TREASURY MONEY FUND
BOND FUND
STOCK FUND
INCOME FUND
(INVESTMENT PORTFOLIOS OF SOUTHTRUST VULCAN FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary
information pertaining to four series of shares representing interests
in four investment portfolios (the "Funds") of SouthTrust Vulcan Funds
(the "Company"): the Treasury Obligations Money Market Fund (the
``Treasury Money Fund'), the Bond Fund, the Stock Fund and the Income
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, 1996. You may request a copy of a prospectus or a paper copy
of this Statement, if you have received it electronically, free of
charge by calling 1-800-843-8618. This Statement of Additional
Information dated June 30, 1996, revised on August 14, 1996, 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..................9
Portfolio Transactions.............................................10
Purchase, Exchange and Redemption Information......................11
Net Asset Value....................................................12
Performance Information............................................13
Taxes..............................................................15
Additional Information Concerning Shares...........................17
Independent Public Accountants.....................................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 four 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 MONEY 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, (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 MONEY FUND may have
stated maturities in excess of a Fund's maturity limitation if a 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 MONEY 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 MONEY FUND)
limitation on illiquid investments when a Fund may not demand payment of
the principal amount within seven days absent a reliable trading market.
MONEY MARKET INSTRUMENTS. The Funds (other than TREASURY MONEY
FUND) may invest in certain money market instruments such as:
o instruments of domestic and foreign banks and savings associations if
they have capital, surplus, and undivided profits of over $100,000,000
or if the principal amount of the instrument is federally insured;
o commercial paper rated, at the time of purchase, not less than A-1 by
Standard & Poor's Ratings Group (`S&P''), Prime-1 by Moody's Investor
Services, Inc. (`Moody's'') or F-1 by Fitch Investor Service, Inc.
(`Fitch''), and unrated commercial paper that is deemed by the Fund's
investment adviser to be of comparable quality to securities having
such ratings;
o time and savings deposits whose accounts are insured by the Bank
Insurance Fund (`BIF'') which is administered by the Federal Deposit
Insurance Corporation (`FDIC'') or in institutions whose accounts are
insured by the Savings Association Insurance Fund (`SAIF''), which is
also administered by the FDIC, including certificates of deposit
issued by and other time deposits in foreign branches of BIF-insured
banks; or
o bankers' acceptances.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. These transactions
are made to secure what is considered to be an advantageous price or yield
for the Funds. No fees or other expenses, other than normal transaction
costs, are incurred. However, liquid assets of the Funds sufficient to make
payment for the securities to be purchased are segregated on the Funds'
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Funds do not intend
to engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 25% of the total value of its
assets.
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 MONEY 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 and INCOME 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 Funds 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 S&P, Moody's, 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 MONEY 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 MONEY 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 MONEY 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.
RESTRICTED SECURITIES. 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 MONEY 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 MONEY 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 or, in the case of
the INCOME FUND, municipal leases; 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. The INCOME FUND will not invest in
commodities futures contracts; nor invest more than 5% of its net assets in
warrants. No more than 2% of INCOME FUND's net assets, to be included
within the overall 5% limit on investments in warrants may be warrants
which are not listed on the New York Stock Exchange or the American Stock
Exchange. 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 Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds distributed by Federated Securities Corp.
C. Christine Thomson
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
Vice Chairman and Director, Altec Industries, Inc.; Director, Walker
Companies; formerly, President and Chief Executive Officer, 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.
Thomas Grady
P.O. Box 2
Kannapolis, North Carolina 28082-0002
Birthdate: July 25, 1941
Trustee
Partner of the law firm of Williams, Boger, Grady, Davis and Tuttle, P.A. ,
Chairman of the Board of Pfieffer University, Member of Cannon Foundation.
* This Trustee is deemed to be an "interested person" of the Company
as defined in the Investment Company Act of 1940.
