TRADEMARK FUNDS
- - TRADEMARK EQUITY FUND
- - TRADEMARK KENTUCKY MUNICIPAL BOND FUND
- - TRADEMARK SHORT-INTERMEDIATE GOVERNMENT FUND
- - TRADEMARK GOVERNMENT INCOME FUND
COMBINED PROSPECTUS
Trademark Funds (the "Trust") is an open-end, management investment company (a
mutual fund). This combined prospectus offers investors interests in the
following four separate investment portfolios (individually, the "Fund," or
collectively, the "Funds"), each having a distinct investment objective and
policies:
- Trademark Equity Fund;
- Trademark Kentucky Municipal Bond Fund;
- Trademark Short-Intermediate Government Fund; and
- Trademark Government Income Fund.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF LIBERTY
NATIONAL BANK AND TRUST COMPANY OF KENTUCKY, ARE NOT GUARANTEED BY LIBERTY
NATIONAL BANK AND TRUST COMPANY OF KENTUCKY, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This combined prospectus contains the information you should read and know
before you invest in any of the Funds. Keep this prospectus for future
reference.
The Funds have also filed a Combined Statement of Additional Information dated
March 31, 1994, with the Securities and Exchange Commission. The information
contained in the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined Statement
of Additional Information free of charge, obtain other information, or make
inquiries about any of the Funds by calling Liberty National Bank and Trust
Company of Kentucky at (502) 566-3653.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated March 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 1
- ------------------------------------------------------
Special Considerations 1
SUMMARY OF FUND EXPENSES 2
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 3
- ------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND 7
- ------------------------------------------------------
Equity Fund 7
Acceptable Investments 7
Common Stocks 7
Other Corporate Securities 7
U.S. Government Securities 7
Futures and Options 7
Foreign Securities 7
Temporary Investments 8
Restricted and Illiquid Securities 8
Selling Short 8
Warrants 8
Kentucky Municipal Bond Fund 8
Acceptable Investments 9
Municipal Securities 9
Characteristics 9
Participation Interests 10
Variable Rate Municipal Securities 10
Municipal Leases 10
Restricted and Illiquid Securities 10
Temporary Investments 10
Investment Risks 11
Non-Diversification 11
Investing in New Issuers 11
Short-Intermediate Fund and Government Income Fund 12
Acceptable Investments 12
Bank Instruments 13
Foreign Investments 13
Collateralized Mortgage Obligations 13
Restricted and Illiquid Securities 14
Temporary Investments 14
ADDITIONAL PORTFOLIO STRATEGIES 14
- ------------------------------------------------------
Borrowing Money 14
When-Issued and Delayed
Delivery Transactions 15
Investing in Securities of Other
Investment Companies 15
Repurchase Agreements 15
Lending of Portfolio Securities 15
TRADEMARK FUNDS INFORMATION 15
- ------------------------------------------------------
Management of the Trademark Funds 15
Board of Trustees 15
Investment Adviser 15
Advisory Fees 16
Adviser's Background 16
Distribution of Fund Shares 17
Distribution Plan 17
Administration of the Funds 18
Administrative Services 18
Custodian 18
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting Services 18
Legal Counsel 19
Independent Auditors 19
Expenses of the Funds 19
Brokerage Transactions 19
NET ASSET VALUE 19
- ------------------------------------------------------
INVESTING IN THE FUNDS 19
- ------------------------------------------------------
Share Purchases 19
Through Liberty National 20
Minimum Investment Required 20
What Shares Cost 20
Systematic Investment Program 20
Exchanging Securities for Fund Shares 20
Certificates and Confirmations 20
Dividends 21
Capital Gains 21
EXCHANGE PRIVILEGE 21
- ------------------------------------------------------
Exchanging Shares 21
By Telephone 21
REDEEMING SHARES 22
- ------------------------------------------------------
By Telephone 22
By Mail 22
Signatures 22
Receiving Payment 23
Systematic Withdrawal Program 23
Accounts with Low Balances 23
SHAREHOLDER INFORMATION 23
- ------------------------------------------------------
Voting Rights 23
Massachusetts Partnership Law 24
EFFECT OF BANKING LAWS 24
- ------------------------------------------------------
TAX INFORMATION 25
- ------------------------------------------------------
Federal Income Tax 25
Additional Tax Information for
Kentucky Municipal Bond Fund 25
Kentucky Taxes 26
Other State and Local Taxes 26
PERFORMANCE INFORMATION 26
- ------------------------------------------------------
FINANCIAL STATEMENTS 28
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 64
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SYNOPSIS
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated August 6, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes.
As of the date of this prospectus, the Trust is comprised of the following four
Funds:
- Trademark Equity Fund ("Equity Fund")--seeks to provide growth of capital
and income by investing in the equity securities of high quality
companies within the two distinctive categories of growth and value;
- Trademark Kentucky Municipal Bond Fund ("Kentucky Municipal Bond
Fund")--seeks to provide current income which is exempt from federal
regular income tax and largely from Kentucky state income taxes by
investing in a portfolio consisting primarily of Kentucky municipal
securities;
- Trademark Short-Intermediate Government Fund ("Short-Intermediate
Fund")--seeks to provide current income by investing primarily in
securities which are issued or guaranteed as to payment of principal and
interest by the U.S. government or U.S. government agencies or
instrumentalities while maintaining an average portfolio maturity of
between two and five years; and
- Trademark Government Income Fund ("Government Income Fund")--seeks to
provide current income by investing primarily in securities which are
issued or guaranteed as to payment of principal and interest by the U.S.
government or U.S. government agencies or instrumentalities while
maintaining an average portfolio maturity of between five and twelve
years.
For information on how to purchase shares of any of the Funds, please refer to
"Investing in the Funds." A minimum initial investment of $1,000 is required for
each Fund. Shares of each Fund are sold at net asset value without a sales
charge or other similar non-recurring charges and redeemed at net asset value.
Information on redeeming shares may be found under "Redeeming Shares." The Funds
are advised by Liberty National Bank and Trust Company of Kentucky ("Liberty
National" or the "Adviser").
SPECIAL CONSIDERATIONS
Investors should be aware of the following general considerations: the market
value of fixed-income securities, which constitute a major part of the
investments of some of the Funds, may vary inversely in response to changes in
prevailing interest rates. The foreign securities in which some Funds may invest
may be subject to certain risks in addition to those inherent in U.S.
investments. One or more Funds may make certain investments and employ certain
investment techniques that involve other risks, including entering into
repurchase agreements, lending portfolio securities and entering into futures
contracts and related options as hedges. These risks and those associated with
investing in mortgage-backed securities, when-issued securities, options and
variable rate securities are described under "Investment Objective and Policies
of Each Fund" and "Additional Portfolio Strategies."
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)......................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).............. None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)............................................................... None
Redemption Fee...................................................................................... None
Exchange Fee........................................................................................ None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of average net assets)
</TABLE>
<TABLE>
<CAPTION>
KENTUCKY SHORT- GOVERNMENT
EQUITY MUNICIPAL INTERMEDIATE INCOME
FUND BOND FUND FUND FUND
------ --------- ------------ ----------
<S> <C> <C> <C> <C>
Management Fee (after waiver)(1)......................... 0.50% 0.50% 0.50% 0.50%
12b-1 Fee(2)............................................. 0.00% 0.00% 0.00% 0.00%
Total Other Expenses..................................... 0.30% 0.45% 0.46% 0.34%
Total Fund Operating Expenses(3)..................... 0.80% 0.95% 0.96% 0.84%
</TABLE>
(1) The estimated management fee of the Equity Fund, Short-Intermediate Fund,
and Government Income Fund has been reduced to reflect the anticipated voluntary
waiver of a portion of the management fee by the investment adviser. The
investment adviser can terminate this voluntary waiver at any time in its sole
discretion. With respect to the Equity Fund, Short-Intermediate Fund, and
Government Income Fund, the maximum management fee is 0.85%, 0.60%, and 0.60%,
respectively.
(2) As of the date of this prospectus, the Funds are not paying or accruing
12b-1 fees. The Funds can pay up to 0.25% as a 12b-1 fee to the distributor.
Trust and investment agency clients of Liberty National Bank and Trust Company
of Kentucky or its affiliates 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
Funds (which would not have a Rule 12b-1 plan) are created and trust and
investment agency clients' investments in the Funds are converted to such Trust
class.
(3) The total estimated Fund operating expenses for the Equity Fund,
Short-Intermediate Fund, and Government Income Fund would have been 1.15%,
1.06%, and 0.94%, respectively, absent the anticipated voluntary waivers
described above in notes (1) and (2).
* The Annual Fund Operating Expenses for the Equity Fund, Kentucky Municipal
Bond Fund, Short-Intermediate Fund and Government Income Fund were 0.74%,
0.70%, 0.86%, and 0.80%, respectively, for the fiscal year ending January 31,
1994. The Annual Fund Operating Expenses in the table above are based on
expenses expected to be incurred during the fiscal year ending January 31,
1995. During the course of this period, expenses may be more or less than the
average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN EACH FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "TRADEMARK FUNDS INFORMATION" AND "INVESTING IN THE FUNDS."
WIRE-TRANSFERRED REDEMPTIONS MAY BE SUBJECT TO AN ADDITIONAL FEE OF $20.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.
The Funds charge no contingent deferred sales charge.
Equity Fund.......................................................... $ 8 $ 26 $ 44 $ 99
Kentucky Municipal Bond Fund......................................... 10 30 53 117
Short-Intermediate Fund.............................................. 10 31 53 118
Government Income Fund............................................... 9 27 47 104
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING JANUARY 31, 1995.
TRADEMARK EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Independent Auditors' Report on page 64.
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31,
1994*
- ------------------------------------------------------------------------ -------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.17
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.28
--------
- ------------------------------------------------------------------------
Total from investment operations 1.45
--------
- ------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.16)
- ------------------------------------------------------------------------
Dividends to shareholders from capital gains (0.34)
--------
- ------------------------------------------------------------------------
Total distribution (0.50)
--------
- ------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.95
--------
- ------------------------------------------------------------------------
TOTAL RETURN** 14.72%
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.74 %(a)
- ------------------------------------------------------------------------
Net investment income 1.69 %(a)
- ------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.39 %(a)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 132,765
- ------------------------------------------------------------------------
Portfolio turnover rate 59 %
- ------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from February 19, 1993 (date of initial
public investment) to January 31, 1994.
** Based on net asset value.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated January 31, 1994, which can be obtained free of charge.
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Independent Auditors' report on page 64.
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31,
1994*
-------------
<S> <C>
- ------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.36
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.43
- ------------------------------------------------------------------------ -----------
Total from investment operations 0.79
- ------------------------------------------------------------------------ -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.34)
- ------------------------------------------------------------------------ -----------
NET ASSET VALUE, END OF PERIOD $ 10.45
- ------------------------------------------------------------------------ -----------
TOTAL RETURN** 8.05 %
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.70 %(a)
- ------------------------------------------------------------------------
Net investment income 4.19 %(a)
- ------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.21 %(a)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $64,663
- ------------------------------------------------------------------------
Portfolio turnover rate 5 %
- ------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from March 12, 1993 (date of initial
public investment) to January 31, 1994.
** Based on net asset value.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated January 31, 1994, which can be obtained free of charge.
TRADEMARK SHORT-INTERMEDIATE GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Independent Auditors' Report on page 64.
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31,
1994*
- ------------------------------------------------------------------------ -------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.55
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.10)
- ------------------------------------------------------------------------ -----------
Total from investment operations 0.45
- ------------------------------------------------------------------------ -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.55)
- ------------------------------------------------------------------------ -----------
NET ASSET VALUE, END OF PERIOD $9.90
- ------------------------------------------------------------------------ -----------
TOTAL RETURN** 4.61 %
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.86 %(a)
- ------------------------------------------------------------------------
Net investment income 5.91 %(a)
- ------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.18 %(a)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $53,375
- ------------------------------------------------------------------------
Portfolio turnover rate 21 %
- ------------------------------------------------------------------------
</TABLE>
* For the period from February 19, 1993 (date of initial public investment) to
January 31, 1994.
** Based on net asset value.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated January 31, 1994, which can be obtained free of charge.
TRADEMARK GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Independent Auditors' Report on page 64.
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31,
1994*
-------------
<S> <C>
- ------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.56
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.12
- ------------------------------------------------------------------------ -----------
Total from investment operations 0.68
- ------------------------------------------------------------------------ -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.56)
- ------------------------------------------------------------------------ -----------
NET ASSET VALUE, END OF PERIOD $10.12
- ------------------------------------------------------------------------ -----------
TOTAL RETURN** 6.98 %
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.80 %(a)
- ------------------------------------------------------------------------
Net investment income 5.97 %(a)
- ------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.14 %(a)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $99,896
- ------------------------------------------------------------------------
Portfolio turnover rate 21 %
- ------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from February 19, 1993 (date of initial
public investment) to January 31, 1994. For the period from the start of
business, January 19, 1993 to February 18, 1993, net investment income
aggregating $0.0269 per share ($269) was distributed to Federated
Administrative Services.
** Based on net asset value.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated January 31, 1994, which can be obtained free of charge.
INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND
- --------------------------------------------------------------------------------
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of shareholders.
While there is no assurance that a Fund will achieve its investment objective,
it endeavors to do so by following the investment policies described in this
prospectus.
Unless indicated otherwise, the investment policies of a Fund may be changed by
the Trustees without approval of shareholders. Shareholders will be notified
before any material change in these policies becomes effective.
Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below, appears in
the "Additional Portfolio Strategies" section of this prospectus and in the
Combined Statement of Additional Information.
EQUITY FUND
The investment objective of the Equity Fund is to achieve growth of capital and
income. The Fund emphasizes long term capital appreciation. The Fund pursues its
investment objective by investing in equity securities of high quality companies
within the two distinctive categories of growth and value. The growth focus is
on companies which have a consistent record of above-average sales and earnings
growth. The value based issues are selected by relating the stock price to
criteria associated with financial value. Under normal circumstances, the Fund
intends to invest at least 65% of its total assets in equity securities selected
to achieve the Fund's objective of growth of capital and income.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include but
are not limited to:
COMMON STOCKS. The Fund invests primarily in common stocks of companies
selected by the Fund's investment adviser on the basis of a disciplined
systematic approach that utilizes historical financial data and earnings growth
projections to evaluate stocks. Fundamental research is used to validate the
investment merit of issues. A valuation model establishes price targets and
indicates the degree of relative attractiveness. Common stocks which offer the
most attractive return based on the application of the valuation model will be
used by the Fund.
OTHER CORPORATE SECURITIES. The Fund may invest in preferred stocks,
convertible securities, notes rated A or better by Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"), and warrants of these
companies. If any note invested in by the Fund loses its rating or has its
rating reduced after the Fund has purchased it, the Fund is not required to sell
or otherwise dispose of the security, but may consider doing so.
U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. government securities.
FUTURES AND OPTIONS. The Fund may purchase and sell financial futures contracts
and purchase and sell options on financial futures contracts and on its
portfolio securities.
