------------------------------------
500,000 6.00%, 11/15/94 503,650
--------------------------------------------
1,000,000 7.75%, 2/15/95 1,021,200
--------------------------------------------
1,000,000 7.50%, 1/31/96 1,036,920
--------------------------------------------
400,000 4.625%, 2/15/96 392,976
--------------------------------------------
800,000 8.00%, 10/15/96 836,600
--------------------------------------------
1,000,000 6.50%, 11/30/96 1,011,260
--------------------------------------------
500,000 6.75%, 2/28/97 507,960
--------------------------------------------
1,000,000 5.50%, 7/31/97 978,390
--------------------------------------------
1,000,000 8.125%, 2/15/98 1,057,230
--------------------------------------------
1,000,000 7.125%, 10/15/98 1,021,500
--------------------------------------------
1,000,000 7.00%, 4/15/99 1,014,650
--------------------------------------------
1,000,000 8.00%, 8/15/99 1,058,440
--------------------------------------------
1,000,000 8.00%, 5/15/2001 1,061,140
--------------------------------------------
1,000,000 7.50%, 11/15/2001 1,034,650
--------------------------------------------
200,000 6.25%, 2/15/2003 189,794
-------------------------------------------- -----------
Total U.S. Treasury Notes 13,283,334
-------------------------------------------- -----------
</TABLE>
SouthTrust Vulcan Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
---------- ------------------------------------------------- -----------
<C> <S> <C>
U.S. Treasury STRIPs--17.7%
- ----------------------------------------------------------------------------
$1,100,000 0.00%, 2/15/96 $ 996,622
-------------------------------------------------
1,160,000 0.00%, 2/15/97 977,938
-------------------------------------------------
1,205,000 0.00%, 5/15/97 1,001,018
-------------------------------------------------
1,315,000 0.00%, 8/15/98 992,457
-------------------------------------------------
1,310,000 0.00%, 5/15/99 936,531
-------------------------------------------------
1,800,000 0.00%, 2/15/2004 889,470
------------------------------------------------- -----------
Total U.S. Treasury Strip 5,794,036
------------------------------------------------- -----------
Total Long-Term Obligations (identified cost,
$32,923,514) 32,154,237
------------------------------------------------- -----------
Total Investments (identified cost, $32,950,327)
(Note 2A) $32,181,050+
------------------------------------------------- -----------
</TABLE>
+ The cost of investments for federal tax purposes amounts to $32,950,327. The
net unrealized depreciation on a federal tax basis amounts to $769,277,
which is comprised of $259,621 appreciation and $1,028,898 depreciation at
April 30, 1994.
Note:The categories of investments are shown as a percentage of net assets
($32,767,393) at April 30, 1994.
The following abbreviation is used in this portfolio:
STRIPs--Separate Trading of Registered Interest and Principal of Securities
(See Notes which are an integral part of the Financial Statements)
SouthTrust Vulcan Funds
Statement of Assets and Liabilities
April 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Obligations Stock Bond
Money Market Fund Fund Fund
-------------------- ----------- -----------
<S> <C> <C> <C>
Assets:
- -----------------------------
Investments in repurchase
agreements $125,807,000 $ -- $ --
- -----------------------------
Investments, in securities 153,824,001 37,146,976 32,181,050
- ----------------------------- ------------ ----------- -----------
Total investments, at
amortized cost and value 279,631,001 37,146,976 32,181,050
(Notes 2A & 2B) ------------ ----------- -----------
- -----------------------------
Cash 330 -- --
- -----------------------------
Receivable for Fund shares
sold -- 7,642 164,498
- -----------------------------
Interest receivable 24,347 1,166 433,332
- -----------------------------
Receivable for investments
sold -- 235,412 --
- -----------------------------
Dividends receivable -- 56,380 --
- -----------------------------
Prepaid/deferred expenses 63,825 22,038 20,679
(Note 2F) ------------ ----------- -----------
- -----------------------------
Total assets 279,719,503 37,469,614 32,799,559
- ----------------------------- ------------ ----------- -----------
Liabilities:
- -----------------------------
Payable for Fund shares
repurchased -- 91,332 5,780
- -----------------------------
Dividends payable 714,832 -- --
- -----------------------------
Payable for investments
purchased -- 240,713 --
- -----------------------------
Payable to portfolio
accounting agent (Note 4) 23,012 13,548 15,557
- -----------------------------
Payable to transfer and
dividend disbursing agent
(Note 4) 3,810 2,270 2,320
- -----------------------------
Accrued expenses 53,594 7,679 8,509
- ----------------------------- ------------ ----------- -----------
Total liabilities 795,248 355,542 32,166
- ----------------------------- ------------ ----------- -----------
Total net assets $278,924,255 $37,114,072 $32,767,393
- ----------------------------- ------------ ----------- -----------
Net Assets Consist of:
- -----------------------------
Paid-in capital $ -- $37,443,567 $33,504,956
- -----------------------------
Net unrealized appreciation
(depreciation) of investments -- (98,022) (769,277)
- -----------------------------
Accumulated undistributed net
realized gain (loss) on
investments -- (246,559) 99
- -----------------------------
Undistributed net investment -- 15,086 31,615
income ------------ ----------- -----------
- -----------------------------
Total net assets $278,924,255 $37,114,072 $32,767,393
- ----------------------------- ------------ ----------- -----------
Shares Outstanding 278,924,255 3,680,863 3,264,957
- ----------------------------- ------------ ----------- -----------
Net Asset Value, Per Share:
(Net Assets/Shares $ 1.00 $ 10.08 $ 10.04
outstanding) ------------ ----------- -----------
- -----------------------------
Offering Price Per Share:*** $ -- $ 10.55* $ 10.46**
- ----------------------------- ------------ ----------- -----------
Proceeds on Redemption Per $ -- $ 9.98+ $ 9.94++
Share:+++ ------------ ----------- -----------
- -----------------------------
Investments, at identified $ -- $37,244,998 $32,950,327
cost ------------ ----------- -----------
- -----------------------------
Investments, at identified $ -- $37,247,466 $ --
tax cost ------------ ----------- -----------
- -----------------------------
</TABLE>
* Computation of offering price: 100/95.5 of net asset value.
** Computation of offering price: 100/96 of net asset value.
*** See "How to Purchase, Exchange, and Redeem Shares" in the prospectus.
+ Computation of proceeds on redemption 99/100 of $10.08.
++ Computation of proceeds on redemption 99/100 of $10.04.
+++ No redemption fees were imposed on redemptions of Stock and Bond Fund
shares prior to April 30, 1994. See "How to Purchase, Exchange, and Redeem
Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
SouthTrust Vulcan Funds
Statement of Operations
Year ended April 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Obligations Stock Bond
Money Market Fund Fund Fund
-------------------- ----------- -----------
<S> <C> <C> <C>
Investment Income:
- -------------------------------
Interest income $8,083,346 $ 17,436 $ 1,913,909
- -------------------------------
Dividend income -- 805,266 --
- ------------------------------- ---------- ----------- -----------
Total income (Note 2C) 8,083,346 822,702 1,913,909
- ------------------------------- ---------- ----------- -----------
Expenses--
- -------------------------------
Investment advisory fee (Note
4) 1,258,348 268,510 177,577
- -------------------------------
Trustees' fees 4,087 980 272
- -------------------------------
Administrative personnel and
services fees (Note 4) 364,908 51,805 50,000
- -------------------------------
Custodian fees 30,581 13,223 9,690
- -------------------------------
Transfer and dividend
disbursing agent fees (Note 4) 9,968 15,809 13,857
- -------------------------------
Portfolio accounting services
(Note 4) 57,832 28,438 31,684
- -------------------------------
Registration fees 53,870 15,609 15,515
- -------------------------------
Auditing fees 9,876 5,550 6,750
- -------------------------------
Legal fees 22,435 3,265 3,238
- -------------------------------
Printing and postage 2,096 10,588 9,672
- -------------------------------
Insurance premiums 9,184 2,957 2,634
- -------------------------------
Miscellaneous 10,257 2,827 2,182
- ------------------------------- ---------- ----------- -----------
Total expenses 1,833,442 419,561 323,071
- ------------------------------- ---------- ----------- -----------
Deduct--
- -------------------------------
Waiver of investment advisory
fee (Note 4) 755,008 221,969 139,101
- -------------------------------
Waiver of administrative
personnel and services fees 71,756 25,591 32,836
(Note 4) ---------- ----------- -----------
- -------------------------------
Net expenses 1,006,678 172,001 151,134
- ------------------------------- ---------- ----------- -----------
Net investment income 7,076,668 650,701 1,762,775
- ------------------------------- ---------- ----------- -----------
Realized and Unrealized
Gain/(Loss) on Investments:
- -------------------------------
Net realized gain (loss) on
investments (identified cost
basis) -- 173,268 23,027
- -------------------------------
Net change in unrealized
appreciation (depreciation) on -- (1,304,643) (1,952,481)
investments ---------- ----------- -----------
- -------------------------------
Net realized and unrealized -- (1,131,375) (1,929,454)
gain on investments ---------- ----------- -----------
- -------------------------------
Change in net assets $7,076,668 $ (480,674) $ (166,679)
resulting from operations ---------- ----------- -----------
- -------------------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
SouthTrust Vulcan Funds
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Obligations Stock Bond
Money Market Fund Fund Fund
---------------------------- ------------------------ ------------------------
Year Ended April 30, Year Ended April 30, Year Ended April 30,
---------------------------- ------------------------ ------------------------
1994 1993* 1994 1993* 1994 1993*
- ------------------------ ------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets:
- ------------------------
Operations--
- ------------------------
Net investment income $ 7,076,668 $ 6,702,969 $ 650,701 $ 482,999 $ 1,762,775 $ 1,391,277
- ------------------------
Net realized gain (loss)
on investments -- -- 173,268 (419,827) 23,027 193,851
- ------------------------
Net change in unrealized
appreciation
(depreciation) on
investments -- -- (1,304,643) 1,206,621 (1,952,481) 1,183,204
- ------------------------ ------------- ------------- ----------- ----------- ----------- -----------
Change in net assets
resulting from
operations 7,076,668 6,702,969 (480,674) 1,269,793 (166,679) 2,768,332
- ------------------------ ------------- ------------- ----------- ----------- ----------- -----------
Distributions to
Shareholders
(Note 2C)--
- ------------------------
Dividends to
shareholders from net
investment income (7,076,668) (6,702,969) (654,641) (463,973) (1,818,557) (1,303,880)
- ------------------------
Distributions to
shareholders from net
realized gain on
investment transactions -- -- -- -- (184,224) (32,555)
- ------------------------ ------------- ------------- ----------- ----------- ----------- -----------
Change in net assets
from distributions to
shareholders (7,076,668) (6,702,969) (654,641) (463,973) (2,002,781) (1,336,435)
- ------------------------ ------------- ------------- ----------- ----------- ----------- -----------
Fund Share (Principal)
Transactions (Note 3)--
- ------------------------
Net proceeds from sale
of shares 560,051,555 660,872,816 11,512,558 30,835,352 11,400,885 24,851,326
- ------------------------
Net asset value of
shares issued to
shareholders electing to
receive payment of
dividends in Fund shares 24,997 115,587 93,861 31,471 118,424 40,604
- ------------------------
Cost of shares redeemed (475,923,119) (466,217,581) (4,291,790) (737,885) (2,571,009) (335,274)
- ------------------------ ------------- ------------- ----------- ----------- ----------- -----------
Change in net assets
from Fund share
transactions 84,153,433 194,770,822 7,314,629 30,128,938 8,948,300 24,556,656
- ------------------------ ------------- ------------- ----------- ----------- ----------- -----------
Change in net assets 84,153,433 194,770,822 6,179,314 30,934,758 6,778,840 25,988,553
- ------------------------
Net Assets:
- ------------------------
Beginning of period 194,770,822 -- 30,934,758 -- 25,988,553 --
- ------------------------ ------------- ------------- ----------- ----------- ----------- -----------
End of period 278,924,255 194,770,822 37,114,072 30,934,758 32,767,393 25,988,553
- ------------------------ ------------- ------------- ----------- ----------- ----------- -----------
Undistributed net
investment income
included in net assets
at end of period $ -- $ -- $ 15,086 $ 19,026 $ 31,615 $ 87,397
- ------------------------ ------------- ------------- ----------- ----------- ----------- -----------
</TABLE>
*For the period from April 29, 1992 (start of business) to April 30, 1993.
