PROSPECTUS DATED JUNE 30, 1995
- --------------------------------------------------------------------------------
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.
- 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, GUARANTEED, 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, 1995 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 1-800-843-8618.
- --------------------------------------------------------------------------------
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
SHAREHOLDER TRANSACTION EXPENSES MONEY MARKET FUND STOCK FUND BOND FUND
----------------- ---------- ---------
<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
Contingent Deferred Sales Charges (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 1.00%* 1.00%*
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
----------------- ---------- ---------
<S> <C> <C> <C>
ANNUAL OPERATING EXPENSES (as a percentage of projected average net
assets)+
Advisory Fees After Waivers*........................................ 0.30% 0.65% 0.55%
12b-1 Fees.......................................................... None None None
Other Expenses...................................................... 0.20% 0.22% 0.33%
----- ----- ---------
Total Fund Operating Expenses After Waivers......................... 0.50% 0.87% 0.88%
================== ========== =========
</TABLE>
* As stated under "Management of the Funds" in this Prospectus, the Company
has agreed to pay an advisory fee to the Adviser at an annual rate of 0.50% of
the average daily net assets of the TREASURY OBLIGATIONS MONEY MARKET FUND,
0.75% with respect to the STOCK FUND, and 0.60% with respect to the BOND FUND.
Absent the voluntary waivers by the Administrator, Other Expenses are expected
to be 0.21%, 0.25% and 0.36% for the TREASURY OBLIGATIONS MONEY MARKET, STOCK
and BOND FUNDS, respectively. The Administrator may terminate these waivers at
any time at its sole discretion. Absent the anticipated voluntary fee waivers by
the Adviser and by the Administrator, Total Fund Operating Expenses for the
current fiscal year are expected to be 0.71%, 1.00% and 0.96% 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 the BOND FUND were 0.43%, 0.74% and 0.75%,
respectively, for the fiscal year ending April 30, 1995. Had the Adviser and
Administrator not voluntarily waived their fees, the annual operating expenses
would have been 0.73%, 1.13%, and 1.03%, 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, 1996. 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......................................... $ 5 $16 $28 $ 63
Stock Fund..................................................................... $ 53 $72 $91 $147
Bond Fund...................................................................... $ 49 $67 $87 $144
</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, 1996.
SOUTHTRUST VULCAN FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 39.
<TABLE>
<CAPTION>
TREASURY OBLIGATIONS
MONEY MARKET FUND STOCK FUND BOND FUND
--------------------------- ----------------------------- ----------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
--------------------------- ----------------------------- ----------------------------
1995 1994 1993(A) 1995 1994 1993(A) 1995 1994 1993(A)
- ---------------------------- ----- ----- ------- ------ ------ ------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $1.00 $1.00 $1.00 $10.08 $10.36 $10.00 $10.04 $10.71 $10.00
- ---------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ---------------------------
Net investment income 0.05 0.03 0.03 0.20 0.19 0.19 0.61 0.63 0.66
- ---------------------------
Net realized and
unrealized gain (loss) on
investments -- -- -- 1.43 (0.28) 0.35 (0.09) (0.58) 0.69
- --------------------------- ---- ---- ----- ----- ----- ------ ---- ----- ------
Total from investment
operations 0.05 0.03 0.03 1.63 (0.09) 0.54 0.52 0.05 1.35
- --------------------------- ---- ---- ----- ----- ----- ------ ---- ----- ------
LESS DISTRIBUTIONS
- ---------------------------
Distributions from net
investment income (0.05) (0.03) (0.03) (0.20) (0.19) (0.18 ) (0.61) (0.65) (0.62 )
- ---------------------------
Distributions from net
realized gain on
investment transactions -- -- -- -- -- -- -- (0.07) (0.02 )
- --------------------------- ---- ---- ----- ----- ----- ------ ---- ----- ------
TOTAL DISTRIBUTIONS (0.05) (0.03) (0.03) (0.20) (0.19) (0.18 ) (0.61) (0.72) (0.64 )
- --------------------------- ---- ---- ----- ----- ----- ------ ---- ----- ------
NET ASSET VALUE, END OF
PERIOD $1.00 $1.00 $1.00 $11.51 $10.08 $10.36 $9.95 $10.04 $10.71
- --------------------------- ---- ---- ----- ----- ----- ------ ---- ----- ------
TOTAL RETURN(B) 4.62% 2.83% 2.93% 16.36% (0.90)% 5.54 % 5.41% 0.33% 13.44 %
- ---------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------
Expenses 0.43% 0.40% 0.39%(c) 0.74% 0.48% 0.39 %(c) 0.75% 0.51% 0.39 %(c)
- ---------------------------
Net investment income 4.56% 2.81% 2.93%(c) 1.95% 1.82% 1.91 %(c) 6.29% 5.97% 6.53 %(c)
- ---------------------------
Expense
waiver/reimbursement(d) 0.30% 0.33% 0.36%(c) 0.39% 0.69% 0.74 %(c) 0.28% 0.58% 0.59 %(c)
- ---------------------------
SUPPLEMENTAL DATA
- ---------------------------
Net assets, end of period
(000 omitted) $314,200 $278,924 $194,771 $138,281 $37,114 $30,935 $76,409 $32,767 $25,989
- ---------------------------
Portfolio turnover -- -- -- 57% 46% 34 % 48% 6% 19 %
- ---------------------------
</TABLE>
(a) Reflects operations for the period from May 8, 1992 (date of initial public
investment) to April 30, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the STOCK FUND and the BOND FUND is contained in their
annual reports dated April 30, 1995, 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 collateralized by 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. 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, repurchase agreements collateralized by
such obligations, and asset-backed securities, such as obligations
collateralized by mortgages or other intangible assets.
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 tend to be leaders in their industries and
characterized by sound management. The equity securities of such companies often
pay dividends. The Adviser attempts to manage the Fund's portfolio of
investments to achieve an attractive total return relative to that provided by
the average return of securities included in the Standard & Poor's Daily Price
Index of 500 Common Stocks (the "S&P 500 Index") and other
professionally-managed domestic large capitalization
stock portfolios. 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, could 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. When investing in other investment companies, certain
fund expenses, such as custodian fees and administrative fees, may be duplicated
(that is, these expenses would be in addition to the expenses each Fund bears
directly in connection with its own operations). The Adviser will waive its
investment advisory fee on those Fund assets that are invested in securities of
other investment companies. 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 prepayments 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 prepayments tend 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 a real estate
mortgage investment conduit. 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.
ASSET-BACKED SECURITIES. The BOND FUND may invest in asset-backed
securities which have structural characteristics similar to mortgage-backed
securities but have underlying assets that are not mortgage loans or interests
in mortgage loans. Asset-backed securities are created by the grouping of
certain private loans, receivables, and other lender assets into pools. These
securities differ from other forms of debt securities, which normally provide
periodic payment of interest in fixed amounts with principal paid at maturity or
specified call dates. Asset-backed securities, however, provide periodic
payments which generally consist of both interest and principal payments. The
estimated life of an asset-backed security and the average maturity of a
portfolio including such assets vary with the prepayment experience with respect
to the underlying debt instruments. The credit characteristics of asset-backed
securities also differ in a number of respects from those of traditional debt
securities. The credit quality of most asset-backed securities depends primarily
upon the credit quality of the assets underlying such securities, how well the
entity issuing the securities is insulated from the credit risk of the
originator or any other affiliated entities, and the amount and quality of any
credit support provided to such securities.
The BOND FUND may invest in asset-backed securities which include, but are
not limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. These securities
may be in the form of pass-through instruments or asset-backed bonds. The
securities are issued by non-governmental entities and carry no direct or
indirect government guarantee.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set-off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of asset-backed
securities backed by motor vehicle installment purchase obligations permit the
servicer of such receivables to retain possession of the underlying obligations.
If the servicer sells these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. Furthermore, if a vehicle is registered in one
state and is then reregistered because the owner and obligor moves to another
state, such reregistration could defeat the original security interest in the
vehicle in certain cases. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.
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 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 collateralized by 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 collateralized by 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 Ratings Group ("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 either the BOND FUND or
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
an 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 Fund shares. 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 1-800-843-8618.
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. Additional account applications
may be obtained by calling the Fund at 1-800-843-8618. 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 third 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
BOND FUND CHARGE CONCESSION
------ ----------
<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%
</TABLE>
<TABLE>
<CAPTION>
SALES DEALER
STOCK FUND CHARGE CONCESSION
------ ----------
<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. If a shareholder intends to purchase at least $100,000
of shares in the BOND FUND over the next 13 months, the sales charge may be
reduced by signing a Letter of Intent to that effect. This Letter of Intent
includes a provision for a sales charge adjustment depending on the amount
actually purchased within the 13-month period and a provision for the custodian
to hold 4.00% of the total amount intended to be purchased in escrow (in shares)
until such purchase is completed.