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, $7,000
Trustee and Chairman of
The Board
THOMAS L. MERRILL, SR. $4,750
Trustee
CHARLES G. BROWN, III $6,750
Trustee
RUSSELL W. CHAMBLISS $7,000
Trustee
D. RILEY STUART $5,750
Trustee (Resigned)+
THOMAS GRADY+
Trustee $0
* Information is furnished for the fiscal year ended April 30, 1996. The
Company is the only investment company in the Fund Complex.
# The aggregate compensation is provided for the Company which is comprised
of four portfolios.
+ D. Riley Stuart resigned from his Trustee position March 1, 1996. Thomas
Grady was elected as a Trustee effective March 6, 1996.
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, 1996, 1995 and 1994, the Adviser earned advisory fees totaling
$1,546,225, $1,274,354, and $1,258,348, respectively, for the TREASURY
MONEY FUND, $491,657, $341,359, and $177,577, respectively, for the BOND
FUND, and $1,257,372, $643,017, and $268,510, respectively, for the STOCK
FUND. For the same periods, the Adviser waived advisory fees totaling
$618,490, $676,587, and $755,008, respectively, for the TREASURY MONEY
FUND, $40,971, $144,939, and $139,101, respectively, for the BOND FUND and
$124,311, $315,704, and $221,969, respectively, for the STOCK FUND. For the
period from January 10, 1996 (date of initial public investment) to April
30, 1996, the Adviser earned advisory fees for INCOME FUND of $122,936,
$10,245 of which was voluntarily waived.
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.
OTHER SERVICES
FUND ADMINISTRATION. Federated Administrative Services (the
"Administrator"), a subsidiary of Federated Investors, provides
administrative personnel and services to the Company for a fee as described
in the prospectus. For the fiscal years ended April 30, 1996, 1995 and
1994, the Administrator earned the following fees: $408,456, $359,519, and
$364,908, respectively, for the TREASURY MONEY FUND, $ 222,204, $118,687,
and $51,805, respectively, for the STOCK FUND, and $108,910, $80,264, and
$50,000, respectively, for the BOND FUND. For the fiscal years ended April
30, 1996, 1995 and 1994, the Administrator waived administrative fees
totaling $57,426, $76,476 and $71,756, respectively, for the TREASURY MONEY
FUND, $52,868, $20,240 and $25,591, respectively, for the STOCK FUND, and
$27,289, $12,242 and $32,836, respectively, for the BOND FUND. For the
period from January 10, 1996 (date of initial public investment) to April
30, 1996, the Administrator earned fees of $30,501 for INCOME 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. 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.
TRANSFER AGENT. Federated Services Company (the "Transfer
Agent"),through its registered transfer agent, Federated Shareholder
Services Company, maintains all necessary shareholder records. For its
services, the transfer agent receives a fee based on the size, type and
number of accounts and transactions made by shareholders. For the fiscal
years ended April 30, 1996, 1995 and 1994, the Transfer Agent earned the
following fees: $25,921, $29,715, and $9,968, respectively, for the
TREASURY MONEY FUND, $29,503, $35,669, and $15,809, respectively, for the
STOCK FUND, and $30,525, $28,196, and $13,857, respectively, for the BOND
FUND. For the period from January 10, 1996 (date of initial public
investment) to April 30, 1996, the Transfer Agent earned $2,288 for the
INCOME 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, 1996, 1995 and 1994, the STOCK FUND paid
$238,955, $144,957, and $59,787, 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 MONEY 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 MONEY FUND or one year or less for the BOND FUND,
STOCK FUND and INCOME FUND) by the monthly average value of the securities
held by the Fund during the year. The BOND FUND, STOCK FUND and INCOME 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, 1996 and 1995, the
portfolio turnover rate for the BOND FUND was 28% and 48%, respectively,
and for the STOCK FUND were 39% and 57%, respectively. For the period from
January 10, 1996 (date of initial public investment) to April 30, 1996, the
portfolio turnover rate for the INCOME FUND was 61%.
With respect to the STOCK FUND the Adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the Adviser and may include: advice as
to the advisability of investing in securities; security analysis and
reports; economic studies; industry studies; receipt of quotations for
portfolio evaluations; and similar services. Research services provided by
brokers and dealers may be used by the adviser or its affiliates in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser or its affiliates
might otherwise have paid, it would tend to reduce their expenses. The
Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided.