FOREIGN SECURITIES. The Fund may invest in foreign securities which are traded
publicly in the United States. Investments in foreign securities, particularly
those of non-governmental issues, involve considerations which are not
ordinarily associated with investments in domestic issuers. These
considerations include the possibility of expropriation, the unavailability of
financial information or the difficulty of interpreting financial information
prepared under foreign accounting standards, less liquidity and more volatility
in foreign securities markets, the impact of political, social, or diplomatic
developments, and the difficulty of assessing economic trends in foreign
countries. It may also be more difficult to enforce contractual obligations
abroad than would be the case in the United States because of differences in the
legal systems. Transaction costs in foreign securities may be higher. The Fund's
Adviser will consider these and other factors before investing in foreign
securities and will not make such investments unless, in its opinion, such
investments will meet the Fund's standards and objectives.
TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may also invest
temporarily in cash and money market instruments during times of unusual market
conditions and to maintain liquidity. These investments include the following:
- prime commercial paper, including master demand notes;
- instruments of domestic and U.S. dollar denominated foreign banks and
savings and loans (such as certificates of deposit, demand and time
deposits, savings shares, and bankers' acceptances);
- securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies, or instrumentalities;
- repurchase agreements; and
- other short-term money market instruments.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net
assets in illiquid securities, including restricted securities or other
securities that are not readily marketable and repurchase agreements providing
for settlement more than seven days after notice.
SELLING SHORT. The Fund will not engage in short sales. This policy cannot be
changed without the approval of holders of a majority of the Fund's shares.
WARRANTS. The Fund may not invest more than 5% of its assets in warrants.
KENTUCKY MUNICIPAL BOND FUND
The investment objective of the Kentucky Municipal Bond Fund is to achieve
current income which is exempt from federal regular income tax and Kentucky
state income taxes. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Interest income of the Fund that is exempt from federal regular
income tax and Kentucky state income taxes retains its tax-exempt status when
distributed to the Fund's shareholders. However, income distributed by the Fund
may not necessarily be exempt from state or municipal taxes in states other than
Kentucky.
The Fund attempts to achieve its investment objective by investing in a
portfolio of securities at least 65% of which is comprised of Kentucky municipal
bonds. The Fund will invest its assets so that, under normal circumstances, at
least 80% of its annual interest income is exempt from federal regular income
tax or that at least 80% of its net assets are invested in obligations, the
interest income from which is
exempt from federal regular income tax. The average maturity of the securities
in the Fund's portfolio is expected to be between five and twelve years.
ACCEPTABLE INVESTMENTS
MUNICIPAL SECURITIES. Municipal securities are generally issued to finance
public works, such as airports, bridges, highways, housing, hospitals, schools,
streets, and water and sewer works. They are also issued to repay outstanding
obligations, to raise funds for general operating expenses, and to make loans to
other public institutions and facilities. Municipal securities also include
industrial development bonds which are issued by or on behalf of public
authorities to provide financing aid to acquire sites or construct or equip
facilities for privately or publicly owned corporations. The availability of
this financing encourages these corporations to locate within the sponsoring
communities and, thereby, increases local employment. The Fund invests primarily
in Kentucky municipal securities which are obligations, including industrial
development bonds, issued on behalf of the state of Kentucky and its political
subdivisions or agencies.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. However, interest on and principal of revenue bonds are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds; the industry which is the beneficiary of such bonds
is generally the only source of payment for the bonds.
In addition to Kentucky municipal securities, the Fund may also invest in
obligations issued by or on behalf of any state, territory, or possession of the
United States, including the District of Columbia, or any political subdivision
or agency of any of these; and participation interests, as described below, in
any of the above obligations, the interest from which is, in the opinion of bond
counsel for the issuers or in the opinion of officers of the Fund and/or the
Adviser to the Fund, exempt from federal regular income tax and the personal
income tax imposed by the state of Kentucky. It is likely that shareholders who
are subject to alternative minimum tax will be required to include interest from
a portion of the municipal securities owned by the Fund in calculating the
federal individual alternative minimum tax or the federal alternative minimum
tax for corporations.
CHARACTERISTICS. The municipal securities which the Fund buys are subject
to the following quality standards:
- rated A or better by Moody's or by S&P. A description of the rating
categories is contained in the Appendix to the Combined Statement of
Additional Information;
- guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest;
- fully collateralized by an escrow of U.S. government securities; or
- unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Adviser.
If a security loses its rating or has its rating reduced after the Fund has
purchased it, the Fund is not required to sell or otherwise dispose of the
security, but may consider doing so. If ratings made by Moody's or S&P
change because of changes in those organizations or in their ratings
systems, the Fund will attempt to obtain comparable ratings as substitute
standards in accordance with the investment policies of the Fund.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings and loan associations,
and insurance companies. These participation interests would give the Fund
undivided interests in Kentucky municipal securities. The financial institutions
from which the Fund purchases participation interests frequently provide or
secure irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Board of Trustees (the
"Trustees") will determine that participation interests meet the prescribed
quality standards for the Fund.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the Kentucky municipal securities
which the Fund purchases may have variable interest rates. Variable interest
rates are normally based on a published interest rate, interest rate index, or a
similar standard, such as the 91-day U.S. Treasury bill rate. Many variable rate
municipal securities are subject to payment of principal on demand by the Fund
usually in not more than seven days. All variable rate municipal securities will
meet the quality standards for the Fund. The Adviser has been instructed by the
Trustees to monitor the pricing, quality, and liquidity of the variable rate
municipal securities, including participation interests held by the Fund, on the
basis of published financial information and reports of the rating agencies and
other analytical services.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities. They may take the form of a lease, an installment purchase contract,
or a conditional sales contract.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its total
assets in restricted securities. Restricted securities are any securities in
which the Fund may otherwise invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities laws. The Fund will limit investments in illiquid securities,
including certain restricted securities not determined by the Trustees to be
liquid, non-negotiable time deposits, over-the-counter options, and repurchase
agreements providing for settlement in more than seven days after notice, to 15%
of its net assets.
TEMPORARY INVESTMENTS. The Fund normally invests its assets so that at least
80% of its annual interest income is exempt from federal regular income tax or
that at least 80% of its net assets are invested in obligations, the interest
income from which is exempt from federal regular income tax. However, from time
to time, during periods of other than normal market conditions, the Fund may
invest in short-term tax-exempt or taxable temporary investments. These
temporary investments include: notes issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; shares of other investment companies; and
repurchase agreements.
There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those rated within
the investment grade categories described under "Acceptable
Investments--Municipal Securities--Characteristics" (if rated) or (if
unrated) those which the Adviser judges to have the same characteristics as such
investment grade securities.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating significant income subject to federal regular
income tax. However, it is anticipated that certain temporary investments will
generate income which is subject to Kentucky state income tax.
INVESTMENT RISKS. Yields on Kentucky municipal securities depend on a variety
of factors, including: the general conditions of the municipal bond market; the
size of the particular offering; the maturity of the obligations; and the rating
of the issue. Further, any adverse economic conditions or developments affecting
the state of Kentucky or its municipalities could impact the Fund's portfolio.
The Fund's concentration in securities issued by the state of Kentucky and its
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. Kentucky's dependence
on the appliance, automobile, and coal industries leaves it vulnerable to both
the business cycle and long term national economic trends. The ability of the
Fund to achieve its investment objective also depends on the continuing ability
of the issuers of Kentucky municipal securities and participation interests, or
the guarantors of either, to meet their obligations for the payment of interest
and principal when due. Investing in Kentucky municipal securities which meet
the Fund's quality standards may not be possible if the state of Kentucky or its
municipalities do not maintain their current credit ratings. In addition, the
issuance, tax exemption, and liquidity of Kentucky municipal securities may be
adversely affected by judicial, legislative or executive action, including, but
not limited to, rulings of state and federal courts, amendments to the state and
federal constitutions, changes in statutory law, and changes in administrative
regulations, as well as voter initiatives.
NON-DIVERSIFICATION. The Fund is a non-diversified portfolio of securities. As
such, there is no limit on the percentage of assets which can be invested in any
single issuer. An investment in the Fund, therefore, will entail greater risk
than would exist in a diversified portfolio because the higher percentage of
investments among fewer issuers may result in greater fluctuation in the total
market value of the Fund's portfolio. Any economic, political, or regulatory
developments affecting the value of the securities in the Fund's portfolio will
have a greater impact on the total value of the portfolio than would be the case
if the portfolio were diversified among more issuers. The Fund may purchase an
issue of municipal securities in its entirety.
The Fund intends to comply with Subchapter M of the Internal Revenue Code, as
amended. This undertaking requires that at the end of each quarter of the
taxable year, with regard to at least 50% of the Fund's total assets, no more
than 5% of its total assets are invested in the assets of a single issuer;
beyond that, no more than 25% of its total assets are invested in the securities
of a single issuer.
INVESTING IN NEW ISSUERS. The Fund will not invest more than 5% of its total
assets in industrial development bonds, when the payment of principal and
interest is the responsibility of companies (or guarantors, where applicable)
with less than three years of continuous operations, including the operations of
any predecessor.
SHORT-INTERMEDIATE FUND AND GOVERNMENT
INCOME FUND
The investment objective of the Short-Intermediate Fund and of the Government
Income Fund is to achieve current income. Under normal market conditions, both
Funds will invest at least 65% of the value of their respective total assets in
securities which are issued or guaranteed as to payment of principal and
interest by the U.S. government or U.S. government agencies or
instrumentalities. The Short-Intermediate Fund will attempt to maintain a
dollar-weighted average portfolio maturity of between two and five years. The
Government Income Fund will attempt to maintain a dollar-weighted average
portfolio maturity of between five and twelve years.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which both Funds
invest include, but are not limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- obligations of U.S. government agencies or instrumentalities, such as
Federal Home Loan Banks, Farmers Home Administration, Federal Farm Credit
Banks, Federal National Mortgage Association, Government National
Mortgage Association, and Federal Home Loan Mortgage Corporation.
The obligations of U.S. government agencies or instrumentalities which both
Funds may buy are backed in a variety of ways by the U.S. government, or its
agencies or instrumentalities. Some of these obligations, such as Government
National Mortgage Association mortgage-backed securities and obligations of the
Farmers Home Administration, are backed by the full faith and credit of the U.S.
Treasury. Obligations of the Farmers Home Administration are also backed by the
issuer's right to borrow from the U.S. Treasury. Obligations of Federal Home
Loan Banks are backed by the discretionary authority of the U.S. government to
purchase certain obligations of agencies or instrumentalities. Obligations of
Federal Home Loan Banks, Federal Farm Credit Banks, Federal National Mortgage
Association, and Federal Home Loan Mortgage Corporation are backed by the credit
of the agency or instrumentality issuing the obligations. In cases where U.S.
government support of agencies or instrumentalities is discretionary, no
assurance can be given that the U.S. government will provide financial support,
since it is not legally obligated to do so.
The remaining 35% or less of the value of each Fund's respective total assets
will be invested in:
- domestic issues of corporate debt obligations having fixed or floating
rates of interest and which are rated at the time of purchase in one of
the three highest categories by a nationally recognized statistical
rating organization (a "NRSRO") [rated A or better by Moody's, S&P, or
Fitch Investors Service, Inc. ("Fitch")], or which, if unrated, are
deemed to be of comparable quality by the Fund's investment adviser;
- commercial paper, including Canadian Commercial Paper ("CCP") and
Europaper, which matures in 270 days or less so long as at least two
ratings are high-quality ratings by NRSROs. Such ratings would include:
Prime-1 by Moody's, A-1 by S&P, or F-1 by Fitch and unrated, but deemed
to be of comparable quality by the Adviser;
- certificates of deposit, demand and time deposits, savings shares,
bankers' acceptances, and other instruments of domestic and foreign
banks, savings and loans, and other deposit or thrift institutions ("Bank
Instruments");
- collateralized mortgage obligations; and
- repurchase agreements.
While both Funds will only purchase corporate debt obligations that at the time
of purchase are rated in the top three rating categories, in the event that any
such security is downgraded to the fourth highest rating category, both Funds
may continue to hold such a security. Obligations rated in the lowest of the top
four ratings, such as Baa by Moody's or BBB by S&P or Fitch, 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. In the event that such a security is downgraded by an NRSRO
below the fourth highest rating category, the Funds will dispose of the
security.
The Government Income Fund may purchase and sell financial futures contracts and
purchase and sell options on financial futures contracts and on its portfolio
securities.
BANK INSTRUMENTS. Both Funds only invest in Bank Instruments either issued by
an institution having capital, surplus, and undivided profits over $100 million
or insured by the Bank Insurance Fund or the Savings Association Insurance Fund,
both of which are administered by the Federal Deposit Insurance Corporation.
Bank Instruments may include Eurodollar Certificates of Deposit ("ECDs"), Yankee
Certificates of Deposit ("Yankee CDs"), and Eurodollar Time Deposits ("ETDs").
Both Funds will treat securities credit enhanced with a bank's letter of credit
as Bank Instruments.
FOREIGN INVESTMENTS. ECDs, ETDs, Yankee CDs, CCP, and Europaper are
subject to somewhat different risks than corresponding securities of
domestic issuers. Examples of these risks include international, economic
and political developments, foreign governmental restrictions that may
adversely affect the payment of dividends, principal or interest, foreign
withholding or other taxes on interest income, difficulties in obtaining or
enforcing a judgment against the issuer bank, and the possible impact of
interruptions in the flow of international currency transactions. Different
risks may also exist for ECDs, ETDs, and Yankee CDs because the banks
issuing these instruments, or their domestic or foreign branches, are not
necessarily subject to the same regulatory requirements that apply to
domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing and recordkeeping, and the public
availability of information. These factors will be carefully considered by
the investment adviser in selecting investments for both Funds.
COLLATERALIZED MORTGAGE OBLIGATIONS. Both Funds may invest in collateralized
mortgage obligations ("CMOs") which are rated A or better by an NRSRO and which
are issued by private entities, such as investment banking firms and companies
related to the construction industry. The CMOs in which both Funds may invest
may be: (i) privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government; (ii) privately
issued securities which are collateralized by pools of mortgages in which
payment of principal and interest are guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; and (iii) other
privately issued securities in which the proceeds of the issuance are invested
in mortgage-backed securities and payment of the
principal and interest are supported by the credit of an agency or
instrumentality of the U.S. government. The mortgage-related securities provide
for a periodic payment consisting of both interest and principal. The interest
portion of these payments will be distributed by both Funds as income and the
capital portion will be reinvested.
While CMOs generally entail less risk of a decline during periods of rapidly
rising interest rates, CMOs 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, if CMOs 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 CMOs 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.
RESTRICTED AND ILLIQUID SECURITIES. Both Funds may invest up to 10% of their
total assets in restricted securities. This restriction is not applicable to
commercial paper issued under Section 4(2) of the Securities Act of 1933.
Restricted securities are any securities in which each Fund may otherwise invest
pursuant to its investment objective and policies, but which are subject to
restriction on resale under federal securities law. Both Funds will limit
investments in illiquid securities, including certain restricted securities not
determined by the Trustees to be liquid, non-negotiable time deposits, over-the-
counter options (in the case of the Government Income Fund), and repurchase
agreements providing for settlement in more than seven days after notice, to 15%
of their net assets.
TEMPORARY INVESTMENTS. For defensive purposes only, both Funds may invest
temporarily in cash and short-term debt obligations during times of unusual
market conditions and to maintain liquidity. These securities may include
obligations of the U.S. government, its agencies or instrumentalities, and
repurchase agreements.
