1933 Act File No. 33-46190
1940 Act File No. 811-6580
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X___
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Pre-Effective Amendment No. .................... ______
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Post-Effective Amendment No. 9 ..................... X___
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X___
Amendment No. 11 .................................. X___
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SOUTHTRUST FUNDS
(formerly SouthTrust Vulcan Funds)
(Exact Name of Registrant as Specified in Charter)
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
x on July 22, 1998 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i) on pursuant to paragraph
(a) (i). 75 days after filing pursuant to paragraph (a)(ii) on
_________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of the SOUTHTRUST FUNDS
(formerly, SouthTrust Vulcan Funds), which consists of four portfolios: (1)
SouthTrust Treasury Obligations Money Market Fund; (2) SouthTrust Bond Fund; (3)
SouthTrust Core Equity Fund (formerly, Stock Fund); and (4) SouthTrust Income
Fund, is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page....................(1-4) Cover Page.
Item 2. Synopsis......................(1-4) Expense Summary.
Item 3. Condensed Financial
Information (1-4) Financial Highlights.
Item 4. General Description of
Registrant....................(1-4) Investment Objectives and
Policies of the Funds; Investment
Activities; Investment
Limitations.
Item 5. Management of the Fund........(1-4) Management of the Funds;
Dividends and Distributions; (1-4)
Confirmations and Account
Statements; (1-4) Administrator,
Custodian and Transfer Agent; (4)
Distribution Plan;
(1-4)Brokerage Transactions.
Item 6. Capital Stock and Other
Securities....................(1-4) Pricing of Shares; Taxes;
Description of Shares; Total Returns
and Yields.
Item 7. Purchase of Securities Being
Offered.......................(1-4) How to Purchase, Exchange and
Redeem Shares; Automatic Investment
Program; Sales Charge;
Reduced Sales Charges; Right of
Accumulation; Quantity Discounts;
Letter of Intent; Reinvestment
Privilege; Sales Charge Waivers.
Item 8. Redemption or Repurchase......(1-4) How to Purchase, Exchange and
Redeem Shares; Exchanges of Shares;
Exchanging Shares;
Exchange-By-Telephone; Redemption of
Shares; Redemption Fee; Automatic
Withdrawal Plan; Purchase
of Shares at Net Asset Value.
Item 9. Pending Legal Proceedings (1-4) Not applicable.
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page....................(1-4) Cover Page.
Item 11. Table of Contents.............(1-4) Table of Contents.
Item 12. General Information and
History (1-4) General.
Item 13. Investment Objectives and
Policies......................(1-4) Additional Information on Fund
Investments; Additional Investment
Limitations.
Item 14. Management of the Fund (1-4) Trustees and Officers; Trustees'
Compensation; Legal Counsel;
Miscellaneous.
Item 15. Control Persons and Principal
Holders of Securities.........(1-4) Control Persons and Principal
Holders of Securities.
Item 16. Investment Advisory and Other
Services......................(1-4) Investment Advisory and Other
Service Arrangements; Other Services;
Fund Administration;
Custodian; Transfer Agent.
Item 17. Brokerage Allocation..........(1-4)Portfolio Transactions; Brokerage
Transactions filed in Part A.
Item 18. Capital Stock and Other
Securities....................(1-4) Additional Information
Concerning Shares.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered.................(1-4) Purchase, Exchange and
Redemption Information; Net Asset
Value; Additional Information
Concerning Shares.
Item 20. Tax Status....................(1-4) Taxes.
Item 21. Underwriters..................(1-4) Investment Advisory and Other
Service Arrangements.
Item 22. Calculation of Performance
Data (1-4) Performance Information.
Item 23. Financial Statements..........(1-4) The Financial Statements for the
fiscal year ended April 30, 1998 are
incorporated herein by
reference to the Funds' Annual Report
dated April 30, 1998.
(File Nos. 33-48847 and 811-07021).
LOGO SOUTHTRUST FUNDS
PROSPECTUS DATED JULY 22, 1998
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SOUTHTRUST FUNDS (the "Company"), (formerly, SouthTrust Vulcan Funds) is an
open-end management investment company--a mutual fund--that currently offers a
selection of four investment portfolios. Each investment portfolio ("Fund")
offered by the Company and its investment objective is described below:
. SOUTHTRUST TREASURY OBLIGATIONS MONEY MARKET FUND -- to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.
. SOUTHTRUST BOND FUND -- to provide a level of total return consistent
with a portfolio of high-quality debt securities.
. SOUTHTRUST CORE EQUITY FUND (FORMERLY, STOCK FUND) -- to provide long-
term capital appreciation, with income a secondary consideration.
. SOUTHTRUST INCOME FUND -- to provide current income.
SouthTrust Bank, N.A., is the investment adviser (the "Adviser") of each
Fund.
SHARES OF THE COMPANY ARE NOT DEPOSITS OR OBLIGATIONS OF SOUTHTRUST BANK,
N.A., ARE NOT ENDORSED, INSURED, GUARANTEED, NOR OTHERWISE SUPPORTED BY,
SOUTHTRUST BANK, N.A., THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC"),
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENTS IN THE
SHARES OF THE FUNDS OFFERED BY THIS PROSPECTUS INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
ALTHOUGH THE TREASURY OBLIGATIONS MONEY MARKET FUND ATTEMPTS TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT THE
FUND WILL BE ABLE TO DO SO.
This prospectus contains information that a prospective investor should know
before investing. Investors are encouraged to read this prospectus and retain
it for future reference. A Statement of Additional Information dated July 22,
1998 has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated by reference into this prospectus. You may request a copy of the
Statement or a paper copy of this prospectus, if you have received your
prospectus electronically, free of charge by calling 1-800-843-8618. The
Statement, material incorporated by reference into this document, and other
information regarding the Company is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
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SECURITIES OFFERED BY THIS PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
CORE
TREASURY OBLIGATIONS BOND EQUITY INCOME
MONEY MARKET FUND FUND FUND FUND
-------------------- ---- ------ ------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases
(as a percentage of offering
price).......................... None 3.50% 4.50% 3.50%
Maximum Sales Load Imposed on
Reinvested Dividends
(as a percentage of offering
price).......................... None None None None
Contingent Deferred Sales Charge
(as a percentage of
original purchase price or
redemption proceeds, as
applicable)..................... None None None None
Redemption Fees (as a percentage
of amount redeemed, if
applicable)..................... None 1.00%* 1.00%* 1.00%*
Exchange Fee..................... None None None None
- --------
* Applies only to shares of the Bond Fund, the Core Equity Fund and the Income
Fund purchased at net asset value (investments in excess of $1,000,000) which
are redeemed within one year of purchase. See "How to Purchase, Exchange, and
Redeem Shares."
<CAPTION>
CORE
TREASURY OBLIGATIONS BOND EQUITY INCOME
MONEY MARKET FUND FUND FUND FUND
-------------------- ---- ------ ------
<S> <C> <C> <C> <C>
ANNUAL OPERATING EXPENSES (as a
percentage of average net assets)
Management Fees (after waivers)
(1).............................. 0.31% 0.59% 0.75% 0.30%
12b-1 Fees....................... None None None None
Other Expenses (after waivers)
(2).............................. 0.17% 0.25% 0.19% 0.45%
---- ---- ---- ----
Total Fund Operating Expenses
(after waivers) (3).............. 0.48% 0.84% 0.94% 0.75%
==== ==== ==== ====
</TABLE>
(1) The management fees have been reduced to reflect the voluntary waivers of
portions of the management fees by the investment adviser. The adviser can
terminate these voluntary waivers at any time at its sole discretion. The
maximum management fees for Treasury Obligations Money Market Fund, Bond Fund
and Income Fund are 0.50%, 0.60% and 0.60%, respectively.
(2) Other expenses have been reduced to reflect the voluntary waivers of
portions of the administrator fees. The adminstrator can terminate these
voluntary waivers at any time at its sole discretion.
(3) The Total Fund Operating Expenses for Treasury Obligations Money Market
Fund, Bond Fund and Income Fund would have been 0.67%, 0.85% and 1.19%,
respectively, absent the voluntary waivers of portions of the management and
administrator fees.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUNDS WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "MANAGEMENT OF THE FUNDS" AND "HOW TO PURCHASE, EXCHANGE AND
REDEEM SHARES" IN THE PROSPECTUS. WIRE-TRANSFERRED REDEMPTIONS MAY BE SUBJECT TO
ADDITIONAL FEES.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Treasury Obligations Money Market Fund........ $ 5 $15 $27 $ 60
Bond Fund..................................... $43 $61 $80 $135
Core Equity Fund.............................. $54 $74 $95 $155
Income Fund................................... $42 $58 $75 $125
</TABLE>
SouthTrust Bank or a SouthTrust Funds Dealer may charge customer accounts for
other services provided to investors.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SOUTHTRUST FUNDS
FINANCIAL HIGHLIGHTS
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The following table has been audited by Arthur Andersen LLP, the Funds'
independent public accountants. Their report dated June 5, 1998 is included in
the Annual Report for the Funds, which is incorporated by reference. This table
should be read in conjunction with the Funds' financial statements and notes
thereto, which may be obtained free of charge from the Funds. Further
information about the performance of the Funds is contained in the Funds' Annual
Report dated April 30, 1998, which may be obtained free of charge. (FOR A
SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NET
REALIZED
AND DISTRIBUTIONS
NET ASSET UNREALIZED DISTRIBUTIONS FROM NET
VALUE, NET GAIN (LOSS) TOTAL FROM FROM NET REALIZED
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAIN ON TOTAL
YEAR ENDED APRIL 30, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS DISTRIBUTIONS
- -------------------- --------- ---------- ----------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
TREASURY OBLIGATIONS
MONEY MARKET FUND
1993(a) $ 1.00 0.03 -- 0.03 (0.03) -- (0.03)
1994 $ 1.00 0.03 -- 0.03 (0.03) -- (0.03)
1995 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1996 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1997 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1998 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05)
BOND FUND
1993(a) $10.00 0.66 0.69 1.35 (0.62) (0.02) (0.64)
1994 $10.71 0.63 (0.58) 0.05 (0.65) (0.07) (0.72)
1995 $10.04 0.61 (0.09) 0.52 (0.61) -- (0.61)
1996 $ 9.95 0.59 0.03 0.62 (0.56) -- (0.56)
1997 $10.01 0.61 (0.03) 0.58 (0.64) -- (0.64)
1998 $ 9.95 0.60 0.45 1.05 (0.60) -- (0.60)
CORE EQUITY FUND
1993(a) $10.00 0.19 0.35 0.54 (0.18) -- (0.18)
1994 $10.36 0.19 (0.28) (0.09) (0.19) -- (0.19)
1995 $10.08 0.20 1.43 1.63 (0.20) -- (0.20)
1996 $11.51 0.23 3.33 3.56 (0.23) (0.44) (0.67)
1997 $14.40 0.20 2.59 2.79 (0.21) (1.17) (1.38)
1998 $15.81 0.15 5.26 5.41 (0.15) (2.02) (2.17)
INCOME FUND
1996(e) $10.00 0.16 (0.25) (0.09) (0.14) -- (0.14)
1997 $ 9.77 0.56 (0.09) 0.47 (0.56) -- (0.56)
1998 $ 9.68 0.58 0.13 0.71 (0.58) -- (0.58)
</TABLE>
(a) Reflects operations for the period from May 8, 1992 (date of initial public
investment) to April 30, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Computed on an annualized basis.
(e) Reflects operations for the period from January 10, 1996 (date of initial
public investment) to April 30, 1996.
(f) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
SOUTHTRUST FUNDS
FINANCIAL HIGHLIGHTS--CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
NET ASSET --------------------------------------- NET ASSETS, AVERAGE
VALUE, NET END OF PORTFOLIO COMMISSION
END OF TOTAL INVESTMENT EXPENSE WAIVER/ PERIOD TURNOVER RATE
PERIOD RETURN(B) EXPENSES INCOME REIMBURSEMENT(C) (000 OMITTED) RATE PAID(F)
- --------- --------- -------- ---------- ---------------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 2.93% 0.39%(d) 2.93%(d) 0.36%(d) $194,771 -- --
$ 1.00 2.83% 0.40% 2.81% 0.33% $278,924 -- --
$ 1.00 4.62% 0.43% 4.56% 0.30% $314,200 -- --
$ 1.00 5.26% 0.48% 5.11% 0.22% $445,729 -- --
$ 1.00 4.88% 0.51% 4.78% 0.20% $524,462 -- --
$ 1.00 5.14% 0.48% 5.03% 0.19% $631,869 -- --
$ 10.71 13.44% 0.39%(d) 6.53%(d) 0.59%(d) $ 25,989 19% --
$ 10.04 0.33% 0.51% 5.97% 0.58% $ 32,767 6% --
$ 9.95 5.41% 0.75% 6.29% 0.28% $ 76,409 48% --
$ 10.01 6.78% 0.87% 6.28% 0.08% $ 83,257 28% --
$ 9.95 5.98% 0.86% 6.18% 0.05% $ 91,185 63% --
$ 10.40 10.80% 0.84% 5.88% 0.01% $114,650 107% --
$ 10.36 5.54% 0.39%(d) 1.91%(d) 0.74%(d) $ 30,935 34% --
$ 10.08 (0.90%) 0.48% 1.82% 0.69% $ 37,114 46% --
$ 11.51 16.36% 0.74% 1.95% 0.39% $138,281 57% --
$ 14.40 31.51% 0.87% 1.75% 0.11% $204,421 39% $0.0747
$ 15.81 19.99% 0.94% 1.33% 0.03% $272,665 27% $0.0747
$ 19.05 36.39% 0.94% 0.77% 0.00% $412,857 75% $0.0570
$ 9.77 (0.93%) 0.85%(d) 5.30%(d) 0.05%(d) $ 78,147 61% --
$ 9.68 4.90% 0.92% 5.59% 0.32% $ 38,598 112% --
$ 9.81 7.46% 0.75% 5.86% 0.44% $ 39,969 112% --
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The Company currently offers shares in four investment portfolios--each with
its own investment objective and investment policies. The purchase of shares of
any Fund should not be considered a complete investment program, but an
important segment of a well-diversified investment program. While there is no
assurance that the Funds will achieve their investment objectives, they endeavor
to do so by following the investment policies described in this prospectus, and
further, in the case of the TREASURY OBLIGATIONS MONEY MARKET FUND, by complying
with the diversification and other requirements of Rule 2a7 under the Investment
Company Act of 1940 which regulates money market mutual funds. SOUTHTRUST
TREASURY OBLIGATIONS MONEY MARKET FUND
The TREASURY OBLIGATIONS MONEY MARKET FUND's investment objective is to
provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. In pursuing this investment
objective, the TREASURY OBLIGATIONS MONEY MARKET FUND (the "TREASURY MONEY
FUND") invests solely in direct obligations of the U.S. Treasury, consisting of
Treasury bills and notes and repurchase agreements collateralized by direct
Treasury obligations.
All securities acquired by the Fund will have remaining maturities of thirteen
months or less (calculated in accordance with the rules of the SEC), and the
dollar-weighted average portfolio maturity of the Fund will not exceed 90 days.
Further information about the TREASURY MONEY FUND's investment policies is
included under "Investment Activities." SOUTHTRUST BOND FUND
The investment objective of the BOND FUND is to provide a level of total
return consistent with a portfolio of high-quality debt securities. The Fund
seeks to achieve its objective by investing in corporate debt obligations and in
U.S. government securities, including obligations issued or guaranteed by
agencies or instrumentalities of the U.S. government. The Fund will purchase
only those securities that are considered to be at least "investment grade"
(rated within the four highest rating categories by a nationally recognized
statistical rating organization ("NRSRO") or, if unrated, are determined by the
Adviser to be of comparable quality), which may include securities having
speculative characteristics. Descriptions of each rating category are included
as "Appendix A' to the Statement of Additional Information. The Adviser expects
that the weighted average maturity of the Fund's portfolio securities will
generally be between five and ten years; however, the Fund's weighted average
maturity of portfolio securities may be adjusted in light of existing and
anticipated market trends. During normal market conditions, at least 65% of the
Fund's total assets will be invested in bonds. A further description of the
types of obligations and the various investment techniques used by the BOND FUND
is provided under "Investment Activities." Other securities in which the Fund
may invest are U.S. Treasury and agency obligations, commercial paper,
certificates of deposit and bankers' acceptances of domestic banks, repurchase
agreements collateralized by such obligations, and asset-backed securities, such
as obligations collateralized by mortgages or other intangible assets. The
prices of fixed income securities fluctuate inversely to the direction of
interest rates. SOUTHTRUST CORE EQUITY FUND
The investment objective of the CORE EQUITY FUND is to provide long-term
capital appreciation, with income a secondary consideration. The Fund seeks to
achieve its objective by investing in equity securities, such as common stocks,
securities convertible or exchangeable into common stocks and warrants to
purchase common
stocks. The Fund's investment portfolio consists primarily of the stocks of
companies believed by the Adviser to offer the potential for long-term growth.
These companies tend to be leaders in their industries and characterized by
sound management. The equity securities of such companies often pay dividends.