Although investment decisions for the Fund are made independently
from those of the other accounts managed by the Adviser, investments of the
type the Fund may make may also be made by those other accounts. When the
Fund and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
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 charge 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 MONEY FUND. The value of the portfolio securities of the
TREASURY MONEY 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 MONEY 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 MONEY 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 MONEY FUND. The TREASURY MONEY 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 MONEY
FUND for the seven-day period ended April 30, 1996 was 4.68%. The effective
yield for the TREASURY MONEY FUND for the same period was 4.79%.
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, STOCK FUND AND INCOME FUND
For the BOND FUND, STOCK FUND and INCOME 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 yield of the
BOND FUND for the 30-day period ended April 30, 1996 was 5.61%, and the
standard yield of the STOCK FUND for the same period was 1.55%. The
standard yield of the INCOME FUND for the 30-day period ended April 30,1996
was 5.17%.
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 year ended April 30, 1996 and average annual total returns
for the period from May 8, 1992 (date of initial public investment) to
April 30, 1996, for the BOND FUND were 6.78% and 6.42%, respectively, and
the STOCK FUND were 31.51% and 12.55%, and Treasury Money Market Fund were
5.26% and 3.93%, respectively. The total return figures above do not
reflect the deduction of the maximum front-end sales charges which may be
assessed on 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 were 3.05% and 5.48%,
and for the STOCK FUND were 26.88% and 11.55%, respectively.
Cumulative total return reflects the INCOME FUND's total
performance over a specific period of time. The cumulative total return for
the INCOME FUND for the period from January 10, 1996 (date of initial
public investment) to April 30, 1996 was (0.93%). This total return figure
does not reflect the deduction of the maximum front-end sales charge which
may be assessed on purchases of the INCOME FUND. The cumulative total
return after the deduction of the applicable front-end sales charge for the
same period for the INCOME FUND was (4.37%)% These total return figures are
representative of only 4 months of activity since the date of initial
public investment.
In reports or other communications to shareholders or in
advertising material, the BOND FUND, STOCK FUND or INCOME 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, (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. For purposes of its policies and
limitations, the Fund considers certificates of deposit and demand and time
deposits issued by a U.S. branch of a domestic bank or savings association
having capital, surplus, and undivided profits in excess of $100,000,000 at
the time of investment to be `cash items''.
Distributions of net investment income received by a Fund from
investments in debt securities and any net realized short-term capital
gains distributed by a Fund will be taxable to shareholders as ordinary
income and will not be eligible for the dividends received deduction for
corporations.
Each Fund intends to distribute to shareholders any excess of net
long-term capital gain over net short-term capital loss ("net capital
gain") for each taxable year. Such gain is distributed as a capital gain
dividend and is taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held the shares,
whether such gain was recognized by the Fund prior to the date on which a
shareholder acquired shares of the Fund and whether the distribution was
paid in cash or reinvested in shares.
In the case of corporate shareholders, distributions (other than
capital gain dividends) of a Fund for any taxable year generally qualify
for the dividends received deduction to the extent of the gross amount of
"qualifying dividends" received by such Fund for the year. Generally, a
dividend will be treated as a "qualifying dividend" if it has been received
from a domestic corporation.
The marginal tax rate on ordinary income for taxpayers filing
joint returns is 36% of taxable income in excess of $140,000 ($115,000 for
taxpayers filing individual returns) and 39.6% of taxable income in excess
of $250,000 for taxpayers filing either individual or joint returns.
Different taxable income thresholds apply in the cases of married persons
filing separately, heads of household and trusts. Capital gains are subject
to a 28% maximum stated rate. The maximum marginal corporate income tax
rate is 35% for taxable income (including net capital gains) in excess of
$10,000,000.