(See Notes which are an integral part of the Financial Statements)
SouthTrust Vulcan Funds
Combined Notes to Financial Statements
April 30, 1994
- -------------------------------------------------------------------------------
(1) Organization
SouthTrust Vulcan Funds (the "Company") (formerly, the "Vulcan Funds") is
registered under the Investment Company Act of 1940, as amended, as an open-
end, management investment company. The Company consists of three diversified
portfolios (individually referred to as a "Fund" and collectively as, the
"Funds"): Treasury Obligations Money Market Fund, Bond Fund, and Stock Fund.
The assets of each 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 Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles
(GAAP).
A. Investment Valuations--Listed equity securities, corporate bond and other
fixed income securities are valued at the last sales price reported on na-
tional securities exchanges. Unlisted securities and bonds are generally
valued at the price provided by an independent pricing service. Short-term
securities with remaining maturities of sixty days or less may be stated at
amortized cost, which approximates value.
U.S. government obligations are generally valued at the mean between the
over-the-counter bid and asked prices as furnished by an independent
pricing service. Corporate bonds (and other fixed-income securities and
asset-backed securities) are valued at the last sale price on national
securities exchanges on that day, if available. Otherwise, corporate bonds
(and other fixed-income securities and asset-backed securities) and short-
term obligations are valued at the prices provided by an independent
pricing service.
Investments in other regulated investment companies are valued at net asset
value.
The Treasury Obligations Money Market Fund's use of the amortized cost
method to value its portfolio securities is in accordance with Rule 2a-7
under the Investment Company Act of 1940.
B. Repurchase Agreements--It is the policy of the Funds to require the custo-
dian bank to take possession, to have legally segregated in the Federal Re-
serve Book Entry System or to have segregated within the custodian's bank's
vault, all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Funds to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure the value at least equals the principal
amount of the repurchase agreement, including accrued interest.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Funds' adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Funds could receive less than the repurchase
price on the sale of collateral securities.
- -------------------------------------------------------------------------------
C. Investment Income, Expenses, and Distributions--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
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").
D. Federal Taxes--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their taxable income. Accord-
ingly, no provisions for federal tax are necessary. At April 30, 1994, the
Stock Fund, for federal tax purposes, had a capital loss carryforward of
$156,224 which will reduce the Fund's taxable income arising from a 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 will ex-
pire in 2001 ($112,348) and 2002 ($43,876). Additionally, net capital
losses of $87,867 attributable to security transactions incurred after Oc-
tober 31, 1993, are treated as arising on May 1, 1994, the first day of the
Fund's next taxable year.
E. When-Issued and Delayed-Delivery Transactions--The Funds may engage in
when-issued or delayed-delivery transactions. A 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 securi-
ties purchased. Securities purchased on a when-issued or delayed-delivery
basis are marked to market daily and begin earning interest on the settle-
ment date.
F. Deferred Expenses--The costs incurred by the Funds with respect to regis-
tration of their shares in their first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being amor-
tized using the straight-line method over a period of five years from the
Funds' commencement date.
G. Other--Investment transactions are accounted for on the trade date.
(3) Shares of Beneficial Interest
The Master Trust Agreement permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (par value of $0.001).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year ended April 30,
----------------------------------------------------------------------
1994 1993*
---------------------------------- ----------------------------------
Treasury Treasury
Obligations Obligations
Money Market Stock Bond Money Market Stock Bond
Fund Fund Fund Fund Fund Fund
- ----------------------- ------------ --------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 560,051,555 1,160,044 1,125,524 660,872,816 3,053,039 2,454,460
- -----------------------
Shares issued to
shareholders in payment
of dividends declared 24,997 8,999 11,129 115,587 3,003 3,838
- -----------------------
Shares redeemed (475,923,119) (474,016) (298,375) (466,217,581) (70,206) (31,619)
- ----------------------- ------------ --------- --------- ------------ --------- ---------
Net change resulting
from Fund share 84,153,433 695,027 838,278 194,770,822 2,985,836 2,426,679
transactions ------------ --------- --------- ------------ --------- ---------
- -----------------------
</TABLE>
*For the period from April 29, 1992 (start of business) to April 30, 1993.
(4) Investment Advisory Fee and Other Transactions with Affiliates
Investment Advisory Fee--SouthTrust Bank of Alabama, N.A., the Company's
investment adviser ("Adviser"), receives for its services an annual investment
advisory fee equal to 0.50 of 1% of the Treasury Obligations Money Market Fund
average daily net assets; 0.75 of 1% of the Stock Fund's average daily net
assets; and 0.60 of 1% of the Bond Fund's average daily net assets,
respectively. Adviser may voluntarily choose to waive a portion of its fee.
Adviser can modify or terminate this voluntarily waiver at any time at its sole
discretion.
Administration Fee--Federated Administrative Services ("FAS") provides the
Company with certain administrative personnel and services. The FAS fee is
based on the level of average aggregate net assets of the Funds for the period.
FAS may voluntarily choose to waive a portion of its fee.
Transfer Agent and Dividend Disbursing Agent, Accounting, and Custody Fees--
Federated Services Company ("FServ") serves as transfer agent and dividend
disbursing agent for the Company. The FServ fee is based on the size, type, and
number of accounts and transactions made by shareholders.
FServ also maintains the Company's accounting records. The fee is based on the
level of each Fund's average net assets for the period, plus out-of-pocket
expenses.
Organizational Expenses--Organizational expenses were borne initially by Advis-
er. The Company has agreed to reimburse the Adviser for the organizational ex-
penses borne by the Adviser during the five-year period following the date the
Funds' first became effective. For the year ended April 30, 1994, the following
amounts were paid to the Adviser pursuant to this agreement:
<TABLE>
<CAPTION>
Organizational Organizational
Fund Expenses Expenses Paid
- -------------------------------------- -------------- --------------
<S> <C> <C>
Treasury Obligations Money Market Fund $25,255 $4,978
- --------------------------------------
Stock Fund 5,959 1,248
- --------------------------------------
Bond Fund 5,579 1,116
- --------------------------------------
</TABLE>
During the year ended April 30, 1994, the Stock Fund and Bond Fund engaged in
purchase and sale transactions with other affiliated funds pursuant to Rule
17a-7 of the Investment Company Act of 1940 amounting to $4,163,473 and
$3,666,884, respectively, and $8,338,664 and $8,311,850, respectively. These
purchases and sales were conducted on an arm's length basis and transacted for
cash consideration only, at independent current market prices and without
brokerage commissions, fees or other remuneration.
Certain of the Officers of the Company are Officers and Trustees or Directors
of FAS and FServ.
(5) Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended April 30, 1994, were as follows:
<TABLE>
<CAPTION>
Stock Fund Bond Fund
- ----------- ----------- -----------
<S> <C> <C>
Purchases-- $23,488,622 $10,475,391
- ----------- ----------- -----------
Sales-- $16,132,826 $ 1,719,044
- ----------- ----------- -----------
</TABLE>
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of SOUTHTRUST VULCAN FUNDS
We have audited the accompanying statements of assets and liabilities of the
SouthTrust Vulcan Funds, a Massachusetts business trust (comprising,
respectively, the Treasury Obligations Money Market, the Stock, and the Bond
Portfolios), as of April 30, 1994, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
April 30, 1994, by correspondence with the custodian and brokers. 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 each
of the respective portfolios constituting the SouthTrust Vulcan Funds as of
April 30, 1994, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for the periods presented, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
June 3, 1994
[LOGO OF SOUTHTRUST VULCAN FUNDS]
Account Application
- --------------------------------------------------------------------------------
Please make a photocopy of this application for your records and mail the
original to:
Mutual Funds Department
SouthTrust Investment Services, Inc.
420 North 20th Street
Birmingham, Alabama 35282-8930
1-800-239-7470
[_] New Account
[_] Additional Investment
[_] Change of Account
Information*
--------
* Additional Documents May Be Required.
1. ACCOUNT INFORMATION (Please Print or Type)
Current SouthTrust Vulcan Funds Account Number (if any) ____________________
Account Name __________________________________________ Date of Birth
Social Security or Taxpayer ID _____________________________________________
[_] Joint Tenant Name
[_] Minor Name
Mailing Address ____________________________________________________________
Permanent Residence if Different (P.O. Box is not sufficient) ______________
----------------------------------------------------------------------------
Home Phone ( )_____________________ Office Phone ( )__________________
Please contact me at: [_] Home [_] Office [_] Other ( )______________
2. PERSONAL INFORMATION
Employed By _________________________ Joint Tenant Employed By____________
Business Address ____________________ Business Address____________________
_____________________________________ ____________________________________
Citizenship (Check One): Citizenship (Check One):
[_] Resident Alien [_] Non-Resident [_] Resident Alien [_] Non-Resident
Alien Alien
[_] U.S. [_] Other (Please Specify) _ [_] U.S.[_] Other (Please Specify) _
If spouse or minor child is an investor in SouthTrust Vulcan Funds, please
indicate account number(s) _________________________________________________
____________________________________________________________________________
3. ACCOUNT INSTRUCTIONS (Please Print or Type)
Type of Registration (Check One)
[_] Individual[_] Custodian for Minor [_] Corporation*[_] Estate
[_] Joint Tenants with [_] Partnership [_] Trust* [_] Other (Specify)* __
Right of Survivorship
--------
*Additional Forms Required
4. FUND SELECTION
The minimum initial investment in any Fund is $1,000.
Treasury Obligations Money Market Fund $ ______
Stock Fund$ ____________________________________
Bond Fund$ _____________________________________
5. PAYMENT/REDEMPTION INSTRUCTIONS
For Purchases:
[_] I will pay by check (payable to SouthTrust Vulcan Funds)
[_] Charge my account (see below)
Name of Bank ________________________ ABA Number__________________________
Bank Location _______________________ Account Number______________________
For Redemptions:
When Fund shares are redeemed [_] Mail proceeds [_] Credit my
brokerage account
Location ____________________________ Account Number______________________
6. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS (Check one. If not checked,
Option A will be assigned.)