ADDITIONAL PORTFOLIO STRATEGIES
- --------------------------------------------------------------------------------
BORROWING MONEY
The Funds will not borrow money directly or, in the case of the Equity Fund, the
Short-Intermediate Fund, or the Government Income Fund, through reverse
repurchase agreements (arrangements in which a Fund sells a portfolio instrument
for a percentage of its cash value with an agreement to buy it back on a set
date), or pledge securities except, under certain circumstances, a Fund may
borrow money up to one-third of the value of its total assets and pledge up to
15% (in the case of the Equity Fund, the Short-Intermediate Fund and the
Government Income Fund) or 10% (in the case of the Kentucky Municipal Bond Fund)
of the value of those assets to secure such borrowings. This policy cannot be
changed without the approval of holders of a majority of that Fund's shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each Fund may purchase securities on a when-issued or delayed delivery basis. In
when-issued and delayed delivery transactions, a Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause a Fund to miss a price or yield considered to be advantageous.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Each Fund may invest in the securities of other investment companies, but will
not own more than 3% of the total outstanding voting stock of any investment
company, invest more than 5% of its total assets in any one investment company,
or invest more than 10% of its total assets in investment companies in general.
The Funds will invest in other investment companies primarily for the purpose of
investing short-term cash which has not yet been invested in other portfolio
instruments. The Adviser will waive its investment advisory fee on assets
invested in securities of open-end investment companies.
REPURCHASE AGREEMENTS
The securities in which the Equity Fund, the Short-Intermediate Fund and the
Government Income Fund may invest may be purchased pursuant to repurchase
agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to a Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from a Fund, that Fund could
receive more or less than the repurchase price on any sale of such securities.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Equity Fund, Short-Intermediate
Fund, and the Government Income Fund may lend portfolio securities on a
short-term or a long-term basis up to one-third of the value of their total
assets to broker/dealers, banks, or other institutional borrowers of securities.
A Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned at all times.
TRADEMARK FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRADEMARK FUNDS
BOARD OF TRUSTEES. The Trademark Funds are managed by a Board of Trustees. The
Trustees are responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Funds are made by Liberty National Bank and Trust
Company of Kentucky, subject to direction by the Trustees. The Adviser
continually conducts investment research and supervision for
each Fund and is responsible for the purchase or sale of portfolio instruments,
for which it receives an annual fee from the assets of each Fund.
ADVISORY FEES. The Adviser is entitled to receive an annual investment
advisory fee at annual rates equal to percentages of the relevant Fund's
average net assets as follows: Equity Fund--.85%; Kentucky Municipal Bond
Fund--.50%; and Short-Intermediate Fund and Government Income Fund--.60%.
The fee paid by the Equity Fund, while higher than the advisory fee paid by
other mutual funds in general, is comparable to fees paid by other mutual
funds with similar objectives and policies. The Adviser has undertaken to
reimburse each Fund, up to the amount of the advisory fee, for operating
expenses in excess of limitations established by certain states. The
Adviser may voluntarily choose to waive a portion of its fees or reimburse
the Funds for certain operating expenses. The Adviser can terminate such
waiver or reimbursement policy at any time at its sole discretion.
ADVISER'S BACKGROUND. Liberty National Bank and Trust Company of Kentucky,
a national bank tracing its origins to 1854, is a wholly-owned subsidiary
of Liberty National Bancorp, Inc. ("Liberty Bancorp"), the largest
independent bank holding company headquartered in Kentucky. Liberty Bancorp
conducts a wide range of commercial and personal banking activities through
its eight subsidiary financial institutions, with offices located
throughout Kentucky and southern Indiana. In addition, Liberty Bancorp
provides credit life insurance, leasing, brokerage, and retail loan
services through its non-banking subsidiaries.
The Adviser has been managing trust assets for more than 100 years, with
approximately $2.7 billion in managed assets as of July 31, 1993. The
Adviser has served as investment adviser to the Trademark Funds since their
inception in February, 1993. The Adviser has not previously served as an
investment adviser to a mutual fund.
As part of its regular banking operations, Liberty National 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 Liberty National. The lending relationship will not be a factor
in the selection of securities.
The Board of Directors of Liberty Bancorp recently approved a definitive
agreement for the acquisition of that company by Banc One Corporation
("Banc One"), which is a bank holding company headquartered in Columbus,
Ohio. As a result, upon completion of the acquisition, all existing
subsidiaries of Liberty Bancorp, including the Adviser, would become
indirect subsidiaries of Banc One. The agreement requires approval of the
shareholders of Liberty Bancorp, as well as the receipt of various
regulatory approvals. It is anticipated that the acquisition will be
completed on or before October 15, 1994.
Under provisions of the Investment Company Act of 1940, completion of the
acquisition would result in an assignment, and termination, of the Trust's
current investment advisory contract with the Adviser. Accordingly, on
February 23, 1994, the Trustees approved a new investment advisory contract
with the Adviser, and, as soon as practicable, a meeting of shareholders of
the Trust will be held for the purpose of voting on the new investment
advisory contract. The provisions of the new contract would be
substantially similar in all material respects to the existing contract,
except for the effective date which, in the case of a new contract, would
be the date of the consummation
of the acquisition. The Adviser does not anticipate that these events will
result in any disruption to the Trust and its shareholders.
Clarence V. Lee is the manager of the Short-Intermediate Fund and the
Government Income Fund, and is a Senior Vice President for the Adviser. Mr.
Lee has been an investment analyst for over 35 years and has been
responsible for the management of fixed income portfolios of the Adviser
for the past eleven and one-half years. Prior to joining the Adviser, he
held the position of economist at Old Kent Financial Corporation. Mr. Lee
is a Chartered Financial Analyst and a graduate of Yale University.
Jacqueline M. Tytus manages the Equity Fund, and is also responsible for
all equity investment research in the Trust Division of the Adviser, where
she is a Senior Vice President. Prior to joining the Adviser in 1992, she
was Vice President and Director of the Investment Strategy Group at
Citizens Fidelity Bank and Trust Company of Louisville, where she served
for ten years. Ms. Tytus earned her MBA at Webster University, is a
Chartered Financial Analyst, and is a past president of the Louisville
Society of Financial Analysts.
Ronald M. Holt is the manager of the Kentucky Municipal Bond Fund and is an
executive vice president for the Adviser. Mr. Holt is a Certified Financial
Planner, Certified Trust and Financial Adviser, and has more than 20 years
experience in the fixed income securities markets. Prior to joining the
Adviser in 1990, he held the position of director and executive vice
president at First American Trust Company. Mr. Holt is a Chartered
Financial Analyst candidate and is a graduate of Virginia Polytechnic
Institute.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Funds.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the
Investment Company Act Rule 12b-1 (the "Plan"), each Fund will pay to the
distributor an amount computed at an annual rate of up to 0.25 of 1% of the
average daily net asset value of that Fund's shares to finance any activity
which is principally intended to result in the sale of that Fund's shares
subject to the Plan. Trust and investment agency clients of Liberty National
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 Funds (which would not have
a Rule 12b-1 Plan) is created and trust and investment agency clients'
investments in the Funds are converted to such Trust classes.
The distributor may, from time to time, and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the shares exceed such lower expense limitation as
the distributor may, by notice to the Trust, voluntarily declare to be
effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers ("financial institutions"), and
broker/dealers ("brokers"), to provide distribution and/or administrative
services as agents for their clients or customers. Administrative services may
include, but are not limited to, the following functions: providing office
space, equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquires; assisting clients in changing
dividend options, account designations, and addresses; and providing such other
services as may reasonably be requested.
The distributor will pay financial institutions (including Liberty National) and
brokers a fee based upon shares subject to the Plan and owned by their clients
or customers. The schedules of such fees and the basis upon which such fees will
be paid will be determined from time to time by the distributor.
The Funds' Plan is a compensation type plan. As such, the Funds make no payments
to the distributor except as described above. Therefore, the Funds do not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Funds, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Funds
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Funds with
certain administrative personnel and services necessary to operate each Fund,
such as legal and accounting services. FAS provides these at an annual rate as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- ------------------ ------------------------------------------------
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. FAS may voluntarily choose to waive a portion of its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Funds.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is transfer agent and
dividend disbursing agent for the Funds. It also provides certain accounting and
recordkeeping services with respect to each Fund's portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Funds are KPMG Peat
Marwick, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUNDS
The Funds pay all of their own expenses and their allocable share of the Trust's
expenses. The expenses borne by each Fund include, but are not limited to, the
cost of: organizing the Trust and continuing its existence; Trustees' fees;
investment advisory and administrative services; printing prospectuses and other
Fund documents for shareholders; registering the Trust, the Funds, and shares of
the Funds with federal and state securities authorities; taxes and commissions;
issuing, purchasing, repurchasing, and redeeming shares; fees for custodians,
transfer agents, dividend disbursing agents, shareholder servicing agents, and
registrars; printing, mailing, auditing, accounting, and legal expenses; reports
to shareholders and governmental agencies; meetings of Trustees and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such nonrecurring and extraordinary items as may arise. However, the
Adviser may voluntarily waive some expenses and has, in addition, undertaken to
reimburse the Funds, up to the amount of the advisory fee, the amount by which
operating expenses exceed limitations imposed by certain states.
BROKERAGE TRANSACTIONS. With respect to the Equity 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 utilize those who are recognized
dealers in specific portfolio instruments, except when a better price and
execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling shares of the Fund. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
NET ASSET VALUE
- --------------------------------------------------------------------------------
Each Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Fund shares may be purchased
through Liberty National. Texas residents must purchase shares of the Funds
through Federated Securities Corp. at 1-800-356-2805. In connection with the
sale of shares of the Funds, the distributor may, from time to time, offer
certain items of
nominal value to any shareholder or investor. The Funds reserve the right to
reject any purchase request.
THROUGH LIBERTY NATIONAL. To place an order to purchase shares of the Funds,
customers of Liberty National may telephone, send written instructions, or place
the order with their account officer. (Call 502-566-3653.) Orders purchased
through Liberty National are considered received when a Fund is notified of the
purchase order. Purchase orders must be received by Liberty National before 4:00
p.m. (Eastern time) in order for shares to be purchased at that day's public
offering price.
Payment may be made by either check or federal funds. Payment is normally
required the next business day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in a Fund by an investor is $1,000. Subsequent
investments must be in amounts of at least $50. A Fund may choose to waive its
minimum initial investment from time to time and for accounts which select the
Systematic Investment Program.
WHAT SHARES COST
Shares of the Funds are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Funds.
The net asset value is determined at the close of the New York Stock Exchange,
normally 4:00 p.m. (Eastern time), Monday through Friday, 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 of a Fund are tendered for redemption and no orders to
purchase shares are received; or (iii) on the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in a minimum amount of $50. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares. A shareholder may apply for participation in this
program through Liberty National.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of certain securities
and cash for Fund shares. A Fund reserves the right to determine the
acceptability of securities to be exchanged. On the day securities are accepted
by a Fund, they are valued in the same manner as the Fund values its assets.
Investors wishing to exchange securities should first contact Liberty National.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Funds, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
requested by contacting Liberty National in writing.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. In addition, monthly confirmations are sent to report dividends
paid during that month.
DIVIDENDS
Dividends are declared and paid monthly to all shareholders invested in a Fund
on the record date. Dividends are declared just prior to determining net asset
value. Dividends are automatically reinvested in additional shares on payment
dates at the ex-dividend date's net asset value without a sales charge, unless
cash payments are requested by writing to Liberty National.
CAPITAL GAINS
Capital gains realized by a Fund, if any, will be distributed at least once
every 12 months.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
EXCHANGING SHARES. Shareholders may exchange shares of one Fund for shares of
any of the other Funds in the Trust at net asset value, subject to certain
conditions. Exchanges are subject to the minimum initial purchase requirements
of such Fund being acquired. Prior to any exchange, the shareholder must receive
a copy of the current prospectus of the 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. 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. Shareholders will be
notified of the termination of the exchange privilege. A shareholder may obtain
further information on the exchange privilege by calling Liberty National.
BY TELEPHONE. Instructions for exchanges between participating Funds which are
part of the Trust may be given by telephone to Liberty National at (502)
566-3653. Shares may be exchanged by telephone only between Fund accounts having
identical shareholder registrations. Exchange instructions given by telephone
may be electronically recorded.
If reasonable procedures are not followed by the Trust, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent by Liberty National and deposited to the
shareholder's mutual fund account before being exchanged.
Telephone exchange instructions must be received before 4:00 p.m. (Eastern time)
for shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through Liberty National during times of drastic economic
or market changes. If a shareholder cannot contact Liberty National by
telephone, it is recommended that an
exchange request be made in writing and be hand delivered or sent by overnight
mail to your account officer at Liberty National Bank and Trust Company of
Kentucky, Attention: Customer Services, 416 West Jefferson Street, Louisville,
Kentucky 40202.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Each Fund redeems shares at their net asset value next determined after Liberty
National receives the redemption request. Redemptions will be made on days on
which a Fund computes its net asset value. Telephone or written requests for
redemption must be received in proper form and can be made through Liberty
National.
BY TELEPHONE. A shareholder may redeem shares of a Fund by contacting his
account officer or by calling Liberty National to request the redemption. (Call
502-566-3653.) Shares will be redeemed at the net asset value next determined
after a Fund receives the redemption request from Liberty National. Redemption
requests must be received by Liberty National before 4:00 p.m. (Eastern time) in
order for shares to be redeemed at that day's net asset value. Liberty National
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions to a Fund. If, at any time, a Fund should
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, it is
recommended that a redemption request be made in writing and be hand delivered
or sent by overnight mail to the shareholder's account officer at Liberty
National.
BY MAIL. Shareholders may redeem shares of a Fund by sending a written request
to Liberty National. The written request should include the shareholder's name,
the Fund name, the account number, and the share or dollar amount requested. If
share certificates have been issued, they must be properly endorsed and should
be sent by registered or certified mail with the written request to Liberty
National. Shareholders should call Liberty National for assistance in redeeming
by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
a Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund, which is administered by the
FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Funds and their transfer agent reserve the
right to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed to the
shareholder within one business day, but in no event more than seven days, after
receipt of a proper written redemption request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments and the
amount of dividends paid with respect to Fund shares, redemptions may reduce,
and eventually deplete, the shareholder's investment in that Fund. For this
reason, payments under this program should not be considered as yield or income
on the shareholder's investment in a Fund. To be eligible to participate in this
program, a shareholder must have an account value of at least $25,000. A
shareholder may apply for participation in this program through Liberty
National.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum of $1,000. This requirement does
not apply, however, if the balance falls below $1,000 because of changes in a
Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders of the Trust for vote. All shares of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular Fund, only shareholders of that Fund are entitled to
vote. As a Massachusetts business trust, the Trust is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the operation of the Trust or a Fund and for the election of
Trustees under certain circumstances. As of March 5, 1994, Loutrag, c/o Liberty
National Bank and Trust Company of Kentucky, Louisville, Kentucky, acting in
various capacities for numerous accounts, was the owner of record of 4,066,848
shares (32.50%) of Trademark Equity Fund; 3,004,486 shares (29.03%) of Trademark
Government Income Fund; 1,607,814 shares (29.62%) of Trademark
Short-Intermediate Government Fund; and 5,030,695 shares (78.86%) of Trademark
Kentucky Municipal Bond 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. As of March 5,
1994, Loucourt, c/o Liberty National Bank and Trust Company of Kentucky,
Louisville, Kentucky, acting in various capacities for numerous accounts, was
the owner of record of 7,517,181 shares (60.08%) of Trademark Equity Fund;
6,806,342 shares (65.76%) of Trademark Government Income Fund, and 2,901,902
shares (53.47%) of Trademark Short-Intermediate Government 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.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders of a Fund for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent, or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of such a customer. Liberty National is subject to
such banking laws and regulations.