If for any taxable year any Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at
regular corporate rates without any deduction for distributions to
shareholders. In such event, all distributions (whether or not derived from
exempt-interest income) would be taxable as ordinary income to the extent
of such Fund's current and accumulated earnings and profits, and would be
eligible for the dividends received deduction in the case of corporate
shareholders.
Shareholders will be advised annually as to the federal income
tax consequences of distributions made by the Funds each year.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). Each Fund intends to
make sufficient distributions or deemed distributions of its ordinary
taxable income and capital gain net income each calendar year to avoid
liability for this excise tax.
The Company will be required in certain cases to withhold and
remit to the United States Treasury 31% of taxable dividends or 31% of the
gross proceeds realized upon a redemption paid to any shareholder (i) who
has provided either an incorrect tax identification number or no number at
all; (ii) who is subject to backup withholding by the Internal Revenue
Service for failure to report the receipt of taxable interest or dividend
income properly; or (iii) who has failed to certify to the Company that he
or she is not subject to backup withholding or that he or she is an "exempt
recipient."
The foregoing general discussion of federal income tax
consequences is based on the Code and the regulations issued thereunder as
in effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions
may have a retroactive effect with respect to the transactions contemplated
herein.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income
taxes, depending upon the extent of its activities in states and localities
in which its offices are maintained, in which its agents or independent
contractors are located or in which it is otherwise deemed to be conducting
business, each Fund may be subject to the tax laws of such states or
localities.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS. Special rules govern
the federal income tax treatment of financial instruments that may be held
by some of the Funds. These rules may have a particular impact on the
amount of income or gain that the Funds must distribute to their respective
shareholders to comply with the Distribution Requirement, on the income or
gain qualifying under the Income Requirement and on their ability to comply
with the Short-Short Gain Test described above. Federal income tax law
requires the holder of a zero coupon security to recognize income with
respect to the security on an annual basis even though there is no cash
flow until maturity. To maintain its qualification as a regulated
investment company and avoid liability of federal income taxes, the BOND
FUND, STOCK FUND or INCOME 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 four series of shares representing interests in the TREASURY
MONEY FUND, the BOND FUND, the STOCK FUND and the INCOME 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
Arthur Andersen LLP, are the independent public accountants for
the Funds.
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 June
3, 1996, 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
MONEY 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 96.64%
MONEY MARKET FUND P.O. Box 2554
Birmingham, Alabama 35290
BOND FUND Lynspen & Company 98.83%
P.O. Box 2554
Birmingham, Alabama 35290
STOCK FUND Lynspen & Company 96.74%
P.O. Box 2554
Birmingham, Alabama 35290
INCOME FUND Lynspen & Company
P.O. Box 2554
Birmingham, Alabama 35290 99.96%
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.
FINANCIAL STATEMENTS. The financial statements for the fiscal
year ended April 30, 1996, are incorporated herein by reference to the
Annual Report of the Fund dated April 30, 1996 (File Nos. 33-46190 and 811-
6580). A copy of the report may be obtained without charge by contacting
the Fund.
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.
BB--Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The BB rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied BBB rating.
B--Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal payments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used
for debt subordinated to senior debt that is assigned an actual
or implied BB or BBB rating.
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.
Ba--Bonds which are Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
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 short-term obligations.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted in A-1+.
Capacity for timely payment on commercial paper rated A-2 is satisfactory
but the relative degree of safety is not as high as for issues designated
A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Issuers rated Prime-1 (or related supporting
institutions) are considered to have a superior capacity for repayment of
short-term promissory obligations. Issuers rated Prime-2 (or related
supporting institutions) are considered to have strong capacity for
repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-1 but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
The highest rating of D&P for commercial paper is Duff 1. D&P
employs three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within
the highest rating category. Duff 1 plus indicates highest certainty of
timely payment. Short-term liquidity, including internal operating factors
and/or ready access to alternative sources of funds, is judged to be
"outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations". Duff 1 indicates very high certainty of timely payment.
Liquidity factors are excellent and supported by strong fundamental
protection factors. Risk factors are considered to be minor. Duff 1 minus
indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small.
3052010B (8/96)