[_] A. All dividends and capital gains reinvested in the same Fund.
[_] B. All dividends and capital gains paid in cash.
[_] C. All dividends paid in cash; capital gains reinvested in the same Fund.
Sign both 7 and 8 below.
7. TELEPHONE EXCHANGE AUTHORIZATION
To transfer entire or partial investment from Portfolio(s) to Portfolio(s)
or from a Portfolio to another investment company described in the
Prospectus.
Exchange of Shares: To complete your exchange purchase from your existing
account into any of the Portfolio(s) or other investment companies
described in the Prospectus.
I (We) hereby authorize SouthTrust Vulcan Funds and any affiliated
broker/dealer to act upon instructions received by telephone to have shares
redeemed from my (our) account(s) in the designated Portfolio(s) and the
proceeds reinvested in shares of one or more of the designated Portfolio(s)
comprising SouthTrust Vulcan Funds (the "Funds") or other investment
company whose Prospectus(es) I (we) have read. If an exchange involves an
initial investment in a Portfolio, the account registration will
automatically carry the same registration as set forth above.
Signature ___________________________ Date________________________________
Signature ___________________________ Date________________________________
8. SIGNATURE AND CERTIFICATIONS (Check those that apply.)
By signing this Application, I (we) hereby certify under penalties of
perjury that the information on this Application is complete and correct
and that:
[_] The Taxpayer I.D. Number or Social Security Number is that of the
registered owner(s).
[_] If no Taxpayer I.D. Number or Social Security Number has been provided
above, I (we) have applied, or intend to apply to the Internal Revenue
Service or the Social Security Administration for a Taxpayer I.D. Number
or Social Security Number, and I (we) understand that if I (we) do not
provide this number within 30 days of the date of this Application,
Federated Services Company is required to withhold 31% of all reportable
payments thereafter made to me (us) until I (we) provide this number.
(Please provide this number on Form W-9. You may request the Form by
calling the Fund at the number at the bottom of this Application.)
[_] If this box is checked, I am (we are) subject to backup withholding
under the provisions of Section 3406(a)(1) of the Internal Revenue Code.
I (We) represent that I am (we are) of legal age and capacity and have
read the Funds' Prospectus and agree to its terms.
Any undersigned who is an individual investor represents that he/she is of
legal age in the state of residence; all other investors represent and
warrant that they are duly authorized to sign this Application and to
purchase or redeem shares. All investors hereby affirm receipt of the
Prospectus and affirm the above Taxpayer certification. (Please sign below
exactly as printed in Registration Information.)
Individuals Corporations, Partnerships, Trusts
and Others
Date ________________________________ Date________________________________
Signature of Taxpayer whose Social Signature and Title
Security Number appears in Section 1.
_____________________________________X ____________________________________X
Joint Registrant (if any) Signature and Title
_____________________________________X ____________________________________X
9. LETTER OF INTENT -- Optional (not applicable to purchases of Treasury
Obligations Money Fund)
I understand through accumulated investments I can reduce my sales charges.
I plan to invest over a 13-month period in shares of one or more of the
Portfolios in SouthTrust Vulcan Funds an aggregate amount of at least:
[_] $50,000[_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000 (and above)
(Stock Fund only)
If the amount indicated is not invested within 13 months, reduced sales
charges do not apply. Any redemptions made during the 13-month period will
be subtracted from the amount of purchases in determining whether the terms
of the Letter of Intent have been met.
10. RIGHT OF ACCUMULATION
Optional (Attach a separate sheet if necessary)
[_] I own shares of more than one Portfolio in SouthTrust Vulcan Funds,
which may entitle me to a reduced sales charge. My shareholder account
numbers are:
______________________ ______________________ ______________________
[_] The registration of some of my shares differs. Their account numbers
are:
______________________ ______________________ ______________________
11. AUTOMATIC INVESTMENT PROGRAM/AUTOMATIC WITHDRAWAL PLAN
[_] Please send me an application so I may participate in either the
Automatic Investment Program or the Automatic Withdrawal Plan. If you
have any questions about this Application or any of the Funds' services,
please feel free to call Monday to Friday 1-800-239-7470.
12. DEALER INFORMATION
For dealer use only.
We authorize the Mutual Funds Dept. of SouthTrust Investment Services,
Inc. to act as our agent for this account and agree to notify the Mutual
Funds Dept. of SouthTrust Investment Services, Inc. of purchases made
under a Letter of Intent or Right of Accumulation. We guarantee the
signatures in Section 5.
__________________________________ _____________________________________
Dealer name (as it appears on Address of office servicing Account
Selling Group Agreement)
__________________________________ _____________________________________
Address of home office City State Zip
__________________________________ _____________________________________
City State Zip Registered representative's name and
# (exactly as it appears on firm's
__________________________________ registration)
Authorized signature of dealer
_____________________________________
Registered representative's phone #
13. ACCOUNT REGISTRATION INFORMATION
If this account has more than one shareholder, all singular references in
this application refer to all shareholders. In case of two or more
shareholders, the account will be registered "Joint Tenants with Rights of
Survivorship" unless otherwise specified.
For Uniform Transfers to Minors Act or Uniform Gifts to Minors Act
accounts, use the name of the adult custodian on the shareholder line and
the name of the child on the co-shareholder line. Use the child's Social
Security number. If your account is a self-directed IRA or other retirement
plan or trust account, please indicate the type of account in the lines
provided in Section 1 for "Corporations, Trusts, Partnerships, etc." If you
want SouthTrust Bank to serve as trustee of your plan, please use the
appropriate application available from your securities dealer.
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No person has been authorized to
give any information or to make
any representations not contained [LOGO OF SOUTHTRUST INVESTMENTS]
in this Prospectus, or in the
Company's Statement of
Additional Information
incorporated herein by TREASURY OBLIGATIONS
reference, in connection with MONEY MARKET FUND
the offering made by this -----------------
Prospectus and, if given or
made, such information or BOND FUND
representations must not be ---------
relied upon as having been
authorized by the Company or its STOCK FUND
Distributor. The Prospectus does ----------
not constitute an offering by
the company or by the Distributor
in any jurisdiction in which such
offering may not lawfully be made.
Table of Contents
Page
Expense Summary 2
Financial Highlights 3
Investment Objectives and 4
Policies of the Funds
Investment Activities 5
How to Purchase, Exchange 10
and Redeem Shares
Dividends and Distributions 15
Pricing of Shares 16
Management of the Funds 17
Taxes 18
Description of Shares 20 PROSPECTUS
JUNE 30, 1994
Total Returns and 20
Yields
Financial Statements 22
Report of Independent 36
Public Accountants
Investment Adviser:
[LOGO OF SOUTHTRUST BANK] [LOGO OF SOUTHTRUST VULCAN FUNDS]
of Alabama, N.A.
3052010A (6/94)
No person has been authorized to
give any information or to make
any representations not contained [LOGO OF SOUTHTRUST ESTATE
in this Prospectus, or in the AND TRUST SERVICES]
Company's Statement of
Additional Information
incorporated herein by TREASURY OBLIGATIONS
reference, in connection with MONEY MARKET FUND
the offering made by this -----------------
Prospectus and, if given or
made, such information or BOND FUND
representations must not be ---------
relied upon as having been
authorized by the Company or its STOCK FUND
Distributor. The Prospectus does ----------
not constitute an offering by
the company or by the Distributor
in any jurisdiction in which such
offering may not lawfully be made.
Table of Contents
Page
Expense Summary 2
Financial Highlights 3
Investment Objectives and 4
Policies of the Funds
Investment Activities 5
How to Purchase, Exchange 10
and Redeem Shares
Dividends and Distributions 15
Pricing of Shares 16
Management of the Funds 17
Taxes 18
Description of Shares 20
Total Returns and Yields 20 PROSPECTUS
JUNE 30, 1994
Financial Statements 22
Report of Independent 36
Public Accountants
Investment Adviser:
[LOGO OF SOUTHTRUST BANK] [LOGO OF SOUTHTRUST VULCAN FUNDS]
of Alabama, N.A.
4040404A (6/94)
Treasury Obligations Money Market Fund Bond Fund Stock Fund
(Investment Portfolios of SouthTrust Vulcan Funds)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary
information pertaining to three series of shares representing interests in
three investment portfolios (the "Funds") of SouthTrust Vulcan Funds (the
"Company") (formerly named the "Vulcan Funds"): the Treasury Obligations Money
Market Fund, the Bond Fund and the Stock Fund. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with
the Company's Prospectus dated June 30, 1994. A copy of the Prospectus may be
obtained without charge by calling the Company at 1-800-239-7470. This
Statement of Additional Information dated June 30, 1994, although not in itself
a Prospectus, is incorporated by reference in its entirety into the Company's
Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
General.................................................................... 1
Additional Information on Fund Investments................................. 1
Additional Investment Limitations.......................................... 5
Trustees and Officers...................................................... 7
Investment Advisory and Other Service Arrangements......................... 8
Portfolio Transactions..................................................... 10
Purchase, Exchange and Redemption Information.............................. 11
Net Asset Value............................................................ 12
Performance Information.................................................... 13
Taxes...................................................................... 15
Additional Information Concerning Shares................................... 17
Independent Public Accountants............................................. 18
Miscellaneous.............................................................. 18
Appendix A................................................................. A-1
</TABLE>
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectus in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company or the Distributor. The Prospectus does
not constitute an offering by the Company or by the Distributor in any
jurisdiction in which such offering may not lawfully be made.
GENERAL
The Company is an open-end, management investment company currently
offering shares in three diversified investment portfolios. The Company was
organized on March 4, 1992. On June 30, 1993, the name of the Company changed
from "Vulcan Funds" to "SouthTrust Vulcan Funds."
As stated in the Prospectus, the investment adviser (the "Adviser") of
each Fund is SouthTrust Bank of Alabama, N.A. Capitalized terms used herein and
not otherwise defined have the same meanings as are given to them in the
Prospectus.
ADDITIONAL INFORMATION ON FUND INVESTMENTS
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Funds. A description
of applicable credit ratings is set forth in Appendix A hereto.
Repurchase Agreements. Each Fund may enter into repurchase agreements
with financial institutions, such as banks and non-bank dealers of U.S.
government securities that are listed on the Federal Reserve Bank of New York's
list of reporting dealers. The Adviser will continuously monitor the
creditworthiness of the seller under a repurchase agreement, and will require
the seller to maintain during the term of the agreement the value of the
securities subject thereto at not less than the repurchase price. The
repurchase price under the repurchase agreements generally equals the price
paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). With respect to the Treasury Obligations Money Market
Fund, the securities held subject to repurchase agreements may have stated
maturities in excess of thirteen months, provided the repurchase agreement
itself matures in one year or less.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Fund pursuant to a Fund's agreement to repurchase
the securities at an agreed upon price, date and rate of interest. Such
agreements are considered to be borrowings under the Investment Company Act of
1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While a reverse repurchase agreement is outstanding, a
Fund will maintain in a segregated account cash, U.S. government securities or
other liquid high-grade debt securities of an amount at least equal to the
market value of the securities, plus accrued interest, subject to the
agreement.