If a shareholder intends to purchase at least $50,000 of shares in the
STOCK FUND over the next 13 months, the sales charge may be reduced by signing a
Letter of Intent to that effect. This Letter of Intent includes a provision for
a sales charge adjustment depending on the amount actually purchased within a
13-month period and a provision for the custodian to hold up to 4.50% of the
total amount intended to be purchased in escrow (in shares) until such purchase
is completed.
The shares held in escrow will be released at the fulfillment of the Letter
of Intent or at the end of the 13-month period, whichever comes first. If the
amount specified in the Letter of Intent is not purchased, an appropriate number
of escrowed shares may be redeemed in order to realize the difference in the
sales charge.
This Letter of Intent will not obligate the shareholder to purchase shares,
but if the shareholder does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased. At the
time a Letter of Intent is established, current balances in accounts in any
Fund, excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the Letter of Intent. Prior trade prices will not
be adjusted.
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:
- International Income Fund;
- International Equity Fund;
- Liberty Equity Income Fund, Inc.;
- Liberty High Income Bond 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 with 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, 1995, the
Adviser had approximately $1.8 billion in assets under management. The Adviser
has served as investment adviser since the Company's inception on March 4, 1992.
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.
Effective May 1, 1995, all investment decisions for the STOCK FUND are made
by an investment group. 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
- ------------------ ------------------------------------
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. 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.
Federated Services Company, a subsidiary of Federated Investors, 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 may offer certain items of nominal value from time to time to
any shareholder or investor in connection with the sale of Fund shares. The
Distributor, which is a subsidiary of Federated Investors, has the same address
as the administrator and transfer agent.
ADMINISTRATIVE ARRANGEMENTS
The Distributor may select brokers, dealers and administrators (including
depository or other institutions such as commercial banks and savings and loan
associations) to provide distribution and/or administrative services for which
they will receive fees from the Distributor based upon shares owned by their
clients or customers. These administrative services include distributing
prospectuses and other information, providing account assistance, and
communicating or facilitating purchases and redemptions of the Funds' shares.
The fees are calculated as a percentage of the average aggregate net asset value
of shareholder accounts held during the period for which the brokers, dealers,
and administrators provide services. Any fees paid for these services by the
Distributor will be reimbursed by the Adviser and not the Funds.
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 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. States that impose an
income tax have, by statute, judicial decision or administrative action, 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 should 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, 1995, Lynspen & Company of Birmingham, Alabama,
acting in various capacities for numerous accounts, was the owner of record of
310,143,608 shares (99.3%) 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 6,467,357 shares
(82.7%) of the SouthTrust Vulcan Bond Fund; Lynspen & Company of Birmingham,
Alabama, acting in various capacities for numerous accounts, was the owner of
record of 11,120,734 shares (91.7%) 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, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
U.S. TREASURY BILLS--50.4%
- ---------------------------------------------------------------------------------
$10,000,000 5/4/1995 $ 9,995,125
------------------------------------------------------------------
15,000,000 5/4/1995 14,992,888
------------------------------------------------------------------
5,000,000 5/4/1995 4,997,650
------------------------------------------------------------------
5,000,000 5/11/1995 4,992,014
------------------------------------------------------------------
5,000,000 5/18/1995 4,986,317
------------------------------------------------------------------
5,000,000 5/18/1995 4,986,010
------------------------------------------------------------------
5,000,000 5/25/1995 4,980,533
------------------------------------------------------------------
5,000,000 6/1/1995 4,973,865
------------------------------------------------------------------
15,000,000 6/8/1995 14,909,117
------------------------------------------------------------------
10,000,000 6/15/1995 9,925,438
------------------------------------------------------------------
5,000,000 6/29/1995 4,952,226
------------------------------------------------------------------
5,000,000 7/6/1995 4,941,883
------------------------------------------------------------------
10,000,000 7/13/1995 9,881,071
------------------------------------------------------------------
5,000,000 7/20/1995 4,932,889
------------------------------------------------------------------
5,000,000 7/27/1995 4,928,467
------------------------------------------------------------------
10,000,000 8/3/1995 9,846,206
------------------------------------------------------------------
5,000,000 8/24/1995 4,906,403
------------------------------------------------------------------
5,000,000 9/7/1995 4,896,083
------------------------------------------------------------------
10,000,000 9/7/1995 9,796,825
------------------------------------------------------------------
10,000,000 9/14/1995 9,782,400
------------------------------------------------------------------
10,000,000 10/12/1995 9,737,600
------------------------------------------------------------------ ------------
TOTAL U.S. TREASURY BILLS 158,341,010
------------------------------------------------------------------ ------------
U.S. TREASURY NOTE--3.2%
- ---------------------------------------------------------------------------------
10,000,000 3.875%, 8/31/1995 9,926,553
------------------------------------------------------------------ ------------
*REPURCHASE AGREEMENTS--46.8%
- ---------------------------------------------------------------------------------
50,000,000 CS First Boston Corp., 5.90%, dated 4/28/1995, due 5/1/1995 50,000,000
------------------------------------------------------------------
</TABLE>
SOUTHTRUST VULCAN TREASURY OBLIGATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
*REPURCHASE AGREEMENTS--CONTINUED
- ---------------------------------------------------------------------------------
$25,000,000 Donaldson, Lufkin & Jenrette Securities Corp., 5.90%, dated
4/28/1995, due 5/1/1995 $ 25,000,000
------------------------------------------------------------------
50,000,000 J.P. Morgan Securities, Inc., 5.90%, dated 4/28/1995, due 5/1/1995 50,000,000
------------------------------------------------------------------
22,186,000 Sanwa Securities USA Co., LP, 5.90%, dated 4/28/1995, due 5/1/1995 22,186,000
------------------------------------------------------------------ ------------
TOTAL REPURCHASE AGREEMENTS 147,186,000
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $315,453,563+
------------------------------------------------------------------ ------------
</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
($314,200,046) at April 30, 1995.