The Adviser attempts to manage the Fund's portfolio of investments to achieve
total return relative to that provided by the average return of securities
included in the Standard & Poor's Daily Price Index of 500 Common Stocks (the
"S&P 500 Index") and other professionally-managed domestic large capitalization
stock portfolios. In so doing, the Adviser will make investment selections based
on the analysis of the growth potential of various industry sectors. The equity
securities in which the Fund will invest are traded on domestic stock exchanges
or in the over-the-counter market.
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in equity securities. In addition to investing in equity securities,
the Fund is authorized to invest in high-quality, short-term fixed-income
securities. See "Investment Activities" for a description of these and other
investment practices of the Fund, including limited investments in warrants and
American Depositary Receipts.
SOUTHTRUST INCOME FUND
The investment objective of INCOME FUND is to provide current income. As a
secondary, non-fundamental objective, the Fund will attempt to minimize
principal volatility.
The Fund pursues its investment objective by investing in a diversified
portfolio comprised primarily of income-producing securities. Income-producing
securities may include: U.S. government securities (as described below);
corporate debt obligations, which may include bonds, notes, and debentures;
convertible securities; asset-backed and mortgage-backed securities,
collateralized mortgage obligations and adjustable rate mortgage securities;
commercial paper, bank instruments, money market instruments, and zero coupon
securities. Under normal market and economic conditions, the Fund will invest at
least 65% of its assets in such securities. In an effort to minimize principal
volatility, the Fund will maintain a dollar-weighted average maturity of five
years or less. The Fund may also invest in certain equity securities, including
common stock, preferred stock, and convertible securities. The prices of fixed
income securities fluctuate inversely to the direction of interest rates.
INVESTMENT ACTIVITIES
U.S. GOVERNMENT OBLIGATIONS. The BOND FUND, CORE EQUITY FUND and INCOME FUND
may purchase obligations issued or guaranteed by the U.S. government or its
agencies and instrumentalities. These securities include, but are not limited
to:
. direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;
. notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of
the United States;
. notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
. notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government are backed by the full faith and credit of the U.S. Treasury.
Others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the U.S. Treasury; still
others, such as those of the Student Loan Marketing Association, are supported
only by the credit of the agency or instrumentality issuing the obligation. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These instrumentalities are supported by:
. the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
. discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
. the credit of the agency or instrumentality.
The TREASURY MONEY FUND invests solely in direct obligations of the U.S.
Treasury (directly and through repurchase agreements).
GOVERNMENT RELATED OBLIGATIONS. The TREASURY MONEY FUND and the BOND FUND may
purchase participations in trusts that hold certain government securities (such
as TIGRs and CATs), and also may purchase Treasury receipts and other "stripped"
securities that evidence ownership in either the future interest payments or the
future principal payments on U.S. government obligations. The TREASURY MONEY
FUND will only purchase participations issued directly by the U.S. Treasury and
that are related to direct U.S. Treasury obligations. Participations other than
those issued by the U.S. Treasury are not obligations of the U.S. government.
Stripped securities are issued at a discount to their "face value" and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors.
Obligations of certain agencies and instrumentalities of the U.S. government,
such as Government National Mortgage Association and the Export-Import Bank of
the United States, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Student Loan Marketing Association, are
supported by the discretionary authority of the U.S. government to purchase the
agency's obligations; still others, such as those of the Farm Credit Banks or
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. Each Fund will invest
in the obligations of such agencies or instrumentalities and in stripped
securities only when the Adviser deems the credit risk with respect thereto to
be minimal.
EQUITY SECURITIES. The CORE EQUITY FUND may invest in common stocks,
convertible bonds, convertible preferred stock and warrants to purchase common
stock. The INCOME FUND may invest in common stocks, preferred stocks, and
convertible securities, including convertible bonds and convertible preferred
stocks. A convertible security is a security that may be converted either at a
stated price or rate within a specified period of time into a specified number
of shares of common stock. By investing in convertible securities, the Fund
seeks the opportunity, through the conversion feature, to participate in the
capital appreciation of the common stock into which the securities are
convertible, while earning higher current income than is available from the
common stock.
Although the CORE EQUITY FUND may acquire convertible securities that are
rated below investment grade, the Company does not expect that investments in
lower rated convertible securities will exceed 5% of the value of the total
assets of the CORE EQUITY FUND at the time of purchase. The CORE EQUITY FUND and
the INCOME
FUND may also invest in warrants (other than those that have been acquired in
units or attached to other securities). Warrants represent rights to purchase
securities at a specific price valid for a specific period of time. The prices
of warrants do not necessarily correlate with the prices of the underlying
securities.
AMERICAN DEPOSITARY RECEIPTS ("ADRS") AND EUROPEAN DEPOSITARY RECEIPTS
("EDRS"). The CORE EQUITY FUND may invest in securities of foreign issuers in
the form of ADRs, EDRs or similar securities representing securities of foreign
issuers. These securities may not be denominated in the same currency as the
securities they represent. ADRs are receipts, typically issued by a United
States bank or trust company, evidencing ownership of the underlying foreign
securities. The depositaries issuing ADRs in which the Fund will invest will be
those sponsored by the issuers of the underlying securities. EDRs are receipts
issued by a European financial institution evidencing a similar arrangement.
Generally, ADRs, in registered form, are designed for use in United States
securities markets, and EDRs, in bearer form, are designed for use in the
European securities markets. Investments in foreign securities involve higher
costs than investments in U.S. securities, including higher transaction costs as
well as the imposition of additional taxes by foreign governments. In addition,
foreign investments may include additional risks associated with the level of
currency exchange rates, less complete financial information about the issuers,
less market liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions might adversely affect the payment of principal and interest on
foreign obligations.
CONVERTIBLE SECURITIES. The CORE EQUITY FUND, the BOND FUND and the INCOME
FUND may invest in convertible securities. Convertible securities are securities
which may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible bonds,
convertible preferred stock or debentures, units consisting of "usable" bonds or
a combination of the features of several of these securities.
The investment characteristics of each convertible security vary widely, which
allows convertible securities to be employed for different investment
objectives.
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and
therefore have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than nonconvertible securities of similar quality. The Funds
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stocks when, in the Adviser's opinion, the
investment characteristics of the underlying common shares will assist the Funds
in achieving their investment objectives. Otherwise, the Funds will hold or
trade the convertible securities. In selecting convertible securities for the
Funds, the Adviser evaluates the investment characteristics of the convertible
security as a fixed income instrument, and the investment potential of the
underlying equity security for capital appreciation. In evaluating these matters
with respect to a particular convertible security, the Adviser considers
numerous factors, including the economic and political outlook, the value of the
security relative to other investment alternatives, trends in the determinants
of the issuer's profits, and the issuer's management capability and practices.
The BOND FUND and the INCOME FUND will invest in convertible securities rated,
at the time of purchase, investment grade by a NRSRO, or, if unrated, of
comparable quality as determined by the Adviser.
CORPORATE DEBT OBLIGATIONS. The BOND FUND and the INCOME FUND may invest in
corporate debt obligations, including bonds, notes and debentures, which may
have fixed or floating rates of interest and which are rated, at the time of
purchase, investment grade by a NRSRO, or, if unrated, are of comparable quality
as determined by the Adviser. If a security's rating is reduced below the
required minimum after a Fund has purchased it, the Fund is not required to sell
the security, but may consider doing so. Bonds rated "BBB" by Standard & Poor's
("S&P") or Fitch IBCA, Inc. ("Fitch"), or "Baa" by Moody's Investors Service,
Inc. ("Moody's"), are considered medium-grade obligations and are regarded as
having an adequate capacity to pay interest and repay principal, and have
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal and
interest payments than higher rated bonds.
FIXED RATE OBLIGATIONS. The BOND FUND and the INCOME FUND may invest in fixed
rate corporate securities, including fixed rate securities with short-term
characteristics. Fixed rate securities with short-term characteristics are
long-term debt obligations but are treated in the market as having short
maturities because call features of the securities may make them callable within
a short period of time. A fixed rate security with short-term characteristics
would include a fixed income security priced close to call or redemption price
or a fixed income security approaching maturity, where the expectation of call
or redemption is high.
Fixed rate securities exhibit more price volatility during times of rising or
falling interest rates than securities with floating rates of interest. This is
because floating rate securities, as described below, behave like short-term
instruments in that the rate of interest they pay is subject to periodic
adjustments based on a designated interest rate index. Fixed rate securities pay
a fixed rate of interest and are more sensitive to fluctuating interest rates.
In periods of rising interest rates, the value of a fixed rate security is
likely to fall. Fixed rate securities with short-term characteristics are not
subject to the same price volatility as fixed rate securities without such
characteristics. Therefore, they behave more like floating rate securities with
respect to price volatility.
The market value of fixed-income obligations in the Funds can be expected to
fluctuate inversely to changes in prevailing interest rates. Investors should
recognize that, in periods of declining interest rates, the yields of funds
composed primarily of fixed-income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower.
FLOATING RATE OBLIGATIONS. The BOND FUND and the INCOME FUND may invest in
floating rate debt obligations, including increasing rate securities. Floating
rate securities are generally offered an initial interest rate which is at or
above prevailing market rates. The interest rate paid on these securities is
then reset periodically (commonly every 90 days to an increment over some
predetermined interest rate index). Commonly utilized indices include the
three-month Treasury bill rate, the 180-day Treasury bill rate, the one-month or
three-
month London Interbank Offered Rate (LIBOR), the prime rate of a bank, the
commercial paper rates, or the longer-term rates on U.S. Treasury securities.
FIXED-INCOME SECURITIES. The market value of fixed-income obligations in the
TREASURY MONEY FUND, BOND FUND, and INCOME FUND (and, consequently, in the case
of the BOND FUND and the INCOME FUND, the net asset value per share) can be
expected to fluctuate inversely to changes in prevailing interest rates.
Investors should also recognize that, in periods of declining interest rates,
the yields of Funds composed primarily of fixed-income securities will tend to
be higher than prevailing market rates and, in periods of rising interest rates,
yields will tend to be somewhat lower. In addition, the BOND FUND and the INCOME
FUND may purchase securities rated within the lowest category of investment
grade (i.e., "Baa" by Moody's or "BBB" by S&P) and the CORE EQUITY FUND may
purchase securities rated below investment grade. Securities rated in such
categories may have speculative elements and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher rated bonds.
MORTGAGE-BACKED SECURITIES. The BOND FUND and INCOME FUND may purchase
mortgage-backed securities that provide monthly payments of principal and
interest. These Funds will invest in mortgage-backed securities which are rated
at the time of purchase, investment grade by an NRSRO, or, if unrated, are of
comparable quality as determined by the Adviser. The average life of
mortgage-backed securities varies with the maturities of the underlying
instruments that have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgage pools underlying the securities as
the result of scheduled principal payments and mortgage prepayments. The rate of
such mortgage prepayments, and hence the life of the certificates, will be
primarily a function of current market rates and current conditions in the
relevant housing markets. In calculating the weighted average maturity of the
BOND FUND and the INCOME FUND, the maturity of mortgage-backed instruments will
be based on estimates of average life of the underlying mortgages. The Funds
will continuously monitor and revise, as appropriate, its calculations of the
estimated average life of mortgage-backed instruments. The relationship between
mortgage prepayments and interest rates may give some high-yielding
mortgage-related securities less potential for appreciation than conventional
bonds with comparable maturities. In addition, in periods of falling interest
rates, the rate of mortgage prepayments tends to increase. During such periods,
the reinvestment of prepayment proceeds by the Funds will generally be at lower
rates than the rates that were carried by the obligations that have been
prepaid. Because of these and other reasons, a mortgage-backed security's total
return may be difficult to predict precisely. To the extent that a Fund
purchases mortgage-related or mortgage-backed securities at a premium, mortgage
prepayments (which may be made at any time without penalty) may result in some
loss of the Fund's principal investment to the extent of the premium paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. government agencies, including guaranteed mortgage
passthrough certificates, which provide the holder with a pro rata interest in
the underlying mortgages, and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
ordinarily elect to be taxed as a pass-through entity known as a real estate
mortgage investment conduit. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final distribution date. The
relative payment rights of the various CMO classes may be structured in many
ways. In most cases, however, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no principal
payments will be made on a CMO class until all other classes having an earlier
stated maturity date are paid in full. The classes may include accrual
certificates (also known as "Z-Bonds"), which only accrue interest at a
specified rate until other specified classes have been retired and are
converted thereafter to interest-paying securities. They may also include
planned amortization classes which generally require, within certain limits,
that specified amounts of principal be applied on each payment date, and
generally exhibit less yield and market volatility than other classes. The Funds
will not purchase "residual" CMO interests, which normally exhibit the greatest
price volatility.
Risks of Mortgage-Backed Securities. Mortgage-backed and asset-backed
securities (described below) generally pay back principal and interest over
the life of the security. At the time a Fund reinvests the payments and any
unscheduled prepayments of principal received, it may receive a rate of
interest which is actually lower than the rate of interest paid on these
securities ("prepayment risks"). Mortgage-backed and asset-backed securities
are subject to higher prepayment risks than most other types of debt
instruments with prepayment risks because the underlying mortgage loans or the
collateral supporting asset-backed securities may be prepaid without penalty
or premium. Prepayment risks on mortgage-backed securities tend to increase
during periods of declining mortgage interest rates because many borrowers
refinance their mortgages to take advantage of the more favorable rates.
Prepayments on mortgage-backed securities are also affected by other factors,
such as the frequency with which people sell their homes or elect to make
unscheduled payments on their mortgages. Although asset-backed securities
generally are less likely to experience substantial prepayments than are
mortgage-backed securities, certain factors that affect the rate of
prepayments on mortgage-backed securities also affect the rate of prepayments
on asset-backed securities.
While mortgage-backed securities generally entail less risk of a decline
during periods of rapidly rising interest rates, mortgage-backed securities
may also have less potential for capital appreciation than other similar
investments (e.g., investments with comparable maturities) because as interest
rates decline, the likelihood increases that mortgages will be prepaid.
Furthermore, mortgage-backed securities are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely,
if mortgage-backed securities are purchased at a discount, both a scheduled
payment of principal and an unscheduled prepayment of principal would increase
current and total returns and would accelerate the recognition of income,
which would be taxed as ordinary income when distributed to shareholders.
ASSET-BACKED SECURITIES. The BOND FUND and the INCOME FUND may invest in
asset-backed securities which have structural characteristics similar to
mortgage-backed securities but have underlying assets that are not mortgage
loans or interests in mortgage loans. Asset-backed securities are created by the
grouping of certain private loans, receivables, and other lender assets into
pools. These securities differ from other forms of debt securities, which
normally provide periodic payment of interest in fixed amounts with principal
paid at maturity or specified call dates. Asset-backed securities, however,
provide periodic payments which generally consist of both interest and principal
payments. The estimated life of an asset-backed security and the average
maturity of a portfolio including such assets vary with the prepayment
experience with respect to the underlying debt instruments. The credit
characteristics of asset-backed securities also differ in a number of respects
from those of traditional debt securities. The credit quality of most asset
backed securities depends primarily upon the credit quality of the assets
underlying such securities, how well the entity issuing the securities is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit support provided to such
securities.
The BOND FUND and INCOME FUND may invest in asset-backed securities which
include, but are not limited to, interests in pools of receivables, such as
motor vehicle installment purchase obligations and credit card
receivables. These securities may be in the form of pass-through instruments or
asset-backed bonds. The securities are issued by non-governmental entities and
carry no direct or indirect government guarantee.
Risks of Asset-Backed Securities. Asset-backed securities present certain
risks that are not presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of the same security interest in the
related collateral. Credit card receivables are generally unsecured and the
debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Most issuers of asset-backed securities backed by motor vehicle installment
purchase obligations permit the servicer of such receivables to retain
possession of the underlying obligations. If the servicer sells these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related asset- backed
securities. Furthermore, if a vehicle is registered in one state and is then
reregistered because the owner and obligor moves to another state, such
reregistration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved
in a typical issuance and technical requirements under state laws, the trustee
for the holders of asset-backed securities backed by automobile receivables
may not have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support
payments on these securities.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMs are pass-through mortgage
securities representing interests in adjustable rather than fixed interest rate
mortgages. The ARMs in which the INCOME FUND invests are issued by the
Government National Mortgage Association ("Ginnie Mae"), Federal National
Mortgage Association ("Fannie Mae"), or the Federal Home Loan Mortgage
Association ("Freddie Mac"), and are actively traded. The underlying mortgages
which collateralize ARMs issued by Ginnie Mae are fully guaranteed by the
Federal Housing Administration or Veterans Administration, while those
collateralizing ARMs issued by Fannie Mae or Freddie Mac are typically
conventional residential mortgages conforming to strict underwriting size and
maturity constraints.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Fund may purchase variable and
floating rate instruments. Variable and floating rate instruments may include
variable amount master demand notes that permit the amount of indebtedness to
vary in addition to providing for periodic adjustment in the interest rate. The
absence of an active secondary market, however, could make it difficult to
dispose of the instruments, and the Fund could suffer a loss if the issuer
defaulted or during periods that the Fund is not entitled to exercise its demand
rights. Variable and floating rate instruments held by a Fund may be subject to
the Fund's 15% (10% in the case of the TREASURY MONEY FUND) limitation on
illiquid investments when the Fund can not demand payment of the principal
amount within seven days absent a reliable trading market.