Variable and Floating Rate Instruments. Debt instruments may be
structured to have variable or floating interest rates. Variable and floating
rate obligations purchased by the Treasury Obligations Money Market Fund may
have stated maturities in excess of the Fund's maturity limitation if the Fund
can demand payment of the principal of the instrument at least once every
thirteen months on not more than thirty days' notice (this demand feature is
not required if the instrument is guaranteed by the U.S. government or an
agency thereof). These instruments may include variable amount master demand
notes that permit the amount of indebtedness to vary in addition to providing
for periodic adjustments in the interest rates. The Adviser will consider the
earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and, if the instrument is subject to a demand
feature, will continuously monitor their financial ability to meet payment on
demand. Where necessary to ensure that a variable or floating rate instrument
is equivalent to the quality standards applicable to a Fund, the issuer's
obligation to pay the principal of the instrument will be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
The Treasury Obligations Money Market Fund will invest in variable and floating
rate instruments only when the Adviser deems the investment to involve minimal
credit risk.
In determining weighted average portfolio maturity of the Funds, an
instrument will usually be deemed to have a maturity equal to the longer of the
period remaining until the next interest rate adjustment or the time the Fund
involved can recover payment of principal as specified in the instrument.
Variable rate U.S. government obligations held by the Funds, however, will be
deemed to have maturities equal to the period remaining until the next interest
rate adjustment.
The absence of an active secondary market for certain variable and
floating rate notes could make it difficult to dispose of the instruments, and
a Fund could suffer a loss if the issuer defaulted or during periods that a
Fund is not entitled to exercise its demand rights.
Variable and floating rate instruments held by a Fund will be subject to
the Fund's 15% (10% in the case of the Treasury Obligations Money Market Fund)
limitation on illiquid investments when the Fund may not demand payment of the
principal amount within seven days absent a reliable trading market.
When-Issued Purchases and Forward Commitments (Delayed-Delivery). When-
issued purchases and forward commitments (delayed-delivery) are commitments by
a Fund to purchase or sell particular securities with payment and delivery to
occur at a future date (normally within seven days in the case of the Treasury
Obligations Money Market Fund and within thirty days in the case of the Bond
Fund and the Stock Fund). These transactions permit a Fund to lock-in a price
or yield on a security, regardless of future changes in interest rates.
When a Fund agrees to purchase securities on a when-issued or forward
commitment basis, the Fund will set aside cash or liquid portfolio securities
equal to the amount of the commitment in a separate account. Normally, the
custodian will set aside portfolio securities to satisfy a purchase commitment,
and in such a case the Fund may be required subsequently to place additional
assets in the separate account in order to ensure that the value of the account
remains equal to the amount of the Fund's commitments. It may be expected that
the market value of the Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. Because a Fund's liquidity and ability to manage its
portfolio might be affected when it sets aside cash or portfolio securities to
cover such purchase commitments, the Adviser expects that its commitments to
purchase when-issued securities and forward commitments will not exceed 25% of
the value of a Fund's total assets absent unusual market conditions.
A Fund will purchase securities on a when-issued or forward commitment
basis only with the intention of completing the transaction and actually
purchasing the securities. If deemed advisable as a matter of investment
strategy, however, a Fund may dispose of or renegotiate a commitment after it
is entered into, and may sell securities it has committed to purchase before
those securities are delivered to the Fund on the settlement date. In these
cases the Fund may realize a taxable capital gain or loss.
When a Fund engages in when-issued and forward commitment transactions,
it relies on the other party to consummate the trade. Failure of such party to
do so may result in the Fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the market value of
a Fund starting on the day the Fund agrees to purchase the securities. The Fund
does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. government that issue
mortgage-related securities and among the securities that they issue. Mortgage-
related securities guaranteed by the Government National Mortgage Association
("GNMA") include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes"), which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. government corporation within the
Department of Housing and Urban Development. Ginnie Maes certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the United States, but are supported by the right of the issuer to
borrow from the U.S. Treasury. FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-related securities
issued by the Federal Home Loan Mortgage Corporation ("FHLMC")
include FHLMC Mortgage Participation Certificates (also known as "Freddie Macs"
or "PCs"). FHLMC is a corporate instrumentality of the United States, created
pursuant to an Act of Congress, which is owned entirely by the Federal Home
Loan Banks. Freddie Macs are not guaranteed by the United States or by any
Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its
guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.
Stripped Securities. The Treasury Obligations Money Market Fund and the
Bond Fund may acquire U.S. government obligations and their unmatured interest
coupons that have been separated ("stripped") by their holder, typically a
custodian bank or investment brokerage firm. Having separated the interest
coupons from the underlying principal of the U.S. government obligations, the
holder will resell the stripped securities in custodial receipt programs with a
number of different names, including "Treasury Income Growth Receipts"
("TIGRs") and "Certificate of Accrual on Treasury Securities" ("CATS"). The
stripped coupons are sold separately from the underlying principal, which is
usually 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 interest (cash) payments. 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
ostensibly owned by the bearer or holder), in trust on behalf of the owners.
Counsel to the underwriters of these certificates or other evidences of
ownership of U.S. Treasury securities have stated that, in their opinion,
purchasers of the stripped securities most likely will be deemed the beneficial
holders of the underlying U.S. government obligations for federal tax and
securities purposes. The Company is not aware of any binding legislative,
judicial or administrative authority on this issue.
Warrants. The Stock Fund may purchase warrants, which are privileges
issued by corporations enabling the owners to subscribe to and purchase a
specified number of shares of the corporation at a specified price during a
specified period of time. The purchase of warrants involves the risk that a
Fund could lose the purchase value of a warrant if the right to subscribe to
additional shares is not exercised prior to the warrant's expiration. Also, the
purchase of warrants involves the risk that the effective price paid for the
warrant added to the subscription price, of the related security may exceed the
value of the subscribed security's market price such as when there is no
movement in the level of the underlying security. The Stock Fund will not
invest more than 5% of its total assets, taken at market value, in warrants, or
more than 2% of its total assets, taken at market value, in warrants not listed
on the New York or American Stock Exchanges. Warrants acquired in units or
attached to other securities are not subject to this restriction.
American Depositary Receipts. American Depositary Receipts ("ADRs") are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying foreign securities. Certain such institutions
issuing ADRs may not be sponsored by the issuer. A non-sponsored depositary may
not provide the same shareholder information that a sponsored depository is
required to provide under its contractual arrangements with the issuer.
Investment Companies. The Funds currently intend to limit investments in
securities issued by other investment companies so that, as determined
immediately after a purchase of such securities is made: (i) not more than 5%
of the value of a Fund's total assets will be invested in the securities of any
one investment company; (ii) not more than 10% of the value of a Fund's total
assets will be invested in the aggregate in securities of investment companies
as a group; and (iii) not more than 3% of the outstanding voting stock of any
one investment company will be owned by a Fund or by the Company as a whole.
The phrase "Money Market Funds" as used in the Prospectus with respect to a
Fund's investment in other investment companies means money market funds in
compliance with Rule 2a-7 under the 1940 Act.
Lending of Portfolio Securities
Each Fund may lend securities from its portfolio to brokers, dealers and
other financial organizations. Such loans, if and when made, may not exceed 20%
of the Fund's total assets, taken at value. Each Fund may not lend its
portfolio securities to the Adviser or its affiliates without specific
authorization from the Securities and Exchange Commission (the "SEC"). Loans of
portfolio securities by a Fund will be collateralized by cash, letters of
credit or securities issued or guaranteed by the U.S. government or its
agencies which are maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. From time to time, a Fund
may return a part of the interest earned from the investment of collateral
received for securities loaned to the borrower and/or a third party, which is
unaffiliated with the Fund or with the Adviser, and which is acting as a
"finder."
In lending its portfolio securities, a Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term instruments or obtaining yield in
the form of interest paid by the borrower when government securities are used
as collateral. Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must be met
whenever portfolio securities are loaned: (a) the Fund must receive at least
100% cash collateral or equivalent securities from the borrower; (b) the
borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (c) the Fund must be able
to terminate the loan at any time; (d) the Fund must receive reasonable
interest on the loan, as well as an amount equivalent to any dividends,
interest or other distributions on the loaned securities, and any increase in
market value; (e) the Fund may pay only reasonable custodian fees in connection
with the loan; and (f) voting rights on the loaned securities may pass to the
borrower; however, if a material event adversely affecting the investment
occurs, the Trustees must terminate the loan and regain the right to vote the
securities. The risks in lending portfolio securities, like those associated
with other extensions of secured credit, consist of: possible declines in value
of collateral, possible delays in receiving additional collateral or in the
recovery of loaned securities or expenses of enforcing the Funds' rights. Loans
will be made to firms deemed by the Adviser to be of good standing and will not
be made unless, in the judgment of the Adviser, the consideration to be earned
from such loans would justify the risk.
Yields and Ratings. The yields on certain obligations, including the
money market instruments in which each Fund may invest (such as commercial
paper and bank obligations), are dependent on a variety of factors, including
general money market conditions, conditions in the particular market for the
obligation, the financial condition of the issuer, the size of the offering,
the maturity of the obligation and the ratings of the issue. The ratings of
Standard & Poor's Corporation, Moody's Investors Service, Inc., Duff & Phelps
Credit Rating Co., and other nationally recognized statistical rating
organizations ("NRSROs") represent their respective opinions as to the quality
of the obligations they undertake to rate. Ratings, however, are general and
are not absolute standards of quality. Consequently, obligations with the same
rating, maturity and interest rate may have different market prices.
With respect to the Treasury Obligations Money Market Fund, all
securities (other than U.S. government securities) must be rated (generally, by
at least two NRSROs) within the two highest rating categories assigned to
short-term debt securities. In addition, the Treasury Obligations Money Market
Fund will not invest more than 5% of its total assets in securities rated in
the second highest rating category by such NRSROs and will not invest more than
1% of its total assets in the securities of any one such issuer. Unrated and
certain single rated securities (other than U.S. government securities) may be
purchased by the Treasury Obligations Money Market Fund, but are subject to a
determination by the Adviser, in accordance with procedures established by the
Trustees, that the unrated securities are of comparable quality to the
appropriate rated securities.
Other. It is possible that unregistered securities purchased by a Fund in
reliance upon Rule 144A under the Securities Act of 1933 could have the effect
of increasing the level of the Fund's illiquidity to the extent that qualified
institutional buyers become, for a period, uninterested in purchasing these
securities. To comply with restrictions of certain states, the Funds will limit
their investments in restricted securities to no more than 5% of their
respective total assets. (If state requirements change, this restriction may be
revised without shareholder notification.)
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the fundamental investment limitations disclosed in the
Prospectus, each Fund is subject to the investment limitations enumerated in
this sub-section which may be changed with respect to a particular Fund only by
a vote of the holders of a majority of such Fund's outstanding shares as
defined under "Miscellaneous--Shareholder Approvals".