Liberty National believes, based on the advice of its counsel, that it may
perform the services for any Fund contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Liberty National from continuing to perform all or a part of the above
services for its customers and/or a Fund. If it were prohibited from engaging in
these customer-related activities, the Trustees would consider alternative
advisers and means of continuing available investment services. In such event,
changes in the operation of a Fund may occur, including possible termination of
any
automatic or other Fund share investment and redemption services then being
provided by Liberty National. It is not expected that existing shareholders
would suffer any adverse financial consequences (if another adviser with
equivalent abilities to Liberty National is found) as a result of any of these
occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Funds anticipate that they will pay no federal income tax because each Fund
expects to meet requirements of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by a Fund
will not be combined for tax purposes with those realized by any of the other
Funds.
With respect to the Equity Fund, the Short-Intermediate Fund, and the Government
Income Fund, unless otherwise exempt, shareholders are required to pay federal
income tax on any dividends and other distributions received. This applies
whether dividends and distributions are received in cash or as additional
shares. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
ADDITIONAL TAX INFORMATION FOR KENTUCKY MUNICIPAL BOND FUND
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest income earned on some municipal bonds may be included
in calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable income for
individuals and 20% for corporations, applies when it exceeds the regular tax
for the taxable year. Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax preference" items not
included in regular taxable income and reduced by only a portion of the
deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds will become subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative
minimum tax treats 75% of the excess of a taxpayer's "adjusted current earnings"
over the taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Shareholders should consult with their tax advisers to determine whether they
are subject to the alternative minimum tax or the corporate alternative minimum
tax and, if so, the tax treatment of dividends paid by the Fund.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
Distributions representing net long-term capital gains realized by the Fund, if
any, will be taxable as long-term capital gains regardless of the length of time
shareholders have held their shares.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
KENTUCKY TAXES. Under existing Kentucky law, distributions made by the Fund
will not be subject to Kentucky income taxes to the extent that such
distributions are attributable to interest earned on (i) bonds issued by the
Commonwealth of Kentucky and its political subdivisions, such as counties,
cities, and school districts; and (ii) certain types of federal obligations,
including U.S. Treasury notes, bonds, savings bonds, Treasury bills, and
obligations of certain federal agencies that have been determined by the
Kentucky Revenue Cabinet to be exempt from tax (collectively, "Exempt
Obligations"). The Fund will furnish Kentucky resident shareholders a statement
on or before January 31 following the end of the preceding calendar year
reflecting the amount of income that is not attributable to Exempt Obligations.
Kentucky resident shareholders must list their Fund Shares for purposes of the
ad valorem tax on intangible property. However, such shareholders will not be
taxed on that percentage of the Fund's assets that are Exempt Obligations as of
the January 1 valuation date.
OTHER STATE AND LOCAL TAXES. Income from the Fund is not necessarily free from
state income taxes in states other than Kentucky or from personal property
taxes. State laws differ on this issue, and shareholders are urged to consult
their own tax advisers regarding the status of their accounts under state and
local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Funds may advertise total return and yield. In addition,
the Kentucky Municipal Bond Fund may advertise tax-equivalent yield.
Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of each Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by each Fund
over a thirty-day period by the maximum offering price per share of a Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
each Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The tax-equivalent yield of the shares for the Kentucky Municipal Bond Fund is
calculated similarly to the yield, but is adjusted to reflect the taxable yield
that the Fund would have had to earn to equal its actual yield, assuming a
specific tax rate. The yield and tax-equivalent yield do not necessarily reflect
income actually earned by the Fund and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
From time to time, the Funds may advertise their performance using certain
financial publications and/or compare its performance to certain indices.
TRADEMARK EQUITY FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
SHORT-TERM INVESTMENTS--8.5%
- ----------------------------------------------------------------------------------
U.S. TREASURY BILLS--0.7%
------------------------------------------------------------------
$ 890,000 3/03/94 $ 887,998
------------------------------------------------------------------ ------------
MUTUAL FUND SHARES--7.8%
------------------------------------------------------------------
5,165,991 Dreyfus Treasury Cash Management Fund 5,165,991
------------------------------------------------------------------
5,227,052 Dreyfus Government Cash Management Fund 5,227,052
------------------------------------------------------------------ ------------
Total 10,393,043
------------------------------------------------------------------ ------------
TOTAL SHORT-TERM INVESTMENTS (AT AMORTIZED COST AND AT
NET ASSET VALUE) (NOTE 2A) 11,281,041
------------------------------------------------------------------ ------------
LONG-TERM INVESTMENTS--91.6%
- ----------------------------------------------------------------------------------
COMMON STOCKS--
------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <C> <S> <C>
COMMERCIAL SERVICES--5.9%
------------------------------------------------------------------
60,467 Dunn & Bradstreet Corp. 3,801,863
------------------------------------------------------------------
102,732 SuperValu, Inc. 4,006,548
------------------------------------------------------------------ ------------
Total 7,808,411
------------------------------------------------------------------ ------------
CONSUMER DURABLES--2.6%
------------------------------------------------------------------
108,172 Rubbermaid, Inc. 3,407,418
------------------------------------------------------------------ ------------
CONSUMER NON-DURABLES--11.2%
------------------------------------------------------------------
75,791 Anheuser Busch Co., Inc. 3,713,759
------------------------------------------------------------------
77,318 CPC International, Inc. 3,778,917
------------------------------------------------------------------
75,991 Hershey Foods Corp. 3,666,566
------------------------------------------------------------------
90,300 PepsiCo, Inc. 3,645,862
------------------------------------------------------------------ ------------
Total 14,805,104
------------------------------------------------------------------ ------------
</TABLE>
TRADEMARK EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
- ----------------------------------------------------------------------------------
COMMON STOCKS--CONTINUED
------------------------------------------------------------------
CONSUMER SERVICES--5.9%
------------------------------------------------------------------
87,313 Disney (Walt) Co. 4,125,539
------------------------------------------------------------------
65,100 Gannett, Inc. 3,710,700
------------------------------------------------------------------ ------------
Total 7,836,239
------------------------------------------------------------------ ------------
</TABLE>
TRADEMARK EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
- ----------------------------------------------------------------------------------
COMMON STOCKS--CONTINUED
------------------------------------------------------------------
ELECTRONIC TECHNOLOGY--11.6%
------------------------------------------------------------------
58,953 AMP Inc. $ 3,684,563
------------------------------------------------------------------
95,500 Avnet, Inc. 3,939,375
------------------------------------------------------------------
128,800 General Motors Class E 3,864,000
------------------------------------------------------------------
46,200 * Microsoft Corp. 3,932,775
------------------------------------------------------------------ ------------
Total 15,420,713
------------------------------------------------------------------ ------------
</TABLE>
<TABLE>
<C> <C> <S> <C>
ENERGY--MINERALS--5.8%
------------------------------------------------------------------
42,718 Chevron Corp. 3,988,793
------------------------------------------------------------------
63,000 Schlumber Ltd. 3,740,625
------------------------------------------------------------------ ------------
Total 7,729,418
------------------------------------------------------------------ ------------
FINANCE--11.8%
------------------------------------------------------------------
42,027 American International Group, Inc. 3,892,751
------------------------------------------------------------------
47,995 Federal National Mortgage Association 4,193,563
------------------------------------------------------------------
90,300 First Union Corp. 3,928,050
------------------------------------------------------------------
40,838 St. Paul Companies, Inc. 3,609,058
------------------------------------------------------------------ ------------
Total 15,623,422
------------------------------------------------------------------ ------------
HEALTH TECHNOLOGY--5.4%
------------------------------------------------------------------
124,888 Abbott Laboratories 3,684,196
------------------------------------------------------------------
83,678 Johnson & Johnson 3,545,855
------------------------------------------------------------------ ------------
Total 7,230,051
------------------------------------------------------------------ ------------
INDUSTRIAL SERVICES--3.3%
------------------------------------------------------------------
144,895 Browning Ferris Industries, Inc. 4,346,850
------------------------------------------------------------------ ------------
PROCESS INDUSTRIES--8.8%
------------------------------------------------------------------
65,600 Dow Chemical Co. 4,165,600
------------------------------------------------------------------
71,800 Kimberly Clark Corp. 4,083,625
------------------------------------------------------------------
99,274 Nalco Chemical Co. 3,474,590
------------------------------------------------------------------ ------------
Total 11,723,815
------------------------------------------------------------------ ------------
</TABLE>
TRADEMARK EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
- ----------------------------------------------------------------------------------
COMMON STOCKS--CONTINUED
------------------------------------------------------------------
PRODUCER MANUFACTURING--2.9%
------------------------------------------------------------------
100,623 Masco Corp. $ 3,911,719
------------------------------------------------------------------ ------------
RETAIL TRADE--10.8%
------------------------------------------------------------------
86,686 American Stores Co. 3,673,319
------------------------------------------------------------------
90,279 * Toys 'R' Us, Inc. 3,295,184
------------------------------------------------------------------
148,970 Wal-Mart Stores, Inc. 3,947,705
------------------------------------------------------------------
173,200 K Mart Corp. 3,399,050
------------------------------------------------------------------ ------------
Total 14,315,258
------------------------------------------------------------------ ------------
TRANSPORTATION--2.8%
------------------------------------------------------------------
140,489 Ryder Systems, Inc. 3,775,642
------------------------------------------------------------------ ------------
TELECOMMUNICATIONS--2.8%
------------------------------------------------------------------
106,349 GTE Corp. 3,655,747
------------------------------------------------------------------ ------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $113,849,292) $121,589,807
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $125,130,333) $132,870,848+
------------------------------------------------------------------ ------------
</TABLE>
* Non-Income Producing.
+ The cost for federal tax purposes amounts to $125,222,558. The net unrealized
appreciation of investments on a federal income tax basis amounts to
$7,648,290, which is comprised of $9,416,726 appreciation and $1,768,436
depreciation at January 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($132,764,600) at January 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TRADEMARK EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified cost
$125,130,333; tax cost $125,222,558) $132,870,848
- -------------------------------------------------------------------------------
Receivable for Fund shares sold 115,635
- -------------------------------------------------------------------------------
Dividends receivable 73,594
- -------------------------------------------------------------------------------
Interest receivable 21,473
- -------------------------------------------------------------------------------
Deferred expenses (Note 2F) 39,366
- ------------------------------------------------------------------------------- ------------
Total assets 133,120,916
- -------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------
Payable for Fund shares redeemed $229,655
- --------------------------------------------------------------------
Accrued expenses and other liabilities 126,661
- -------------------------------------------------------------------- --------
Total liabilities 356,316
- ------------------------------------------------------------------------------- ------------
NET ASSETS FOR 12,124,242 shares of beneficial interest outstanding $132,764,600
- ------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------
Paid-in capital $124,067,336
- -------------------------------------------------------------------------------
Unrealized appreciation of investments 7,740,515
- -------------------------------------------------------------------------------
Accumulated undistributed net realized gain on investments 882,925
- -------------------------------------------------------------------------------
Undistributed net investment income 73,824
- ------------------------------------------------------------------------------- ------------
Total Net Assets $132,764,600
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
($132,764,600 / 12,124,242 shares of beneficial interest outstanding) $ 10.95
- ------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TRADEMARK EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 19, 1993
(DATE OF INITIAL PUBLIC INVESTMENT) TO JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Dividend income $ 2,205,891
- ---------------------------------------------------------------------------------
Interest income 169,627
- --------------------------------------------------------------------------------- -----------
Total investment income (Note 2C) 2,375,518
- ---------------------------------------------------------------------------------
EXPENSES--
- ---------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 829,553
- --------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 142,829
- --------------------------------------------------------------------
Custodian fees (Note 5) 22,146
- --------------------------------------------------------------------
Transfer and dividend disbursing agent fees (Note 5) 27,994
- --------------------------------------------------------------------
Recordkeeping fees (Note 5) 47,194
- --------------------------------------------------------------------
Legal fees 6,231
- --------------------------------------------------------------------
Printing and postage 8,423
- --------------------------------------------------------------------
Insurance premiums 6,563
- --------------------------------------------------------------------
Miscellaneous 8,143
- -------------------------------------------------------------------- ----------
Total expenses 1,099,076
- --------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) 376,044
- -------------------------------------------------------------------- ----------
Net expenses 723,032
- --------------------------------------------------------------------------------- -----------
Net investment income 1,652,486
- --------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) 4,701,503
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 7,740,515
- --------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 12,442,018
- --------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $14,094,504
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TRADEMARK EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31,
1994*
------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------
Net investment income $ 1,652,486
- ------------------------------------------------------------------------
Net realized gain on investment transactions ($4,793,728 net gain as
computed for federal tax purposes)(Note 2D) 4,701,503
- ------------------------------------------------------------------------
Change in unrealized appreciation of investments 7,740,515
- ------------------------------------------------------------------------ ----------------
Change in net assets resulting from operations 14,094,504
- ------------------------------------------------------------------------ ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (1,578,662)
- ------------------------------------------------------------------------
Dividends to shareholders from capital gains (3,818,578)
- ------------------------------------------------------------------------ ----------------
Change in net assets resulting from distributions to shareholders (5,397,240)
- ------------------------------------------------------------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ------------------------------------------------------------------------
Proceeds from sale of shares 131,948,268
- ------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 5,036,955
- ------------------------------------------------------------------------
Cost of shares redeemed (12,917,887)
- ------------------------------------------------------------------------ ----------------
Change in net assets from Fund share transactions 124,067,336
- ------------------------------------------------------------------------ ----------------
Change in net assets 132,764,600
- ------------------------------------------------------------------------
NET ASSETS--
- ------------------------------------------------------------------------
Beginning of period --
- ------------------------------------------------------------------------ ----------------
End of period (including undistributed net investment income of $73,824) $132,764,600
- ------------------------------------------------------------------------ ----------------
</TABLE>
*For the period from February 19, 1993 (date of initial public investment) to
January 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 7) VALUE
- ---------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS--9.0%
- -----------------------------------------------------------------------
MUTUAL FUND SHARES--9.0%
---------------------------------------------------------
$2,799,554 Dreyfus Government Cash Management Fund $ 2,799,554
---------------------------------------------------------
2,998,550 Dreyfus Tax Exempt Cash Management Fund 2,998,550
--------------------------------------------------------- -----------
TOTAL SHORT-TERM INVESTMENTS (AT NET ASSET VALUE) (NOTE
2A) 5,798,104
--------------------------------------------------------- -----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
LONG-TERM INVESTMENTS--89.5%
- -----------------------------------------------------------------------
MUNICIPALS--89.5%
---------------------------------------------------------
250,000 Birmingham, AL, 5.40%, 4/1/2007, General Obligation AA 260,913
---------------------------------------------------------
200,000 Birmingham, AL, 5.50%, 4/1/2008, General Obligation AA 208,850
---------------------------------------------------------
250,000 Birmingham, AL, 5.60%, 4/1/2009, General Obligation AA 261,413
---------------------------------------------------------
510,000 Clinton County, KY, School District Finance Corp. 6.10%
School Building Revenue, 6/1/2012 A 542,319
---------------------------------------------------------
400,000 Columbus, GA, 5.60% Water & Sewer Refunding Revenue,
5/1/2009 A+ 419,280
---------------------------------------------------------
585,000 Eastern Kentucky University Revenue, 5.375%, 5/1/2004 A 590,979
---------------------------------------------------------
500,000 Eastern Kentucky University Revenue, 6.20%, (AMBAC
Insured), 5/1/2004 AAA 559,690
---------------------------------------------------------
500,000 Fayette County, KY, 6.00% School District Finance Corp.