INVESTMENT COMPANY SECURITIES. The Funds may invest in securities of other
investment companies as an efficient means of carrying out their respective
investment policies. The TREASURY MONEY FUND will invest only in money market
funds that seek to maintain a $1.00 net asset value per share and that invest in
securities eligible for direct purchase by the TREASURY MONEY FUND. It should be
noted that investment companies incur certain expenses, such as management fees,
and, therefore, any investment by the Fund in shares of other investment
companies may be subject to such duplicate expenses.
ZERO COUPON BONDS. The BOND FUND and the INCOME FUND may purchase zero coupon
bonds (i.e., discount debt obligations that do not make periodic interest
payments). Zero coupon bonds held by a Fund are subject to greater market
fluctuations from changing interest rates than debt obligations of comparable
maturities
that make current distributions of interest. To maintain its qualification as a
regulated investment company and avoid liability of federal income taxes, the
BOND FUND and the INCOME FUND will be required to distribute income accrued from
zero coupon securities which it owns, and may have to sell portfolio securities
(perhaps at disadvantageous times) in order to generate cash to satisfy these
distribution requirements.
REPURCHASE AGREEMENTS. Each Fund may purchase portfolio securities subject to
the seller's agreement to repurchase them at a mutually specified date and price
("repurchase agreements"). Repurchase agreements will be entered into only with
financial institutions, such as banks and broker/dealers, that are deemed to be
creditworthy by the Adviser under guidelines approved by the Company's Board of
Trustees (the "Trustees"). The seller under a repurchase agreement will be
required to maintain the value of the securities that are subject to the
agreement and held by a Fund in an amount that exceeds the agreed upon
repurchase price. A Fund's purchase of portfolio securities pursuant to a
repurchase agreement may be considered to be the making of a loan to the seller.
Default by or bankruptcy of the seller, however, could expose a Fund to possible
loss because of adverse market action, delays in connection with the disposition
of the underlying obligations or expenses of enforcing its rights.
Income derived by the TREASURY MONEY FUND from repurchase agreements may not
be exempt from taxation at the state level.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds for temporary
purposes by selling portfolio securities to financial institutions, such as
banks and broker/dealers, and agreeing to repurchase them at a mutually
specified date and price ("reverse repurchase agreements"). Reverse repurchase
agreements involve the risks that the market value of the securities sold by a
Fund may decline below the repurchase price and the other party to the agreement
may default, in which event there may be delays in recovering the securities.
The Fund would pay interest on amounts obtained pursuant to a reverse repurchase
agreement.
TEMPORARY INVESTMENTS. As a temporary defensive measure or for liquidity
management, if the Adviser determines that market conditions warrant, the BOND
FUND, CORE EQUITY FUND and INCOME FUND may each invest without limitation in
U.S. government obligations, notes, zero coupon securities and repurchase
agreements collateralized by U.S. government obligations. Any strategy to manage
the liquidity of the TREASURY MONEY FUND is subject to the Fund's policy of
limiting investments to direct obligations of the U.S. Treasury and repurchase
agreements collateralized by such obligations.
LENDING OF PORTFOLIO SECURITIES. From time to time, each of the Funds may lend
portfolio securities to brokers/dealers and other financial organizations. Such
loans will not exceed 20% of a Fund's total assets. Loans of portfolio
securities by a Fund will be collateralized by cash, letters of credit or U.S.
government securities which are maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. The risks in
lending portfolio securities, like those associated with other extensions of
secured credit, consist of possible decline in value of collateral, possible
delays in receiving additional collateral or in the recovery of the loaned
securities or expenses of enforcing the Fund's rights. Loans will be made to
firms deemed by the Adviser to be of good standing and will not be made unless,
in the judgment of the Adviser, the consideration to be earned from such loans
would justify the risk. Each Fund may lend portfolio securities, on a short-term
or long-term basis, up to one-third of the value of its total assets to
broker/dealers, banks or other institutional borrowers of securities in order to
generate additional income.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Funds may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
A Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Funds may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. A Fund may realize short-term profits or losses upon the sale of such
commitments.
ILLIQUID SECURITIES. Each Fund may invest up to 15% (10% in the case of the
TREASURY MONEY FUND) of the total value of its net assets in securities that are
illiquid. An illiquid security is one which may not be sold or disposed of in
the ordinary course of business within seven days at approximately the value at
which the Fund has valued it on its books. Repurchase agreements with maturities
in excess of seven days will be considered by the Funds to be illiquid.
DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has traditionally
been applied to certain contracts (including futures, forward, option and swap
contracts) that "derive" their value from changes in the value of an underlying
security, currency, commodity or index. Certain types of securities that
incorporate the performance characteristics of these contracts are also referred
to as "derivatives." The term has also been applied to securities "derived" from
the cash flows from underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response of
certain derivative contracts and securities to market changes may differ from
traditional investments, such as stock and bonds, derivatives do not necessarily
present greater market risks than traditional investments. The Funds will only
use derivative contracts for the purposes disclosed in the applicable prospectus
sections above. To the extent that the Funds invests in securities that could be
characterized as derivatives, such as mortgage-backed securities and
asset-backed securities, it will only do so in a manner consistent with its
investment objective, policies and limitations.
PORTFOLIO TURNOVER
The Company cannot accurately predict the turnover rate for any Fund, but
expects that the annual turnover rate may, but generally will not exceed 75% for
either the BOND FUND or the CORE EQUITY FUND and 100% for INCOME FUND. Short
term capital gains realized from portfolio transactions are taxable to
shareholders as ordinary income. In addition, higher portfolio turnover rates
can result in corresponding increases in brokerage commissions and other
transaction costs. The Funds will not consider portfolio turnover rates a
limiting factor in making investment decisions consistent with their respective
objectives and policies.
INVESTMENT LIMITATIONS
A Fund's investment objective and policies, except as otherwise indicated, may
be changed by the Trustees without shareholder approval. However, shareholders
will be notified in writing at least 30 days prior to any change in an
investment objective. Any such change may result in a Fund having an investment
objective different from the investment objective which the shareholder
considered appropriate at the time of investment in the Fund. No assurance can
be provided that a Fund will achieve its investment objective.
Each Fund has also adopted certain fundamental investment limitations that may
be changed only with the approval of a majority of a Fund's outstanding shares.
The following descriptions summarize several of the Funds' fundamental
investment policies, which are set forth in full in the Statement of Additional
Information.
No Fund may:
(1) purchase securities, except U.S. government securities, if more than 5% of
its total assets will be invested in the securities of any one issuer,
except that up to 25% of the BOND FUND'S, CORE EQUITY FUND's or INCOME
FUND'S total assets may be invested without regard to this 5% limitation;
(2) subject to the foregoing 25% exception, purchase more than 10% of the
outstanding voting securities of any issuer;
(3) invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry; and
(4) borrow money except for temporary purposes in amounts up to one-third of
the value of its total assets at the time of such borrowing. Whenever
borrowings exceed 5% of a Fund's total assets, the Fund will not make any
additional investments. These investment limitations are applied at the
time investment securities are purchased.
HOW TO PURCHASE, EXCHANGE AND REDEEM SHARES
PURCHASE OF SHARES -- GENERAL
Federated Securities Corp. (the "Distributor") has established several
procedures for purchasing Fund shares. Shares may be purchased through
SouthTrust Bank, N.A., or its affiliated and correspondent banks ("SouthTrust"),
or Fund shares may be purchased through a broker/dealer that has entered into a
sales agreement with the Distributor (a "SouthTrust Funds Dealer"). SouthTrust
or a SouthTrust Funds Dealer will be responsible for transmitting purchase and
redemption orders directly to the Distributor in a timely manner. Orders may be
placed by contacting SouthTrust Securities, Inc. at 1-800-843-8618. Texas
residents should purchase shares through Federated Securities Corp. at
1-800-356-2805. Purchases will be effected at the net asset value next
determined after the purchase order is received in proper form by the transfer
agent and the custodian has federal funds available immediately to it. Investors
wishing to purchase shares of any Fund should contact their SouthTrust account
representative or a SouthTrust Funds Dealer.
The minimum initial investment in each Fund is $1,000. The minimum subsequent
investment is $50. With respect to investments made in the Funds through a sweep
program, initial investment minimums may be modified under the relevant account
agreement. Purchases may be effected on business days when the Adviser,
Distributor, and the custodian are open for business. The Company reserves the
right to reject any purchase order. Additional account applications may be
obtained by calling SouthTrust Securities, Inc. at 1-800- 843-8618. SouthTrust
or a SouthTrust Funds Dealer may set different minimums for its customers.
PURCHASE OF SHARES -- THE TREASURY MONEY FUND
Shares of the TREASURY MONEY FUND are sold without a sales charge or
redemption fee. Purchase orders for shares of the TREASURY MONEY FUND must be
received by the Distributor no later than 12:00 noon (Eastern
time) on any business day. Orders received before 12:00 noon (Eastern time) will
be executed at 12:00 noon; however, if federal funds for such orders are not
received by 4:00 p.m. (Eastern time), the order will be canceled with notice to
the institution placing the order. Orders received in proper form after 12:00
noon (Eastern time) will be executed on the next business day.
PURCHASE OF SHARES -- BOND FUND, CORE EQUITY FUND AND INCOME FUND
Shares of the BOND FUND, CORE EQUITY FUND and the INCOME FUND are purchased at
the net asset value per share plus any applicable sales charge (the "Public
Offering Price") next determined on the day the purchase order is received. Net
asset value is determined at the close of regular trading hours of the New York
Stock Exchange (currently 4:00 p.m. Eastern time). Immediately available funds
in payment of the purchase price must be received by the Funds' custodian no
later than 4:00 p.m. (Eastern time) by the third business day following receipt
of the order. If federal funds are not received by such date, the order will be
canceled and notice thereof will be given, and the institution placing the order
will be responsible for any loss to the Funds or their shareholders. Payment for
orders which are not received or accepted will be returned after prompt inquiry
to the sending institution.
AUTOMATIC INVESTMENT PROGRAM ("AIP"). Once an account has been opened in a
Fund, shareholders may add to their investment on a monthly basis in a minimum
amount of $50. Under the AIP, funds may be automatically withdrawn from the
shareholder's checking account, via Automated Clearing House ("ACH") processing,
through the shareholder's financial institution. Such funds are invested in
shares at the net asset value next determined plus any applicable sales charges
on the day an order is effected by the transfer agent. An investor may apply for
participation in the AIP through SouthTrust or a SouthTrust Funds Dealer
servicing their SouthTrust account and by completing the supplementary AIP
authorization form. In order to participate in the AIP, the investor must
determine that his or her financial institution is an ACH participant and will
clear and process ACH transactions. The AIP may be modified or terminated by a
shareholder on 30-days' written notice to SouthTrust, a SouthTrust Funds Dealer,
or by the Funds at any time.
SALES CHARGE
The Public Offering Price of shares of the BOND FUND, CORE EQUITY FUND or the
INCOME FUND equals the Fund's net asset value per share plus any applicable
sales charge. No sales charge will be assessed on the reinvestment of
distributions. The following tables illustrate the applicable front-end sales
charge at various investment levels.
<TABLE>
<CAPTION>
SALES CHARGE
SALES CHARGE AS % OF DEALER ALLOWANCE
BOND FUND AND AS % OF NET AMOUNT AS % OF
INCOME FUND OFFERING PRICE INVESTED OFFERING PRICE
------------- -------------- ------------ ----------------
<S> <C> <C> <C>
$0 but less than
$100.00................ 3.50% 3.63% 3.00%
$100,000 but less than
$250,000............... 3.00% 3.09% 2.50%
$250,000 but less than
$500,000............... 2.50% 2.56% 2.00%
$500,000 but less than
$1,000,000............. 2.00% 2.04% 1.50%
$1,000,000 or more...... 0%* 0% 0%
</TABLE>
- --------
* A redemption fee of 1% may be imposed on certain redemptions made within
one year of purchase. See "Redemption of Shares"--"Redemption Fee."
<TABLE>
<CAPTION>
SALES CHARGE
SALES CHARGE AS % OF DEALER ALLOWANCE
AS % OF NET AMOUNT AS % OF
CORE EQUITY FUND OFFERING PRICE INVESTED OFFERING PRICE
---------------- -------------- ------------ ----------------
<S> <C> <C> <C>
$0 but less than
$50.000................ 4.50% 4.71% 4.00%
$50,000 but less than
$100,000............... 4.00% 4.17% 3.50%
$100,000 but less than
$250,000............... 3.25% 3.36% 2.75%
$250,000 but less than
$500,000............... 2.75% 2.83% 2.25%
$500,000 but less than
$1,000,000............. 1.75% 1.78% 1.25%
$1,000,000 or more...... 0%* 0.00% 0%
</TABLE>
- --------
* A redemption fee of 1% may be imposed on certain redemptions made within
one year of purchase. See "Redemption of Shares"--"Redemption Fee."
The Distributor will pay the appropriate dealer concession to SouthTrust Fund
Dealers. Upon notice, the Distributor may also elect to reallow a higher
percentage of the sales charge stated above to selected brokers and dealers for
all sales made during a particular period. From time to time, the Distributor
will conduct sales programs and contests that compensate SouthTrust Funds
Dealers with cash or non-cash items, such as payments of certain expenses of
qualified SouthTrust Funds Dealers and their spouses to attend informational
meetings about the BOND FUND, CORE EQUITY FUND or INCOME FUND or other special
events at recreational facilities, or items of material value. In some
instances, these incentives will be made available only to SouthTrust Funds
Dealers who have sold or may sell significant amounts of shares. The cost of
such compensation is borne by the Distributor and is not borne by the BOND FUND,
CORE EQUITY FUND or INCOME FUND.
REDUCED SALES CHARGES
The sales charge on purchases of the BOND FUND, CORE EQUITY FUND and INCOME
FUND may be reduced through the following:
.right of accumulation;
.quantity discounts;
.letter of intent; and
.reinvestment privilege.
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value of
an investor's existing shares in BOND FUND, CORE EQUITY FUND and INCOME FUND may
be combined with the amount of the investor's current purchases in determining
the applicable sales charge. IN ORDER TO RECEIVE THE CUMULATIVE QUANTITY
REDUCTION, PREVIOUS PURCHASES OF FUND SHARES MUST BE CALLED TO THE ATTENTION OF
THE FUND AT THE TIME OF THE CURRENT PURCHASE.
QUANTITY DISCOUNTS. As shown on the prior page, larger purchases reduce the
sales charge paid. The Company will combine purchases made on the same day by
the investor, spouse and any children under age 21 when calculating the sales
charge.
LETTER OF INTENT. If a shareholder intends to purchase over the next 13
months, at least $100,000 of shares in the BOND FUND or the INCOME FUND, or
$50,000 of shares in the CORE EQUITY FUND, the applicable sales
charge may be reduced by signing a Letter of Intent to that effect. This Letter
of Intent includes a provision for a sales charge adjustment depending on the
amount actually purchased within the 13-month period and a provision for the
custodian to hold 3.50% (4.50% for the CORE EQUITY FUND) of the total amount
intended to be purchased in escrow (in shares) until such purchase is completed.
The shares held in escrow will be released at the fulfillment of the Letter of
Intent or at the end of the 13-month period, whichever comes first. If the
amount specified in the Letter of Intent is not purchased, an appropriate number
of escrowed shares may be redeemed in order to realize the difference in the
sales charge.
This Letter of Intent will not obligate the shareholder to purchase shares,
but if the shareholder does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased. At the
time a Letter of Intent is established, current balances in accounts in any
Fund, excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the Letter of Intent. Prior trade prices will not
be adjusted.
REINVESTMENT PRIVILEGE. Upon redemption of Fund shares, a shareholder has a
one-time right, to be exercised within 30 days, to reinvest the redemption
proceeds without any sales charge at the next determined net asset value after
receipt of the purchase order. The shareholder must notify in writing SouthTrust
or his or her SouthTrust Funds Dealer of the reinvestment in order to eliminate
a sales charge.
MISCELLANEOUS. Reduced sales charges may be modified or terminated at any
time and are subject to confirmation of an investor's holdings. For more
information about reduced sales charges, an investor should contact his or her
SouthTrust account representative, a SouthTrust Funds Dealer or the Fund.
SALES CHARGE WAIVERS. The following classes of investors may purchase shares
of the BOND FUND, CORE EQUITY FUND and INCOME FUND with no sales charge in the
manner described below: (1) officers, trustees, directors, employees and retired
employees of the Company, SouthTrust Corporation and its affiliates, and
employees of the transfer agent, Distributor or an authorized SouthTrust Funds
Dealer (and spouses and children of the foregoing); (2) investors for whom
SouthTrust Corporation or one of its affiliates acts in a fiduciary, advisory,
custodial, agency or similar capacity (this does not include transactions
executed by SouthTrust Securities, Inc., including, but not limited to,
self-directed Individual Retirement Accounts); (3) employees who purchase Fund
shares through a payroll deduction plan sponsored by their employers.