No Fund may:
1. Purchase or sell real estate, except that each Fund may purchase
securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
2. Acquire any other investment company or investment company
security except in connection with a merger, consolidation,
reorganization or acquisition of assets or where otherwise
permitted by the 1940 Act.
3. Act as an underwriter of securities, except to the extent that
it may be deemed an underwriter within the meaning of the
Securities Act of 1933 on disposition of securities acquired
subject to legal or contractual restrictions on resale.
4. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except for transactions in options on
securities, securities indices, futures contracts, options on
futures contracts and transactions in securities on a when-
issued or forward commitment basis, and except that a non-money
market fund may enter into forward foreign currency contracts
and options thereon in accordance with its investment objectives
and policies.
5. Purchase securities of companies for the purpose of exercising
control.
6. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment
limitation shall not apply to a Fund's transactions in futures
contracts and related options, a Fund's sale of securities short
against the box or a Fund's transactions in securities on a
when-issued or forward commitment basis, and (b) a Fund may
obtain short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities.
7. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that each
Fund may, to the extent appropriate to its investment policies,
purchase publicly traded securities of companies engaging in
whole or in part in such activities, may enter into futures
contracts and related options, and may engage in transactions in
securities on a when-issued or forward commitment basis, and
except that a non-money market fund may enter into forward
foreign currency contracts and options thereon in accordance
with its investment objectives and policies.
8. Make loans, except that each Fund may purchase and hold debt
instruments (whether such instruments are part of a public
offering or privately negotiated), may lend portfolio securities
and enter into repurchase agreements in accordance with its
investment objective and policies.
In addition, the investment limitations listed below are summarized in
the Prospectus and are set forth below in their entirety.
No Fund may:
1. Purchase securities of any one issuer other than securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities or certificates of deposit for any such securities
if more than 5% of the value of the Fund's total assets, taken at
current value, would be invested in the securities of such issuer, or
more than 10% of the issuer's outstanding voting securities would be
owned by the Fund or the Company, except that up to 25% of the value
of the Fund's total assets, taken at current value, may be invested
without regard to these limitations provided, however, that the
Treasury Obligations Money Market Fund may in no event invest more
than 5% of its total assets in the securities of any one issuer. For
purposes of this limitation, a security is considered to be issued by
the entity (or entities) whose assets and revenues back the security.
A guarantee of a security is not deemed to be a security issued by
the guarantor when the value of all securities issued and guaranteed
by the guarantor, and owned by the Fund, does not exceed 10% of the
value of the Fund's total assets.
2. Borrow money or issue senior securities except that each Fund may
borrow from banks and enter into reverse repurchase agreements
for temporary purposes in amounts up to one-third of the value of
its total assets at the time of such borrowing; or mortgage,
pledge or hypothecate any assets, except in connection with any
such borrowing and then in amounts not in excess of one-third of
the value of the Fund's total assets at the time of such
borrowing. No Fund will purchase securities while its aggregate
borrowings including reverse repurchase agreements and borrowing
from banks in excess of 5% of its total assets are outstanding.
Securities held in escrow or separate accounts in connection with
a Fund's investment practices are not deemed to be pledged for
purposes of this limitation.
3. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting
their principal business activities in the same industry and, in
the case of the Treasury Obligations Money Market Fund, in
securities the interest upon which is paid from revenues of
similar types of projects, provided that (a) there is no
limitation with respect to (i) instruments that are issued (as
defined in Investment Limitation No. 1 above) or guaranteed by
the United States, any state, territory or possession of the
United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political
subdivisions and (ii) repurchase agreements secured by the
instruments described in clause (i); (b) wholly-owned finance
companies will be considered to be in the industries of their
parents if their activities are primarily related to financing
the activities of the parents; and (c) utilities will be divided
according to their services (for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered
a separate industry).
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in the
value of a Fund's investments will not constitute a violation of such
limitation, except that any borrowing by a Fund that exceeds the fundamental
investment limitations stated above must be reduced to meet such limitations
within the period required by the 1940 Act (currently three days). Otherwise, a
Fund may continue to hold a security even though it causes the Fund to exceed a
percentage limitation because of fluctuation in the value of the Fund's assets.
In order to permit the sale of shares in certain states, the Company may
make commitments more restrictive than the investment policies and limitations
described above. To comply with restrictions of certain states, the Funds will
not: invest more than 5% of the value of their respective total assets in
portfolio instruments of unseasoned issuers, including their predecessors, that
have been in operation for less than three years; invest in real estate limited
partnerships; and (in the case of the Equity Fund) invest more than 5% of its
total assets in equity securities of issuers which are not readily marketable.
(If state requirements change, these restrictions may be revised without
shareholder notification.)
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Company, and their business
addresses and principal occupations during the past five years, are:
<TABLE>
<CAPTION>
Positions Principal Occupations
Name and Address with Company During Past Five Years
------------------------ -------------------- --------------------------------
<C> <C> <S>
*William O. Vann Trustee and Chairman Director and Chairman of the
Box 757 of the Board Board, Young & Vann Supply Co.
Birmingham, AL 35201 (since 1987); Partner B&B
Investments; Trustee and Past
Chairman, The Childrens'
Hospital
of Alabama.
Edward C. Gonzales President and Vice President, Treasurer, and
Federated Investors Treasurer Trustee, Federated Investors;
Tower Vice President and Treasurer,
Pittsburgh, PA 15222 Federated Advisers, Federated
Management, and Federated
Research; Executive Vice
President, Treasurer, and
Director, Federated Securities
Corp.; Trustee, Federated
Services Company; Chairman,
Treasurer, and Director,
Federated Administrative
Services; Trustee or Director
and President and Treasurer of
other funds distributed
by Federated Securities Corp.
Margaret D. Tessaro Vice President and Vice President, Federated
Federated Investors Assistant Treasurer Administrative Services; Vice
Tower President and Assistant
Pittsburgh, PA 15222 Treasurer of other funds
distributed by Federated
Securities Corp.
Peter J. Germain Secretary Corporate Counsel, Federated
Federated Investors Investors.
Tower
Pittsburgh, PA 15222
Thomas L. Merrill, Sr. Trustee and Chief Executive Officer, Vice
210 Inverness Center Dr. Vice President Chairman and Director, Altec
P.O. Box 10264 Industries, Inc; Director,
Birmingham, AL 35242 Walker Companies; formerly,
President, Altec Industries,
Inc. (1990-1993)
and Chairman, Vantage Consulting
(until 1989).
Charles G. Brown, III Trustee President, Tubular Products
P.O. Box 170100 Company (since 1985); Managing
Birmingham, AL 35217 Partner, Red Hollow Partnership;
Director, Back Home Digital
Music; Director, Wire
Association International.
Russell W. Chambliss Trustee President (since 1989),
Mason Corporation Executive Vice President (1988),
P.O. Box 59226 and Vice President of Sales and
Birmingham, AL 35259 Marketing (1984-1988), Mason
Corporation.
D. Riley Stuart Trustee Chairman and Chief Executive
P.O. Box 1028 Officer, Brice Building Company,
Birmingham, AL 35201 Inc.
</TABLE>
* This Trustee is deemed to be an "interested person" of the Company as defined
in the Investment Company Act of 1940, as amended.
The Company pays each Trustee $1,000 per year, plus $1,000 for each board
meeting attended by the Trustee. The Trustees are also reimbursed for expenses
incurred by them in connection with their duties as Trustees. No Officer,
Director or employee of the Adviser or the Distributor currently receives any
compensation from the Company. As of the date of this Statement of Additional
Information, the Trustees and Officers of the Company, as a group, owned less
than 1% of the outstanding shares of any Fund.
Shareholder and Trustee Liability. Under Massachusetts law, shareholders
of a business trust may, under certain circumstances, be held personally liable
as partners for the obligations of the trust. However, the Company's Master
Trust Agreement provides that shareholders shall not be subject to any personal
liability in connection with the assets of the Company for the acts or
obligations of the Company, and that every note, bond, contract, order, or
other undertaking made by the Company shall contain a provision to the effect
that the shareholders are not personally liable thereunder. The Master Trust
Agreement provides for indemnification out of the trust property of any
shareholder held personally liable solely by reason of the investor being or
having been a shareholder and not because of the shareholder's acts or
omissions or some other reason. The Master Trust Agreement also provides that
the Company shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Company, and shall satisfy any
judgment thereon. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the
Company itself would be unable to meet its obligations.
The Master Trust Agreement further provides that all persons having any
claim against the Trustees or the Company shall look solely to the trust
property for payment; that no Trustee of the Company shall be personally liable
for or on account of any contract, debt, tort, claim, damage, judgment, or
decree arising out of or connected with the administration or preservation of
the trust property or the conduct of any business of the Company; and that no
Trustee shall be personally liable to any person for any action or failure to
act except by reason of the Trustee's own bad faith, willful misfeasance, gross
negligence or reckless disregard of the Trustee's duties as a Trustee. With the
exception stated, the Master Trust Agreement provides that a trustee is
entitled to be indemnified against all liabilities and expenses reasonably
incurred by the Trustee in connection with the defense or disposition of any
proceeding in which the Trustee may be involved or with which the Trustee may
be threatened by reason of being or having been a Trustee, and that the Company
will indemnify Officers of the Company to the same extent that Trustees are
entitled to indemnification.
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS
Advisory Agreement. The advisory services provided by the Adviser
pursuant to an advisory agreement (the "Advisory Agreement") between it and the
Company, as well as the fees payable by the Company to the Adviser for such
services, are described in the Prospectus. For the year ended April 30, 1994,
and the period ended April 30, 1993, the Adviser earned advisory fees totaling
$1,258,348 and $1,143,708, respectively, for the Treasury Obligations Money
Market Fund, $177,577 and $127,934, respectively, for the Bond Fund and
$268,510 and $189,545, respectively, for the Stock Fund. For the same periods
the Adviser waived advisory fees totaling $755,008 and $709,924, respectively,
for the Treasury Obligations Money Market Fund, $139,101 and $117,308,
respectively, for the Bond Fund and $221,969 and $177,040, respectively, for
the Stock Fund.
If the total expenses borne by any Fund in any fiscal year exceed the
expense limitations imposed by applicable state securities regulations, the
Adviser will bear the amount of such excess to the extent required by such
regulations in proportion to the fees otherwise payable to it with respect to
such Fund for such year. Such amount borne will be limited to the amount of the
fees paid to it for the applicable period with respect to the Fund involved. As
of the date of this Statement of Additional Information, the most restrictive
expense limitation applicable to the Company limits its aggregate annual
expenses, including management and advisory fees but excluding interest, taxes,
brokerage commissions, and certain other expenses, to 2 1/2% of the first $30
million of its average net assets, 2% of the next $70 million, and 1 1/2% of
its remaining average net assets.
The Advisory Agreement provides that the Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Company
in connection with the performance of the Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the
Adviser's part in the performance of its duties or from reckless disregard of
its duties and obligations thereunder.
The Advisory Agreement is terminable with respect to a Fund by vote of
the Trustees, or by the holders of a majority of the outstanding voting
securities of the Fund, at any time without penalty, on 60 days' written notice
to the Adviser. The Adviser may also terminate its advisory relationship with
respect to a Fund on 60 days' written notice to the Company, and the Advisory
Agreement terminates automatically in the event of its assignment.