(See Notes which are an integral part of the Financial Statements)
SOUTHTRUST VULCAN STOCK FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C>
SHORT-TERM INVESTMENTS--15.6%
- ---------------------------------------------------------------------------------
COMMERCIAL PAPER--10.5%
-------------------------------------------------------------------
ENERGY--3.6%
-------------------------------------------------------------------
$5,000,000 Exxon Group, 5.70%, 5/2/1995 $ 5,000,000
------------------------------------------------------------------- ------------
FINANCIAL SERVICES--6.9%
-------------------------------------------------------------------
1,100,000 Ford Motor Credit Corp., 5.85%, 5/2/1995 1,100,000
-------------------------------------------------------------------
3,500,000 Ford Motor Credit Corp., 5.91%, 5/2/1995 3,500,000
-------------------------------------------------------------------
5,000,000 General Electric Capital Corp., 5.90%, 5/2/1995 5,000,000
------------------------------------------------------------------- ------------
Total 9,600,000
------------------------------------------------------------------- ------------
TOTAL COMMERCIAL PAPER (AT AMORTIZED COST) 14,600,000
------------------------------------------------------------------- ------------
MUTUAL FUND SHARES--5.1%
-------------------------------------------------------------------
7,033,159 Seven Seas Government Money Market Fund (at net asset value) (Note
2) 7,033,159
------------------------------------------------------------------- ------------
TOTAL SHORT-TERM INVESTMENTS (AT AMORTIZED COST) 21,633,159
------------------------------------------------------------------- ------------
COMMON STOCKS--86.2%
- ---------------------------------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES--0.8%
-------------------------------------------------------------------
16,100 Automatic Data Processing 1,034,425
------------------------------------------------------------------- ------------
CAPITAL GOODS--12.1%
-------------------------------------------------------------------
27,800 Caterpillar, Inc. 1,626,300
-------------------------------------------------------------------
41,900 General Electric Co. 2,346,400
-------------------------------------------------------------------
53,700 Illinois Tool Works, Inc. 2,691,713
-------------------------------------------------------------------
37,900 Loral Corp. 1,781,300
-------------------------------------------------------------------
41,900 PACCAR, Inc. 1,927,400
-------------------------------------------------------------------
89,500 Pall Corp. 2,092,062
-------------------------------------------------------------------
72,000 Rockwell International Corp. 3,141,000
-------------------------------------------------------------------
43,900 Wolverine Tube, Inc. 1,174,325(a)
------------------------------------------------------------------- ------------
Total 16,780,500
------------------------------------------------------------------- ------------
</TABLE>
SOUTHTRUST VULCAN STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------
CONSUMER DURABLES--4.6%
-------------------------------------------------------------------
56,500 Chrysler Corp. $ 2,436,563
-------------------------------------------------------------------
52,400 Echlin, Inc. 1,912,600
-------------------------------------------------------------------
37,100 Whirlpool Corp. 2,031,225
------------------------------------------------------------------- ------------
Total 6,380,388
------------------------------------------------------------------- ------------
CONSUMER NON-DURABLES--8.1%
-------------------------------------------------------------------
57,000 IBP, Inc. 2,109,000
-------------------------------------------------------------------
43,300 Philip Morris Cos., Inc. 2,933,575
-------------------------------------------------------------------
63,300 Procter & Gamble Co. 4,423,087
-------------------------------------------------------------------
62,300 Sara Lee Corp. 1,736,612
------------------------------------------------------------------- ------------
Total 11,202,274
------------------------------------------------------------------- ------------
CONSUMER SERVICES--2.7%
-------------------------------------------------------------------
67,600 Disney, Walt Co. 3,743,350
------------------------------------------------------------------- ------------
ENERGY--9.3%
-------------------------------------------------------------------
33,200 Amoco Corp. 2,178,750
-------------------------------------------------------------------
51,800 Ashland, Inc. 1,916,600
-------------------------------------------------------------------
42,000 Coastal Corp. 1,249,500
-------------------------------------------------------------------
49,100 Exxon Corp. 3,418,587
-------------------------------------------------------------------
43,900 Mobil Corp. 4,165,013
------------------------------------------------------------------- ------------
Total 12,928,450
------------------------------------------------------------------- ------------
FINANCIAL SERVICES--9.6%
-------------------------------------------------------------------
37,900 American International Group 4,045,825
-------------------------------------------------------------------
46,100 Bank of New York Company, Inc. 1,515,537
-------------------------------------------------------------------
14,000 Federal National Mortgage Association 1,235,500
-------------------------------------------------------------------
72,800 KeyCorp 1,947,400
-------------------------------------------------------------------
54,200 NationsBank Corp. 2,710,000
-------------------------------------------------------------------
36,300 Sunamerica, Inc. 1,778,700
------------------------------------------------------------------- ------------
Total 13,232,962
------------------------------------------------------------------- ------------
</TABLE>
SOUTHTRUST VULCAN STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------
HEALTH CARE--3.9%
-------------------------------------------------------------------
55,300 Columbia/HCA Healthcare Corp. $ 2,322,600
-------------------------------------------------------------------
34,700 Pfizer, Inc. 3,005,888
------------------------------------------------------------------- ------------
Total 5,328,488
------------------------------------------------------------------- ------------
INSURANCE--1.7%
-------------------------------------------------------------------
98,000 FHP International Corp. 2,327,500(a)
------------------------------------------------------------------- ------------
MULTI-INDUSTRY--1.2%
-------------------------------------------------------------------
36,300 Tenneco, Inc. 1,665,262
------------------------------------------------------------------- ------------
RAW MATERIALS--6.6%
-------------------------------------------------------------------
41,300 Air Products & Chemicals, Inc. 2,080,488
-------------------------------------------------------------------
43,100 Rohm & Haas 2,505,188
-------------------------------------------------------------------
76,900 Sherwin-Williams Co. 2,739,563
-------------------------------------------------------------------
56,000 Union Carbide Corp. 1,792,000
------------------------------------------------------------------- ------------
Total 9,117,239
------------------------------------------------------------------- ------------
RETAIL--5.7%
-------------------------------------------------------------------
36,000 Dillard Department Stores 931,500
-------------------------------------------------------------------
53,100 J.C. Penney Company, Inc. 2,323,125
-------------------------------------------------------------------
43,600 May Department Stores Co. 1,580,500
-------------------------------------------------------------------
130,000 Wal-Mart Stores, Inc. 3,087,500
------------------------------------------------------------------- ------------
Total 7,922,625
------------------------------------------------------------------- ------------
TECHNOLOGY--14.4%
-------------------------------------------------------------------
40,800 AT&T Corp. 2,070,600
-------------------------------------------------------------------
32,400 Hewlett-Packard Co. 2,142,450
-------------------------------------------------------------------
41,400 Intel Corp. 4,238,325
-------------------------------------------------------------------
110,800 MCI Communications 2,409,900
-------------------------------------------------------------------
36,700 Microsoft Corp. 3,004,812(a)
-------------------------------------------------------------------
35,800 Motorola, Inc. 2,036,125
-------------------------------------------------------------------
38,200 Sprint Corp. 1,260,600
-------------------------------------------------------------------
</TABLE>
SOUTHTRUST VULCAN STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
-------------------------------------------------------------------
69,900 Sun Microsystems, Inc. $ 2,787,262(a)
------------------------------------------------------------------- ------------
Total 19,950,074
------------------------------------------------------------------- ------------
TRANSPORTATION--1.5%
-------------------------------------------------------------------
30,300 Norfolk Southern Corp. 2,041,463
------------------------------------------------------------------- ------------
UTILITIES--4.0%
-------------------------------------------------------------------
16,500 Commonwealth Energy System Companies 676,500
-------------------------------------------------------------------
62,500 Consolidated Edison Co. of New York, Inc. 1,734,375
-------------------------------------------------------------------
41,800 Houston Industries, Inc. 1,651,100
-------------------------------------------------------------------
88,800 Westcoast Energy, Inc. 1,409,700
------------------------------------------------------------------- ------------
Total 5,471,675
------------------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST $105,873,776) 119,126,675
------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $127,506,935) $140,759,834+
------------------------------------------------------------------- ------------
</TABLE>
(a) Non-income producing securities.
+ The cost of investments for federal tax purposes amounts to $127,509,404.
The net unrealized appreciation of investments on a federal tax basis
amounts to $13,250,430, which is comprised of $14,871,459 appreciation and
$1,621,029 depreciation at April 30, 1995.
Note: The categories of investments are shown as a percentage of net assets
($138,280,766) at April 30, 1995.