EXCHANGES OF SHARES
The exchange privilege enables shareholders to exchange shares of a Fund for
shares in another Fund offered by the Company. Shareholders may also exchange
shares of a Fund for Class A Shares in certain funds which are distributed by
Federated Securities Corp. (the "Federated Funds"). The Federated Funds with net
asset value exchange privileges with the Company are:
.Federated International Income Fund;
.Federated International Equity Fund;
.Federated Equity Income Fund, Inc.;
.Federated High Income Bond Fund, Inc.;
.Federated Municipal Securities Fund, Inc.;
.Federated Utility Fund, Inc.; and
.Tax-Free Instruments Trust.
EXCHANGING SHARES. Shareholders who have purchased shares of the BOND FUND,
CORE EQUITY FUND or INCOME FUND (a "load Fund") (including shares acquired
through a reinvestment of a dividend or distribution on such shares) may
exchange those shares for shares of another load Fund or one of the fund's
listed above without paying an additional exchange or sales charge except that,
in the case of the BOND FUND and the INCOME FUND, this privilege does not apply
to exchanges into the CORE EQUITY FUND until an investor has owned shares in the
BOND FUND or the INCOME FUND for 90 days. The 90-day holding period does not
apply to exchanges in which the investor obtained BOND FUND or INCOME FUND
shares through a prior exchange of shares of the CORE EQUITY FUND. When shares
of the TREASURY MONEY FUND are exchanged for shares of a load Fund or a
Federated Fund, the applicable sales charge (if any) will be assessed. However,
shareholders exchanging shares of the TREASURY MONEY FUND which were received in
a previous exchange involving shares on which a load was paid will not be
required to pay an additional sales charge upon notification of the reinvestment
of the equivalent investment into a load Fund.
Shareholders who exercise this exchange privilege must exchange shares having
a net asset value of at least $1,000. Prior to any exchange, the shareholder
must receive a copy of the current prospectus of the Fund or Federated Fund into
which an exchange is to be effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee (see "Redemption of
Shares"). Exercise of this privilege is treated as a sale for federal income tax
purposes and, depending on the circumstances, a short or long-term capital gain
or loss may be realized. The exchange privilege may be terminated at any time
upon 60 days' written notice to shareholders. A shareholder may obtain further
information on the exchange privilege by consulting the shareholder's SouthTrust
account representative, a SouthTrust Funds Dealer, or the Distributor.
EXCHANGE-BY-TELEPHONE. An investor may telephone an exchange request by
calling the investor's SouthTrust account representative or SouthTrust Funds
Dealer which is responsible for transmitting such exchange request to the
Distributor. Shares may be exchanged by telephone only between fund accounts
having identical shareholder registrations. Telephone exchange instructions may
be recorded.
An investor may have difficulty in making exchanges by telephone through a
SouthTrust account representative or SouthTrust Funds Dealer during times of
drastic economic or market changes. If a shareholder cannot contact the
shareholder's SouthTrust account representative or SouthTrust Funds Dealer by
telephone, it is recommended that an exchange request be made in writing and
sent by overnight mail.
An investor should be aware that a transaction initiated by telephone and
reasonably believed to be genuine by the above-named parties may subject the
investor to the risk of loss if such transaction is subsequently found not to be
genuine. If reasonable procedures are not followed by the Funds, they may be
liable for losses due to unauthorized or fraudulent telephone instructions.
REDEMPTION OF SHARES
An investor may redeem Fund shares in accordance with instructions and
limitations relating to the customer's account at SouthTrust or the investor's
SouthTrust Funds Dealer. These procedures will vary in accordance with the type
of account, and a shareholder should contact the account representative to
redeem shares. A SouthTrust account representative or a SouthTrust Funds Dealer
is responsible for transmitting redemption orders promptly to the Fund.
No charge for wiring redemption payments is imposed by the Company, although
SouthTrust or a SouthTrust Funds Dealer may charge customer accounts for
services provided in connection with the redemption of shares. Information
relating to such redemption services and charges, if any, may be obtained by
customers from their account representative. Except for certain redemptions made
within one year from the date of purchase, redemption orders are effected at the
net asset value per share next determined after receipt of the order by the
Distributor. See "Redemption Fee" for a discussion of circumstances in which a
redemption fee may be assessed on redemptions.
With respect to the BOND FUND, CORE EQUITY FUND and INCOME FUND, redemption
proceeds are normally remitted in federal funds to the redeeming institution
within five business days following receipt of the order.
With respect to the TREASURY MONEY FUND, if a redemption order is received by
the Distributor on a business day before 12:00 noon (Eastern time), payment is
normally wired the same day in federal funds. Payment for redemption orders
received between 12:00 noon (Eastern time) and 4:00 p.m. (Eastern time) is
normally wired on the next business day. The Fund reserves the right to wire
redemption proceeds within five business days after receiving the redemption
order if, in the judgment of the Adviser, an earlier payment could adversely
impact the Fund.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by an "eligible
guarantor institution" as that term is defined under Rule 17Ad-15 under the
Securities Exchange Act of 1934. Such institutions may include domestic banks,
savings associations, credit unions, brokers, dealers, securities exchanges and
associations and clearing agencies, which are approved by the transfer agent.
Additional documentation may be required if the redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator.
REDEMPTION FEE
In order to discourage short-term investments in the BOND FUND, CORE EQUITY
FUND and INCOME FUND, the Company charges a redemption fee in connection with
redemptions of shares held for less than one year which were purchased at net
asset value (investments in excess of $1,000,000). The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. In determining
if a charge applies and the amount of any such charge, the first shares redeemed
are those purchased with reinvested dividends and capital gain distributions,
followed by others held the longest. The redemption fee is not assessed on (i)
exchanges (except if shares acquired by exchange were
then redeemed with 12 months of the initial purchase); (ii) redemptions made in
connection with distributions from qualified retirement plans, 403(b) plans or
IRAs due to death, disability or attainment of age 59 1/2; (iii) redemptions
resulting from the tax-free return of excess contributions to IRAs or employee
benefit plans; and (iv) redemptions through certain automatic withdrawals. The
1% redemption fee is not a deferred sales charge but is rather a means to offset
the additional costs associated with short-term investments in the Funds.
AUTOMATIC WITHDRAWAL PLAN ("AWP"). An AWP may be established by a new or
existing shareholder of any Fund if the value of the shareholder's account
(valued at the net asset value at the time of the establishment of the AWP)
equals $10,000 or more, other than retirement accounts subject to required
minimum distributions. Shareholders who elect to establish an AWP may receive a
monthly, quarterly, semi-annual, or annual payment in a stated amount of not
less than $50. Fund shares will be redeemed as necessary to meet withdrawal
payments. Withdrawals may reduce principal and eventually deplete the
shareholder's account. If a shareholder desires to establish an AWP after
opening an account, a signature guarantee will be required. An AWP may be
terminated by a shareholder on 30-days' written notice to SouthTrust, a
SouthTrust Funds Dealer, or by the Fund at any time.
PURCHASE OF SHARES AT NET ASSET VALUE. From time to time, the Distributor may
offer special concessions to enable investors to purchase shares of a load Fund
offered by the Company at net asset value, without payment of a sales charge. To
qualify for a net asset value purchase, the investor must pay for such purchase
with proceeds from the redemption of shares of a non-affiliated mutual fund on
which a sales charge was paid. A qualifying purchase of shares must occur within
30 days of the prior redemption and must be evidenced by a confirmation of the
redemption transaction. At the time of purchase, SouthTrust or a SouthTrust
Funds Dealer must notify the Distributor that the purchase qualifies for a
purchase at net asset value. Proceeds from the redemption of shares on which no
sales charges or commissions were paid do not qualify for a purchase at net
asset value.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the TREASURY MONEY FUND are declared
daily and paid monthly. Dividends from net investment income are declared and
paid quarterly by the CORE EQUITY FUND. Dividends from net investment income of
the BOND FUND and INCOME FUND are declared and paid monthly. All dividends are
paid in cash. Each Fund's net realized capital gains (including net short-term
capital gains) are distributed at least annually. Shareholders may elect to have
their dividends reinvested in additional shares of a Fund at the net asset value
of such shares on the payment date. Such election, or any revocation thereof,
must be communicated in writing by SouthTrust or a SouthTrust Funds Dealer on
behalf of its customer to the transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends will be in accordance with the procedures governing the shareholder's
account at SouthTrust or the SouthTrust Funds Dealer. Shareholders whose
purchase orders are received and executed by 12:00 noon (Eastern time) receive
dividends for that day. On the other hand, shareholders whose redemption orders
have been received by 12:00 noon (Eastern time) will not receive dividends for
that day, while shareholders whose redemption orders have been received after
12:00 noon (Eastern time) will receive that day's dividends.
Each Fund's expenses are deducted from the total income of the Fund before
dividends are declared and paid. These expenses include, but are not limited to,
fees paid to the Adviser and the administrator, custodian and transfer agent;
fees and expenses of officers and Trustees; taxes; interest; legal and auditing
fees; brokerage fees and commissions; certain fees and expenses in registering
and qualifying each Fund and its shares for distribution under federal and state
securities laws; expenses of preparing prospectuses and statements of
additional information and of printing and distributing prospectuses and
statements of additional information to existing shareholders; the expense of
reports to shareholders, shareholders' meetings and proxy solicitations;
fidelity bond and trustees' and officers' liability insurance premiums; and the
expense of using independent pricing services and other expenses which are not
assumed by the administrator. Any general expenses of the Company that are not
readily identifiable as belonging to a particular Fund will be allocated among
all Funds by or under the direction of the Trustees in a manner the Trustees
determine to be fair and equitable. The Adviser, administrator, custodian and
transfer agent may voluntarily waive all or a portion of their fees from time to
time. CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Funds will not issue share certificates.
PRICING OF SHARES
On Monday through Friday, the net asset value of the BOND FUND, CORE EQUITY
FUND and INCOME FUND is determined once daily at the close of trading on the New
York Stock Exchange, usually 4:00 p.m. (Eastern time), and the net asset value
of the TREASURY MONEY FUND is determined twice daily at 12:00 noon and 4:00 p.m.
(Eastern time), except on: (i) days on which there are not sufficient changes in
the value of a Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. The Funds' net asset value is calculated by adding the value of
all securities and other assets of the Fund, subtracting its liabilities and
dividing the result by the number of outstanding shares.
With respect to the BOND FUND, CORE EQUITY FUND and INCOME FUND, securities
which are traded on a recognized stock exchange are valued at the last sales
price on the securities exchange on which such securities are primarily traded
or at the last sale price on the national securities market. Securities traded
only on over-the-counter markets are valued on the basis of closing
over-the-counter bid prices. Securities for which there were no transactions are
valued at the average of the current bid and asked prices. Restricted
securities, securities for which market quotations are not readily available,
and other assets are valued at fair value by the Adviser under the supervision
of the Trustees. Debt securities with remaining maturities of 60 days or less at
the time of purchase are valued on an amortized cost basis (unless the Trustees
determine that such basis does not represent fair value at the time). Under this
method, such securities are valued initially at cost on the date of purchase.
Thereafter, absent unusual circumstances, the Funds assume a constant
proportionate amortization of any discount or premium until maturity of the
security. With respect to the TREASURY MONEY FUND, portfolio securities are
valued on an amortized cost basis in an effort to maintain a net asset value of
$1.00 per share.
MANAGEMENT OF THE FUNDS
BOARD OF TRUSTEES
The Company is managed under the direction of the Board of Trustees. The
Statement of Additional Information contains background information and the name
of each Trustee.
INVESTMENT ADVISER
SouthTrust Bank, N.A., a national banking association, serves as the
investment adviser for each of the Funds. The Adviser, headquartered in
Birmingham, Alabama, is a wholly-owned subsidiary of SouthTrust Corporation, a
publicly-held bank holding company. The Adviser and SouthTrust Corporation have
their principal offices at 420 North 20th Street, Birmingham, Alabama 35203. The
Adviser's experience includes the management of various collective and common
investment funds and the provision of investment management services to banks
and thrift institutions, corporate and profit-sharing trusts, municipal and
state retirement funds, and individual investors. As of May 31, 1998, the
Adviser had approximately $4.7 billion in assets under management. The Adviser
has served as investment adviser to the Company since its inception on March 4,
1992.
Subject to the supervision of the Trustees, the Adviser provides overall
investment management for each Fund, provides research and credit analysis, is
responsible for all purchases and sales of portfolio securities, maintains books
and records with respect to each Fund's securities transactions and provides
periodic and special reports to the Trustees as requested.
For the advisory services provided and expenses assumed by it, the Adviser is
entitled to receive a fee from each Fund, computed daily and payable monthly, at
an annual rate of 0.50% of the average daily net assets of the TREASURY MONEY
FUND, 0.60% with respect to the BOND FUND and the INCOME FUND, and 0.75% with
respect to the CORE EQUITY FUND. Although the fee rate to be paid to the Adviser
by the CORE EQUITY FUND is higher than that paid by most other investment
companies, it is comparable to the fee rate paid to advisers of many other
investment companies having investment objectives and policies similar to those
of the CORE EQUITY FUND.
Investment decisions for the CORE EQUITY FUND, the BOND FUND and the INCOME
FUND are made by investment teams with Jon F. Goebel serving as the lead
portfolio manager for the CORE EQUITY FUND and David J. Howell as the lead
portfolio manager for the BOND and INCOME FUNDS. Mr. Goebel has guided the
CORE EQUITY FUND since joining SouthTrust Bank, N.A. in June of 1994. Mr.
Goebel is the Chief Investment Officer of SouthTrust Asset Management Company.
He is a Chartered Financial Analyst and has a master's degree from the
University of Nebraska. Prior to joining SouthTrust, Mr. Goebel served in
similar capacity for North Carolina Trust Company. Mr. Howell has led the BOND
and INCOME FUND'S management since their inceptions in May 1992 and January
1996, respectively. Mr. Howell is a Senior Fixed-Income Portfolio Manager for
SouthTrust Asset Management Company where he has been a member of the
investment team since 1987. Mr. Howell has a bachelor's degree from the
University of North Alabama.
As part of its regular banking operations, SouthTrust Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the Funds to
hold or acquire the securities of issuers which are also lending clients of
SouthTrust Bank. The lending relationship will not be a factor in the selection
of securities.
The Company, the Adviser and the Distributor have adopted strict codes of
ethics governing the conduct of all employees who manage the Funds and their
portfolio securities. These codes recognize that such persons owe a fiduciary
duty to the Funds' shareholders and must place the interests of shareholders
ahead of the employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or being
considered for purchase or sale, by the Fund; prohibit purchasing securities in
initial public offerings; and prohibit taking profits on securities held for
less than sixty days (Company's code only). The Adviser's code permits access
persons to
purchase and sell securities without preclearance provided that such securities
are so widely traded that they are only remotely potentially harmful to the
Funds and such transactions are unlikely to affect the market for such security.
Violations of the codes are subject to review by the Trustees, and could result
in severe penalties.
ADMINISTRATOR, CUSTODIAN, AND TRANSFER AGENT
Federated Administrative Services, Federated Investors Tower, 1001 Liberty
Avenue, Pittsburgh, Pennsylvania 15222-3779, a subsidiary of Federated
Investors, Inc., provides the Funds with certain administrative personnel and
services necessary to operate the Funds, such as legal and accounting services.
The administrator provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE DAILY NET ASSETS
FEE OF THE COMPANY
-------------- -----------------------------------
<S> <C>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$50,000 for the TREASURY MONEY FUND, CORE EQUITY FUND and BOND FUND. The
administrative fee received during any fiscal year with respect to Income Fund
shall be at least $100,000. The administrator may voluntary waive a portion of
its fee.
SouthTrust Bank, N.A., also serves as custodian of the Company's assets.
Federated Shareholder Services Company is transfer agent and dividend
disbursing agent for the Company. It also provides certain accounting and
recordkeeping services with respect to the Fund's portfolio investments. The
transfer agent, which is a subsidiary of Federated Investors, Inc., has the same
address as the administrator and Distributor.
DISTRIBUTOR
Shares of each Fund are sold on a continuous basis for the Company by
Federated Securities Corp. (the "Distributor"). It is a Pennsylvania corporation
organized on November 14, 1969, and is the distributor for a number of
investment companies. The Distributor may offer certain items of nominal value
from time to time to any shareholder or investor in connection with the sale of
Fund shares. The Distributor, which is a subsidiary of Federated Investors,
Inc., has the same address as the administrator and transfer agent.
DISTRIBUTION PLAN (INCOME FUND ONLY). Under a distribution plan (the "Plan")
adopted in accordance with SEC Rule 12b-1 under the Investment Company Act of
1940, the INCOME FUND will pay to the Distributor an amount computed at an
annual rate of up to 0.25% of the average daily net asset value of the shares to
finance any activity which is principally intended to result in the sale of
shares subject to the Plan. The Distributor may select financial institutions
such as banks, fiduciaries, custodians for public funds, investment advisers,
and broker/dealers to provide sales support services as agent for their clients
or customers. Certain trust clients of the Company, including ERISA plans, will
not be affected by the Plan because the Plan will not be activated unless and
until a second, "Trust" class of shares of the INCOME FUND (which would not have
a Rule 12b-1 plan) is created and such Trust clients' investments in the INCOME
FUND are converted to such Trust class.