Because of the internal controls maintained by SouthTrust Bank of
Alabama, N.A. to restrict the flow of non-public information, the Funds'
investments are typically made without any knowledge of SouthTrust Bank of
Alabama, N.A. or its affiliates' lending relationships with an issuer.
Distributor's Contract. The Company has entered into a Distributor's
Contract under which the Distributor, as agent, sells shares of each Fund on a
continuous basis. The Distributor has agreed to use appropriate efforts to
solicit orders for the purchase of shares of each Fund, although it is not
obligated to sell any particular amount of shares.
Administrative Services Agreement. Federated Administrative Services (the
"Administrator"), which is a subsidiary of Federated Investors, provides
administrative personnel and services to the Company for the fees set forth in
the Prospectus. For the year ended April 30, 1994, and for the period from
April 1, 1993 to April 30, 1993, the Administrator earned the following fees:
$364,908 and $25,320, respectively, for the Treasury Obligations Money Market
Fund, $51,805 and $3,725, respectively, for the Stock Fund, and $50,000 and
$3,175, respectively, for the Bond Fund. For the year ended April 30, 1994, the
Administrator waived administrative fees totaling $71,756 for the Treasury
Obligations Money Market Fund, $25,591 for the Stock Fund, and $32,836 for the
Bond Fund.
The Administrative Services Agreement provides that the Administrator
shall not be liable under the Agreement except for its willful misfeasance, bad
faith or gross negligence in the performance of its duties or from the reckless
disregard by it of its duties and obligations thereunder.
Custodian and Transfer Agency Agreements. State Street Bank and Trust
Company (the "Custodian") whose principal office is located in Boston,
Massachusetts, maintains custody of the Company's assets pursuant to a
custodian agreement (the "Custodian Agreement"). Under the Custodian Agreement,
the Custodian (i) maintains a separate account in the name of each Fund; (ii)
holds and transfers portfolio securities on account of each Fund; (iii) accepts
receipts and makes disbursements of money on behalf of each Fund; (iv) collects
and receives all income and other payments and distributions on account of each
Fund's securities; and (v) makes periodic reports to the Trustees concerning
each Fund's operations. The Custodian is authorized to select one or more
domestic banks or trust companies to serve as sub-custodian on behalf of the
Company, provided that, with respect to sub-custodians, the Custodian remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Company harmless from the acts and omissions of any sub-
custodian.
Federated Services Company (the "Transfer Agent"), a subsidiary of
Federated Investors, serves as the transfer and dividend disbursing agent for
the Company pursuant to a Fund Accounting and Shareholder Recordkeeping
Agreement (the "Fund Recordkeeping Agreement"). For the year ended April 30,
1994, and for the period from April 1, 1993 to April 30, 1993, the Transfer
Agent earned the following fees: $9,968 and $2,882, respectively, for the
Treasury Obligations Money Market Fund, $15,809 and $4,250, respectively, for
the Stock Fund, and $13,857 and $3,649, respectively, for the Bond Fund.
Prior Service Providers. For the period from May 8, 1992 (date of initial
public investment) through April 1, 1993, the Company's former administrators,
Provident Financial Processing Corporation and The Boston Company Advisors,
Inc., and the Company's former transfer agent, Provident Financial Processing
Corporation, earned the following fees (exclusive of out-of-pocket expenses)
and voluntarily waived the indicated portion of the accrued fees:
<TABLE>
<CAPTION>
Administrative
Administrative Fees Voluntarily Transfer Agent
Fees Earned Waived Fees Earned
-------------- ---------------- --------------
<S> <C> <C> <C>
Treasury Obligations Money $289,174 $116,624 $29,884
Market Fund
Stock Fund 30,819 9,236 15,742
Bond Fund 28,750 7,148 15,634
</TABLE>
Effective April 1, 1993, Federated Administrative Services became the
Administrator, and Federated Services Company became the Transfer Agent.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trustees, the Adviser makes
decisions with respect to and places orders for all purchases and sales of
portfolio securities for each Fund. Portfolio transactions of each Fund are
placed with those securities brokers and dealers that the Adviser believes will
provide the best value in transaction and research services for the Fund,
either in a particular transaction or over a period of time. Although some
transactions involve only brokerage services, many involve research services as
well.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. For the year ended April
30, 1994 and for the period ended April 30, 1993, the Stock Fund paid $59,787
and $46,283, respectively, in commissions on brokerage transactions.
Over-the-counter issues, including corporate debt and government
securities, are normally traded on a "net" basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. With respect to over-the-counter transactions, the Adviser will
normally deal directly with dealers who make a market in the instruments
involved except in those circumstances where more favorable prices and
execution are available elsewhere. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the prices
at which securities are purchased from and sold to dealers include a dealer's
mark-up or mark-down.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage in this practice, however, only when the Adviser believes
such practice to be in the Funds' best interests.
Since the Treasury Obligations Money Market Fund will invest only in
short-term debt instruments, its annual portfolio turnover rate will be
relatively high, but brokerage commissions are normally not paid on money
market instruments, and portfolio turnover is not expected to have a material
effect on the Fund's net investment income. The portfolio turnover rate of a
Fund is calculated by dividing the lesser of a Fund's annual sales or purchases
of portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were thirteen months or less for the
Treasury Obligations Money Market Fund or one year or less for the Bond Fund
and the Stock Fund) by the monthly average value of the securities held by the
Fund during the year. The Bond Fund and the Stock Fund may engage in short-term
trading to achieve their investment objectives. Portfolio turnover may vary
greatly from year to year as well as within a particular year. For the year
ended April 30, 1994, and the period ended April 30, 1993, the portfolio
turnover rate for the Bond Fund was 6% and 19%, respectively, and for the Stock
Fund was 46% and 34%, respectively.
In its Advisory Agreement, the Adviser agrees to select broker/dealers in
accordance with guidelines established by the Trustees from time to time and in
accordance with applicable law. In assessing the terms available for any
transaction, the Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker/dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In addition, the Advisory Agreement authorizes the
Adviser, subject to the prior approval of the Trustees, to cause the Funds to
pay a broker/dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker/dealer for
effecting the same transaction, provided that the Adviser determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker/dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Adviser to the Funds. Such brokerage and research services might consist of
reports and statistics on specific companies or industries, general summaries
of groups of bonds and their comparative earnings and yields, or broad
overviews of the securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by the Adviser and does not
reduce the advisory fees payable to the Adviser by the Funds. It is possible
that certain of the supplementary research or other services received will
primarily benefit one or more other investment companies or other accounts for
which investment discretion is exercised. Conversely, a Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company. A Fund may
obtain an agreement from a broker to pay to a third-party vendor of goods or
services to the Fund a portion of the commissions paid by the Fund to that
broker.
Portfolio securities will not be purchased from or sold to the Adviser,
the Distributor or any affiliated person (as defined in the 1940 Act) of the
foregoing entities except to the extent permitted by an exemptive order issued
by the SEC or by applicable law (including Rule 17e-1 under the 1940 Act).
Investment decisions for each Fund and for other investment accounts
managed by the Adviser are made independently of each other in light of
differing conditions. However, the same investment decision may be made for two
or more of such accounts and executed on the same day. In such cases,
transactions in the same securities for multiple accounts are allocated as to
amount in a manner deemed equitable to each such account. While in some cases
this practice could have a detrimental effect on the price or value of the
security as far as a Fund is concerned, in other cases it is believed to be
beneficial to a Fund. To the extent permitted by law, the Adviser may aggregate
the securities to be sold or purchased for a Fund with those to be sold or
purchased for other investment companies or accounts in executing transactions.
A Fund will not purchase securities during the existence of any
underwriting or selling group relating to such securities of which the Adviser
or any affiliated person (as defined in the 1940 Act) thereof is a member,
except pursuant to procedures adopted by the Trustees in accordance with Rule
10f-3 under the 1940 Act.
PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
The Company reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase of a
Fund's shares by making payment in whole or in part in securities chosen by the
Company and valued in the same way as they would be valued for purposes of
computing a Fund's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting the securities into cash.
The Company intends to elect, however, to be governed by Rule 18f-1 under the
1940 Act so that a Fund is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period
for any one shareholder of a Fund.
Under the 1940 Act, a Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
New York Stock Exchange is closed (other than customary weekend and holiday
closings), or during which trading on said Exchange is restricted, or during
which (as determined by the SEC by rule or regulation) an emergency exists as a
result of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (A Fund may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
The Company may suspend redemption rights or postpone redemption payments
(as well as suspend the recordation of the transfer of shares) for such periods
as are permitted under the 1940 Act. The Company may also redeem shares
involuntarily or make payment for redemption in securities or other property if
it appears appropriate to do so in light of the Company's responsibilities
under the 1940 Act.
The Company may redeem shares involuntarily as described below under "Net
Asset Value" to reimburse a Fund for any loss sustained by reason of the
failure of a shareholder to make full payment for shares purchased by the
shareholder, or to collect any charge relating to a transaction effected for
the benefit of a shareholder, which is applicable to shares of a Fund as
provided, from time to time, in the Prospectus. In addition, due to the high
cost of maintaining accounts with low balances, the Company may redeem shares
in any account, except retirement plans, and pay the proceeds to the
shareholder, if the account balance falls below the required minimum account
balance due to shareholder redemptions. Before shares are redeemed to close an
account, a shareholder will be notified in writing and allowed 30 days to
purchase additional shares to meet the minimum balance.
Shareholders may exchange all or part of their shares in the Company as
described in the Prospectus. Any rights an investor may have to reduce (or have
waived) the sales load applicable to an exchange, as may be provided in the
Prospectus, will apply in connection with any such exchange.
By use of the exchange privilege, the investor authorizes SouthTrust, the
investor's SouthTrust Vulcan Funds Dealer, or the Distributor to act on
telephonic instructions from any person representing himself or herself to be
the investor and reasonably believed by SouthTrust, a SouthTrust Vulcan Funds
Dealer or the Distributor to be genuine. The Transfer Agent must be notified of
the investor's prior ownership of Fund shares and account number. The Transfer
Agent records of such instructions are binding. The exchange privilege may be
modified or terminated at any time upon 60 days written notice to shareholders.
Exchanging Securities for Fund Shares. Each Fund may accept securities in
exchange for Fund shares. Each Fund will allow such exchanges only upon the
prior approval of the Fund and a determination by the Fund and the Adviser that
the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies
of the respective Fund, must have a readily ascertainable market value, must be
liquid and must not be subject to restrictions on resale. The market value of
any securities exchanged in an initial investment, plus any cash, must be at
least equal to the minimum investment in the respective Fund.
Securities accepted by a Fund will be valued in the same manner as the
Fund values its assets. The basis of the exchange will depend on the net asset
value of Fund shares on the day the securities are valued. One share of the
Fund will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends, subscription, or
other rights attached to the securities become the property of the respective
Fund, along with the securities.
If an exchange is permitted, it will be treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities exchanged
for Fund shares, a gain or loss may be realized by the investor.