School Building Refunding Revenue (Series A), 5/1/2003 A+ 545,985
---------------------------------------------------------
500,000 Florida State Turnpike Authority, 5.25% Turnpike
Refunding Revenue (Series A)/(FGIC Insured), 7/1/2008 AAA 516,910
---------------------------------------------------------
500,000 Florida State Turnpike Authority, 5.25% Turnpike
Refunding Revenue (Series A)/(FGIC Insured), 7/1/2009 AAA 512,935
---------------------------------------------------------
500,000 Georgia Municipal Electric Authority, 5.60% Power
Refunding Revenue (Series C), 1/1/2008 AA- 524,670
---------------------------------------------------------
</TABLE>
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 7) VALUE
- ---------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM INVESTMENTS--CONTINUED
- -----------------------------------------------------------------------
MUNICIPALS--CONTINUED
---------------------------------------------------------
$ 560,000 Hardin County Kentucky Hospital Refunding, (Series A),
4.50%, (AMBAC Insured), 10/1/2002 AAA $ 567,185
---------------------------------------------------------
295,000 Hardin County Kentucky Hospital Refunding, (Series B),
4.50%, (AMBAC Insured), 10/1/2002 AAA 298,785
---------------------------------------------------------
510,000 Hardin County Kentucky Hospital Revenue Refunding 4.75%,
Hardin Memorial Hospital Project, (Series A) (AMBAC
Insured), 10/1/2004 AAA 517,650
---------------------------------------------------------
250,000 Hardin County Kentucky Hospital Refunding, (Series B),
4.75%, (AMBAC Insured), 10/1/2004 AAA 253,750
---------------------------------------------------------
445,000 Hardin County Kentucky Memorial Hospital, (Series B),
5.00%, (AMBAC Insured), 10/1/2006 AAA 459,271
---------------------------------------------------------
750,000 Hoover, AL, 5.50% Board of Education Capital Outlay
Revenue (AMBAC Insured), 2/15/2008 AAA 783,915
---------------------------------------------------------
750,000 Hoover, AL, 5.50% Board of Education Capital Outlay
Revenue (AMBAC Insured), 2/15/2009 AAA 776,430
---------------------------------------------------------
400,000 Jefferson County, KY, 6.00% Health Facility Revenue
(Jewish Hospital Healthcare Services, Inc.)/(AMBAC
Insured), 5/1/2001 AAA 440,364
---------------------------------------------------------
500,000 Jefferson County, KY, 6.375% Health Facility Revenue
(Jewish Hospital Healthcare Services, Inc.)/(AMBAC
Insured), 5/1/2008 AAA 558,750
---------------------------------------------------------
725,000 Jefferson County, KY, 6.10% Capital Projects Corp.
Refunding Revenue (Series A), 8/15/2007 A1 795,579
---------------------------------------------------------
500,000 Jefferson County, KY, 6.20% Hospital Revenue (Alliant
Health System)/(MBIA Insured), 10/1/2004 AAA 558,010
---------------------------------------------------------
500,000 Kenton County, KY, 6.10% Airport Board Revenue
(Cincinnati/Northern Kentucky International Airport)/(FSA
Insured), 3/1/2004 (Subject to AMT) AAA 548,615
---------------------------------------------------------
</TABLE>
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 7) VALUE
- ---------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM INVESTMENTS--CONTINUED
- -----------------------------------------------------------------------
MUNICIPALS--CONTINUED
---------------------------------------------------------
$ 400,000 Kenton County, KY, 6.20% Airport Board Revenue
(Cincinnati/Northern Kentucky International Airport)/(FSA
Insured), 3/1/2005 (Subject to AMT) AAA $ 440,984
---------------------------------------------------------
500,000 Kenton County, KY, 5.75% Airport Board Revenue (Series
1993B)/(FSA Insured), 3/1/2007 (Subject to AMT) AAA 527,150
---------------------------------------------------------
500,000 Kenton County, KY, 5.75% Airport Board Revenue
(Cincinnati/Northern Kentucky International Airport)
(Series 1993B)/(FSA Insured), 3/1/2008 (Subject to AMT) AAA 529,400
---------------------------------------------------------
750,000 Kenton County, KY, 4.50% School District Finance Corp.
(School Building Refunding Revenue), 7/1/99 A+ 764,798
---------------------------------------------------------
325,000 Kenton County, KY, 5.25% School District Finance Corp.
(School Building Refunding Revenue), 7/1/2007 A+ 336,560
---------------------------------------------------------
500,000 Kenton County, KY, 5.25% School District Finance Corp.
(School Building Refunding Revenue), 7/1/2008 A+ 513,820
---------------------------------------------------------
500,000 Kentucky Higher Education Student Loan Corp., 6.50%
(Series C)/(Student Loan Revenue Insured), 6/1/2002 A+ 549,485
---------------------------------------------------------
500,000 Kentucky Higher Education Student Loan Corp., 4.70%
(Series A), 6/1/2000 AA- 504,605
---------------------------------------------------------
430,000 Kentucky Higher Education Student Loan Corp., 5.30%
(Series B), (Subject to AMT), 6/1/2005 AA- 440,273
---------------------------------------------------------
400,000 Kentucky Housing Corp., 5.85% Housing Revenue (Series B),
7/1/2000 AAA 428,176
---------------------------------------------------------
275,000 Kentucky Housing Corp., 6.20% Housing Revenue (Series B),
7/1/2003 AAA 295,350
---------------------------------------------------------
500,000 Kentucky Housing Corp., 5.10% Housing Revenue (Series A),
1/1/2002 AAA 507,285
---------------------------------------------------------
500,000 Kentucky Housing Corp., 5.60% Housing Revenue (Series A),
1/1/2007 AAA 510,120
---------------------------------------------------------
</TABLE>
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 7) VALUE
- ---------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM INVESTMENTS--CONTINUED
- -----------------------------------------------------------------------
MUNICIPALS--CONTINUED
---------------------------------------------------------
$ 500,000 Kentucky Housing Corp., 5.50% Housing Revenue (Series A),
1/1/2006 AAA $ 511,035
---------------------------------------------------------
1,450,000 Kentucky Housing Corp., 5.05% Housing Revenue (Series B),
7/1/2006 AAA 1,466,762
---------------------------------------------------------
500,000 Kentucky Housing Corp., 5.40% Housing Revenue (Series B),
7/1/2014 AAA 500,410
---------------------------------------------------------
400,000 Kentucky Infrastructure Authority Revenue, 6.00%,
Government Agencies Program (Series D), 8/1/2011 A 420,276
---------------------------------------------------------
500,000 Kentucky Infrastructure Authority Revenue, 6.50%
Revolving Funding Program (Series E), 6/1/2005 A 558,050
---------------------------------------------------------
250,000 Kentucky Infrastructure Authority Revenue, 6.10%
Revolving Funding Program, 6/1/2002 A 275,147
---------------------------------------------------------
200,000 Kentucky Infrastructure Authority Revenue, 3.25%
Wastewater Revolving Funding Program, 6/1/95 A 200,354
---------------------------------------------------------
390,000 Kentucky Infrastructure Authority Revenue, 5.60%
Wastewater Revolving Funding Program, 6/1/2013 A 406,938
---------------------------------------------------------
200,000 Kentucky Infrastructure Authority Revenue, 4.50% 2/1/2001
Series F A 202,212
---------------------------------------------------------
205,000 Kentucky Infrastructure Authority Revenue, 4.60% 2/1/2002
Series F A 207,355
---------------------------------------------------------
1,000,000 Kentucky Interlocal School Transportation Association,
6.00% Equipment Lease Revenue, 3/1/2001 A 1,098,970
---------------------------------------------------------
700,000 Kentucky State Property & Building Commission Revenue,
6.00%, Project No. 50, 2/1/2010 A 772,765
---------------------------------------------------------
1,000,000 Kentucky State Property & Building Commission Revenue,
6.00%, Project No. 51, 8/1/2010 A 1,114,230
---------------------------------------------------------
500,000 Kentucky State Property & Building Commission Revenue,
6.625%, Project No. 53, 10/1/2007 A 566,250
---------------------------------------------------------
</TABLE>
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 7) VALUE
- ---------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM INVESTMENTS--CONTINUED
- -----------------------------------------------------------------------
MUNICIPALS--CONTINUED
---------------------------------------------------------
$ 250,000 Kentucky State Property & Building Commission Revenue,
4.00%, Project No. 54, 9/1/95 A $ 253,402
---------------------------------------------------------
250,000 Kentucky State Property & Building Commission Revenue,
4.30%, Project No. 54, 9/1/96 A 255,885
---------------------------------------------------------
1,000,000 Kentucky State Property & Building Commission Revenue,
4.90%, Project No. 55, 9/1/2006 A 1,013,200
---------------------------------------------------------
750,000 Kentucky State Turnpike Authority, 5.70% Economic
Development Refunding Revenue (Revitalization Project),
1/1/2003 A 817,185
---------------------------------------------------------
750,000 Kentucky State Turnpike Authority, 5.50% Economic
Development Refunding Revenue (Revitalization Project)/
(AMBAC Insured), 7/1/2008 AAA 796,897
---------------------------------------------------------
750,000 Kentucky State Turnpike Authority, 5.50% Economic
Development Refunding Revenue (Revitalization Project)/
(AMBAC Insured), 7/1/2009 AAA 796,575
---------------------------------------------------------
500,000 Kentucky State Turnpike Authority, 6.625% Resources Road
Recovery Revenue, 7/1/2008 AAA 573,820
---------------------------------------------------------
250,000 Kentucky State Turnpike Authority, 5.80% Toll Road
Revenue, 7/1/99 AAA 271,837
---------------------------------------------------------
1,100,000 Kentucky State Turnpike Authority, 5.50% Toll Road
Revenue, (Series A), 7/1/2007 A 1,123,353
---------------------------------------------------------
500,000 Kentucky State University Revenue, 6.25% (Series G)/(MBIA
Insured), 5/1/2002 AAA 565,220
---------------------------------------------------------
500,000 Lexington-Fayette Urban County Government, KY, 6.35%
Sewer System Revenue (MBIA Insured), 7/1/2007 AAA 560,195
---------------------------------------------------------
500,000 Louisville & Jefferson County, KY, 4.80% Metropolitan
Sewer District Refunding Revenue (MBIA Insured), 5/15/98 AAA 521,600
---------------------------------------------------------
</TABLE>
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 7) VALUE
- ---------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM INVESTMENTS--CONTINUED
- -----------------------------------------------------------------------
MUNICIPALS--CONTINUED
---------------------------------------------------------
$ 500,000 Louisville & Jefferson County, KY, 5.00% Metropolitan
Sewer District Refunding Revenue (MBIA Insured),
5/15/2006 AAA $ 513,870
---------------------------------------------------------
400,000 Louisville & Jefferson County, KY, 5.30% Metropolitan
Sewer District Refunding Revenue (MBIA Insured),
5/15/2013 AAA 405,908
---------------------------------------------------------
2,145,000 Louisville & Jefferson County, KY, 5.25% Metropolitan
Sewer District Refunding Revenue (MBIA Insured),
5/15/2010 AAA 2,194,378
---------------------------------------------------------
200,000 Louisville, KY, Public Property Corp., 6.40% First MTG
Refunding Revenue, 12/1/2007 A- 221,756
---------------------------------------------------------
350,000 Louisville, KY, 5.75% Riverfront Corp. Lease Revenue,
7/1/94 N/R/ETM 355,516
---------------------------------------------------------
310,000 Louisville, KY, 6.375% Water Revenue, 11/1/97 AAA 339,899
---------------------------------------------------------
500,000 Louisville, KY, 5.40% Water Works Board System, Refunding
Revenue (Louisville Water Co.), 11/15/2004 AA 531,585
---------------------------------------------------------
500,000 Louisville, KY, 5.625% Water Works Board System,
Refunding Revenue (Louisville Water Co.), 11/15/2007 AA 530,350
---------------------------------------------------------
500,000 Louisville, KY, 5.75% Water Works Board System, Refunding
Revenue (Louisville Water Co.), 11/15/2009 AA 528,915
---------------------------------------------------------
315,000 Memphis-Shelby County, TN, 5.50% Airport Authority
Refunding Revenue (MBIA Insured), 9/1/2007 AAA 332,681
---------------------------------------------------------
310,000 Memphis-Shelby County, TN, 5.55% Airport Authority
Refunding Revenue (MBIA Insured), 9/1/2008 AAA 327,633
---------------------------------------------------------
335,000 Memphis-Shelby County, TN, 5.60% Airport Authority
Refunding Revenue (MBIA Insured), 9/1/2010 AAA 350,691
---------------------------------------------------------
600,000 Mississippi Hospital Equipment & Facility Authority 5.50%
Refunding Revenue & Improvement (North Mississippi
Health)/(AMBAC Insured), 5/15/2009 AAA 619,050
---------------------------------------------------------
200,000 Morehead State University, KY, 6.30% University Revenue
(AMBAC Insured), 11/1/2008 AAA 222,526
---------------------------------------------------------
</TABLE>
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 7) VALUE
- ---------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM INVESTMENTS--CONTINUED
- -----------------------------------------------------------------------
MUNICIPALS--CONTINUED
---------------------------------------------------------
$ 500,000 Muhlenberg County, KY, 5.85% School District Finance
Corp. School Building Refunding Revenue, 8/1/2009 A $ 532,835
---------------------------------------------------------
500,000 Muhlenberg County, KY, 5.85% School District Finance
Corp. School Building Refunding Revenue, 8/1/2010 A 531,230
---------------------------------------------------------
500,000 Murray State University, KY, 5.40% University Revenue,
5/1/2005 A 525,360
---------------------------------------------------------
250,000 Murray State University, KY, 5.60% University Revenue,
5/1/2007 A 262,985
---------------------------------------------------------
530,000 Northern Kentucky, 6.10%, University Revenue (AMBAC
Insured), 5/1/2006 A 579,793
---------------------------------------------------------
500,000 Northern Kentucky University, 4.60%, Consolidated
Educational Buildings Refunding Revenue, (Series I),
5/1/2004 A 500,770
---------------------------------------------------------
500,000 Northern Kentucky University, 4.70%, Consolidated
Educational Buildings Refunding Revenue, (Series I),
5/1/2005 A 501,695
---------------------------------------------------------
1,000,000 Owensboro, KY, 5.30% Electric, Light & Power Revenue
(Series A)/(AMBAC Insured), 1/1/2004 (Subject to AMT) AAA 1,052,740
---------------------------------------------------------
600,000 Perry County, KY, 6.25% School District Finance Corp.
School Building Revenue, 7/1/2009 A 651,108
---------------------------------------------------------
520,000 Plano, TX, 5.40% Waterworks & Sewer System Refunding
Revenue (AMBAC Insured), 5/1/2007 AAA 546,608
---------------------------------------------------------
250,000 Richmond, KY, 6.50% Water, Gas & Sewer Revenue (MBIA
Insured), 6/1/99 AAA 279,477
---------------------------------------------------------
100,000 Shelby County, KY, 6.25% School District Finance Corp.