The INCOME FUND'S plan is a compensation type plan. As such, the INCOME FUND
makes no payments to the Distributor except as described above. Therefore, the
INCOME FUND does not pay for unreimbursed expenses
of the Distributor, including amounts expended by the Distributor in excess of
amounts received by it from the INCOME FUND, interest, carrying or other
financing charges in connection with excess amounts expended, or the
Distributor's overhead expenses. However, the Distributor may be able to recover
such amount or may earn a profit from future payments made by the INCOME FUND
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or a savings association) from being an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Company's Trustees will consider appropriate changes in the services.
ADMINISTRATIVE ARRANGEMENTS
With respect to each Fund, the Distributor may select brokers, dealers and
administrators (including depository or other institutions such as commercial
banks and savings associations) to provide distribution and/or administrative
services for which they will receive fees from the Distributor based upon shares
owned by their clients or customers. These administrative services include
distributing prospectuses and other information, providing account assistance,
and communicating or facilitating purchases and redemptions of the Funds'
shares. The fees are calculated as a percentage of the average aggregate net
asset value of shareholder accounts held during the period for which the
brokers, dealers, and administrators provide services. Any fees paid for these
services by the Distributor will be reimbursed by the Adviser and not the Funds.
BROKERAGE TRANSACTIONS
With respect to the TREASURY MONEY FUND, BOND FUND and INCOME FUND, when
selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review and oversight by the Trustees. The Adviser may select brokers and dealers
who offer brokerage and research services. These services may be furnished
directly to the Funds 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 Funds and other accounts. To
the extent that receipt of these services may supplant services for which the
Adviser or its affiliates might otherwise have paid, it would tend to reduce
their expenses. 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.
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments on behalf of the CORE EQUITY FUND, the Adviser looks for
prompt execution of the order at a favorable price. In working with dealers, the
Adviser will generally use those who are recognized dealers in specific
portfolio instruments, except when a better price and execution of the order can
be obtained elsewhere. In selecting among firms believed to meet these criteria,
the Adviser may give consideration to those firms which have sold or are selling
shares of the Fund and other funds distributed by Federated Securities Corp. The
Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to review by the Trustees.
Although investment decisions for each of the Funds are made independently
from those of the other accounts managed by the Adviser, investments of the type
the Funds may make may also be made by those other accounts. When the Funds 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 Funds or the size of the position obtained or disposed of by the
Funds. In other cases, however, it is believed that coordination and the ability
to participate in volume transactions will be to the benefit of the Funds.
TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, (the "Code"). Such
qualification relieves a Fund of liability for federal income taxes to the
extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that a Fund distribute to its shareholders an
amount equal to at least 90% of its investment company income (if any) net of
certain deductions for such year. In general, a Fund's investment company income
will be its taxable income (including dividends, interest, and short term
capital gains) subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term capital
loss, if any, for such year. Each Fund intends to distribute substantially all
of its investment company income each taxable year. Such distributions will be
taxable as ordinary income to the Fund's shareholders who are not currently
exempt from federal income taxes, whether such income is received in cash or
reinvested in additional shares. (Federal income taxes for distributions to an
IRA or qualified retirement plan are deferred under the Code.) The dividends
received deduction for corporations will apply to such distributions by the CORE
EQUITY FUND to the extent of the total qualifying dividends received by the
distributing Fund from domestic corporations for the taxable year.
Substantially all of each of the BOND FUND, CORE EQUITY FUND and INCOME FUND'S
net realized long-term capital gains, if any, will be distributed at least
annually to such Fund's shareholders. The Funds will generally have no tax
liability with respect to such gains, and the distributions will be taxable to
such shareholders who are not currently exempt from federal income taxes as
long-term capital gains, regardless of how long the shareholders have held such
Fund shares and whether such gains are received in cash or reinvested in
additional shares. The TREASURY MONEY FUND does not expect to realize long-term
gains, and therefore, does not expect to distribute any capital gain dividends.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year if
such dividends are actually paid during January of the following year.
Before purchasing shares in the BOND FUND, CORE EQUITY FUND or INCOME FUND,
the impact of dividends or distributions which are expected to be declared or
have been declared, but not paid, should be carefully considered. Any dividend
or distribution declared shortly after a purchase of such shares prior to the
record date will have the effect of reducing the per share net asset value by
the per share amount of the dividend or distribution. All or a portion of such
dividend or distribution, although in effect a return of capital, may be subject
to tax.
A taxable gain or loss may be realized by a holder of shares of the BOND FUND,
CORE EQUITY FUND or INCOME FUND upon the redemption or transfer of such Fund
shares, depending upon the tax basis of such shares and their price at the time
of redemption or transfer.
Distributions of net investment income may be taxable to shareholders as
dividend income under state or local law even though a substantial portion of
such distributions may be derived from interest on U.S. government obligations,
which, if realized directly, would be exempt from such income taxes.
Shareholders should consult their tax advisers concerning the application of
state and local taxes.
The TREASURY MONEY FUND is structured to provide shareholders, to the extent
permissible by federal and state law, with income that is exempt or excluded
from taxation at the state and local level. States that impose an income tax
have, by statute, judicial decision or administrative action, taken the position
that dividends of a regulated investment company, such as the TREASURY MONEY
FUND, that are attributable to interest on direct U.S. Treasury obligations, are
the functional equivalent of interest from such obligations and are, therefore,
exempt from state and local taxes. Shareholders should consult their own tax
adviser about the status of distributions from the Fund in their own state.
Shareholders of the TREASURY MONEY FUND will be informed of the percentage of
income distributed by the Fund which is attributable to U.S. government
obligations.
On an annual basis, the Company will send written notices to record owners of
shares regarding the federal tax status of distributions made by each Fund.
Since this is not an exhaustive discussion of applicable tax consequences,
investors should contact their tax advisers concerning investments in the Funds.
DESCRIPTION OF SHARES
The Company was organized as a Massachusetts business trust on March 4, 1992,
and is registered under the 1940 Act as an open-end management investment
company. On June 30, 1993, the Company changed its name from "Vulcan Funds" to
"SouthTrust Vulcan Funds." Effective July 22, 1998, the Company changed its name
from "SouthTrust Vulcan Funds" to "SouthTrust Funds." The Master Trust Agreement
authorizes the Trustees to classify and reclassify any unissued shares into one
or more classes of shares. Pursuant to such authority, the Trustees have
authorized the issuance of an unlimited number of shares of beneficial interest
in the Company, representing interests in the TREASURY MONEY FUND, the BOND
FUND, the CORE EQUITY FUND and the INCOME FUND, respectively, each of which is
classified as a diversified investment company under the 1940 Act.
Each share of a Fund has a par value of $.001, represents an equal
proportionate interest in the particular Fund involved and is entitled to such
dividends and distributions earned on such Fund's assets as are declared in the
discretion of the Trustees.
YEAR 2000 STATEMENT. Like other mutual funds and business organizations
worldwide, the Company's service providers (among them, the adviser,
distributor, administrator and transfer agent) must ensure that their computer
systems are adjusted to properly process and calculate date-related information
from and after January 1, 2000. Many software programs and, to a lesser extent,
the computer hardware in use today cannot distinguish the year 2000 from the
year 1900. Such a design flaw could have a negative impact in the handling of
securities trades, pricing and accounting services. The Company and its service
providers are actively working on necessary changes to computer systems to deal
with the year 2000 issue and believe that systems will be year 2000 compliant
when required. Analysis continues regarding the financial impact of instituting
a year 2000 compliant program on the Company's operations.
The Company's shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held, and will vote in the
aggregate and not by Fund, except where otherwise required by law or when the
Trustees determine that the matter to be voted upon affects only the interests
of the shareholders of a particular Fund. Under Massachusetts law and the
Company's Master Trust Agreement, the Company is not required and does not
currently intend to hold annual meetings of shareholders for the election of
Trustees except as required under the 1940 Act. The Trustees are required to
call a meeting of shareholders upon the written request of at least 10% of the
Company's outstanding shares. In addition, to the extent required by law, the
Company will assist in shareholder communications in connection with such a
meeting. For a further discussion of the voting rights of shareholders, see
"Additional Information Concerning Shares" in the Statement of Additional
Information. As of July 1, 1998, Lynspen & Company of Birmingham, Alabama,
acting in various capacities for numerous accounts, was the owner of record of
622,611,864 shares (94.07%) of the TREASURY MONEY FUND; Lynspen & Company of
Birmingham, Alabama, acting in various capacities for numerous accounts, was the
owner of record of 11,420,903 shares (98.76%) of the BOND FUND; Lynspen &
Company of Birmingham, Alabama, acting in various capacities for numerous
accounts, was the owner of record of 21,832,538 shares (93.61%) of the CORE
EQUITY FUND; Lynspen & Company of Birmingham, Alabama, acting in various
capacities for numerous accounts, was the owner of record of 4,161,700 shares
(99.52%) of the Income Fund and therefore, may, for certain purposes, be deemed
to control the Funds and be able to affect the outcome of certain matters
presented for a vote of shareholders.
TOTAL RETURNS AND YIELDS
TOTAL RETURN. From time to time the BOND FUND, CORE EQUITY FUND and INCOME
FUND may advertise their average annual total return over various periods of
time. Such total return figures show the average percentage change in value of
an investment in a Fund from the beginning date of the measuring period to the
end of the measuring period. These figures reflect changes in the price of the
Fund's shares and assume that any income dividends and/or capital gain
distributions made by the Fund during the period were reinvested in shares of
the Fund. When considering average total return figures for periods longer than
one year, it is important to note that the relevant Fund's average annual total
return for any one year in the period might have been greater or less than the
average for the entire period. The BOND FUND, CORE EQUITY FUND and INCOME FUND
may also use aggregate total return figures for various periods representing the
cumulative share prices and assuming reinvestment of dividends and
distributions. Aggregate total returns may be shown by means of schedules,
charts or graphs and may indicate sub-totals of the various components of total
return (i.e., change in value of initial investment, income dividends and
capital gains distributions).
YIELD. From time to time, the BOND FUND and INCOME FUND may quote a 30-day
yield in advertisements or in communications to shareholders. The yield of a
Fund refers to the income generated by an investment in the Fund over a 30-day
period (which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
the 30-day period is assumed to be earned and reinvested at a constant rate and
compounded semi-annually. The annualized income is then shown as a percentage of
the investment.
The TREASURY MONEY FUND may advertise its yield and effective yield. Both
yield figures are based on historical earnings and are not intended to indicate
future performance. Yield refers to the income generated by an investment in the
Fund over a seven-day period (which period will be stated in the advertisement).
This income is then annualized. That is, the amount of income generated by the
investment during the week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment.
Effective yield is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of the compounding effect
of this assumed reinvestment.
Quotations of yield and total return of each Fund represent a Fund's past
performance and should not be considered as representative of future results.
Any account fees charged by SouthTrust or a SouthTrust Funds Dealer will not be
included in the Fund's calculations of yield and total return. Such fees, if
any, will reduce the investor's net return on an investment. The methods used to
compute each performance quotation are described in more detail in the Statement
of Additional Information.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Company's Statement
of Additional Information incorporated herein by reference, in connection with
the offering made by this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or its Distributor. The Prospectus does not constitute an offering by the
Company or by the Distributor in any jurisdiction in which such offering may not
lawfully be made.
Table of Contents
Page
Expense Summary 3
Financial Highlights 4
Investment Objectives and Policies
of the Fund 6
Investment Activities 7
How to Purchase, Exchange and
Redeem Shares 16
Dividends and Distributions 22
Pricing of Shares 23
Management of the Funds 23
Taxes 27
Description of Shares 28
Total Returns and Yields 29
LOGO SOUTHTRUST
FUNDS
Treasury Obligations
Money Market Fund
Bond Fund
Core Equity Fund
Income Fund
Prospectus
July 22, 1998
INVESTMENT ADVISER:
LOGO SOUTHTRUST
BANK
N.A.
Distributor:
Federated Securities Corp.
Cusip 844734202
Cusip 844734301
Cusip 844734103
Cusip 844734400
3052010A (7/98)
SouthTrust Funds
(formerly, SouthTrust Vulcan Funds)
SouthTrust Treasury Obligations Money Market Fund
SouthTrust Bond Fund
SouthTrust Core Equity Fund
(formerly, Stock Fund)
SouthTrust Income Fund
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 Funds (the "Company"): the
SouthTrust Treasury Obligations Money Market Fund (the "Treasury Money
Fund"), SouthTrust Bond Fund (the "Bond Fund"), SouthTrust Core Equity Fund
(the "Core Equity Fund") and the SouthTrust Income Fund (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 July 22, 1998.
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 July 22,
1998, although not in itself a prospectus, is incorporated by reference in
its entirety into the Company's prospectus.
Statement dated July 22, 1998
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.
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
I
General 1
Additional Information on Fund Investments 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
Variable and Floating Rate Instruments1
Money Market Instruments 2
When-Issued And Delayed Delivery Transactions 2
Mortgage-Related Securities 2
Stripped Securities 3
Warrants 3
American Depositary Receipts 3
Investment Companies 3
Lending of Portfolio Securities 3
Yields and Ratings 4
Restricted Securities 4
Additional Investment Limitations 4
Trustees and Officers 6
Trustees' Compensation 8
Shareholder and Trustee Liability 9
Investment Advisory and Other Service Arrangements 9
Advisory Agreement 9
Distributor's Contract 9
Other Services 10
Fund Administration 10
Custodian 10
Transfer Agent 10
Portfolio Transactions 10
Purchase, Exchange and Redemption Information 11
Exchanging Securities for Fund Shares12
Net Asset Value 12
Treasury Money Fund 12
All Funds 13
Performance Information 13
Yield of the Treasury Money Fund 13
Yield and Performance of the Bond Fund, Core Equity Fund
and Income Fund 14
Economic and Market Information 15
Taxes 15
General 16
Taxation of Certain Financial Instruments 17
Additional Information Concerning Shares 17
Independent Public Accountants 17
Legal Counsel 18
Miscellaneous 18
Control Persons and Principal Holders of
Securities 18
Banking Laws 18
Shareholder Approvals 19
Financial Statements 19
Appendix A 20
<PAGE>
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." Effective July 22, 1998, the name of the
Company changed from "SouthTrust Vulcan Funds" to "SouthTrust Funds."
As stated in the prospectus, the investment adviser (the "Adviser") of each
Fund is SouthTrust Bank, 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.
<PAGE>
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 ("S&P"), Prime-1 by Moody's Investor Services, Inc.
("Moody's") or F-1 by Fitch IBCA, 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, 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.
<PAGE>
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 Core Equity 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.
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, unless permitted to exceed these limitations
by an exemptive order from the Securities and Exchange Commission ("SEC").
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 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.
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.
<PAGE>
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
Chairman 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
President, Executive Vice President, Treasurer, and Trustee or Director of
some of the funds distributed by Federated Securities Corp; Vice Chairman,
Federated Investors, Inc.; 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.
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, Inc; Senior Vice President and
Director, Mutual Fund Services Division, Federated Services Company.
<PAGE>
Beth Broderick
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: August 2, 1965
Vice President and Assistant Treasurer
Assistant Vice President, Federated Services Company (1997 to present); Client
Services Officer, Federated Services Company (1992-1997).
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 M. Grady *
P.O. Box 2
Kannapolis, NC 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 Pfeiffer University, Member of Cannon Foundation.
<PAGE>
Billy L. Harbert, Jr.*
Bill Harbert International Construction, Inc.
P.O. Box 531390
Birmingham, AL 35253-1390
Birthdate: May 23, 1965
Trustee
President and Chief Operating Officer of Bill Harbert International
Construction, Inc. (BHIC) and Vice President of BHIC (until 1998).
* 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, $7,750
Trustee and Chairman of
the Board
Thomas L. Merrill, Sr. $3,500
Trustee
Charles G. Brown, III $5,250
Trustee
Russell W. Chambliss $7,750
Trustee
Thomas M. Grady $6,750
Trustee
Billy L. Harbert, Jr. $0
Trustee
*
Information
is
furnished
for
the
fiscal
year
ended
April
30,
1998.
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.
<PAGE>
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, 1998, 1997 and 1996, the
Adviser earned advisory fees totaling $2,507,721, $2,163,019, and $1,546,225,
respectively, for the Treasury Money Fund, $604,746, $528,799, and $491,657,
respectively, for the Bond Fund, and $2,550,383, $1,750,919, and $1,257,372,
respectively, for the Core Equity Fund. For the same periods, the Adviser waived
advisory fees totaling $959,228, $865,208, and $618,490, respectively, for the
Treasury Money Fund, $5,747, $44,067, and $40,971, respectively, for the Bond
Fund and $10,794, $70,037, and $124,311, respectively, for the Core Equity Fund.
For the fiscal year ended April 30, 1998, 1997 and the period from January 10,
1996 (date of initial public investment) to April 30, 1996, the Adviser earned
advisory fees for the Income Fund of $233,648, 248,407 and $122,936,
respectively, $116,824 ,$113,723 and $10,245 of which was voluntarily waived,
respectively.