NET ASSET VALUE
Treasury Obligations Money Market Fund. The value of the portfolio
securities of the Treasury Obligations Money Market Fund is calculated using
the amortized cost method of valuation. Under this method the market value of
an instrument is approximated by amortizing the difference between the
acquisition cost and value at maturity of the instrument on a straight-line
basis over the remaining life of the instrument. The effect of changes in the
market value of a security as a result of fluctuating interest rates is not
taken into account. The market value of debt securities usually reflects yields
generally available on securities of similar quality. When such yields decline,
market values can be expected to increase, and when yields increase, market
values can be expected to decline.
As indicated, the amortized cost method of valuation may result in the
value of a security being higher or lower than its market price, the price a
Fund would receive if the security were sold prior to maturity. The Trustees
have established procedures for the purpose of maintaining a constant net asset
value of $1.00 per share for the Treasury Obligations Money Market Fund, which
include a review of the extent of any deviation of net asset value per share,
based on available market quotations, from the $1.00 amortized cost per share.
Should that deviation exceed 1/2 of 1% for the Fund, the Trustees will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, shortening the average portfolio maturity,
reducing the number of outstanding shares without monetary consideration, and
utilizing a net asset value per share as determined by using available market
quotations.
The Treasury Obligations Money Market Fund will maintain a dollar-
weighted average portfolio maturity of 90 days or less, will not purchase any
instrument with a deemed maturity under Rule 2a-7 of the 1940 Act greater than
thirteen months, and will limit portfolio investments to those instruments that
the Adviser determines present minimal credit risks pursuant to guidelines
adopted by the Trustees. There can be no assurance that a constant net asset
value will be maintained for the Fund.
All Funds. In determining the approximate market value of portfolio
investments, the Company may employ outside organizations, which may use a
matrix or formula method that takes into consideration market indices,
matrices, yield curves and other specific adjustments. This may result in the
securities being valued at a price different from the price that would have
been determined had the matrix or formula method not been used. All cash,
receivables, and current payables are carried on the Company's books at their
face value. Other assets, if any, are valued at fair value as determined in
good faith under the supervision of the Trustees.
PERFORMANCE INFORMATION
Yield of the Treasury Obligations Money Market Fund. The Treasury
Obligations Money Market Fund's current and effective yields are computed using
standardized methods required by the SEC. The annualized yield is computed by:
(a) determining the net change in the value of a hypothetical account having a
balance of one share at the beginning of a seven-calendar day period; (b)
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return; and (c) annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of
the account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1. Based on the foregoing computations,
the annualized yield for the Treasury Obligations Money Market Fund for the
seven-day period ended April 30, 1994 and 1993 was 3.17% and 2.72%,
respectively. The effective yields of the Fund for the same periods were 3.21%
and 2.76%, respectively.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of each Fund will fluctuate, they cannot be
compared with yields on savings accounts or other investment alternatives that
provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each Fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, and whether there are any special account charges which
may reduce the effective yield.
Investors may use financial publications and/or indices to obtain a more
complete view of a 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. For
example, a Fund's yield may be compared to the Donoghue's Money Fund Average,
which is an average compiled by Donoghue's MONEY FUND REPORT of Holliston, MA
01746, a widely recognized independent publication that monitors the
performance of money market funds, or to the data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service that monitors the
performance of mutual funds.
Yield and Performance of the Bond Fund and the Stock Fund
For the Bond Fund and the Stock Fund, the 30-day (or one month) standard
yield described in the Prospectus is calculated in accordance with the method
prescribed by the SEC for mutual funds:
(a-b) 6
Y = 2 [ ( -----) + 1) - 1]
(cd)
Where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the period
entitled to receive dividends; and
d = maximum offering price per share on the last day of the period.
For the purpose of determining interest earned on debt obligations
purchased by a Fund (variable "a" in the formula), each Fund computes the yield
to maturity of such instrument based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during
the month, the purchase price (plus actual accrued interest). Such yield is
then divided by 360 and the quotient is multiplied by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. It is assumed in the above calculation that
each month contains 30 days. The maturity of a debt obligation with a call
provision is deemed to be the next call date on which the obligation reasonably
may be expected to be called or, if none, the maturity date. For the purpose of
computing yield on equity securities held by a Fund, dividend income is
recognized by accruing 1/360 of the dividend rate of the security for each day
that the security is held by the Fund. With respect to mortgage or other
receivables-backed debt obligations purchased at a discount or premium, the
formula generally calls for amortization of the discount or premium. The
amortization schedule will be adjusted monthly to reflect changes in the market
value of such debt obligations. Expenses accrued for the period (variable "b"
in the formula) include all recurring fees charged by a Fund to all shareholder
accounts in proportion to the length of the base period and the Fund's mean (or
median) account size. Undeclared earned income will be subtracted from the
offering price per share (variable "d" in the formula).
Based on the foregoing calculation, the standard yields of the Bond Fund
and the Stock Fund for the 30-day period ended April 30, 1994 and April 30,
1993 were 5.58% and 5.00%, respectively, and 1.69% and 1.60%, respectively.
Each Fund that advertises its "average annual total return" computes such
return by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
(ERV)1/n
T = ------ - 1
P
Where:
T = average annual total return;
ERV = ending redeemable value of shares held at the end of the
period;
P = hypothetical initial investment of $1,000; and
n = number of years.
Each Fund that advertises its "aggregate total return" computes such
returns by determining the aggregate compounded rates of return during
specified periods that likewise equate the initial amount invested to the
ending redeemable value of such investment. The formula for calculating
aggregate total return is as follows:
(ERV)
Aggregate Total Return = --- - 1
P
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
Based on the foregoing calculation, the aggregate total returns for the
year ended April 30, 1994 and for the period from May 8, 1992 (date of initial
public investment) to April 30, 1993, for the Bond Fund and the Stock Fund were
0.33% and 13.44%, respectively, and (0.90)% and 5.54%, respectively. The total
return figures above do not reflect the deduction of the maximum 4.00% and
4.50% front-end sales charges which may be assessed purchases of the Bond Fund
and Stock Fund, respectively. The aggregate total return including the
deduction of the applicable front-end sales charges for the same period for the
Bond Fund and Stock Fund were (4.67)% and 7.86%, respectively, and (6.32)% and
(0.17%), respectively.
In reports or other communications to shareholders or in advertising
material, the Bond Fund or the Stock Fund may compare its performance with that
of other mutual funds as listed in the rankings prepared by Lipper Analytical
Services, Inc., CDA Technologies, Inc., or similar independent services, which
monitor the performance of mutual funds or with other appropriate indices of
investment securities. In addition, certain indices may be used to illustrate
historic performance of select asset classes. These may include, among others,
the Lehman Brothers Index of Baa-rated Corporate Bonds, the T-Bill Index, and
the "Stocks, Bonds and Inflation Index" published annually by Ibbotson
Associates. The performance information may also include evaluations of the
Funds published by ranking services and financial publications that are
nationally recognized, such as Business Week, Forbes, Fortune, Institutional
Investor, Money and The Wall Street Journal.
In addition to providing performance information that demonstrates the
actual yield or returns of a particular Fund over a particular period of time,
a Fund may provide certain other information demonstrating hypothetical
investment returns. Such information may include, but is not limited to,
illustrating the compounding effects of a dividend in a dividend reinvestment
plan or certain benefits of tax-free investing.
The performance of any investment is generally a function of portfolio
quality and maturity, type of investment and operating expenses.
TAXES
The following summarizes certain additional tax considerations generally
affecting the Funds and their shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in
the Prospectus is not intended as a substitute for careful tax planning.
Potential investors should consult their tax advisers with specific reference
to their own tax situations.
General. Each Fund will elect to be taxed separately as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, each Fund is
exempt from federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it
distributes an amount equal to the sum of (a) at least 90% of its investment
company taxable income (as that term is defined in the Code determined without
regard to the deduction for dividends paid), if any, for the year, and (b) at
least 90% of its net tax-exempt income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code
that are described below. Distributions of investment company taxable income
and net tax-exempt income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement.
In addition, to satisfy the Distribution Requirement, each Fund must
derive with respect to a taxable year at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and
gains from the sale or other disposition of stock or securities or foreign
currencies, or from other income derived with respect to its business of
investing in such stock, securities, or currencies (the "Income Requirement")
and derive less than 30% of its gross income from the sale or other disposition
of securities and certain other investments held for less than three months
(the "Short-Short Gain Test"). Interest (including original issue discount and,
in the case of debt securities bearing taxable interest income, "accrued market
discount") received by a Fund at maturity or on disposition of a security held
for less than three months will not be treated as gross income derived from the
sale or other disposition of such security for purposes of the Short-Short Gain
Test. However, any other income which is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose.
In addition to the foregoing requirements, at the close of each quarter
of its taxable year, at least 50% of the value of each Fund's assets must
consist of cash and cash items, U.S. government securities, securities of other
regulated investment companies, and securities of other issuers (as to which a
Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which a Fund does not hold more than 10% of
the outstanding voting securities of such issuer) and no more than 25% of the
value of each Fund's total assets may be invested in the securities of any one
issuer (other than U.S. government securities and securities of other regulated
investment companies), or in two or more issuers which such Fund controls and
which are engaged in the same or similar trades or businesses.
Distributions of net investment income received by a Fund from
investments in debt securities and any net realized short-term capital gains
distributed by a Fund will be taxable to shareholders as ordinary income and
will not be eligible for the dividends received deduction for corporations.
Each Fund intends to distribute to shareholders any excess of net long-
term capital gain over net short-term capital loss ("net capital gain") for
each taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as long-term capital gain, regardless of the length of
time the shareholder has held the shares, whether such gain was recognized by
the Fund prior to the date on which a shareholder acquired shares of the Fund
and whether the distribution was paid in cash or reinvested in shares.
In the case of corporate shareholders, distributions (other than capital
gain dividends) of a Fund for any taxable year generally qualify for the
dividends received deduction to the extent of the gross amount of "qualifying
dividends" received by such Fund for the year. Generally, a dividend will be
treated as a "qualifying dividend" if it has been received from a domestic
corporation.
The marginal tax rate on ordinary income for taxpayers filing joint
returns is 36% of taxable income in excess of $140,000 ($115,000 for taxpayers
filing individual returns) and 39.6% of taxable income in excess of $250,000
for taxpayers filing either individual or joint returns. Different taxable
income thresholds apply in the cases of married persons filing separately,
heads of household and trusts. Capital gains are subject to a 28% maximum
stated rate. The maximum marginal corporate income tax rate is 35% for taxable
income (including net capital gains) in excess of $10,000,000.
If for any taxable year any Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In
such event, all distributions (whether or not derived from exempt-interest
income) would be taxable as ordinary income to the extent of such Fund's
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction in the case of corporate shareholders.
Shareholders will be advised annually as to the federal income tax
consequences of distributions made by the Funds each year.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income
(excess of capital gains over capital losses). Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and capital gain net income each calendar year to avoid liability for this
excise tax.
The Company will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends or 31% of the gross
proceeds realized upon a redemption paid to any shareholder (i) who has
provided either an incorrect tax identification number or no number at all;
(ii) who is subject to backup withholding by the Internal Revenue Service for
failure to report the receipt of taxable interest or dividend income properly;
or (iii) who has failed to certify to the Company that he or she is not subject
to backup withholding or that he or she is an "exempt recipient."