(See Notes which are an integral part of the Financial Statements)
SOUTHTRUST VULCAN BOND FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ---------- -------------------------------------------------------------------- -----------
<C> <S> <C>
SHORT-TERM INVESTMENTS--5.3%
- ----------------------------------------------------------------------------------
COMMERCIAL PAPER--3.9%
- ----------------------------------------------------------------------------------
$3,000,000 General Electric Capital Corp., 5.93%, 5/5/1995 $ 3,000,000
-------------------------------------------------------------------- -----------
MUTUAL FUND SHARES--1.4%
- ----------------------------------------------------------------------------------
1,097,054 Seven Seas Government Money Market Fund (at net asset value) (Note
2) 1,097,054
-------------------------------------------------------------------- -----------
TOTAL SHORT-TERM INVESTMENTS (AT AMORTIZED COST) 4,097,054
-------------------------------------------------------------------- -----------
LONG-TERM INVESTMENTS--93.4%
- ----------------------------------------------------------------------------------
CORPORATE BONDS--44.4%
- ----------------------------------------------------------------------------------
BANKING--4.7%
--------------------------------------------------------------------
$2,500,000 Bank of New York, Inc., 8.50%, 12/15/2004 2,626,825
--------------------------------------------------------------------
1,000,000 Wachovia Corp., 6.375%, 4/15/2003 931,860
-------------------------------------------------------------------- -----------
Total 3,558,685
-------------------------------------------------------------------- -----------
CONSUMER NON-DURABLES--6.3%
--------------------------------------------------------------------
1,500,000 General Mills, Inc., 5.73%, 10/3/1997 1,450,350
--------------------------------------------------------------------
1,000,000 PepsiCo, Inc., 6.25%, 9/1/1999 963,710
--------------------------------------------------------------------
1,000,000 Philip Morris Cos., Inc., 7.125%, 12/1/1999 988,240
--------------------------------------------------------------------
1,500,000 Philip Morris Cos., Inc., 7.125%, 10/1/2004 1,430,370
-------------------------------------------------------------------- -----------
Total 4,832,670
-------------------------------------------------------------------- -----------
CONSUMER SERVICES--2.4%
--------------------------------------------------------------------
2,000,000 Gannett Co., 5.85%, 5/1/2000 1,881,580
-------------------------------------------------------------------- -----------
ELECTRICAL--2.7%
--------------------------------------------------------------------
2,300,000 Motorola, Inc., 6.50%, 3/1/2008 2,097,784
-------------------------------------------------------------------- -----------
FINANCE--15.8%
--------------------------------------------------------------------
2,000,000 Associates Corp. of North America, 6.00%, 6/15/2000 1,884,540
--------------------------------------------------------------------
2,000,000 Equifax, Inc., 6.50%, 6/15/2003 1,864,660
--------------------------------------------------------------------
2,500,000 Ford Motor Credit Corp., 7.75%, 10/1/1999 2,530,550
--------------------------------------------------------------------
</TABLE>
SOUTHTRUST VULCAN BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -------------------------------------------------------------------- -----------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
- ----------------------------------------------------------------------------------
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
FINANCE--CONTINUED
--------------------------------------------------------------------
$1,000,000 International Business Machines Credit Corp., 5.22%, 2/16/1996 $ 988,370
--------------------------------------------------------------------
275,000 International Lease Financing Corp., 5.75%, 1/15/1996 273,529
--------------------------------------------------------------------
2,000,000 International Lease Financing Corp., 5.60%, 1/17/1996 1,986,040
--------------------------------------------------------------------
2,500,000 Standard Credit Card Master Service, 7.875%, 11/7/1998 2,535,275
-------------------------------------------------------------------- -----------
Total 12,062,964
-------------------------------------------------------------------- -----------
HEALTH CARE--2.3%
--------------------------------------------------------------------
1,000,000 Johnson & Johnson, 8.00%, 9/1/1998 1,016,410
--------------------------------------------------------------------
750,000 Merck & Co., Inc., 6.00%, 1/15/1997 739,927
-------------------------------------------------------------------- -----------
Total 1,756,337
-------------------------------------------------------------------- -----------
OIL & OIL FINANCE--1.1%
--------------------------------------------------------------------
900,000 Amoco CDA Pete Co., 6.75%, 2/15/2005 855,891
-------------------------------------------------------------------- -----------
RAW MATERIALS--1.4%
--------------------------------------------------------------------
1,000,000 duPont (E.I.) de Nemours & Co., 8.125%, 3/15/2004 1,041,760
-------------------------------------------------------------------- -----------
TELEPHONES--1.3%
--------------------------------------------------------------------
1,000,000 New England Telephone & Telegraph Co., 6.25%, 12/15/1997 978,960
-------------------------------------------------------------------- -----------
TRANSPORTATION--3.3%
--------------------------------------------------------------------
1,000,000 Norfolk Southern Corp., 7.75%, 8/15/2006 1,017,060
--------------------------------------------------------------------
1,500,000 Union Pacific Corp., 6.44%, 1/15/1998 1,475,745
-------------------------------------------------------------------- -----------
Total 2,492,805
-------------------------------------------------------------------- -----------
UTILITIES--3.1%
--------------------------------------------------------------------
2,000,000 Baltimore Gas & Electric Co., 5.85%, 7/19/2000 1,862,920
--------------------------------------------------------------------
500,000 Southern Ry Co., 10.00%, 7/15/1996 519,465
-------------------------------------------------------------------- -----------
Total 2,382,385
-------------------------------------------------------------------- -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST $33,523,624) 33,941,821
-------------------------------------------------------------------- -----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--6.6%
- ----------------------------------------------------------------------------------
2,500,000 8.25%, 10/12/2004 2,552,400
--------------------------------------------------------------------
</TABLE>
SOUTHTRUST VULCAN BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -------------------------------------------------------------------- -----------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
- ----------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--CONTINUED
- ----------------------------------------------------------------------------------
$2,319,653 10.00%, 1/1/2020 $ 2,484,163
-------------------------------------------------------------------- -----------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION (IDENTIFIED COST
$4,921,906) 5,036,563
-------------------------------------------------------------------- -----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--13.8%
- ----------------------------------------------------------------------------------
1,827,829 7.00%, 8/15/2008 1,787,251
--------------------------------------------------------------------
2,363,137 8.50%, 10/15/2009 2,436,205
--------------------------------------------------------------------
224,094 9.50%, 9/15/2019 236,278
--------------------------------------------------------------------
1,456,720 9.50%, 4/15/2020 1,535,922
--------------------------------------------------------------------
990,731 8.00%, 5/15/2022 993,198
--------------------------------------------------------------------
1,001,121 8.50%, 8/15/2024 1,021,444
--------------------------------------------------------------------
2,381,820 9.50%, 11/15/2024 2,506,842
-------------------------------------------------------------------- -----------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(IDENTIFIED COST $10,412,492) 10,517,140
-------------------------------------------------------------------- -----------
U.S. TREASURY BONDS--4.0%
- ----------------------------------------------------------------------------------
1,000,000 7.25%, 5/15/2016 979,760
--------------------------------------------------------------------
1,000,000 7.875%, 2/15/2021 1,045,660
--------------------------------------------------------------------
1,000,000 8.00%, 11/15/2021 1,062,440
-------------------------------------------------------------------- -----------
TOTAL U.S. TREASURY BONDS (IDENTIFIED COST $2,964,766) 3,087,860
-------------------------------------------------------------------- -----------
U.S. TREASURY NOTES--24.6%
- ----------------------------------------------------------------------------------
1,000,000 3.875%, 10/31/1995 989,390
--------------------------------------------------------------------
1,000,000 7.50%, 1/31/1996 1,009,230
--------------------------------------------------------------------
800,000 8.00%, 10/15/1996 816,872
--------------------------------------------------------------------
2,000,000 4.375%, 11/15/1996 1,939,060
--------------------------------------------------------------------
1,000,000 6.50%, 11/30/1996 1,000,130
--------------------------------------------------------------------
1,500,000 4.75%, 2/15/1997 1,454,280
--------------------------------------------------------------------
500,000 6.75%, 2/28/1997 501,725
--------------------------------------------------------------------
1,000,000 5.50%, 7/31/1997 976,600
--------------------------------------------------------------------
2,000,000 6.50%, 8/15/1997 1,994,180
--------------------------------------------------------------------
</TABLE>
SOUTHTRUST VULCAN BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -------------------------------------------------------------------- -----------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
- ----------------------------------------------------------------------------------
U.S. TREASURY NOTES--CONTINUED
- ----------------------------------------------------------------------------------
$1,000,000 8.125%, 2/15/1998 $ 1,035,790
--------------------------------------------------------------------
1,000,000 7.125%, 10/15/1998 1,013,240
--------------------------------------------------------------------
1,000,000 7.00%, 4/15/1999 1,007,450
--------------------------------------------------------------------
1,000,000 8.00%, 8/15/1999 1,043,180
--------------------------------------------------------------------
1,000,000 5.50%, 4/15/2000 943,320
--------------------------------------------------------------------
1,000,000 5.00%, 5/15/2001 1,052,510
--------------------------------------------------------------------
2,000,000 7.25%, 8/15/2004 2,023,980
-------------------------------------------------------------------- -----------
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $18,766,939) 18,800,937
-------------------------------------------------------------------- -----------
TOTAL LONG-TERM INVESTMENTS (IDENTIFIED COST $70,589,727) 71,384,321
-------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $74,686,781) $75,481,375+
-------------------------------------------------------------------- -----------
</TABLE>
+ The cost of investments for federal tax purposes amounts to $74,686,781. The
net unrealized appreciation of investments on a federal tax basis amounts to
$794,594, which is comprised of $1,179,580 appreciation and $384,986
depreciation at April 30, 1995.
Note: The categories of investments are shown as a percentage of net assets
($76,408,734) at April 30, 1995.