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, N.A.
to restrict the flow of non-public information, the Funds' investments are
typically made without any knowledge of SouthTrust Bank, 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 Services Company, a subsidiary of Federated Investors, Inc.
provides administrative personnel and services to the Company for a fee as
described in the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services, a subsidiary of Federated Investors, Inc., served as
the Fund's Administrator. For purposes of this Statement of Additional
Information, Federated Services Company and Federated Administrative Services
may hereinafter collectively be referred to as the "Administrator." For the
fiscal years ended April 30, 1998, 1997 and 1996, the Administrator earned the
following fees: $567,937, $526,824, and $408,456, respectively, for the Treasury
Money Fund, $114,117, $107,564, and $108,910, respectively, for the Bond Fund
and $384,783, $284,437, and $222,204, respectively, for the Core Equity Fund.
For the fiscal years ended April 30, 1998, 1997 and 1996, the Administrator
waived administrative fees totaling $0, $0, and $57,426, respectively, for the
Treasury Money Fund, $0, $0, and $27,289, respectively, for the Bond Fund and
$0, $0, and $52,868, respectively, for the Core Equity Fund.. For the fiscal
year ended April 30, 1998, 1997, and the period from January 10, 1996 (date of
initial public investment) to April 30, 1996, the Administrator earned fees of
$99,999, $100,160 and $30,501, respectively, for the Income Fund, $55,841,
$21,981 and $0 of which was waived, respectively. 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
Effective July 11, 1997, SouthTrust Bank, N.A. entered into a custody agreement
with the Company, and replaced State Street Bank and Trust Company as the
Company's custodian. 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, 1998, 1997 and 1996, the Transfer Agent
earned the following fees: $26,336, $52,535, and $25,921, respectively, for the
Treasury Money Fund, $32,945, $34,288, and $30,525, respectively, for the Bond
Fund, and $67,291, $38,744, and $29,503, respectively, for the Core Equity Fund.
For the fiscal year ended April 30, 1998, 1997, and the period from January 10,
1996 (date of initial public investment) to April 30, 1996, the Transfer Agent
earned $32,864, $24,658 and $2,288, respectively, 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, 1998, 1997 and 1996, the Core Equity Fund paid $658,372, $292,801, and
$238,955, 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, Core Equity Fund and
Income Fund) by the monthly average value of the securities held by the Fund
during the year. The Bond Fund, Core Equity 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, 1998, 1997 and 1996, the portfolio turnover rates
for the Bond Fund were 107%, 63% and 28%, respectively, and for the Core Equity
Fund were 75%, 27% and 39%, respectively. For the fiscal year ended April 30,
1998, April 30, 1997 and the period from January 10, 1996 (date of initial
public investment) to April 30, 1996, the portfolio turnover rates for the
Income Fund were 112%, 112% and 61%, respectively. With respect to the Core
Equity 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 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 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,
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, 1998 was 4.91%. The effective yield for the Treasury Money Fund for
the same period was 5.03%. 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.
<PAGE>
Yield and Performance of the Bond Fund, Core Equity Fund and Income Fund
For the Bond Fund, Core Equity 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, 1998 was 5.37%, and the standard yield of the Core
Equity Fund for the same period was 0.43%. The standard yield of the Income Fund
for the 30-day period ended April 30, 1998 was 5.23%.
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, 1998 and average annual total
returns for the period from May 8, 1992 (date of initial public investment) to
April 30, 1998, for the Bond Fund were 10.80% and 7.07%, respectively, and the
Core Equity Fund were 36.39% and 17.47%, and Treasury Money Fund were 5.14% and
4.29%, 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 Core Equity Fund, respectively. The aggregate total returns after
the deduction of the applicable front-end sales charges for the same period for
the Bond Fund were 6.93% and 6.44%, and for the Core Equity Fund were 30.29% and
16.57%, respectively. Cumulative total return reflects the Income Fund's total
performance over a specific period of time. The cumulative total returns for the
Income Fund for the fiscal year ended April 30, 1998 and for the period from
January 10, 1996 (date of initial public investment) to April 30, 1998 were
7.46% and 11.68%, respectively. The total return figures do not reflect the
deduction of the maximum front-end sales charge which may be assessed on
purchases of the Income Fund. The cumulative total returns after the deduction
of the applicable front-end sales charge for the same period for the Income Fund
were 3.71% and 7.80%, respectively. In reports or other communications to
shareholders or in advertising material, the Bond Fund, Core Equity 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. Advertising and other promotional
literature may include charts, graphs and other illustrations using the Funds'
returns, or returns in general, that demonstrate basic investment concepts such
as tax-deferred compounding, dollar-cost averaging and systematic investment. In
addition, the Funds can compare their performance, or performance for the types
of securities in which it invests, to a variety of other investments, such as
bank savings accounts, certificates of deposit, and Treasury bills.
Economic and Market Information
Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by the Funds' portfolio managers and their views and analysis on
how such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.
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, 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"). Finally, 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.
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 Core Equity 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.
<PAGE>
Legal Counsel
Counsel. The law firm of Bell, Boyd & Lloyd, Chicago, Illinois, serves as
counsel to the Trustees.
Miscellaneous
Control Persons and Principal Holders of Securities
As of July 1, 1998, SouthTrust Bank, 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 Money Fund Lynspen & Company
94.07% P.O. Box 2554
Birmingham, Alabama 35290
Bond Fund Lynspen & Company
98.76% P.O. Box 2554
Birmingham, Alabama 35290
Core Equity Fund Lynspen & Company
93.61% P.O. Box 2554
Birmingham, Alabama 35290
Income Fund Lynspen & Company
99.52% P.O. Box 2554
Birmingham, Alabama 35290
Banking Laws
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956, or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment adviser, administrator, transfer agent or custodian to such an
investment company, or from purchasing shares of such a company as agent for and
upon the order of customers. The Adviser and the custodian are subject to such
banking laws and regulations. The Adviser and the custodian believe they may
perform the services for the Company contemplated by their respective agreements
with the Company without violation of applicable banking laws or regulations. It
should be noted, however, that there have been no cases deciding whether bank
and nonbank subsidiaries of a registered bank holding company may perform
services comparable to those that are to be performed by these companies, and
future changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
future judicial or administrative decisions or interpretations of current and
future statutes and regulations, could prevent these companies from continuing
to perform such service for the Company. Should future legislative, judicial, or
administrative action prohibit or restrict the activities of such companies in
connection with the provision of services on behalf of the Company, the Company
might be required to alter materially or discontinue its arrangements with such
companies and change its method of operations. It is not anticipated, however,
that any change in the Company's method of operations would affect the net asset
value per share of any Fund or result in a financial loss to any customer.
Shareholder Approvals
As used in this Statement of Additional Information and in the prospectus, a
"majority of the outstanding shares" of a Fund or investment portfolio means the
lesser of (a) 67% of the shares of the particular Fund or portfolio represented
at a meeting at which the holders of more than 50% of the outstanding shares of
such Fund or portfolio are present in person or by proxy, or (b) more than 50%
of the outstanding shares of such Fund or portfolio.
Financial Statements
The financial statements for the fiscal year ended April 30, 1998, are
incorporated herein by reference to the Annual Report of the Fund dated April
30, 1998 (File Nos. 33-46190 and 811-6580). A copy of the report may be obtained
without charge by contacting the Fund.
<PAGE>
Appendix A
Standard and Poor's Corporate and Municipal Bond Ratings:
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. AA--Debt rated AA has a
very strong capacity to pay interest and repay principal and differs from
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 above summarizes the highest
four ratings used by S&P for corporate and municipal debt. Moody's Investor's
Services, Inc. Corporate and Municipal Bond Ratings:
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 above summarizes the four highest
ratings used by Moody's for corporate and municipal long-term debt.
Duff & Phelps Credit Rating Co. ("D&P") Bond Ratings:
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 above summarizes the highest four
ratings used by D&P for bonds.
Fitch IBCA, Inc. Bond Ratings:
AAA--Bonds obligations rated AAA by Fitch 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.
Fitch also assigns a rating to certain international and U.S. banks. A
Fitch bank rating represents Fitch'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, Fitch uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, Fitch 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
Fitch to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent Fitch'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.
Moody's Investors Services, Inc. Short-Term Debt Ratings:
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 above summarizes the two highest ratings used by Moody's for short-term
notes and variable rate demand obligations.
<PAGE>
Duff & Phelps Credit Rating Co. Short Term Debt Ratings:
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 employs three designations, Duff 1+, Duff 1 and Duff 1-, within the
highest rating category. D&P uses the fixed-income ratings described above under
"Description of Bond Ratings" for tax-exempt notes and other short-term
obligations.
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. Cusip 844734202 Cusip 844734301 Cusip 844734103
Cusip 844734400 3052010B (7/98)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements. Incorporated by reference to the
Annual Report of the Registrant dated April 30, 1998 pursuant
to Rule 411 under the Securities Act of 1933.
(File Nos. 33-46190 and 811-6580).
(b) Exhibits:
(1) (i) Conformed copy of Master Trust Agreement of the Registrant; (1)
(ii) Conformed copy of Amendment No. 1 to Master Trust Agreement; (2)
(iii) Conformed copy of Amendment No. 4 to Master Trust Agreement; (7)
(iv) Conformed copy of Amendment No. 2 to the Master Trust Agreement; (9)
(v) Conformed copy of Amendment No. 3 to the Master Trust Agreement; (9)
(vi) Conformed copy of Amendment No. 6 to the Master Trust Agreement; (9)
(2) Copy of By-Laws of the Registrant; (1)
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant; (7) (5) (i) Conformed copy of
copy of Investment Advisory Contract of the Registrant; (3)
(ii) Conformed copy of Amendment to Investment Advisory Contract
dated September 1, 1995; (8)
(6) (i) Conformed copy of Distributor's Contract of the Registrant;(5)
(ii) Conformed copy of Exhibit D to Distributor's Contract; (9)
(7) Not applicable;
(8) (i) Conformed copy of Custodian Contract of the Registrant; +
(ii) Conformed copy of Custodian Fee Schedule; +
(9) (i) Conformed copy of Administrative Services Agreement
of Registrant; (5) + Exhibits are filed electronically.
1. Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed on March 5, 1992. (File Nos. 33-46190 and
811-6580)
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on May 1, 1992. (File Nos. 33-46190 and
811-6580)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 filed on November 27, 1992. (File Nos. 33-46190 and
811-6580)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 filed on June 24, 1994. (File Nos. 33-46190 and 811-6580)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed on September 29, 1995. (File Nos.
33-46190 and 811-6580)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 filed on October 13, 1995. (File Nos. 33-46190 and
811-6580)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 filed on June 27, 1996. (File Nos. 33-46190 and 811-6580)
<PAGE>
(ii) Conformed copy of Amendment No. 1 to Administrative Services
Agreement of Registrant; (6)
(iii) Conformed copy of Amendment No. 2 to Administrative Services
Agreement of Registant; +
(iv) Conformed copy of Fund Accounting and Shareholder Recordkeeping
Agreement of Registrant; (5)
(v) Conformed copy of Electronic Communications and Recordkeeping
Agreement; (6)
(vi) Conformed copy of Amendment No. 1 to Schedule A, Fund Accounting
and Shareholder Recordkeeping Agreement; (10)
(vii) Conformed copy of Amendment No. 1 to Schedule C, Fund Accounting
and Shareholder Recordkeeping Agreement; (10)
(10) Conformed copy of Opinion and Consent of Counsel as to legality of shares
being registered; (2)
(11) Conformed copy of Consent of Independent Public Auditors; +
(12) Not applicable;
(13) Conformed copy of Purchase Agreement of the Registrant; (3)
(14) Not applicable;
(15) (i) Copy of 12b-1 Agreement and copy of Exhibit A
to the Agreement dated September 1, 1995; (8)
(ii) Copy of Rule 12b-1 Plan; (8)
(iii) Conformed copy of Exhibit A to the 12b-1 Plan dated
September 1, 1995; (9)
(16) Copy of Schedule for Computation of Fund Performance; (9)
(17) Copy of Financial Data Schedules; +
(18) Not applicable;
(19) Conformed copy of Power of Attorney; (10).
+ Exhibits are filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on May 1, 1992. (File Nos. 33-46190 and
811-6580)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 filed on November 27, 1992. (File Nos. 33-46190 and
811-6580)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 filed on June 24, 1994. (File Nos. 33-46190 and 811-6580)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 filed on June 23, 1995. (File Nos. 33-46190 and 811-6580)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 filed on October 13, 1995. (File Nos. 33-46190 and
811-6580)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 filed on June 27, 1996. (File Nos. 33-46190 and 811-6580)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 filed on June 24, 1997. (File Nos. 33-46190 and 811-6580)
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Title of Class
Shares of beneficial interest Number of Record Holders
(no par value) as of July 1, 1998
SouthTrust Treasury Obligations
Money Market Fund 33
SouthTrust Bond Fund 29
SouthTrust Core Equity
(formerly, Stock Fund) 97
SouthTrust Income Fund 9
Item 27. Indemnification: (3)
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the Investment Adviser,
see the section entitled "Management of the Funds" in Part A.
To reach any of the following Officers and Directors of the
Investment Adviser, call SouthTrust Bank, N.A.
(1) (2) (3)
Principal Occupation
or Other Employment
of a Substantial
Position with Nature During
Name the Adviser the Past Two Years
Julian W. Banton Director, Chairman, Banking.
President, and Chief
Executive Officer
Gene Bartow Director Athletic Director,
University of
Alabama at
Birmingham.
Thomas E. Bradford, Jr. Director Chairman and Chief
Executive Officer, Bradford & Company.
Ronald G. Bruno Director Chairman, President
and Chief Executive
Officer, Bruno's Inc.
- --------------------------------
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 filed on November 27, 1992. (File Nos. 33-46190 and
811-6580)
<PAGE>
(1) (2) (3)
Principal Occupation
or Other Employment
of a Substantial
Position with Nature During
Name the Adviser the Past Two Years
H.M. Burt, Jr. Director Chairman and Chief
Executive Officer Southern Tool Inc.
David J. Cooper Director President,
Cooper/T. Smith
Corporation
Sallie C. Creel Director Owner/Operator
Alabama Car Rental.
James C. Harrison Director President and Chief
Executive Officer, Protective and
Industrial Insurance Company
Chris H. Horgen Director Chairman and Chief
Executive Officer, Nichols Research
Corporation
Dr. Judy M. Merritt Director President,
Jefferson State
College
William E. Smith, Jr. Director Chairman and Chief
Executive Officer, Royal Cup, Inc.
R. Neal Travis Director President, South
Central Bell
Telephone Company
Tom Coley Executive Vice Banking
President
Retail Division
Fred C. Crum, Jr. Executive Vice Banking
President
Corporate Division
E. Frank Schmidt Executive Vice Banking
President Alabama Markets
Charles M. Murrell Executive Vice
President SouthTrust Banking
Data Services
R. Glenn Eubanks Executive Vice Banking
President
Commercial Division
William C. Patterson Executive Vice Banking
President
Credit Division
<PAGE>
(1) (2) (3)
Principal Occupation
or Other Employment
of a Substantial
Position with Nature During
Name the Adviser the Past Two Years
William E. Pearson, Jr. Executive Vice Banking
President
Administration/
Finance Division
Dick White Executive Vice Banking
President
Asset Management
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the Registrant,
also acts as principal underwriter for the following open-end investment
companies: 111 Corcoran Funds; Automated Government Money Trust; Blanchard
Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; High Yield
Cash Trust; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment Series
Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; Regions
Funds; RIGGS Funds; SouthTrust Funds; Star Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds; The Wachovia
Funds; The Wachovia Municipal Funds; Tower Mutual Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.
<PAGE>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice President,
Federated Investors Tower President, Federated, Treasurer
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant 5800 Corporate Drive
Pittsburgh, PA 15237-7010
Federated Shareholder Services Company Federated Investors Tower
("Transfer Agent and Dividend Disbursing 1001 Liberty Avenue
Agent and Portfolio Recordkeeper") Pittsburgh, PA 15222-3779
Federated Administrative Services Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
SouthTrust Bank, N.A. 420 North 20th Street
("Adviser") Birmingham, AL 35203
SouthTrust Bank, N.A. 420 North 20th Street
("Custodian") Birmingham, AL 35203
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
Annual Report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, SOUTHTRUST FUNDS (formerly,
SouthTrust Vulcan Funds), certifies that it meets all of the requirements for
effectiveness of this Amendment to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
hereunto duly authorized, in the City of Pittsburgh and Commonwealth of
Pennsylvania, on the 20th day of July, 1998.