School Building Revenue, 9/1/2003 A 112,076
---------------------------------------------------------
500,000 Shelby County, KY, 6.50% School District Finance Corp.
School Building Revenue, 9/1/2005 A 561,610
---------------------------------------------------------
</TABLE>
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 7) VALUE
- ---------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM INVESTMENTS--CONTINUED
- -----------------------------------------------------------------------
MUNICIPALS--CONTINUED
---------------------------------------------------------
$ 500,000 University of Kentucky, 5.75% University Revenue
Community College (Series F), 5/1/1997 AA- $ 532,180
---------------------------------------------------------
500,000 University of Kentucky, 6.25% University Revenue
Community College (Series F), 5/1/2007 AA- 548,515
---------------------------------------------------------
1,150,000 University of Kentucky, 5.10% University Revenue
Community College (Series J), 5/1/2005 AA- 1,191,768
---------------------------------------------------------
640,000 University of Kentucky, 5.25% University Refunding
Revenue, Educational Buildings (Series K), 5/1/2008 AA- 657,466
---------------------------------------------------------
500,000 University of Kentucky, 4.15% University Refunding
Revenue, Educational Buildings, 5/1/2004 AA- 483,730
---------------------------------------------------------
500,000 University of Kentucky, 4.20% University Refunding
Revenue, Educational Buildings, 5/1/2005 AA- 480,855
---------------------------------------------------------
250,000 University of Louisville, KY, 5.75% Revenue Consolidated
Educational Building (Series B), 5/1/98 AA- 253,783
---------------------------------------------------------
500,000 University of Louisville, KY, 5.70% Revenue Consolidated
Educational Building (Series G), 5/1/94 AA- 503,815
---------------------------------------------------------
500,000 University of Louisville, KY, 5.875% Revenue Consolidated
Educational Building (Series H), 5/1/2008 AA- 536,240
---------------------------------------------------------
500,000 University of Louisville, KY, 5.875% Revenue Consolidated
Educational Building (Series H), 5/1/2009 AA- 533,430
---------------------------------------------------------
500,000 University of Louisville, KY, 5.40% Revenue Consolidated
Educational Building (Series I), 5/1/2007 AA- 523,580
---------------------------------------------------------
500,000 University of Louisville, KY, 5.40% Revenue Consolidated
Educational Building (Series I), 5/1/2008 AA- 520,065
---------------------------------------------------------
500,000 University of Louisville, KY, 5.40% Revenue Consolidated
Educational Building (Series I), 5/1/2009 AAA 516,135
---------------------------------------------------------
985,000 Western Kentucky, 5.00% University Revenues (Series L),
5/1/2009 A 975,150
---------------------------------------------------------
</TABLE>
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 7) VALUE
- ---------- --------------------------------------------------------- --------- -----------
<C> <S> <C> <C>
LONG-TERM INVESTMENTS--CONTINUED
- -----------------------------------------------------------------------
MUNICIPALS--CONTINUED
---------------------------------------------------------
$ 310,000 Western Kentucky, 5.85% University Revenues, 5/1/96 A $ 326,229
---------------------------------------------------------
950,000 Winchester Kentucky, 5.30% Utilities Refunding Revenue,
7/1/2009 A 970,625
---------------------------------------------------------
500,000 Wisconsin State Health & Educational Facility Authority
Revenue, 5.60% (Lutheran Benevolent)/(FSA Insured),
2/15/2009 AAA 519,820
--------------------------------------------------------- -----------
TOTAL LONG-TERM INVESTMENTS (IDENTIFIED COST,
$55,692,051) 57,886,608
--------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $61,490,155) $63,684,712+
--------------------------------------------------------- -----------
</TABLE>
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond Assurance Corporation
AMT --Alternative Minimum Tax
ETM --Escrowed to Maturity
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance
</TABLE>
* See the Appendix which is contained in the Combined Statement of Additional
Information.
+ The cost of investments for federal tax purposes amounts to $61,490,155. The
net unrealized appreciation of investments on a federal tax basis amounts to
$2,194,557, which is comprised of $2,200,387 appreciation and $5,830
depreciation at January 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($64,662,697) at January 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified and tax cost,
$61,490,155) $63,684,712
- --------------------------------------------------------------------------------
Interest receivable 798,797
- --------------------------------------------------------------------------------
Receivable for Fund shares sold 246,529
- --------------------------------------------------------------------------------
Deferred expenses (Note 2F) 24,271
- -------------------------------------------------------------------------------- -----------
Total assets 64,754,309
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Accrued expenses and other liabilities 91,612
- -------------------------------------------------------------------------------- -----------
NET ASSETS FOR 6,190,034 shares of beneficial interest outstanding $64,662,697
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $62,378,191
- --------------------------------------------------------------------------------
Unrealized appreciation of investments 2,194,557
- --------------------------------------------------------------------------------
Accumulated undistributed net realized loss on investments (1,362)
- --------------------------------------------------------------------------------
Undistributed net investment income 91,311
- -------------------------------------------------------------------------------- -----------
Total Net Assets $64,662,697
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
($64,662,697/6,190,034 shares of beneficial interest outstanding) $ 10.45
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 12, 1993
(DATE OF INITIAL PUBLIC INVESTMENT) TO JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest income (Note 2C) $2,109,073
- ---------------------------------------------------------------------------------
EXPENSES--
- ---------------------------------------------------------------------------------
Investment advisory fee (Note 5) $215,477
- ----------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 62,930
- ----------------------------------------------------------------------
Custodian fees (Note 5) 16,712
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees (Note 5) 21,640
- ----------------------------------------------------------------------
Recordkeeping fees (Note 5) 51,130
- ----------------------------------------------------------------------
Legal fees 7,354
- ----------------------------------------------------------------------
Printing and postage 8,507
- ----------------------------------------------------------------------
Insurance premiums 5,700
- ----------------------------------------------------------------------
Miscellaneous 5,424
- ---------------------------------------------------------------------- --------
Total expenses 394,874
- ----------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) 91,761
- ---------------------------------------------------------------------- --------
Net expenses 303,113
- --------------------------------------------------------------------------------- ----------
Net investment income 1,805,960
- --------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (1,362)
- ----------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 2,194,557
- --------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 2,193,195
- --------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $3,999,155
- --------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TRADEMARK KENTUCKY MUNICIPAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31, 1994*
-----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------------
Net investment income $ 1,805,960
- --------------------------------------------------------------------------
Net realized loss on investment transactions ($1,362 net loss as computed
for federal tax purposes) (Note 2D) (1,362)
- --------------------------------------------------------------------------
Change in unrealized appreciation of investments 2,194,557
- -------------------------------------------------------------------------- ---------------
Change in net assets resulting from operations 3,999,155
- -------------------------------------------------------------------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- --------------------------------------------------------------------------
Dividends to shareholders from net investment income (1,714,649)
- -------------------------------------------------------------------------- ---------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- --------------------------------------------------------------------------
Proceeds from sale of shares 71,307,910
- --------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 151,903
- --------------------------------------------------------------------------
Cost of shares redeemed (9,081,622)
- -------------------------------------------------------------------------- ---------------
Change in net assets from Fund share transactions 62,378,191
- -------------------------------------------------------------------------- ---------------
Change in net assets 64,662,697
- --------------------------------------------------------------------------
NET ASSETS--
- --------------------------------------------------------------------------
Beginning of period --
- -------------------------------------------------------------------------- ---------------
End of period (including undistributed net investment income of $91,311) $64,662,697
- -------------------------------------------------------------------------- ---------------
</TABLE>
*For the period from March 12, 1993 (date of initial public investment) to
January 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TRADEMARK SHORT-INTERMEDIATE GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ---------- -------------------------------------------------------------------- -----------
<C> <S> <C>
SHORT-TERM INVESTMENTS--4.7%
- ----------------------------------------------------------------------------------
MUTUAL FUND SHARES--1.0%
--------------------------------------------------------------------
290,469 Dreyfus Government Cash Management Fund $ 290,469
--------------------------------------------------------------------
268,009 Dreyfus Treasury Cash Management Fund 268,009
-------------------------------------------------------------------- -----------
TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) 558,478
-------------------------------------------------------------------- -----------
U.S. TREASURY BILL--3.7%
--------------------------------------------------------------------
$2,000,000 12/15/94 (IDENTIFIED COST, $1,941,795) 1,945,340
-------------------------------------------------------------------- -----------
TOTAL SHORT-TERM INVESTMENTS (NOTE 2A) 2,503,818
</TABLE>
<TABLE>
<C> <S> <C>
-------------------------------------------------------------------- -----------
SHORT-INTERMEDIATE TERM INVESTMENTS--94.4%
- ----------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE SECURITIES--2.4%
- ----------------------------------------------------------------------------------
225,882 CMO Trust, 9.00%, 7/1/2014 232,685
--------------------------------------------------------------------
1,000,000 Morgan Stanley Mortgage Trust CMO, 8.95%, Class 3, 3/1/2016 1,027,720
-------------------------------------------------------------------- -----------
TOTAL COLLATERALIZED MORTGAGE SECURITIES (IDENTIFIED COST,
$1,315,693) 1,260,405
-------------------------------------------------------------------- -----------
CORPORATE BONDS--1.0%
- ----------------------------------------------------------------------------------
FINANCE--1.0%
--------------------------------------------------------------------
500,000 Associate Corp. of North America, 8.357%, 6/1/96
(IDENTIFIED COST, $544,325) 534,625
-------------------------------------------------------------------- -----------
GOVERNMENT OBLIGATIONS--91.0%
- ----------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--31.4%
--------------------------------------------------------------------
86,104 11.00%, 6/15/99-3/15/2000 94,364
--------------------------------------------------------------------
61,054 10.50%, 4/15/98-9/15/98 66,454
--------------------------------------------------------------------
230,704 10.00%, 12/15/2000-1/15/2001 250,528
--------------------------------------------------------------------
2,659,527 9.00%, 6/15/2001-12/15/2005 2,861,616
--------------------------------------------------------------------
1,432,837 8.50%, 6/15/2001-4/15/2006 1,527,304
--------------------------------------------------------------------
681,745 8.00%, 3/15/2002-5/15/2002 727,544
--------------------------------------------------------------------
398,605 7.50%, 5/15/2007 421,895
--------------------------------------------------------------------
4,242,737 6.50%, 11/15/2007-5/15/2008 4,358,054
--------------------------------------------------------------------
6,433,204 6.00%, 7/15/2008--1/15/2009 6,461,317
-------------------------------------------------------------------- -----------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 16,769,076
-------------------------------------------------------------------- -----------
</TABLE>
TRADEMARK SHORT-INTERMEDIATE GOVERNMENT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -------------------------------------------------------------------- -----------
<C> <S> <C>
GOVERNMENT OBLIGATIONS--CONTINUED
- ----------------------------------------------------------------------------------
U.S. TREASURY NOTES--59.6%
--------------------------------------------------------------------
$ 500,000 9.50%, 5/15/94 $ 508,965
--------------------------------------------------------------------
2,500,000 9.375%, 4/15/96 2,765,700
--------------------------------------------------------------------
4,900,000 8.375%, 4/15/95 5,166,903
--------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S> <C>
2,900,000 8.00%, 7/15/94-10/15/96 3,031,013
--------------------------------------------------------------------
1,700,000 7.125%, 10/15/98 1,853,170
--------------------------------------------------------------------
1,000,000 6.75%, 2/28/97 1,063,510
--------------------------------------------------------------------
4,500,000 6.00%, 10/15/99 4,688,640
--------------------------------------------------------------------
9,000,000 5.50%, 9/30/97--4/15/2000 9,196,430
--------------------------------------------------------------------
3,500,000 5.125%, 3/31/98 3,539,410
-------------------------------------------------------------------- -----------
TOTAL U.S. TREASURY NOTES 31,813,741
-------------------------------------------------------------------- -----------
TOTAL GOVERNMENT OBLIGATIONS (IDENTIFIED COST, $48,721,908) 48,582,817
-------------------------------------------------------------------- -----------
TOTAL SHORT-INTERMEDIATE TERM INVESTMENTS
(IDENTIFIED COST, $50,581,926) 50,377,847
-------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $53,082,199) $52,881,665+
-------------------------------------------------------------------- -----------
</TABLE>
+ The cost for federal tax purposes amounts to $53,082,199 at January 31, 1994.