(See Notes which are an integral part of the Financial Statements)
SOUTHTRUST VULCAN FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY
OBLIGATIONS STOCK BOND
MONEY MARKET FUND FUND FUND
----------------- ------------ -----------
<S> <C> <C> <C>
ASSETS:
- -----------------------------------------------------------------
Investments in repurchase agreements $ 147,186,000 $ -- $ --
- -----------------------------------------------------------------
Investments in securities 168,267,563 140,759,834 75,481,375
- ----------------------------------------------------------------- ------------- ----------- ----------
Total investments in securities, at amortized cost and value 315,453,563 140,759,834 75,481,375
- ----------------------------------------------------------------- ------------- ----------- ----------
Cash 736 58,691 --
- -----------------------------------------------------------------
Income receivable 137,652 190,423 1,124,126
- -----------------------------------------------------------------
Receivable for shares sold -- 1,070,279 --
- -----------------------------------------------------------------
Deferred expenses 42,549 14,675 13,845
- ----------------------------------------------------------------- ------------- ----------- ----------
Total assets 315,634,500 142,093,902 76,619,346
- ----------------------------------------------------------------- ------------- ----------- ----------
LIABILITIES:
- -----------------------------------------------------------------
Payable for investments purchased -- 3,692,946 --
- -----------------------------------------------------------------
Payable for shares redeemed -- 42,580 180,893
- -----------------------------------------------------------------
Income distribution payable 1,395,989 -- --
- -----------------------------------------------------------------
Accrued expenses 38,465 77,610 29,719
- ----------------------------------------------------------------- ------------- ----------- ----------
Total liabilities 1,434,454 3,813,136 210,612
- ----------------------------------------------------------------- ------------- ----------- ----------
Total Net Assets $ 314,200,046 $138,280,766 $76,408,734
- ----------------------------------------------------------------- ------------- ----------- ----------
NET ASSETS CONSISTS OF:
- -----------------------------------------------------------------
Paid-in capital $ 314,200,046 $123,264,614 $76,607,643
- -----------------------------------------------------------------
Net unrealized appreciation of investments -- 13,252,899 794,594
- -----------------------------------------------------------------
Accumulated net realized gain (loss) on investments -- 1,648,451 (1,069,035)
- -----------------------------------------------------------------
Undistributed net investment income -- 114,802 75,532
- ----------------------------------------------------------------- ------------- ----------- ----------
Total Net Assets $ 314,200,046 $138,280,766 $76,408,734
- ----------------------------------------------------------------- ------------- ----------- ----------
Shares Outstanding 314,200,046 12,018,541 7,677,650
- ----------------------------------------------------------------- ------------- ----------- ----------
NET ASSET VALUE PER SHARE:
(Net Assets/Shares Outstanding) $ 1.00 $ 11.51 $ 9.95
- ----------------------------------------------------------------- ------------- ----------- ----------
Offering Price Per Share:* $ 1.00 $ 12.05** $ 10.36***
- ----------------------------------------------------------------- ------------- ----------- ----------
Redemption Proceeds Per Share:* $ 1.00 $ 11.39+ $ 9.85+
- ----------------------------------------------------------------- ------------- ----------- ----------
Investments, at identified cost $ -- $127,506,935 $74,686,781
- ----------------------------------------------------------------- ------------- ----------- ----------
Investments, at tax cost $ -- $127,509,404 $74,686,781
- ----------------------------------------------------------------- ------------- ----------- ----------
</TABLE>
* See "How to Purchase, Exchange, and Redeem Shares."
** Computation of offering price: 100/95.5 of net asset value.
*** Computation of offering price: 100/96 of net asset value.
+ Computation of redemption proceeds: 99/100 of net asset value.
(See Notes which are an integral part of the Financial Statements)
SOUTHTRUST VULCAN FUNDS
STATEMENTS OF OPERATIONS
YEAR ENDED APRIL 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY
OBLIGATIONS STOCK BOND
MONEY MARKET FUND FUND FUND
----------------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------
Dividends $ -- $ 1,995,446* $ --
- ---------------------------------------------------------
Interest 12,715,233 310,555 4,008,486
- --------------------------------------------------------- -------------- ----------- -----------
Total income 12,715,233 2,306,001 4,008,486
- ---------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------
Investment advisory fee $ 1,274,354 $ 643,017 $ 341,359
- ---------------------------------------------------------
Administrative personnel and services fee 359,519 118,687 80,264
- ---------------------------------------------------------
Custodian fees 40,908 26,126 18,030
- ---------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 29,715 35,669 28,196
- ---------------------------------------------------------
Trustees' fees 17,818 5,656 2,315
- ---------------------------------------------------------
Auditing fees 7,172 7,002 9,000
- ---------------------------------------------------------
Legal fees 14,404 9,364 5,065
- ---------------------------------------------------------
Portfolio accounting fees 57,218 49,326 53,333
- ---------------------------------------------------------
Share registration costs 27,276 55,012 30,177
- ---------------------------------------------------------
Printing and postage 7,821 17,569 10,484
- ---------------------------------------------------------
Insurance premiums 5,360 3,096 4,488
- ---------------------------------------------------------
Miscellaneous 11,645 2,606 2,301
- --------------------------------------------------------- -------------- ----------- -----------
Total expenses 1,853,210 973,130 585,012
- ---------------------------------------------------------
Deduct--
- ---------------------------------------------------------
Waiver of investment advisory fee $ 676,587 $ 315,704 $ 144,939
- ---------------------------------------------------------
Waiver of administrative personnel and services fee 76,476 20,240 12,242
- --------------------------------------------------------- -------------- ----------- -----------
Total waivers 753,063 335,944 157,181
- --------------------------------------------------------- -------------- ----------- -----------
Net expenses 1,100,147 637,186 427,831
- --------------------------------------------------------- -------------- ----------- -----------
Net investment income 11,615,086 1,668,815 3,580,655
- --------------------------------------------------------- -------------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------
Net realized gain (loss) on investments -- 1,895,010 (1,069,134)
- ---------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments -- 13,350,921 1,563,871
- --------------------------------------------------------- -------------- ----------- -----------
Net realized and unrealized gain (loss) on
investments -- 15,245,931 494,737
- --------------------------------------------------------- -------------- ----------- -----------
Change in net assets resulting from operations $11,615,086 $16,914,746 $ 4,075,392
- --------------------------------------------------------- -------------- ----------- -----------
</TABLE>
* Net of withholding taxes of $5,088.
(See Notes which are an integral part of the Financial Statements)
SOUTHTRUST VULCAN FUNDS
STATEMENTS 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,
---------------------------- --------------------------- --------------------------
1995 1994 1995 1994 1995 1994
------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
- ---------------------------------
OPERATIONS--
- ---------------------------------
Net investment income $ 11,615,086 $ 7,076,668 $ 1,668,815 $ 650,701 $ 3,580,655 $ 1,762,775
- ---------------------------------
Net realized gain (loss) on
investments -- -- 1,895,010 173,268 (1,069,134) 23,027
- ---------------------------------
Net change in unrealized
appreciation (depreciation) of
investments -- -- 13,350,921 (1,304,643) 1,563,871 (1,952,481)
- --------------------------------- ----------- ----------- ----------- ---------- ---------- ----------
Change in net assets
resulting from operations 11,615,086 7,076,668 16,914,746 (480,674) 4,075,392 (166,679)
- --------------------------------- ----------- ----------- ----------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------
Distributions from net
investment income (11,615,086) (7,076,668) (1,569,099) (654,641) (3,536,738) (1,818,557)
- ---------------------------------
Distributions from net realized
gain on investment transactions -- -- -- -- -- (184,224)
- --------------------------------- ----------- ----------- ----------- ---------- ---------- ----------
Change in net assets from
distributions to shareholders (11,615,086) (7,076,668) (1,569,099) (654,641) (3,536,738) (2,002,781)
- --------------------------------- ----------- ----------- ----------- ---------- ---------- ----------
SHARE TRANSACTIONS--
- ---------------------------------
Proceeds from sale of shares 906,326,761 560,051,555 99,535,036 11,512,558 58,552,670 11,400,885
- ---------------------------------
Net asset value of shares issued
to shareholders in payment of
distributions declared 56,458 24,997 78,162 93,861 41,423 118,424
- ---------------------------------
Cost of shares redeemed (871,107,428) (475,923,119) (13,792,151) (4,291,790) (15,491,406) (2,571,009)
- --------------------------------- ----------- ----------- ----------- ---------- ---------- ----------
Change in net assets
resulting from share
transactions 35,275,791 84,153,433 85,821,047 7,314,629 43,102,687 8,948,300
- --------------------------------- ----------- ----------- ----------- ---------- ---------- ----------
Change in net assets 35,275,791 84,153,433 101,166,694 6,179,314 43,641,341 6,778,840
- ---------------------------------
NET ASSETS:
- ---------------------------------
Beginning of period 278,924,255 194,770,822 37,114,072 30,934,758 32,767,393 25,988,553
- --------------------------------- ----------- ----------- ----------- ---------- ---------- ----------
End of period $314,200,046 $278,924,255 $138,280,766 37,114,072 76,408,734 32,767,393
- --------------------------------- ----------- ----------- ----------- ---------- ---------- ----------
Undistributed net investment
income included in net assets
at the end of the period $ -- $ -- $ 114,802 $ 15,086 $ 75,532 $ 31,615
- --------------------------------- ----------- ----------- ----------- ---------- ---------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
SOUTHTRUST VULCAN FUNDS
COMBINED NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
SouthTrust Vulcan Funds (the "Company") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. The Company consists of three diversified portfolios:
Treasury Obligations Money Market Fund ("Treasury Obligations"), Stock Fund
("Stock"), and Bond Fund ("Bond") (individually referred to as the "Fund," or
collectively as, the "Funds"). The assets of each Fund 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 Company in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities, and other fixed income
securities are valued at the last sale price reported on national securities
exchanges. Listed corporate bonds, unlisted securities, and short-term
securities are generally valued at the price provided by an independent pricing
service. U.S. government securities are generally valued at the mean between the
over-the-counter bid and asked prices as furnished by an independent pricing
service. Short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which approximates fair
market value. Treasury Obligation's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
Investments in other open-end investment companies are valued at net asset
value.