SOUTHTRUST FUNDS
(formerly, SouthTrust Vulcan Funds)
BY: /s/Peter J. Germain
Peter J. Germain, Secretary
Attorney in Fact for William O. Vann
July 20, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Peter J. Germain Attorney In Fact July 20, 1998
Peter J. Germain For the Persons
SECRETARY Listed Below
NAME TITLE
William O. Vann* Trustee and Chairman
of the Board
Charles G. Brown, III * Trustee
Russell W. Chambliss * Trustee
Edward C. Gonzales* President (Principal Executive
Officer) and Treasurer
(Principal Financial and
Accounting Officer)
Thomas M. Grady * Trustee
Billy L. Harbert, Jr. Trustee
* By Power of Attorney
Exhibit 9(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AMENDMENT NO. 2
ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
SOUTHTRUST VULCAN FUNDS
AND
FEDERATED ADMINISTRATIVE SERVICES
This Amendment No. 2 to the Administrative Services Agreement is made and
entered into as of May 1, 1998 by and between SouthTrust Vulcan Funds, a
Massachusetts business trust (the "Trust") and Federated Administrative
Services, a Delaware business trust ("FAS").
WHEREAS, the Trust and FAS entered into an Administrative Services
Agreement dated April 2, 1993, and was amended by Amendment No. 1 on February 9,
1995 (as amended, referred to herein as the "Agreement");
WHEREAS, the Trust and FAS desire to amend the Agreement in certain
respects;
NOW THEREFORE, the parties intending to be legally bound agree as follows:
1. Section 4 of the Agreement is amended by deleting the last paragraph
thereunder in its entirety, and inserting in lieu thereof the following:
However, in no event shall the administrative fee received during
any year of this contract be less than, or be paid at a rate less than
would aggregate, $50,000 per portfolio of the Trust. In addition, the
foregoing minimum annual fees per portfolio will be increased by $50,000
for each additional class of shares added to any existing or new
portfolio.
2. Subsection 6(a) of the Agreement is amended by deleting it in its entirety
and inserting in lieu thereof the following:
"6. Duration and Termination.
(a) This Agreement shall be effective on the date hereof and shall
continue through April 2, 2003 ("Termination Date")."
<PAGE>
3. Section 6 of the Agreement is amended by inserting the following as new
subsection 6(e):
"(e) In the event of the termination of this Agreement prior to the
Termination Date (other than termination under subsection (c)
hereof), the Trust shall make a one-time cash payment, as liquidated
damages, to FAS equal to the balance due FAS until the Termination
Date, within 60 days of the date of such early termination. For
purposes of determining the amounts due hereunder, such cash payment
shall be calculated by multiplying (x) the aggregate assets of the
Trust as of the date of such early termination or the date of this
Agreement, whichever is greater, by (y) the fees as set forth in
Section 4 of this Agreement."
4. The Trust and FAS hereby ratify and confirm all the terms, conditions and
provisions of the Administrative Services Agreement, as herein amended, as
remaining in full force and effect.
WITNESS the above due execution hereof as of the day and year first
written above.
FEDERATED ADMINSTRATIVE SERVICES SOUTHTRUST VULCAN FUNDS
By: /s/ Victor R. Siclari By: /s/ Beth S. Broderick
Vice President Vice President
Exhibit 8 (i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
CUSTODIAN CONTRACT
Between
SOUTHTRUST VULCAN FUNDS
and
SOUTHTRUST BANK, NATIONAL ASSOCIATION
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It 1
2. Duties of the Custodian With Respect to Property of the Funds
Held by the Custodian..........1
2.1 Holding..................................1
2.2 Delivery of Securities...................1
2.3 Registration of Securities...............3
2.4 Bank Accounts............................3
2.5 Payments for Shares......................3
2.6 Availability of Federal Funds............4
2.7 Collection of Income.....................4
2.8 Payment of Fund Moneys...................4
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased.............5
2.10 Payments for Repurchases or Redemptions
of Shares of a Fund.........................5
2.11 Appointment of Agents.....................5
2.12 Deposit of Fund Assets in Securities System 5
2.13 Segregated Account........................6
2.14 Joint Repurchase Agreements...............7
2.15 Ownership Certificates for Tax Purposes...7
2.16 Proxies...................................7
2.17 Communications Relating to Fund Portfolio Securities. 7
2.18 Proper Instructions.......................7
2.19 Actions Permitted Without Express Authority 7
2.20 Evidence of Authority.....................8
3. Duties of Custodian with Respect to the Books of Account and
Regulatory Reporting............................8
4. Records.........................................8
5. Opinion of Funds' Auditors......................9
6. Reports to Trust by Auditors....................9
7. Compensation of Custodian.......................9
8. Responsibility of Custodian.....................9
9. Effective Period, Termination and Amendment.....10
10. Successor Custodian.............................10
11. Interpretive and Additional Provisions..........11
12. Massachusetts Law to Apply......................11
13. Notices.........................................11
14. Counterparts....................................11
15. Limitations of Liability........................12
<PAGE>
CUSTODIAN CONTRACT
This Contract between SouthTrust Vulcan Funds, (the "Trust"), a Massachusetts
business trust, on behalf of the portfolios (hereinafter collectively called the
"Funds" and individually referred to as a "Fund") of the Trust, organized and
existing under the laws of the Commonwealth of Massachusetts, having its
principal place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, and SouthTrust Bank, National Association, a national
bank, having its principal place of business in Birmingham, Alabama,
(hereinafter called the "Custodian").
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It.
The Trust hereby employs the Custodian as the custodian of the assets of each
of the Funds of the Trust. Except as otherwise expressly provided herein, the
securities and other assets of each of the Funds shall be segregated from the
assets of each of the other Funds and from all other persons and entities. The
Trust will deliver to the Custodian all securities and cash owned by the Funds
and all payments of income, payments of principal or capital distributions
received by them with respect to all securities owned by the Funds from time to
time, and the cash consideration received by them for shares ("Shares") of
beneficial interest of the Funds as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of the Funds held or
received by the Funds and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section 2.18),
the Custodian shall from time to time employ one or more sub-custodians upon the
terms specified in the Proper Instructions, provided that the Custodian shall
have no more or less responsibility or liability to the Trust or any of the
Funds on account of any actions or omissions of any sub-custodian so employed
than any such sub-custodian has to the Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held by the
Custodian.
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Fund all non-cash property, including all securities
owned by each Fund, other than securities which are maintained pursuant to
Section 2.12 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as "Securities System", or securities
which are subject to a joint repurchase agreement with affiliated funds
pursuant to Section 2.14. The Custodian shall maintain records of all
receipts, deliveries and locations of such securities, together with a
current inventory thereof, and shall conduct periodic physical inspections
of certificates representing stocks, bonds and other securities held by it
under this Contract in such manner as the Custodian shall determine from
time to time to be advisable in order to verify the accuracy of such
inventory. With respect to securities held by any agent appointed pursuant
to Section 2.11 hereof, and with respect to securities held by any
sub-custodian appointed pursuant to Section 1 hereof, the Custodian may
rely upon certificates from such agent as to the holdings of such agent
and from such sub-custodian as to the holdings of such sub-custodian, it
being understood that such reliance in no way relieves the Custodian of
its responsibilities under this Contract. The Custodian will promptly
report to the Trust the results of such inspections, indicating any
shortages or discrepancies uncovered thereby, and take appropriate action
to remedy any such shortages or discrepancies.
2.2 Delivery of Securities. The Custodian shall release and deliver securities
owned by a Fund held by the Custodian or in a Securities System account of
the Custodian only upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, and only
in the following cases:
(1) Upon sale of such securities for the account of a Fund and receipt of
payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Trust;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
(4) To the depository agent in connection with tender or other similar
offers for portfolio securities of a Fund, in accordance with the
provisions of Section 2.17 hereof;
(5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name of a
Fund or into the name of any nominee or nominees of the Custodian or
into the name or nominee name of any agent appointed pursuant to
Section 2.11 or into the name or nominee name of any sub-custodian
appointed pursuant to Section 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of a Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery custom"; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own failure to act in accordance with the standard of reasonable care
or any higher standard of care imposed upon the Custodian by any
applicable law or regulation if such above-stated standard of
reasonable care were not part of this Contract;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
(9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to the
Custodian;
(10) For delivery in connection with any loans of portfolio securities of
a Fund, but only against receipt of adequate collateral in the form
of (a) cash, in an amount specified by the Trust, (b) certificated
securities of a description specified by the Trust, registered in the
name of the Fund or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for transfer, or
(c) securities of a description specified by the Trust, transferred
through a Securities System in accordance with Section 2.12 hereof;
(11) For delivery as security in connection with any borrowings requiring
a pledge of assets by a Fund, but only against receipt of amounts
borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, further securities may
be released for the purpose;
(12) For delivery in accordance with the provisions of any agreement among
the Trust, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") and
a member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions for a
Fund;
(13) For delivery in accordance with the provisions of any agreement among
the Trust, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transaction for a Fund;
(14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for a Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
(15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Executive Committee of the Trust on behalf of a Fund signed by an
officer of the Trust and certified by its Secretary or an Assistant
Secretary, specifying the securities to be delivered, setting forth
the purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other than
bearer securities) shall be registered in the name of a particular Fund or
in the name of any nominee of the Fund or of any nominee of the Custodian
which nominee shall be assigned exclusively to the Fund, unless the Trust
has authorized in writing the appointment of a nominee to be used in
common with other registered investment companies affiliated with the
Fund, or in the name or nominee name of any agent appointed pursuant to
Section 2.11 or in the name or nominee name of any sub-custodian appointed
pursuant to Section 1. All securities accepted by the Custodian on behalf
of a Fund under the terms of this Contract shall be in "street name" or
other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the name of each Fund, subject only to draft or
order by the Custodian acting pursuant to the terms of this Contract, and
shall hold in such account or accounts, subject to the provisions hereof,
all cash received by it from or for the account of each Fund, other than
cash maintained in a joint repurchase account with other affiliated funds
pursuant to Section 2.14 of this Contract or by a particular Fund in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940, as amended, (the "1940 Act"). Funds held
by the Custodian for a Fund may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company shall
be qualified to act as a custodian under the 1940 Act and that each such
bank or trust company and the funds to be deposited with each such bank or
trust company shall be approved by vote of a majority of the Board of
Trustees ("Board") of the Trust. Such funds shall be deposited by the
Custodian in its capacity as Custodian for the Fund and shall be
withdrawable by the Custodian only in that capacity. If requested by the
Trust, the Custodian shall furnish the Trust, not later than twenty (20)
days after the last business day of each month, an internal reconciliation
of the closing balance as of that day in all accounts described in this
section to the balance shown on the daily cash report for that day
rendered to the Trust.
2.5 Payments for Shares. The Custodian shall make such arrangements with the
Transfer Agent of each Fund, as will enable the Custodian to receive the
cash consideration due to each Fund and will deposit into each Fund's
account such payments as are received from the Transfer Agent. The
Custodian will provide timely notification to the Trust and the Transfer
Agent of any receipt by it of payments for Shares of the respective Fund.
2.6 Availability of Federal Funds. Upon mutual agreement between the Trust and
the Custodian, the Custodian shall make federal funds available to the
Funds as of specified times agreed upon from time to time by the Trust and
the Custodian in the amount of checks, clearing house funds, and other
non-federal funds received in payment for Shares of the Funds which are
deposited into the Funds' accounts.
2.7 Collection of Income.
(1) The Custodian shall collect on a timely basis all income and other
payments with respect to registered securities held hereunder to
which each Fund shall be entitled either by law or pursuant to custom
in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to each Fund's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present
for payment all coupons and other income items requiring presentation
as and when they become due and shall collect interest when due on
securities held hereunder. The collection of income due the Funds on
securities loaned pursuant to the provisions of Section 2.2 (10)
shall be the responsibility of the Trust. The Custodian will have no
duty or responsibility in connection therewith, other than to provide
the Trust with such information or data as may be necessary to assist
the Trust in arranging for the timely delivery to the Custodian of
the income to which each Fund is properly entitled.
(2) The Trust shall promptly notify the Custodian whenever income due on
securities is not collected in due course and will provide the
Custodian with monthly reports of the status of past due income. The
Trust will furnish the Custodian with a weekly report of accrued/past
due income for the fund. Once an item is identified as past due and
the Trust has furnished the necessary claim documentation to the
Custodian, the Custodian will then initiate a claim on behalf of the
Trust. The Custodian will furnish the Trust with a status report
monthly unless the parties otherwise agree.
2.8 Payment of Fund Moneys. Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out moneys of each Fund in the following cases only:
(1) Upon the purchase of securities, futures contracts or options on
futures contracts for the account of a Fund but only (a) against the
delivery of such securities, or evidence of title to futures
contracts, to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to
act as a custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Fund or in the
name of a nominee of the Custodian referred to in Section 2.3 hereof
or in proper form for transfer, (b) in the case of a purchase
effected through a Securities System, in accordance with the
conditions set forth in Section 2.12 hereof or (c) in the case of
repurchase agreements entered into between the Trust and any other
party, (i) against delivery of the securities either in certificate
form or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against delivery of
the receipt evidencing purchase for the account of the Fund of
securities owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from the
Fund;
(2) In connection with conversion, exchange or surrender of securities
owned by a Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares of a Fund issued by the
Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by a Fund,
including but not limited to the following payments for the account of
the Fund: interest; taxes; management, accounting, transfer agent and
legal fees; and operating expenses of the Fund, whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
(5) For the payment of any dividends on Shares of a Fund declared pursuant
to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in addition
to Proper Instructions, a certified copy of a resolution of the
Executive Committee of the Trust on behalf of a Fund signed by an
officer of the Trust and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose
to be a proper purpose, and naming the person or persons to whom such
payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities Purchased. In
any and every case where payment for purchase of securities for the
account of a Fund is made by the Custodian in advance of receipt of the
securities purchased, in the absence of specific written instructions from
the Trust to so pay in advance, the Custodian shall be absolutely liable
to the Fund for such securities to the same extent as if the securities
had been received by the Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of a Fund. From such
funds as may be available for the purpose of repurchasing or redeeming
Shares of a Fund, but subject to the limitations of the Declaration of
Trust and any applicable votes of the Board of the Trust pursuant thereto,
the Custodian shall, upon receipt of instructions from the Transfer Agent,
make funds available for payment to holders of shares of such Fund who
have delivered to the Transfer Agent a request for redemption or
repurchase of their shares including without limitation through bank
drafts, automated clearinghouse facilities, or by other means. In
connection with the redemption or repurchase of Shares of the Funds, the
Custodian is authorized upon receipt of instructions from the Transfer
Agent to wire funds to or through a commercial bank designated by the
redeeming shareholders.
2.11 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, and any applicable state law or regulation, to act as a
custodian, as its agent to carry out such of the provisions of this
Section 2 as the Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not relieve the Custodian
of its responsibilities or liabilities hereunder.
2.12 Deposit of Fund Assets in Securities System. The Custodian may deposit
and/or maintain securities owned by the Funds in a clearing agency
registered with the Securities and Exchange Commission ("SEC") under
Section 17A of the Exchange Act, which acts as a securities depository, or
in the book-entry system authorized by the U.S. Department of the Treasury
and certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the following
provisions:
(1) The Custodian may keep securities of each Fund in a Securities System
provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
(2) The records of the Custodian with respect to securities of the Funds
which are maintained in a Securities System shall identify by
book-entry those securities belonging to each Fund;
(3) The Custodian shall pay for securities purchased for the account of
each Fund upon (i) receipt of advice from the Securities System that
such securities have been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of a Fund upon (i) receipt
of advice from the Securities System that payment for such securities
has been transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such transfer and payment
for the account of the Fund. Copies of all advices from the
Securities System of transfers of securities for the account of a
Fund shall identify the Fund, be maintained for the Fund by the
Custodian and be provided to the Trust at its request. Upon request,
the Custodian shall furnish the Trust confirmation of each transfer
to or from the account of a Fund in the form of a written advice or
notice and shall furnish to the Trust copies of daily transaction
sheets reflecting each day's transactions in the Securities System
for the account of a Fund.
(4) The Custodian shall provide the Trust with any report obtained by the
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the Securities System;
(5) The Custodian shall have received the initial certificate, required by
Section 9 hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage to a
Fund resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of the Trust,
it shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the Securities System or any other
person which the Custodian may have as a consequence of any such loss
or damage if and to the extent that a Fund has not been made whole
for any such loss or damage.
(7) The authorization contained in this Section 2.12 shall not relieve the
Custodian from using reasonable care and diligence in making use of
any Securities System.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for
and on behalf of each Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in an
account by the Custodian pursuant to Section 2.12 hereof, (i) in
accordance with the provisions of any agreement among the Trust, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions for
a Fund, (ii) for purpose of segregating cash or government securities in
connection with options purchased, sold or written for a Fund or commodity
futures contracts or options thereon purchased or sold for a Fund, (iii)
for the purpose of compliance by the Trust or a Fund with the procedures
required by any release or releases of the SEC relating to the maintenance
of segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions, a certified copy of a
resolution of the Board or of the Executive Committee signed by an officer
of the Trust and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.14 Joint Repurchase Agreements. Upon the receipt of Proper Instructions, the
Custodian shall deposit and/or maintain any assets of a Fund and any
affiliated funds which are subject to joint repurchase transactions in an
account established solely for such transactions for the Fund and its
affiliated funds. For purposes of this Section 2.14, "affiliated funds"
shall include all investment companies and their portfolios for which
subsidiaries or affiliates of Federated Investors serve as investment
advisers, distributors or administrators in accordance with applicable
exemptive orders from the SEC. The requirements of segregation set forth
in Section 2.1 shall be deemed to be waived with respect to such assets.