The net unrealized depreciation of investments on a federal tax basis amounts
to $200,534, which is comprised of $264,694 appreciation and $465,228
depreciation at January 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($53,374,916) at January 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TRADEMARK SHORT-INTERMEDIATE GOVERNMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified and tax cost,
$53,082,199) $52,881,665
- --------------------------------------------------------------------------------
Interest receivable 722,173
- --------------------------------------------------------------------------------
Receivable for Fund shares sold 231
- --------------------------------------------------------------------------------
Deferred expenses (Note 2F) 19,708
- -------------------------------------------------------------------------------- -----------
Total assets 53,623,777
- --------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------
Payable for Fund shares redeemed $156,617
- ---------------------------------------------------------------------
Accrued expenses and other liabilities 92,244
- --------------------------------------------------------------------- --------
Total liabilities 248,861
- -------------------------------------------------------------------------------- -----------
NET ASSETS FOR 5,391,569 shares of beneficial interest outstanding $53,374,916
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $53,902,350
- --------------------------------------------------------------------------------
Unrealized depreciation of investments (200,534)
- --------------------------------------------------------------------------------
Accumulated undistributed net realized loss on investments (339,977)
- --------------------------------------------------------------------------------
Undistributed net investment income 13,077
- -------------------------------------------------------------------------------- -----------
Total Net Assets $53,374,916
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
($53,374,916/5,391,569 shares of beneficial interest outstanding) $ 9.90
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TRADEMARK SHORT-INTERMEDIATE GOVERNMENT FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 19, 1993
(DATE OF INITIAL PUBLIC INVESTMENT) TO JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest income (Note 2C) $2,885,115
- ---------------------------------------------------------------------------------
EXPENSES--
- ---------------------------------------------------------------------------------
Investment advisory fee (Note 5) $255,364
- ----------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 62,328
- ----------------------------------------------------------------------
Custodian fees (Note 5) 29,278
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees (Note 5) 27,207
- ----------------------------------------------------------------------
Recordkeeping fees (Note 5) 44,475
- ----------------------------------------------------------------------
Legal fees 6,040
- ----------------------------------------------------------------------
Printing and postage 7,936
- ----------------------------------------------------------------------
Insurance premiums 5,694
- ----------------------------------------------------------------------
Miscellaneous 6,246
- ---------------------------------------------------------------------- --------
Total expenses 444,568
- ----------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) 77,057
- ---------------------------------------------------------------------- --------
Net expenses 367,511
- --------------------------------------------------------------------------------- ----------
Net investment income 2,517,604
- --------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (339,977)
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (200,534)
- --------------------------------------------------------------------------------- ----------
Net realized and unrealized loss on investments (540,511)
- --------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $1,977,093
- --------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TRADEMARK SHORT-INTERMEDIATE GOVERNMENT FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31,
1994*
------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------
Net investment income $ 2,517,604
- ------------------------------------------------------------------------
Net realized loss on investment transactions ($221,766 net loss as
computed for federal tax purposes) (Note 2D) (339,977)
- ------------------------------------------------------------------------
Change in unrealized depreciation of investments (200,534)
- ------------------------------------------------------------------------ ---------------
Change in net assets resulting from operations 1,977,093
- ------------------------------------------------------------------------ ---------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (2,504,527)
- ------------------------------------------------------------------------ ---------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ------------------------------------------------------------------------
Proceeds from sale of shares 62,819,543
- ------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 1,890,961
- ------------------------------------------------------------------------
Cost of shares redeemed (10,808,154)
- ------------------------------------------------------------------------ ---------------
Change in net assets from Fund share transactions 53,902,350
- ------------------------------------------------------------------------ ---------------
Change in net assets 53,374,916
- ------------------------------------------------------------------------
NET ASSETS--
- ------------------------------------------------------------------------
Beginning of period --
- ------------------------------------------------------------------------ ---------------
End of period (including undistributed net investment income of $13,077) $ 53,374,916
- ------------------------------------------------------------------------ ---------------
</TABLE>
*For the period from February 19, 1993 (date of initial public investment) to
January 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TRADEMARK GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C>
SHORT-TERM INVESTMENTS--5.2%
- ---------------------------------------------------------------------------------
MUTUAL FUND SHARES--2.3%
-------------------------------------------------------------------
1,351,560 Dreyfus Government Cash Management $ 1,351,560
-------------------------------------------------------------------
963,049 Dreyfus Treasury Cash Management 963,049
------------------------------------------------------------------- ------------
TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) 2,314,609
------------------------------------------------------------------- ------------
U.S. TREASURY BILLS--2.9%
-------------------------------------------------------------------
$3,000,000 12/15/94-1/12/95 (IDENTIFIED COST, $2,907,073) 2,909,710
------------------------------------------------------------------- ------------
TOTAL SHORT-TERM INVESTMENTS (NOTE 2A) 5,224,319
------------------------------------------------------------------- ------------
LONG-TERM INVESTMENTS--95.3%
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S> <C>
CORPORATE BONDS--19.9%
- ---------------------------------------------------------------------------------
CHEMICALS--1.0%
-------------------------------------------------------------------
1,000,000 Monsanto Co., 6.00%, 7/1/2000 1,018,510
------------------------------------------------------------------- ------------
CONSUMER NON-DURABLE--3.2%
-------------------------------------------------------------------
500,000 Anheuser Busch Inc., 6.90%, 10/1/2002 527,350
-------------------------------------------------------------------
350,000 Becton Dickinson & Co., 8.375%, 6/1/96 377,996
-------------------------------------------------------------------
1,000,000 Pepsico, Inc., 6.25%, 9/1/99 1,036,410
-------------------------------------------------------------------
1,150,000 Warner Lambert Co., 6.625%, 9/15/2002 1,226,303
------------------------------------------------------------------- ------------
Total 3,168,059
------------------------------------------------------------------- ------------
CONSUMER PRODUCTS--1.1%
-------------------------------------------------------------------
1,000,000 Philip Morris Cos., Inc., 7.125%, 8/15/2002 1,072,920
------------------------------------------------------------------- ------------
FINANCE--1.2%
-------------------------------------------------------------------
500,000 Associates Corporation of North America, 8.375%, 1/15/98 548,220
-------------------------------------------------------------------
200,000 Beneficial Corp., 12.75%, 8/15/94 208,412
-------------------------------------------------------------------
400,000 Transamerica Finance Corp., 7.875%, 2/15/97 431,636
------------------------------------------------------------------- ------------
Total 1,188,268
------------------------------------------------------------------- ------------
FINANCE--AUTOMOTIVE--1.0%
-------------------------------------------------------------------
1,000,000 Ford Motor Credit Co., 6.625%, 6/30/2003 1,015,560
------------------------------------------------------------------- ------------
</TABLE>
TRADEMARK GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
- ---------------------------------------------------------------------------------
FINANCE--CONSUMER--1.0%
-------------------------------------------------------------------
1,000,000 American General Finance Corp., 6.375%, 3/1/2003 1,014,600
------------------------------------------------------------------- ------------
</TABLE>
TRADEMARK GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S> <C>
INFORMATION PROCESSING--0.5%
-------------------------------------------------------------------
$ 500,000 International Business Machines, 7.25%, 11/1/2002 $ 538,850
------------------------------------------------------------------- ------------
PRINTING & PUBLISHING--0.6%
-------------------------------------------------------------------
600,000 Eastman Kodak Co., 9.125%, 3/1/98 630,948
------------------------------------------------------------------- ------------
TELECOMMUNICATIONS--1.4%
-------------------------------------------------------------------
500,000 Northwestern Bell Telephone Co., 4.875%, 6/1/98 494,315
-------------------------------------------------------------------
1,000,000 Southern Bell Telephone & Telegraph Co., 4.375%, 4/1/2001 935,920
------------------------------------------------------------------- ------------
Total 1,430,235
------------------------------------------------------------------- ------------
TRANSPORTATION--0.7%
-------------------------------------------------------------------
350,000 CSX Corp., 8.40%, 8/1/96 372,368
-------------------------------------------------------------------
300,000 Southern RY Corp., 8.25%, 6/1/96 320,547
------------------------------------------------------------------- ------------
Total 692,915
------------------------------------------------------------------- ------------
UTILITIES--8.2%
-------------------------------------------------------------------
550,000 Carolina Power & Light Co., 6.375%, 10/1/97 553,075
-------------------------------------------------------------------
500,000 Central Illinois Public Service Co., 4.50%, 5/1/94 499,685
-------------------------------------------------------------------
1,000,000 Duke Power Co., 5.875%, 6/1/2001 1,024,430
-------------------------------------------------------------------
1,000,000 Florida Power & Light Co., 5.375%, 4/1/2000 991,440
-------------------------------------------------------------------
1,000,000 Pacific Gas & Electric Co., 6.25%, 3/1/2004 1,003,620
-------------------------------------------------------------------
1,000,000 Public Service Electric & Gas Co., 6.50%, 5/1/2004 1,027,760
-------------------------------------------------------------------
1,000,000 Southern California Edison Co., 5.625%, 10/1/2002 994,010
-------------------------------------------------------------------
1,000,000 Virginia Electric & Power Co., 6.00%, 8/1/2001 1,014,770
-------------------------------------------------------------------
1,000,000 West Penn Power Co., 6.375%, 6/1/2003 1,018,880
------------------------------------------------------------------- ------------
Total 8,127,670
------------------------------------------------------------------- ------------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $21,719,786) 19,898,535
------------------------------------------------------------------- ------------
</TABLE>
TRADEMARK GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C>
GOVERNMENT OBLIGATIONS--75.4%
- ---------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK--0.6%
-------------------------------------------------------------------
$ 550,000 8.25%, 6/25/96 $ 599,395
------------------------------------------------------------------- ------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--34.4%
-------------------------------------------------------------------
977,374 6.00%, 10/15/2023 954,769
-------------------------------------------------------------------
10,868,583 6.50%, 5/15/2023-1/15/2024 10,909,791
-------------------------------------------------------------------
10,278,097 7.00%, 10/15/2022-7/15/2023 10,567,117
-------------------------------------------------------------------
1,544,670 7.50%, 7/15/2007-8/15/2022 1,624,353
-------------------------------------------------------------------
1,515,559 8.00%, 3/15/2002-7/15/2022 1,613,035
-------------------------------------------------------------------
547,116 8.50%, 6/15/2001-12/15/2001 583,190
-------------------------------------------------------------------
5,226,329 9.00%, 9/15/2001-6/15/2021 5,604,870
-------------------------------------------------------------------
2,032,357 9.50%, 9/15/2001-12/15/2020 2,200,348
-------------------------------------------------------------------
124,107 10.00%, 9/15/2000-1/15/2001 134,772
-------------------------------------------------------------------
29,708 10.50%, 4/15/98 32,337
-------------------------------------------------------------------
115,920 11.00%, 11/15/2009-6/15/2015 132,077
-------------------------------------------------------------------
29,416 12.00%, 8/15/2013-4/15/2015 34,325
------------------------------------------------------------------- ------------
Total 34,390,984
------------------------------------------------------------------- ------------
INTERNATIONAL BANK FOR RECONSTRUCTION & DEVELOPMENT--0.4%
-------------------------------------------------------------------
400,000 7.65%, 2/28/97 430,812
------------------------------------------------------------------- ------------
U.S. TREASURY BONDS--6.7%
-------------------------------------------------------------------
5,700,000 7.125%-8.875%, 8/15/2017-2/15/2023 6,643,480
------------------------------------------------------------------- ------------
U.S. TREASURY NOTES--33.3%
-------------------------------------------------------------------
2,000,000 5.50%, 4/15/2000 2,034,700
-------------------------------------------------------------------
5,600,000 6.25%, 2/15/2003 5,845,000
-------------------------------------------------------------------
2,000,000 6.375%, 7/15/99-8/15/2002 2,113,000
-------------------------------------------------------------------
</TABLE>
TRADEMARK GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------- ------------
<C> <S> <C>
U.S. TREASURY NOTES--CONTINUED
-------------------------------------------------------------------
$9,000,000 7.50%, 11/15/2001-5/15/2002 $ 10,162,565
-------------------------------------------------------------------
2,000,000 7.875%, 11/15/99 2,271,960
-------------------------------------------------------------------
4,300,000 8.50%, 2/15/2000-11/15/2000 5,045,257
-------------------------------------------------------------------
1,000,000 8.625%, 8/15/97 1,128,730
-------------------------------------------------------------------
4,000,000 8.875%, 11/15/98-2/15/99 4,669,372
------------------------------------------------------------------- ------------
Total 33,270,584
------------------------------------------------------------------- ------------
TOTAL GOVERNMENT OBLIGATIONS (IDENTIFIED COST, $72,311,876) 75,335,255
------------------------------------------------------------------- ------------
TOTAL LONG-TERM INVESTMENTS (IDENTIFIED COST, $94,031,662) 95,233,790
------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $99,253,344) $100,458,109+
------------------------------------------------------------------- ------------
</TABLE>
+ The cost of investments for federal tax purposes amounts to $99,253,344. The
net unrealized appreciation on a federal tax basis amounts to $1,204,765,
which is comprised of $1,407,068 appreciation and $202,303 depreciation at
January 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($99,895,870) at January 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TRADEMARK GOVERNMENT INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified and tax cost,
$99,253,344) $100,458,109
- --------------------------------------------------------------------------------
Interest receivable 1,503,795
- --------------------------------------------------------------------------------
Receivable for Fund shares sold 10,791
- --------------------------------------------------------------------------------
Paydown Principal Receivable 1,571
- --------------------------------------------------------------------------------
Deferred expenses (Note 2F) 32,647
- -------------------------------------------------------------------------------- ------------
Total assets 102,006,913
- -------------------------------------------------------------------------------- ------------
LIABILITIES:
- -------------------------------------------------------------------
Payable for investments purchased $1,967,350
- -------------------------------------------------------------------
Payable for Fund shares redeemed 3,478
- -------------------------------------------------------------------
Accrued expenses and other liabilities 140,215
- ------------------------------------------------------------------- ----------
Total liabilities 2,111,043
- -------------------------------------------------------------------------------- ------------
NET ASSETS FOR 9,867,364 shares of beneficial interest outstanding $ 99,895,870
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $ 99,159,742
- --------------------------------------------------------------------------------
Unrealized appreciation of investments 1,204,765
- --------------------------------------------------------------------------------
Accumulated undistributed net realized loss on investments (501,236)
- --------------------------------------------------------------------------------
Undistributed net investment income 32,599
- -------------------------------------------------------------------------------- ------------
Total Net Assets $ 99,895,870
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
($99,895,870/9,867,364 shares of beneficial interest outstanding) $ 10.12
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements.)
TRADEMARK GOVERNMENT INCOME FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 19, 1993
(START OF BUSINESS) TO JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest income (Note 2C) $5,222,900
- ----------------------------------------------------------------------------------
EXPENSES--
- ----------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 463,072
- ----------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 113,008
- ----------------------------------------------------------------------
Custodian fees (Note 5) 23,560
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees (Note 5) 23,228
- ----------------------------------------------------------------------
Recordkeeping fees (Note 5) 73,521
- ----------------------------------------------------------------------
Legal fees 7,719
- ----------------------------------------------------------------------
Printing and postage 9,777
- ----------------------------------------------------------------------
Insurance premiums 6,225
- ----------------------------------------------------------------------
Miscellaneous 7,138
- ---------------------------------------------------------------------- ---------
Total expenses 727,248
- ----------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) 108,452
- ---------------------------------------------------------------------- ---------
Net expenses 618,796
- ---------------------------------------------------------------------------------- ----------
Net investment income 4,604,104
- ---------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (501,236)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 1,204,765
- ---------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 703,529
- ---------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $5,307,633
- ---------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TRADEMARK GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31,
1994*
------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------
Net investment income $ 4,604,104
- -------------------------------------------------------------------------
Net realized loss from investment transactions ($306,538 net
loss, as computed for federal tax purposes) (Note 2D) (501,236)
- -------------------------------------------------------------------------
Change in unrealized appreciation of investments 1,204,765
- ------------------------------------------------------------------------- ---------------
Change in net assets resulting from operations 5,307,633
- ------------------------------------------------------------------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -------------------------------------------------------------------------
Dividends to shareholders from net investment income (4,571,504)
- ------------------------------------------------------------------------- ---------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -------------------------------------------------------------------------
Proceeds from sale of shares 103,497,516
- -------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 3,712,097
- -------------------------------------------------------------------------
Cost of shares redeemed (8,149,872)
- ------------------------------------------------------------------------- ---------------
Change in net assets from Fund share transactions 99,059,741
- ------------------------------------------------------------------------- ---------------
Change in net assets 99,795,870
- -------------------------------------------------------------------------
NET ASSETS--
- -------------------------------------------------------------------------
Beginning of period 100,000
- ------------------------------------------------------------------------- ---------------
End of period (including undistributed net investment income of $32,599) $ 99,895,870
- ------------------------------------------------------------------------- ---------------
</TABLE>
*For the period from January 19, 1993 (start of business) to January 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TRADEMARK FUNDS
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Trademark Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The Trust
currently consists of four portfolios. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Declaration of Trust permits the Trust to offer separate
series of shares of beneficial interest representing interests in the separate
portfolios of securities. Trademark Equity Fund ("Equity Fund"), Trademark
Kentucky Municipal Bond Fund ("Kentucky Municipal Bond Fund"), Trademark
Short-Intermediate Government Fund ("Short-Intermediate Fund"), and Trademark
Government Income Fund ("Government Income Fund"), (hereinafter each
individually referred to as a "Fund," or collectively as the "Funds").
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by each Fund in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale price
reported on national securities exchanges. Unlisted securities or listed securities in
which there were no sales are valued at the mean between bid and asked prices. U.S.
government obligations are valued at the mean between the over-the-counter bid and asked
prices as furnished by an independent pricing service. Corporate bonds and other fixed
income securities are valued at the last sale price on a national securities exchange, if
available. Otherwise, they are valued on the basis of prices furnished by independent
pricing services. Short-term obligations are valued at prices as furnished by an
independent pricing service. All other securities are appraised at fair value as
determined in good faith by the Board of Trustees (the "Trustees"). Municipal bonds are
valued at fair market value. Investments in other regulated investment companies are
valued at net asset value. An independent pricing service values a Fund's municipal bonds
taking into consideration yield, stability, risk, quality, coupon, maturity, type of
issue, trading characteristics, special circumstances of a security or trading market,
and any other factors or market data it deems relevant in determining valuations for
normal institutional size trading units of debt securities and does not rely exclusively
on quoted prices.