REPURCHASE AGREEMENTS--It is the policy of the Company to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral in support of repurchase agreement transactions.
Additionally, procedures have been established by the Company to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Company will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Company's adviser to be creditworthy pursuant to the guidelines and/or
standards established and reviewed 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 Company could receive less
than the repurchase price on the sale of collateral securities.
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").
- --------------------------------------------------------------------------------
FEDERAL TAXES--It is the Company's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At April 30, 1995, the Bond Fund, for federal tax purposes, had a capital loss
carryforward of $252,919, which will reduce the Bond Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Bond Fund of any
liability for federal tax. Pursuant to the Code, such capital loss carryforward
will expire in 2003.
Additionally, the Bond Fund's net capital losses of $820,719 attributable to
security transactions incurred after October 31, 1994 are treated as arising on
May 1, 1995, the first day of the Bond Fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Company may engage in
when-issued or delayed delivery transactions. The Company records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to organizational
expenses and registration of its shares in its first fiscal year, excluding the
initial expense of registering the shares have been deferred and are being
amortized using the straight-line method not to exceed a period of five years
from the Company's commencement date.
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 shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------------------------------------------------------------
1995 1994
---------------------------------------- --------------------------------------
TREASURY TREASURY
OBLIGATIONS STOCK BOND OBLIGATIONS STOCK BOND
<S> <C> <C> <C> <C> <C> <C>
- --------------------- ------------ ---------- ---------- ------------ --------- ---------
Shares sold 906,326,761 9,649,918 5,999,668 560,051,555 1,160,044 1,125,524
- ---------------------
Shares issued to
shareholders in
payment of
distributions
declared 56,458 7,567 4,223 24,997 8,999 11,129
- ---------------------
Shares redeemed (871,107,428) (1,319,808) (1,591,198) (475,923,119) (474,016) (298,375)
- --------------------- ------------ ---------- ---------- ------------ --------- ---------
Net change resulting
from share
transactions 35,275,791 8,337,677 4,412,693 84,153,433 695,027 838,278
- --------------------- ------------ ---------- ---------- ------------ --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
(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 based on a percentage of each Fund's average daily net assets (see
below). The Adviser may voluntarily choose to waive all or a portion of its fee.
The Adviser can modify or terminate this voluntary waiver any time at its sole
discretion.
<TABLE>
<CAPTION>
ANNUAL
FUND RATE
<S> <C>
- ----------------------------------------------------------------------------------- ------
Treasury Obligations 0.50%
- -----------------------------------------------------------------------------------
Stock 0.75%
- -----------------------------------------------------------------------------------
Bond 0.60%
- -----------------------------------------------------------------------------------
</TABLE>
ADMINISTRATIVE 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 Company for the period. FAS
may voluntarily choose to waive a portion of its fee.
TRANSFER AND DIVIDEND DISBURSING AGENT AND PORTFOLIO ACCOUNTING FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Company. This fee is based on the size, type, and number of accounts and
transactions made by shareholders.
FServ also maintains the Company's accounting records for which it receives a
fee. The fee is based on the level of each Fund's average net assets for the
period, plus out-of-pocket expenses.
Certain Officers of the Company are Officers and Directors or Trustees of the
above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended April 30, 1995, were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
<S> <C> <C>
- ------------------------------------------------------------------ ------------ -------------
Stock $ 43,936,303 $ 111,166,660
- ------------------------------------------------------------------ ------------ -------------
Bond $ 64,471,447 $ 25,976,017
- ------------------------------------------------------------------ ------------ -------------
</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, 1995, 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 Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1995, 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, 1995, 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 LLP
Pittsburgh, Pennsylvania
June 6, 1995
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Expense Summary 2
Financial Highlights 3
Investment Objectives and
Policies of the Funds 4
Investment Activities 5
How to Purchase, Exchange and
Redeem Shares 10
Dividends and Distributions 16
Pricing of Shares 17
Management of the Funds 18
Taxes 19
Description of Shares 21
Total Returns and Yields 21
Financial Statements 23
Report of Independent Public
Accountants 39
</TABLE>
Investment Adviser:
SOUTHTRUST
BANK
OF ALABAMA, N.A.
3052010A (6/95)
TREASURY OBLIGATIONS
MONEY MARKET FUND
BOND FUND
STOCK FUND
PROSPECTUS
JUNE 30, 1995
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"): 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, 1995. A copy of the Prospectus may be obtained
without charge by calling the Company at 1-800-843-8618. This
Statement of Additional Information dated June 30, 1995, although
not in itself a Prospectus, is incorporated by reference in its
entirety into the Company's Prospectus.
TABLE OF CONTENTS
Page
General...............................................................1
Additional Information on Fund
Investments...........................................................1
Additional Investment
Limitations...........................................................4
Trustees and
Officers..............................................................6
Investment Advisory and Other Service
Arrangements..........................................................8
Portfolio
Transactions.........................................................10
Purchase, Exchange and Redemption
Information..........................................................11
Net Asset
Value................................................................12
Performance Information..............................................12
Taxes................................................................14
Additional Information Concerning
Shares...............................................................16
Independent Public
Accountants..........................................................17
Miscellaneous........................................................17
Appendix
A...................................................................A-1
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). Whenissued 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 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 banking 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.
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 Ratings Group, 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 Stock 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, birthdates, and principal occupations during
the past five years, are:
*William O. Vann
Box 757
Birmingham, AL 35201
Birthdate: January 28, 1942
Trustee and Chairman of the Board
President and Chief Executive Officer, Young & Vann Supply Co. (since
1987); Partner, B &B Investments; Trustee and Past Chairman, The
Childrens' Hospital of Alabama.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: October 22, 1930
President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, 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.
C. Christine Thompson
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: September 1, 1957
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of other funds distributed by Federated Securities
Corp.
Peter J. Germain
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: September 3, 1959
Secretary
Senior Corporate Counsel, Federated Investors
Thomas L. Merrill, Sr.
210 Inverness Center Dr.
P.O. Box 10264
Birmingham, AL 35242
Birthdate: October 27, 1925
Trustee
Chief Executive Officer, Vice Chairman and Director, Altec Industries,
Inc.; Director, Walker Companies; formerly, President, Altec Industries,
Inc. (1990-1993) and Chairman, Vantage Consulting (until 1989).
Charles G. Brown, III
P.O. Box 170100
Birmingham, AL 35217
Birthdate: November 27, 1953
Trustee
President, Tubular Products Company (since 1985); Managing Partner, Red
Hollow Partnership.
Russell W. Chambliss
Mason Corporation
P.O. Box 59226
Birmingham, AL 35259
Birthdate: December 26, 1951
Trustee
President (since 1989), Executive Vice President (1988), and Vice
President of Sales and Marketing (1984-1988), Mason Corporation.
D. Riley Stuart
P.O. Box 1028
Birmingham, AL 35201
Birthdate: November 27, 1927
Trustee
Chairman and Chief Executive Officer, Brice Building Company, Inc.
* This Trustee is deemed to be an "interested person" of the
Company as defined in the Investment Company Act of 1940, as
amended.
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.
Trustees Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
COMPANY COMPANY*#
William O. Vann, $4,980
TRUSTEE AND CHAIRMAN OF
tHE BOARD
Thomas L. Merrill, Sr. $4,980
TRUSTEE
Charles G. Brown, III $4,980
TRUSTEE
Russell W. Chambliss $4,980
TRUSTEE
D. Riley Stuart $4,980
TRUSTEE
*Information is furnished for the fiscal year ended April 30, 1995. The
Company is the only investment company in the Fund Complex.
#The aggregate compensation is provided for the Company which is
comprised of three portfolios.