2.15 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to securities of a Fund held by it and in connection with
transfers of securities.
2.16 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
a Fund or a nominee of a Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver
to the Trust such proxies, all proxy soliciting materials and all notices
relating to such securities.
2.17 Communications Relating to Fund Portfolio Securities. The Custodian shall
transmit promptly to the Trust all written information (including, without
limitation, pendency of calls and maturities of securities and expirations
of rights in connection therewith and notices of exercise of call and put
options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of
the securities being held for the Fund. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Trust all written
information received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Trust desires to take action with respect
to any tender offer, exchange offer or any other similar transaction, the
Trust shall notify the Custodian in writing at least three business days
prior to the date on which the Custodian is to take such action. However,
the Custodian shall nevertheless exercise its best efforts to take such
action in the event that notification is received three business days or
less prior to the date on which action is required. For securities which
are not held in nominee name, the Custodian will act as a secondary source
of information and will not be responsible for providing corporate action
notification to the Trust.
2.18 Proper Instructions. Proper Instructions as used throughout this Section 2
means a writing signed or initialed by one or more person or persons as
the Board shall have from time to time authorized. Each such writing shall
set forth the specific transaction or type of transaction involved. Oral
instructions will be considered Proper Instructions if the Custodian
reasonably believes them to have been given by a person previously
authorized in Proper Instructions to give such instructions with respect
to the transaction involved. The Trust shall cause all oral instructions
to be confirmed in writing. Upon receipt of a certificate of the Secretary
or an Assistant Secretary as to the authorization by the Board of the
Trust accompanied by a detailed description of procedures approved by the
Board, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board
and the Custodian are satisfied that such procedures afford adequate
safeguards for a Fund's assets.
2.19 Actions Permitted Without Express Authority. The Custodian may in its
discretion, without express authority from the Trust:
(1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Trust in such form that it may be allocated to the affected Fund;
(2) surrender securities in temporary form for securities in definitive form;
(3) endorse for collection, in the name of a Fund, checks, drafts and other
negotiable instruments; and
(4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of each Fund except as
otherwise directed by the Trust.
2.20 Evidence of Authority. The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or
paper reasonably believed by it to be genuine and to have been properly
executed on behalf of a Fund. The Custodian may receive and accept a
certified copy of a vote of the Board of the Trust as conclusive evidence
(a) of the authority of any person to act in accordance with such vote or
(b) of any determination of or any action by the Board pursuant to the
Declaration of Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
3. Duties of Custodian With Respect to the Books of Account and Regulatory
Reporting.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of the Trust to keep the books of
account of each Fund and appointed to report on behalf of each Fund to the
Board, the SEC and other regulatory bodies.
4. Records.
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Trust and the Funds under the 1940 Act, with particular
attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, and
specifically including identified cost records used for tax purposes. All such
records shall be the property of the Trust and shall at all times during the
regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Trust and employees and agents
of the SEC. In the event of termination of this Contract, the Custodian will
deliver all such records to the Trust, to a successor Custodian, or to such
other person as the Trust may direct. The Custodian shall supply daily to the
Trust a tabulation of securities owned by a Fund and held by the Custodian and
shall, when requested to do so by the Trust and for such compensation as shall
be agreed upon between the Trust and the Custodian, include certificate numbers
in such tabulations. When requested by the Trust and for such compensation as
shall be agreed upon between the Trust and the Custodian, this tabulation shall
include certificate numbers. In addition, the Custodian shall electronically
transmit daily to the Trust information pertaining to security trading and other
investment activity and all other cash activity of a Fund.
5. Opinion of Funds' Independent Auditors.
The Custodian shall take all reasonable action, as the Trust may from time
to time request, to obtain from year to year favorable opinions from each Fund's
independent auditors with respect to its activities hereunder in connection with
the preparation of the Fund's registration statement, periodic reports, or any
other reports to the SEC and with respect to any other requirements of such
Commission.
6. Reports to Trust by Independent Auditors.
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent auditors for each Fund on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian for the Fund under this Contract; such
reports shall be of sufficient scope and in sufficient detail, as may reasonably
be required by the Trust, to provide reasonable assurance that any material
inadequacies would be disclosed by such examination and, if there are no such
inadequacies, the reports shall so state.
7. Compensation of Custodian.
The Custodian shall be entitled to receive for its services and expenses
as Custodian, compensation at an annual rate of 0.01% of each Fund's total
assets up to $500 million, and 0.005% of each Fund's total assets in excess of
$500 million.
8. Responsibility of Custodian.
The Custodian shall be held to a standard of reasonable care in carrying
out the provisions of this Contract; provided, however, that the Custodian shall
be held to any higher standard of care which would be imposed upon the Custodian
by any applicable law or regulation if such above stated standard of reasonable
care was not part of this Contract. The Custodian shall be entitled to rely on
and may act upon advice of counsel (who may be counsel for the Trust) on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice, provided that such action is not in violation
of applicable federal or state laws or regulations, and is in good faith and
without negligence. Subject to the limitations set forth in Section 15 hereof,
the Custodian shall be kept indemnified by the Trust but only from the assets of
the Fund involved in the issue at hand and be without liability for any action
taken or thing done by it in carrying out the terms and provisions of this
Contract in accordance with the above standards.
In order that the indemnification provisions contained in this Section 8
shall apply, however, it is understood that if in any case the Trust may be
asked to indemnify or save the Custodian harmless, the Trust shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the Custodian will use all reasonable care to
identify and notify the Trust promptly concerning any situation which presents
or appears likely to present the probability of such a claim for
indemnification. The Trust shall have the option to defend the Custodian against
any claim which may be the subject of this indemnification, and in the event
that the Trust so elects it will so notify the Custodian and thereupon the Trust
shall take over complete defense of the claim, and the Custodian shall in such
situation initiate no further legal or other expenses for which it shall seek
indemnification under this Section. The Custodian shall in no case confess any
claim or make any compromise in any case in which the Trust will be asked to
indemnify the Custodian except with the Trust's prior written consent.
Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Trust.
If the Trust requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the reasonable opinion of the Custodian, result in the Custodian or its nominee
assigned to a Fund being liable for the payment of money or incurring liability
of some other form, the Custodian may request the Trust, as a prerequisite to
requiring the Custodian to take such action, to provide indemnity to the
Custodian in an amount and form satisfactory to the Custodian.
Subject to the limitations set forth in Section 15 hereof, the Trust
agrees to indemnify and hold harmless the Custodian and its nominee from and
against all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) (referred to herein as authorized charges) incurred or
assessed against it or its nominee in connection with the performance of this
Contract, except such as may arise from it or its nominee's own failure to act
in accordance with the standard of reasonable care or any higher standard of
care which would be imposed upon the Custodian by any applicable law or
regulation if such above-stated standard of reasonable care were not part of
this Contract. To secure any authorized charges and any advances of cash or
securities made by the Custodian to or for the benefit of a Fund for any purpose
which results in the Fund incurring an overdraft at the end of any business day
or for extraordinary or emergency purposes during any business day, the Trust
hereby grants to the Custodian a security interest in and pledges to the
Custodian securities held for the Fund by the Custodian, in an amount not to
exceed 10 percent of the Fund's gross assets, the specific securities to be
designated in writing from time to time by the Trust or the Fund's investment
adviser. Should the Trust fail to make such designation, or should it instruct
the Custodian to make advances exceeding the percentage amount set forth above
and should the Custodian do so, the Trust hereby agrees that the Custodian shall
have a security interest in all securities or other property purchased for a
Fund with the advances by the Custodian, which securities or property shall be
deemed to be pledged to the Custodian, and the written instructions of the Trust
instructing their purchase shall be considered the requisite description and
designation of the property so pledged for purposes of the requirements of the
Uniform Commercial Code. Should the Trust fail to cause a Fund to repay promptly
any authorized charges or advances of cash or securities, subject to the
provision of the second paragraph of this Section 8 regarding indemnification,
the Custodian shall be entitled to use available cash and to dispose of pledged
securities and property as is necessary to repay any such advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section 2.12 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of the Trust has approved the initial use of a
particular Securities System as required in each case by Rule 17f-4 under the
Investment Company Act of 1940, as amended; provided further, however, that the
Trust shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust and further provided, that the Trust may at any time by action of its
Board (i) substitute another bank or trust company for the Custodian by giving
notice as described above to the Custodian, or (ii) immediately terminate this
Contract in the event of the appointment of a conservator or receiver for the
Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Trust shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board of the Trust, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities then held by it hereunder for each Fund and shall transfer to
separate accounts of the successor custodian all of each Fund's securities held
in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of the
Trust, deliver at the office of the Custodian and transfer such securities,
funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board shall have been delivered to the Custodian
on or before the date when such termination shall become effective, then the
Custodian shall have the right to deliver to a bank or trust company, which is a
"bank" as defined in the 1940 Act, doing business in Boston, Massachusetts, of
its own selection, having an aggregate capital, surplus, and undivided profits,
as shown by its last published report, of not less than $100,000,000, all
securities, funds and other properties held by the Custodian and all instruments
held by the Custodian relative thereto and all other property held by it under
this Contract for each Fund and to transfer to separate accounts of such
successor custodian all of each Fund's securities held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Trust to procure the certified copy of the vote referred to or of
the Board to appoint a successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian retains
possession of such securities, funds and other properties and the provisions of
this Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and the
Trust may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Declaration of Trust. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Contract.
12. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
13. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Custodian at 420 North
20th Street, Birmingham, Alabama, 35283, or to such other address as the Trust
or the Custodian may hereafter specify, shall be deemed to have been properly
delivered or given hereunder to the respective address.
14. Counterparts.
This Contract may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
15. Limitations of Liability.
The Custodian is expressly put on notice of the limitation of liability as
set forth in Article XI of the Declaration of Trust and agrees that the
obligations and liabilities assumed by the Trust and any Fund pursuant to this
Contract, including, without limitation, any obligation or liability to
indemnify the Custodian pursuant to Section 8 hereof, shall be limited in any
case to the relevant Fund and its assets and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the relevant Fund,
from any other Fund or its shareholders or from the Trustees, Officers,
employees or agents of the Trust, or any of them. In addition, in connection
with the discharge and satisfaction of any claim made by the Custodian against
the Trust, for whatever reasons, involving more than one Fund, the Trust shall
have the exclusive right to determine the appropriate allocations of liability
for any such claim between or among the Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 11th day of July, 1997.
ATTEST: SOUTHTRUST VULCAN FUNDS
/s/ C. Todd Gibson By /s/ C. Christine Thomson
Assistant Secretary Vice President
ATTEST: SOUTHTRUST BANK,
NATIONAL ASSOCIATION
/s/ Patrick V. Kulovitz By /s/ Roger L. Brown
Secretary Vice President
Exhibit 8 (ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Exhibit 1 to
Custodian Contract dated July 11, 1997
between SouthTrust Bank, N.A. and
SouthTrust Vulcan Funds
SCHEDULE OF FEES
The Custodian shall be entitled to the following fees for the performance
of the services provided under the Contract:
1.00 basis points on each Fund's total
assets up to $500 million 0.5 basis
points on each Fund's total assets over
$500 million
SOUTHTRUST BANK, N.A. SOUTHTRUST VULCAN FUNDS
By:/s/ Roger L. Brown By:/s/ C. Christine Thomson
Name: Roger L. Brown Name: C. Christine Thomson
Title: Senior Vice President Title: Vice President
Exhibit 11 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Arthur Andersen LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in
Post-Effective Amendment No. 9 to Form N-1A Registration Statement of SouthTrust
Vulcan Funds of our report dated June 5, 1998, on the financial statements as of
April 30, 1998, of Vulcan Treasury Obligations Money Market Fund, Vulcan Bond
Fund, Vulcan Stock Fund, and Vulcan Income Fund, included in or made a part of
this registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Pittsburgh, Pennsylvania,
July 17, 1998
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> Southtrust Vulcan Funds
Vulcan Bond Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Apr-30-1998
<PERIOD-END> Apr-30-1998
<INVESTMENTS-AT-COST> 109,335,977
<INVESTMENTS-AT-VALUE> 112,827,892
<RECEIVABLES> 1,897,014
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 114,724,916
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74,603
<TOTAL-LIABILITIES> 74,603
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<PAID-IN-CAPITAL-COMMON> 110,811,242
<SHARES-COMMON-STOCK> 11,027,964
<SHARES-COMMON-PRIOR> 9,166,016
<ACCUMULATED-NII-CURRENT> 136,027
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 211,130
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,491,914
<NET-ASSETS> 114,650,313
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,787,879
<OTHER-INCOME> 0
<EXPENSES-NET> 848,482
<NET-INVESTMENT-INCOME> 5,939,397
<REALIZED-GAINS-CURRENT> 1,212,542
<APPREC-INCREASE-CURRENT> 2,922,962
<NET-CHANGE-FROM-OPS> 10,074,901
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<DISTRIBUTIONS-OF-INCOME> 5,914,468
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,180,087
<NUMBER-OF-SHARES-REDEEMED> 1,320,806
<SHARES-REINVESTED> 2,667
<NET-CHANGE-IN-ASSETS> 23,465,740
<ACCUMULATED-NII-PRIOR> 111,097
<ACCUMULATED-GAINS-PRIOR> (1,001,411)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 604,746
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 854,229
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<PER-SHARE-NII> 0.600
<PER-SHARE-GAIN-APPREC> 0.450
<PER-SHARE-DIVIDEND> 0.600
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> Southtrust Vulcan Funds
Vulcan Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Apr-30-1998
<PERIOD-END> Apr-30-1998
<INVESTMENTS-AT-COST> 38,926,888
<INVESTMENTS-AT-VALUE> 39,347,919
<RECEIVABLES> 665,628
<ASSETS-OTHER> 13,203
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,026,750
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57,794
<TOTAL-LIABILITIES> 57,794
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,145,479
<SHARES-COMMON-STOCK> 4,072,286
<SHARES-COMMON-PRIOR> 3,985,474
<ACCUMULATED-NII-CURRENT> 36,960
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,634,514)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 421,031
<NET-ASSETS> 39,968,956
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,572,938
<OTHER-INCOME> 0
<EXPENSES-NET> 293,097
<NET-INVESTMENT-INCOME> 2,279,841
<REALIZED-GAINS-CURRENT> 151,620
<APPREC-INCREASE-CURRENT> 369,670
<NET-CHANGE-FROM-OPS> 2,801,131
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<DISTRIBUTIONS-OF-INCOME> 2,286,964
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 876,213
<NUMBER-OF-SHARES-REDEEMED> 789,401
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,371,354
<ACCUMULATED-NII-PRIOR> 44,083
<ACCUMULATED-GAINS-PRIOR> (1,786,134)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 465,762
<AVERAGE-NET-ASSETS> 39,025,167
<PER-SHARE-NAV-BEGIN> 9.680
<PER-SHARE-NII> 0.580
<PER-SHARE-GAIN-APPREC> 0.130
<PER-SHARE-DIVIDEND> 0.580
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> Southtrust Vulcan Funds
Vulcan Stock Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Apr-30-1998
<PERIOD-END> Apr-30-1998
<INVESTMENTS-AT-COST> 308,791,717
<INVESTMENTS-AT-VALUE> 412,125,159
<RECEIVABLES> 14,351,798
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<TOTAL-ASSETS> 426,477,957
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 275,101,481
<SHARES-COMMON-STOCK> 21,674,634
<SHARES-COMMON-PRIOR> 17,244,227
<ACCUMULATED-NII-CURRENT> 57,494
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34,364,117
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 103,333,442
<NET-ASSETS> 412,856,534
<DIVIDEND-INCOME> 4,897,709
<INTEREST-INCOME> 911,501
<OTHER-INCOME> 0
<EXPENSES-NET> 3,187,118
<NET-INVESTMENT-INCOME> 2,622,092
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<NET-CHANGE-FROM-OPS> 103,591,111
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 37,488,088
<DISTRIBUTIONS-OTHER> 0
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<NUMBER-OF-SHARES-REDEEMED> 2,451,001
<SHARES-REINVESTED> 2,137,883
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,197,912
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<PER-SHARE-NII> 0.150
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> Southtrust Vulcan Funds
Vulcan Treasury Obligations
Money Market Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Apr-30-1998
<PERIOD-END> Apr-30-1998
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<INVESTMENTS-AT-VALUE> 609,289,531
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<TOTAL-LIABILITIES> 2,222,877
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<PAID-IN-CAPITAL-COMMON> 631,868,782
<SHARES-COMMON-STOCK> 631,868,782
<SHARES-COMMON-PRIOR> 524,462,069
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 631,868,782
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 27,631,949
<OTHER-INCOME> 0
<EXPENSES-NET> 2,385,416
<NET-INVESTMENT-INCOME> 25,246,533
<REALIZED-GAINS-CURRENT> 0
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<NET-CHANGE-FROM-OPS> 25,246,533
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
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<SHARES-REINVESTED> 1,286,356
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<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,344,644
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<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
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</TABLE>