The foregoing general discussion of federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the
date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although each Fund expects to qualify as a "regulated investment company"
and to be relieved of all or substantially all federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located or
in which it is otherwise deemed to be conducting business, each Fund may be
subject to the tax laws of such states or localities.
Taxation of Certain Financial Instruments
Special rules govern the federal income tax treatment of financial
instruments that may be held by some of the Funds. These rules may have a
particular impact on the amount of income or gain that the Funds must
distribute to their respective shareholders to comply with the Distribution
Requirement, on the income or gain qualifying under the Income Requirement and
on their ability to comply with the Short-Short Gain Test described above.
Federal income tax law requires the holder of a zero coupon security to
recognize income with respect to the security on an annual basis even though
there is no cash flow until maturity. To maintain its qualification as a
regulated investment company and avoid liability of federal income taxes, the
Bond Fund or the Stock Fund will be required to distribute income accrued
annually with respect to 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.
ADDITIONAL INFORMATION CONCERNING SHARES
The Company is a Massachusetts business trust. Under the Company's Master
Trust Agreement, the beneficial interests in the Company may be divided into an
unlimited number of full and fractional transferable shares. The Master Trust
Agreement authorizes the Company's Trustees to classify or reclassify any
unissued shares of the Company into one or more Funds by setting or changing,
in any one or more respects, their respective designations, preferences,
conversion or other rights, voting powers, restrictions, limitations,
qualifications and terms and conditions of redemption. Pursuant to such
authority, the Trustees have authorized the issuance of three Funds of shares
representing interests in the Treasury Obligations Money Market Fund, the Bond
Fund and the Stock Fund.
In the event of a liquidation or dissolution of the Company or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative net asset values of the
Company's respective Funds, of any general assets not belonging to any
particular Fund which are available for distribution. Shareholders of a Fund
are entitled to participate in the net distributable assets of the particular
Fund involved on liquidation, based on the number of shares of the Fund that
are held by each shareholder.
The issuance of shares is recorded on the books of the Funds and share
certificates generally will not be issued.
Shareholders of the Company will vote together in the aggregate and not
separately by Fund except as otherwise required by law or when the Trustees
determine that the matter to be voted upon affects only the interests of the
shareholders of a particular Fund. Rule 18f-2 (the "Rule") under the 1940 Act
provides that any matter required to be submitted to the holders of the
outstanding voting securities of an investment company such as the Company
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each Fund affected by the
matter. A Fund is not affected by a matter unless it is clear that the
interests of each investment portfolio in the matter are substantially
identical or that the matter does not affect any interest of the investment
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to an investment portfolio only if approved by a majority of the
outstanding shares of such investment portfolio. However, the Rule also
provides that the ratification of the appointment of independent accountants,
the approval of principal underwriting contracts and the election of trustees
may be effectively acted upon by shareholders of the Company voting together in
the aggregate without regard to a particular investment portfolio.
Shares of the Company have noncumulative voting rights and, accordingly,
the holders of more than 50% of the Company's outstanding shares (irrespective
of investment portfolio) may elect all of the Trustees. Shares have no
preemptive rights and only such conversion and exchange rights as the Trustees
may grant in their discretion. When issued for payment as described in the
Prospectus, shares will be fully paid and non-assessable by the Company.
Shareholder meetings, including meetings held to elect Trustees, will not
be held unless and until such time as required by law. At that time, the
Trustees then in office will call a shareholders' meeting to elect Trustees.
Except as set forth above, the Trustees will continue to hold office and may
appoint successor Trustees. The Master Trust Agreement provides that meetings
of the shareholders of the Company shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding shares
entitled to vote.
INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements in the Prospectus have been audited by Arthur
Andersen & Co., independent public accountants, as indicated in their report,
with respect thereto, and are included therein in reliance upon the authority
of said firm as experts in giving said report.
MISCELLANEOUS
Counsel. Legal counsel to the Company is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania. The law firm of Bell, Boyd & Lloyd,
Chicago, Illinois, serves as counsel to the Trustees.
Control Persons and Principal Holders of Securities. As of May 31, 1994,
SouthTrust Bank of Alabama, N.A., SouthTrust Tower, 420 North 20th Street,
Birmingham, Alabama 35203, through its nominee, Lynspen & Company, held of
record substantially all of the outstanding shares of the Treasury Obligations
Money Market Fund, as agent, custodian or trustee for its customers. As of such
date, the following persons were beneficial owners of 5% or more of the
outstanding shares of a Fund because they possessed voting or investment power
with respect to such shares:
<TABLE>
<CAPTION>
Percent of
Total Shares
Name of Fund Name and Address Outstanding
- ------------- ----------------- -------------
<S> <C> <C>
Treasury Obligations Lynspen & Company 99%
Money Market Fund P.O. Box 2554
Birmingham, Alabama 35290
Bond Fund Lynspen & Company 96%
P.O. Box 2554
Birmingham, Alabama 35290
Stock Fund Lynspen & Company 85%
P.O. Box 2554
Birmingham, Alabama 35290
BHC Securities, Inc. 11%
Philadelphia, Pennsylvania 19103
</TABLE>
Banking Laws. Banking laws and regulations currently 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 underwriting securities, but such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment adviser, administrator, 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 customers. The Adviser and the Custodian are
subject to such banking laws and regulations.
The Adviser and the Custodian believe they may perform the services for
the Company contemplated by their respective agreements with the Company
without violation of applicable banking laws or regulations. It should be
noted, however, that there have been no cases deciding whether bank and non-
bank subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well
as future judicial or administrative decisions or interpretations of current
and future statutes and regulations, could prevent these companies from
continuing to perform such service for the Company.
Should future legislative, judicial, or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Company, the Company might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operations. It is not anticipated, however, that any change in the
Company's method of operations would affect the net asset value per share of
any Fund or result in a financial loss to any customer.
Shareholder Approvals. As used in this Statement of Additional
Information and in the Prospectus, a "majority of the outstanding shares" of a
Fund or investment portfolio means the lesser of (a) 67% of the shares of the
particular Fund or portfolio represented at a meeting at which the holders of
more than 50% of the outstanding shares of such Fund or portfolio are present
in person or by proxy, or (b) more than 50% of the outstanding shares of such
Fund or portfolio.
APPENDIX A
Description of Bond Ratings
The following summarizes the highest four ratings used by Standard &
Poor's Corporation ("S&P") for corporate and municipal debt:
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 AAA issues only in a small degree.
A--Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher rated categories.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest four ratings used by Moody's
Investors Service, Inc. ("Moody's") for corporate and municipal long-term debt:
Aaa--Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds that 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 that are rated A possess many favorable investment
attributes and are to be considered 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 sometime in the future.
Baa--Bonds that are rated Baa are considered 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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa, A and Baa. The modifier 1 indicates that the bond
being rated 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
bond ranks in the lower end of its generic rating category.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds:
AAA--Debt rated AAA is of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA--Debt rated AA is of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A--Bonds that are rated A have protection factors which are average
but adequate. However risk factors are more variable and greater in
periods of economic stress.
BBB--Bonds that are rated BBB have below average protection factors
but are still considered sufficient for prudent investment.
Considerable variability in risk during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the ratings used by IBCA Limited and IBCA Inc.
("IBCA") for bonds:
Obligations rated AAA by IBCA have the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial, such that adverse changes in business,
economic or financial conditions are unlikely to increase investment
risk significantly.
IBCA also assigns a rating to certain international and U.S. banks.
An IBCA bank rating represents IBCA's current assessment of the
strength of the bank and whether such bank would receive support
should it experience difficulties. In its assessment of a bank, IBCA
uses a dual rating system comprised of Legal Ratings and Individual
Ratings. In addition, IBCA assigns banks Long and Short-Term Ratings
as used in the corporate ratings discussed above. Legal Ratings,
which range in gradation from 1 through 5, address the question of
whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are
considered by IBCA to be a prime factor in its assessment of credit
risk. Individual Ratings, which range in gradations from A through E,
represent IBCA's assessment of a bank's economic merits and address
the question of how the bank would be viewed if it were entirely
independent and could not rely on support from state authorities or
its owners.
The following summarizes the two highest ratings used by Moody's for
short-term notes and variable rate demand obligations:
MIG-1/VMIG-1. Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG-2/VMIG-2. Obligations bearing these designations are of high
quality with margins of protection ample although not as large as in
the preceding group.
The three highest rating categories of D&P for short-term debt are Duff
1, Duff 2, and Duff 3. D&P employs three designations, Duff 1+, Duff 1 and Duff
1-, within the highest rating category. Duff 1+ indicates highest certainty of
timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding,
and safety is just below risk-free U.S. Treasury short-term obligations." Duff
1 indicates very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small. Duff 2 indicates good certainty of timely
payment. Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small. Duff 3 indicates satisfactory
liquidity and other protection factors qualify issue as to investment grade.
Risk factors are larger and subject to more variation. Nevertheless, timely
payment is expected.
D&P uses the fixed-income ratings described above under "Description of
Bond Ratings" for tax-exempt notes and other shortterm obligations.
Description of Commercial Paper Ratings
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted in A-1+. Capacity for
timely payment on commercial paper rated A-2 is satisfactory but the relative
degree of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 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.
The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or ready access
to alternative sources of funds, is judged to be "outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations". Duff 1 indicates
very high certainty of timely payment. Liquidity factors are excellent and
supported by strong fundamental protection factors. Risk factors are considered
to be minor. Duff 1 minus indicates high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
3052010B (6/94)
APPENDIX
A. The graphic presentation here displayed consists of the
components of a line graph. SouthTrust Vulcan Bond Fund (the
"Fund") is represented by a broken line. The Lehman Brothers
Intermediate Government/Corporate Index (the "LBG/C") is
represented by a solid line. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund and the LBG/C. The
"y" axis reflects the cost of the investment. The "x" axis
reflects computation periods from the Fund's start of
performance, 5/8/92, through 4/30/94. The right margin
reflects the ending value of the hypothetical investment in
the Fund as compared to the LBG/C; the ending values were
$10,926 and $11,581, respectively. The Average Annual Total
Return for the period ended April 30, 1994; beginning with
the start of performance date of the Fund (5/8/92), and the-
one year period, was 4.57% and (4.67%), respectively.
B. The graphic presentation here displayed consists of the
components of a line graph. SouthTrust Vulcan Stock Fund
(the "Fund") is represented by a broken line. The Standard &
Poor's Composite Index (the "S&P 500") is represented by a
solid line. The line graph is a visual representation of a
comparison of change in value of a hypothetical $10,000
purchase in the Fund and the S&P 500. The "y" axis reflects
the cost of the investment. The "x" axis reflects
computation periods from the Fund's start of performance,
5/8/92, through 4/30/94. 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 $9,988 and
$11,487, respectively. The Average Annual Total Return for
the period ended April 30, 1994; beginning with the start of
performance date of the Fund (5/8/92), and the-one year
period, was (0.06%) and (6.32%), respectively.