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 fiscal years ended April 30, 1995 and 1994, and for the period from
May 8, 1992 (date of initial public investment) to April 30, 1993, the
Adviser earned advisory fees totaling $1,274,354, $1,258,348 and
$1,143,708, respectively, for the Treasury Obligations Money Market
Fund, $341,359, $177,577 and $127,934, respectively, for the Bond Fund,
and $643,017, $268,510 and $189,545, respectively, for the Stock Fund.
For the same periods, the Adviser waived advisory fees totaling
$676,587, $755,008 and $709,924, respectively, for the Treasury
Obligations Money Market Fund, $144,939, $139,101 and $117,308,
respectively, for the Bond Fund and $315,704, $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 fiscal years ended
April 30, 1995 and 1994, and for the period from April 1, 1993 to April
30, 1993, the Administrator earned the following fees: $359,519,
$364,908 and $25,320, respectively, for the Treasury Obligations Money
Market Fund, $118,687, $51,805 and $3,725, respectively, for the Stock
Fund, and $80,264, $50,000 and $3,175, respectively, for the Bond Fund.
For the fiscal years ended April 30, 1995 and 1994, the Administrator
waived administrative fees totaling $76,476 and $71,756, respectively,
for the Treasury Obligations Money Market Fund, $20,240 and $25,591,
respectively, for the Stock Fund, and $12,242 and $32,836, respectively,
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") 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 fiscal years ended April 30, 1995 and 1994, and for
the period from April 1, 1993 to April 30, 1993, the Transfer Agent
earned the following fees: $29,715, $9,968 and $2,882, respectively, for
the Treasury Obligations Money Market Fund, $35,669, $15,809 and $4,250,
respectively, for the Stock Fund, and $28,196, $13,857 and $3,649,
respectively, for the Bond Fund.
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 fiscal years ended April 30, 1995 and 1994, and for the period
from May 8, 1992 (date of initial public investment) to April 30, 1993,
the Stock Fund paid $144,957, $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 fiscal years ended April 30, 1995 and 1994, the portfolio
turnover rate for the Bond Fund was 48% and 6%, respectively, and for
the Stock Fund was 57% and 46%, 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 periods ended
April 30, 1995 and 1994 was 5.55% and 3.17%, respectively. The effective
yields of the Fund for the same periods were 5.71% and 3.21%,
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:
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 for the 30-day periods ended April 30, 1995 and 1994 were
6.40% and 5.58%, respectively, and the standard yields of the Stock Fund
for the same periods were 1.61% and 1.69%, 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:
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:
Aggregate Total Return = (ERV) - 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 fiscal years ended April 30, 1995 and average annual
total returns for the period from May 8, 1992 (date of initial public
investment) to April 30, 1995, for the Bond Fund and the Stock Fund were
5.41%, and 6.30%, respectively, and 16.36% and 6.82%, 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 after the deduction of the applicable front-end sales charges for
the same period for the Bond Fund and Stock Fund were 1.18% and 4.85%,
respectively, and 11.18% and 5.18%, 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 has elected 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 longterm 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 series 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 LLP, 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. 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, 1995, 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:
Percent of
Total Shares
Name of Fund Name and Address Outstanding
Treasury Obligations Lynspen & Company 99.3%
Money Market Fund P.O. Box 2554
Birmingham, Alabama 35290
Bond Fund Lynspen & Company 98.7%
P.O. Box 2554
Birmingham, Alabama 35290
Stock Fund Lynspen & Company 97.1%
P.O. Box 2554
Birmingham, Alabama 35290
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 nonbank 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 Ratings Group ("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.
SOUTHTRUST VULCAN BOND FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED APRIL 30, 1995
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
INVESTMENT PERSPECTIVE
The economic expansion is now in its fifth year with no sign of ending
in the foreseeable future. Yet, this is not a normal economic expansion,
either in duration or magnitude. Typically, economic recessions are severe
enough to lead to a sharp recovery from which the expansion tends to taper
off. After several years, excesses develop in the economy and lead to
another recession. This time, the recession was relatively mild and the
recovery was subdued. In 1992 and 1993, the recovery/expansion (economies
recover until they reach their prior peak, then they officially expand)
started off with modest growth each year and finished with a strong fourth
quarter. The surprise in 1994 was that economic growth exceeded
expectations each quarter and ended the year with substantial momentum
going into 1995. In contrast to the past, this economic expansion continued
to strengthen in spite of its age.
The disappointment in 1994 came from what many consider to be the
worst year in history for the bond market. In February 1994, the Federal
Reserve Board (the "Fed") raised the federal funds rate for the first time
since February 1989. By the end of the year, the federal funds rate had
been raised six times, going from 3% to 5.5%, and the discount rate had
been increased three times, going from 3% to 4.75%. The Fed intended its
moves to be a preemptive strike to calm inflationary pressures before they
caught fire. As a result, the bond and stock markets corrected, just as
they have always done when the Fed tightens rates.
The danger for investors in 1995 is for the economy to slip into
recession or for growth to be stronger than expected, leading to inflation
surpassing current expectations. Fortunately, the most probable forecast is
for the economy to slow by mid-year and thus allow interest rates to move
modestly lower by year-end.
Optimism is high that the Fed will be able to successfully engineer a
"soft landing." This term basically means that the Fed will be able to slow
the economy's growth and defuse inflationary pressures without causing a
recession. The market's high level of confidence in the Fed's ability to
control the economy is surprising, given its limited success in the past.
Since the beginning of 1995, consensus views of economists have
changed significantly. Initially, economists expected the economy to slow
around mid-year, which would have allowed interest rates to decline in the
second half. Instead, economic data in the first quarter has led economists
to believe the slowdown is taking place sooner than expected, causing
inflation forecasts to move lower.
Investors' confidence in the sustainability of noninflationary growth
have resulted in some fairly dramatic moves in the investment markets so
far in 1995. Interest rates have moved down sharply, with the biggest drops
coming in short to intermediate maturity bonds, the segment of
the bond market which analysts had expected to remain under the most upward
pressure. By April 30, 1995, the end of the fiscal year for the SouthTrust
Vulcan Funds, interest rates were below levels forecasted for year-end 1995
by most economists. While bonds have proven to be excellent performers so
far in 1995, stocks have been even bigger winners. Most stock indices have
hit all time record highs, and provided investors with year-to-date returns
higher than they had earned in the previous two years.
These positive returns were achieved despite the market receiving a
number of conflicting signals. Short-term interest rates moved lower, even
though the Fed increased both the discount rate and the fed funds rate by
0.5% in February. Consumer confidence moved sharply higher during the first
quarter, while the housing and auto markets slowed. Meanwhile, the U.S.
dollar reached all time record lows against the Japanese yen and the German
deutsche mark, as the Japanese stock market fell close to 20%.
With the slowing economy and low inflation creating an ideal economic
environment, the outlook for investments is favorable. However, it is only
realistic to expect some negative developments as 1995 progresses. Optimism
has probably gone too far. A number of factors could easily dampen investor
enthusiasm, including: another rate hike by the Fed; realization that
inflationary pressures still exist in raw materials and intermediate goods;
the continued inability of the U.S. government to seriously address the
deficit; or surprisingly weak corporate earnings. The outlook remains
generally positive, but investors should be prepared for increased
volatility.
VULCAN BOND FUND
For the fiscal year ended April 30, 1995, the Vulcan Bond Fund
achieved a total return on net asset value of 5.4%,* which was slightly
under the total return of the 6.5% for the Lehman Brothers Intermediate
Government/Corporate Index.**
The Fund placed greater emphasis on defensive investments and reduced
duration going into the fall of 1994 and maintained this duration into
1995.
Most bond market strategists expected the yield curve to flatten in
the first half of 1995 as the Fed raised short-term interest rates to slow
the economy and long rates rallied on the inflation-fighting resolve of the
central bank. Typical of consensus economic forecasts, market expectations
proved inaccurate as the yield curve steepened slightly during the first
quarter. Yields on U.S. government bonds declined over the first four
months of 1995 in all except very short maturities and the spread between
the 2- and 30-year maturities increased from 19 to 75 basis points.
Given the substantial rally enjoyed by the bond market in the first
quarter of 1995, we now believe a more selective approach is warranted as
the market appears vulnerable to a near-term correction. As a result, we
continue to emphasize high quality issues with shorter durations.
*Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
** This index is unmanaged.
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, 1995, compared to the Lehman Brothers Intermediate
Government/Corporate Index ("LBIG/C").+
<TABLE>
<CAPTION>
Lehman Brothers
SouthTrust Intermadiate
Measurement Period Vulcan Bond Governmant/Corporate
(Fiscal Year Covered) Fund Index
<S> <C> <C>
8-May-92 9600 10000
30-Apr-93 10890 11236
30-Apr-94 10926 11348
30-Apr-95 11517 12086
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED APRIL 30, 1995++
1 Year.............................................................. 1.18%
Start of Performance (5/8/92)....................................... 4.85%
</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.
* 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 LBIG/C has been adjusted to reflect reinvestment of
dividends on securities in the index.
+ The LBIG/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.
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
844734202
G00204-01 (6/95)
SOUTHTRUST VULCAN STOCK FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED APRIL 30, 1995
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
INVESTMENT PERSPECTIVE
The economic expansion is now in its fifth year with no sign of ending
in the foreseeable future. Yet, this is not a normal economic expansion,
either in duration or magnitude. Typically, economic recessions are severe
enough to lead to a sharp recovery from which the expansion tends to taper
off. After several years, excesses develop in the economy and lead to
another recession. This time, the recession was relatively mild and the
recovery was subdued. In 1992 and 1993, the recovery/expansion (economies
recover until they reach their prior peak, then they officially expand)
started off with modest growth each year and finished with a strong fourth
quarter. The surprise in 1994 was that economic growth exceeded
expectations each quarter and ended the year with substantial momentum
going into 1995. In contrast to the past, this economic expansion continued
to strengthen in spite of its age.
The disappointment in 1994 came from what many consider to be the
worst year in history for the bond market. In February 1994, the Federal
Reserve Board (the "Fed") raised the federal funds rate for the first time
since February 1989. By the end of the year, the federal funds rate had
been raised six times, going from 3% to 5.5%, and the discount rate had
been increased three times, going from 3% to 4.75%. The Fed intended its
moves to be a preemptive strike to calm inflationary pressures before they
caught fire. As a result, the bond and stock markets corrected, just as
they have always done when the Fed tightens rates.
The danger for investors in 1995 is for the economy to slip into
recession or for growth to be stronger than expected, leading to inflation
surpassing current expectations. Fortunately, the most probable forecast is
for the economy to slow by mid-year and thus allow interest rates to move
modestly lower by year-end.
Optimism is high that the Fed will be able to successfully engineer a
"soft landing." This term basically means that the Fed will be able to slow
the economy's growth and defuse inflationary pressures without causing a
recession. The market's high level of confidence in the Fed's ability to
control the economy is surprising, given its limited success in the past.
Since the beginning of 1995, consensus views of economists have
changed significantly. Initially, economists expected the economy to slow
around mid-year, which would have allowed interest rates to decline in the
second half. Instead, economic data in the first quarter has led economists
to believe the slowdown is taking place sooner than expected, causing
inflation forecasts to move lower.
Investors' confidence in the sustainability of noninflationary growth
have resulted in some fairly dramatic moves in the investment markets so
far in 1995. Interest rates have moved down sharply, with the biggest drops
coming in short to intermediate maturity bonds, the segment of
the bond market which analysts had expected to remain under the most upward
pressure. By April 30, 1995, the end of the fiscal year for the SouthTrust
Vulcan Funds, interest rates were below levels forecasted for year-end 1995
by most economists. While bonds have proven to be excellent performers so
far in 1995, stocks have been even bigger winners. Most stock indices have
hit all time record highs, and provided investors with year-to-date returns
higher than they had earned in the previous two years.
These positive returns were achieved despite the market receiving a
number of conflicting signals. Short-term interest rates moved lower, even
though the Fed increased both the discount rate and the fed funds rate by
0.5% in February. Consumer confidence moved sharply higher during the first
quarter, while the housing and auto markets slowed. Meanwhile, the U.S.
dollar reached all time record lows against the Japanese yen and the German
deutsche mark, as the Japanese stock market fell close to 20%.
With the slowing economy and low inflation creating an ideal economic
environment, the outlook for investments is favorable. However, it is only
realistic to expect some negative developments as 1995 progresses. Optimism
has probably gone too far. A number of factors could easily dampen investor
enthusiasm, including: another rate hike by the Fed; realization that
inflationary pressures still exist in raw materials and intermediate goods;
the continued inability of the U.S. government to seriously address the
deficit; or surprisingly weak corporate earnings. The outlook remains
generally positive, but investors should be prepared for increased
volatility.
VULCAN STOCK FUND
For the fiscal year ended April 30, 1995, the Vulcan Stock Fund
achieved a total return based on net asset value of 16.4%,* which compares
very favorably relative to other mutual funds with similar objectives,**
but was slightly under the total return of the 17.4% for the Standard &
Poor's Daily Price Index of 500 Common Stocks (the "S&P 500")***.
Performance was aided by a slight overweighting in some excellent
performing stocks in the strong technology sector, such as Microsoft,
Intel, Motorola, and Hewlett-Packard. Underweighting in the poorly
performing utility sector also aided the Fund's performance. Total return
was negatively affected by a modest cash position and by an underweighting
in the healthcare sector, which turned in a surprisingly good performance.
*Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
** The average Lipper Growth Fund total return for the same period was
10.7%. Source: Lipper Analytical Services, Inc. Lipper figures do not
reflect the deduction of sales charges.
*** This index is unmanaged.
At the beginning of 1995, equity investors exhibited caution toward
the market, given the high valuation levels relative to interest rates,
risk of further monetary restraint, and uncertainty regarding the
sustainability of corporate earnings growth. Following the slower pace of
growth suggested by first quarter economic data and the subsequent decline
in interest rates, equity investors have become increasingly confident
about the possibility of a soft landing scenario. From our perspective, an
economic soft landing is not necessarily the "Promised Land" for equity
investors, as it is merely a transition period of perhaps one to two years
to either reaccelerated growth or a more severe recession.
Over the next several months, there appear to be several positive
forces which could lead to further upside potential for equity investors.
These include:
- VALUATION. At the end of April, the S&P 500 was trading at 15.0 and
14.3 times estimated 1995 and 1996 earnings, respectively. While the
long-term average price-to-earnings multiple for the S&P 500 is
about 14, the market normally commands a higher valuation of 16 to
18 during periods of low inflation. This leaves the market quite
attractively valued, even after its recent gains.
- EARNINGS GROWTH. Earnings in 1995 have largely come in at or above
expectations. Typically at this point in the year, analysts are more
optimistic in their earnings estimates than they will be in the
latter part of the year. As discussed earlier, we believe economic
growth will reaccelerate in the second half of this year, extending
the earnings growth cycle into 1996. This should benefit currently
depressed cyclical stocks. Additionally, the weak U.S. dollar and
the recovering international economies should provide increased
export opportunities for domestically-based multinational companies.
- EXCESS CASH FLOW. After three years of solid earnings growth, many
U.S. corporations are awash in cash. Shareholder-oriented
managements are likely to return some of this cash flow to
shareholders in the form of above-average dividend increases and
further share repurchase announcements.
- INCREASING M&A ACTIVITY. Despite the accelerated number of
transactions in 1994, takeover activity is continuing at a rapid
rate in 1995. These mergers and acquisitions are being driven by
several factors, including: strong corporate finances; a desire to
maintain satisfactory earnings growth; and foreign firms' eagerness
to acquire U.S. companies to take advantage of the cheap dollar.
While the overall market is reasonably valued at the current time,
some sectors, such as consumer nondurables and technology, have had such
strong returns they will probably come under some pressure going forward.
We are currently interested in sectors or industry groups that can offer a
more defensive posture (either through past underperformance or business
mix) in case a more difficult market emerges in the months ahead. We
believe the energy sector is one such place. Currently, the world
supply/demand picture for oil is fairly tight, and energy prices are more
likely to rise than fall. In addition, petrochemical operations have
rebounded and should stay strong into 1996. The energy sector has lagged
the market since 1990. As always, we continue to be focused on individual
companies within these sectors that offer attractive growth potential
selling at below-average valuations.
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, 1995, compared to the Standard & Poor's Daily Price
Index of 500 Common Stocks ("S & P 500").+
<TABLE>
<CAPTION>
Standard & Poor's
SouthTrust Daily Price
Measurement Period Vulcan Stock Index of
(Fiscal Year Covered) Fund 500 Common Stocks
<S> <C> <C>
8-May-92 9550 10000
30-Apr-93 10079 10923
30-Apr-94 9988 11487
30-Apr-95 11622 13493
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED APRIL 30, 1995++
1 Year........................................................................ 11.18%
Start of Performance (5/8/92)................................................. 5.18%
</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.
* 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.
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
844734301
G00204-02 (6/95)