B. REPURCHASE AGREEMENTS--It is the policy of the Funds to require the custodian bank to
take possession, to have legally segregated in the Federal Reserve Book Entry System or
to have segregated within the custodian bank's vault, all securities held as collateral
in support of repurchase agreement investments. Additionally, procedures have been
established by the Funds to
</TABLE>
TRADEMARK FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
monitor, on a daily basis, the market value of each repurchase agreement's underlying
securities to ensure the existence of a proper level of collateral.
The Funds will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Trust's adviser to
be creditworthy pursuant to guidelines established by the Trustees. Risks may arise from
the potential inability of counterparties to honor the terms of the repurchase
agreements. Accordingly, the Funds could receive less than the repurchase price on the
sale of collateral securities.
C. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest and discount earned (net of premium), on short-term obligations, and interest
earned on all other debt securities including discount (net of premium) and original
issue discount as required by the Internal Revenue Code, as amended (the "Code").
Dividend income for the Equity Fund is recorded on the ex-dividend date. Dividends to
shareholders and capital gain distributions, if any, are recorded on the ex-dividend
date.
D. FEDERAL TAXES--It is each Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders each year
all of their net income, including any net realized gains on investments. Accordingly, no
provision for federal tax is necessary.
At January 31, 1994, the Kentucky Municipal Bond Fund, Short-Intermediate Fund, and the
Government Income Fund, for federal tax purposes, had a capital loss carryforward of
$1,362, $221,766, and $306,538, respectively, which will reduce the Fund's taxable income
arising from a future net realized gain on investments, if any, to the extent permitted
by the Code, and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve the Funds of any liability for federal tax.
Pursuant to the Code, such capital loss carryforward for the Kentucky Municipal Bond
Fund, Short-Intermediate Fund, and the Government Income Fund, will expire in 2002
($1,362), ($221,766), and ($306,538), respectively. Additionally, net capital losses, of
$0, $118,210, and $194,698, respectively, attributable to security transactions incurred
after October 31, 1993, are treated as arising on February 1, 1994, the first day of the
Fund's next taxable year.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in when-issued or
delayed-delivery transactions. To the extent a Fund engages in such transactions, it will
do so for the purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for the purpose of investment leverage. The Funds will
record a when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain security positions such that
sufficient liquid assets will be available to make payment for the securities purchased.
Securities purchased on a when-issued or delayed-delivery basis are marked to market
daily and begin earning interest on the settlement date.
</TABLE>
TRADEMARK FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
F. DEFERRED EXPENSES--The costs incurred by the Funds with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering the shares,
have been deferred and are being amortized using the straight-line method over a period
of five years from the Funds' commencement date.
G. OTHER--Investment transactions are accounted for on the date of the transaction.
</TABLE>
(3) DIVIDENDS
Dividends are declared and paid monthly to all shareholders invested in the
Funds on the record date. Dividends and distributions are automatically
reinvested in additional shares of the Funds on the payment date at the
ex-dividend date net asset value without a sales charge, unless cash payments
are requested. Distributions of any net realized capital gains will be made at
least once every twelve months. Dividends to shareholders and capital gains
distributions, if any, are recorded on the ex-dividend date.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
KENTUCKY SHORT-
MUNICIPAL INTERMEDIATE GOVERNMENT
EQUITY FUND BOND FUND FUND INCOME FUND
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
1/31/94* 1/31/94** 1/31/94* 1/31/94***
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
- --------------------------------
Shares outstanding, beginning of
period -- -- -- 10,000
- --------------------------------
Shares sold 12,853,568 7,061,057 6,281,911 10,296,506
- --------------------------------
Shares issued to shareholders in
payment of dividends declared 473,040 14,770 190,199 367,525
- --------------------------------
Shares redeemed (1,202,366) (885,793) (1,080,541) (806,667)
- -------------------------------- ------------ ----------- ------------ ------------
Shares outstanding, end of
period 12,124,242 6,190,034 5,391,569 9,867,364
- -------------------------------- ------------ ----------- ------------ ------------
</TABLE>
* For the period from February 19, 1993 (date of initial public investment) to
January 31, 1994.
** For the period from March 12, 1993 (date of initial public investment) to
January 31, 1994.
*** For the period from January 19, 1993 (start of business) to January 31,
1994.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Liberty National Bank and Trust Company of Kentucky, the Trust's investment
adviser (the "Adviser"), receives for its services an annual investment advisory
fee equal to .85 of 1% of the average daily net assets for Equity Fund, .50 of
1% of the average daily net assets for Kentucky Municipal Bond
TRADEMARK FUNDS
- --------------------------------------------------------------------------------
Fund and .60 of 1% of the average daily net assets for Short-Intermediate Fund
and Government Income Fund.
The Adviser may voluntarily choose to waive a portion of its fees or reimburse
certain operating expenses of each Fund. For the period ended January 31, 1994,
the Adviser earned and voluntarily waived the following investment advisory fees
on each Fund:
<TABLE>
<CAPTION>
INVESTMENT INVESTMENT
ADVISORY ADVISORY
FEES EARNED FEES WAIVED
------------ ------------
<S> <C> <C>
---------------------------------------------
Equity Fund $829,553 $376,044
---------------------------------------------
Kentucky Municipal Bond Fund 215,477 91,761
---------------------------------------------
Short-Intermediate Fund 255,364 77,057
---------------------------------------------
Government Income Fund 463,072 108,452
---------------------------------------------
</TABLE>
Federated Administrative Services ("FAS") provides for each Fund certain
administrative personnel and services at an annual rate of .15 of 1% on the
first $250 million of the Funds' average aggregate daily net assets; .125 of 1%
on the next $250 million; .10 of 1% on the next $250 million; and .075 of 1% of
the average aggregate daily net assets of the Funds in excess of $750 million.
FAS may voluntarily waive a portion of its fee from each Fund. For the period
ended January 31, 1994, FAS earned the following on each Fund:
<TABLE>
<CAPTION>
FAS
FEES EARNED
------------
<S> <C>
-------------------------------------------------------------
Equity Fund $142,829
-------------------------------------------------------------
Kentucky Municipal Bond Fund 62,930
-------------------------------------------------------------
Short-Intermediate Fund 62,328
-------------------------------------------------------------
Government Income Fund 113,008
-------------------------------------------------------------
</TABLE>
State Street Bank and Trust Company, the Funds custodian, received for its
services for the period ended January 31, 1994, in the amounts as follows for
each Fund:
<TABLE>
<CAPTION>
CUSTODIAN
FEES EARNED
------------
<S> <C>
-------------------------------------------------------------
Equity Fund $ 22,146
-------------------------------------------------------------
Kentucky Municipal Bond Fund 16,712
-------------------------------------------------------------
Short-Intermediate Fund 29,278
-------------------------------------------------------------
Government Income Fund 23,560
-------------------------------------------------------------
</TABLE>
TRADEMARK FUNDS
- --------------------------------------------------------------------------------
Organization expenses were borne initially by FAS. The Funds have agreed to
reimburse FAS for the organization expenses borne by FAS during the five year
period following the date the Trust's portfolio became effective.
For the period ended January 31, 1994, the following amounts were paid to FAS
pursuant to this agreement.
<TABLE>
<CAPTION>
EFFECTIVE ORGANIZATIONAL ORGANIZATIONAL
DATE EXPENSES EXPENSES PAID
--------- -------------- --------------
<S> <C> <C> <C>
------------------------------
Equity Fund 2/9/93 $ 34,692 $1,978
------------------------------
Kentucky Municipal Bond Fund 2/9/93 36,923 2,223
------------------------------
Short-Intermediate Fund 2/9/93 36,243 2,223
------------------------------
Government Income Fund 2/9/93 36,426 2,423
------------------------------
</TABLE>
The Trust has adopted a Distribution Plan (the "Plan"), pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Funds will not accrue or pay 12b-1
fees until they have created a separate class of shares (which would not have a
12b-1 plan) for trust and investment agency clients of the Adviser. When the
Plan becomes effective the Trust will pay Federated Securities Corp. ("FSC"),
the principal distributor, up to .25 of 1% of the average daily net assets of
the Funds, annually, to pay commissions, maintenance fees and to compensate the
distributor.
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Funds. The Fund pays fees based on the type, size, number of
accounts and number of transactions made by shareholders.
Federated Services Company also maintains the Funds' accounting records. The fee
is based on the level of average net assets for the month plus out-of-pocket
expenses.
During the period ended January 31, 1994, the Equity Fund, Kentucky Municipal
Bond Fund, Short-Intermediate Fund, and Government Income Fund engaged in
purchase transactions with collective trust funds advised by the Adviser
pursuant to Rule 17A-7 of the Investment Company Act of 1940 amounting to
$59,486,721, $23,036,025, $31,538,591, and $55,261,557, respectively. These
purchases were conducted on an arms-length basis insofar as they were transacted
for cash consideration only, at independent current market prices and without
brokerage commission, fee, or other remuneration.
Certain Officers and Trustees of the Trust are also Officers and Trustees of the
above companies.
TRADEMARK FUNDS
- --------------------------------------------------------------------------------
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended January 31, 1994, for each Fund were as follows:
<TABLE>
<CAPTION>
KENTUCKY SHORT-
MUNICIPAL INTERMEDIATE GOVERNMENT
EQUITY FUND BOND FUND FUND INCOME FUND
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
- ------------------------------------
PURCHASES-- $164,909,394 $60,580,883 $63,429,545 $121,265,012
- ------------------------------------ ------------ ---------- ------------- -----------
SALES-- $ 55,761,632 $2,300,000 $ 9,077,906 $16,391,704
- ------------------------------------ ------------ ---------- ------------- -----------
</TABLE>
(7) CURRENT CREDIT RATINGS
Current credit ratings are unaudited.
TRADEMARK FUNDS
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Trustees and Shareholders
TRADEMARK FUNDS:
We have audited the statement of assets and liabilities, including the
portfolios of investments for Trademark Fund portfolios, listed below, as of
January 31, 1994, the related statements of operations and changes in net
assets, and the financial highlights for each of the periods listed below:
Trademark Equity Portfolio--statements of operations and changes in net assets
and the financial highlights for the period from February 19, 1993 (commencement
of operations) to January 31, 1994.
Trademark Kentucky Municipal Bond Portfolio--statements of operations and
changes in net assets and the financial highlights for the period from March 12,
1993 (commencement of operations) to January 31, 1994.
Trademark Short-Intermediate Government Portfolio--statements of operations and
changes in net assets and the financial highlights for the period from February
19, 1993 (commencement of operations) to January 31, 1994.
Trademark Government Income Portfolio--statements of operations and changes in
net assets and the financial highlights for the period from January 19, 1993
(commencement of operations) to January 31, 1994.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to gain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Trademark Equity Portfolio, Trademark Kentucky Municipal Bond Portfolio,
Trademark Short-Intermediate Government Portfolio, and Trademark Government
Income Portfolio as of January 31, 1994, the results of their operations,
changes in their net assets, and the financial highlights for each of the
periods listed above, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK
Pittsburgh, Pennsylvania
March 11, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Trademark Equity Fund Federated Investors Tower
Trademark Kentucky Municipal Bond Fund Pittsburgh, Pennsylvania 15222-3779
Trademark Short-Intermediate
Government Fund
Trademark Government Income Fund
- ------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------------------
Investment Adviser
Liberty National Bank and Trust Company 416 West Jefferson Street
of Kentucky Louisville, Kentucky 40202
- ------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 1119
Trust Company Boston, Massachusetts 02103
- ------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------------------
Independent Auditors
KPMG Peat Marwick One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------------------
</TABLE>
TRADEMARK FUNDS
PROSPECTUS
An Open-End, Management
Investment Company
March 31, 1994
LIBERTY NATIONAL BANK AND TRUST COMPANY OF KENTUCKY
Investment Adviser LNB 3628 (3/94)
FEDERATED SECURITIES CORP.
- -----------------------------------------------------------
Distributor 3071504A (3/94)
TRADEMARK FUNDS
CONSISTS OF FOUR PORTFOLIOS:
- TRADEMARK EQUITY FUND;
- TRADEMARK KENTUCKY MUNICIPAL BOND FUND;
- TRADEMARK SHORT-INTERMEDIATE GOVERNMENT FUND; AND
- TRADEMARK GOVERNMENT INCOME FUND.
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with the
combined prospectus of the Trademark Funds (the "Trust") dated March 31, 1994.
This Statement is not a prospectus itself. To receive a copy of the prospectus,
call Liberty National Bank and Trust Company of Kentucky at (502) 566-3653.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated March 31, 1994
LIBERTY NATIONAL BANK AND TRUST COMPANY OF KENTUCKY
Investment Adviser
FEDERATED SECURITIES CORP.
Distributor
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS 1
- ---------------------------------------------------------------
Equity Fund 1
Kentucky Municipal Bond Fund 2
Short-Intermediate Fund and
Government Income Fund 4
ADDITIONAL PORTFOLIO STRATEGIES 5
- ---------------------------------------------------------------
Futures and Options Transactions 5
Repurchase Agreements 6
Reverse Repurchase Agreements 6
When-Issued and Delayed Delivery Transactions 6
Lending of Portfolio Securities 7
Restricted and Illiquid Securities 7
Portfolio Turnover 8
INVESTMENT LIMITATIONS 8
- ---------------------------------------------------------------
TRADEMARK FUNDS MANAGEMENT 11
- ---------------------------------------------------------------
Officers and Trustees 11
The Funds 13
Fund Ownership 13
Trustee Liability 13
INVESTMENT ADVISORY SERVICES 14
- ---------------------------------------------------------------
Adviser to the Funds 14
Advisory Fees 14
ADMINISTRATIVE SERVICES 14
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 14
- ---------------------------------------------------------------
PURCHASING SHARES 15
- ---------------------------------------------------------------
Distribution Plan 15
EXCHANGING SECURITIES FOR FUND SHARES 15
- ---------------------------------------------------------------
DETERMINING NET ASSET VALUE 16
- ---------------------------------------------------------------
Determining Market Value of Securities 16
EXCHANGE PRIVILEGE 16
- ---------------------------------------------------------------
REDEEMING SHARES 16
- ---------------------------------------------------------------
Redemption in Kind 17
TAX STATUS 17
- ---------------------------------------------------------------
The Funds' Tax Status 17
Shareholders' Tax Status 17
TOTAL RETURN 17
- ---------------------------------------------------------------
YIELD 18
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 18
- ---------------------------------------------------------------
Tax-Equivalency Table 18
PERFORMANCE COMPARISONS 19
- ---------------------------------------------------------------
APPENDIX 21
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated August 6, 1992. As of the date of this Combined Statement of
Additional Information, the Trust consists of four separate portfolios of
securities (individually the "Fund," or collectively, the "Funds") which are as
follows: Trademark Equity Fund ("Equity Fund"), Trademark Kentucky Municipal
Bond Fund ("Kentucky Municipal Bond Fund"), Trademark Short-Intermediate
Government Fund ("Short-Intermediate Fund"), and Trademark Government Income
Fund ("Government Income Fund").
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS
- --------------------------------------------------------------------------------
The combined prospectus discusses the investment objective of each Fund and the
policies it employs to achieve those objectives. The following discussion
supplements the description of the Funds' investment policies in the combined
prospectus.
The Funds' respective investment objectives cannot be changed without approval
of that Fund's shareholders. The investment policies described below may be
changed by the Board of Trustees ("Trustees") without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective.
Additional information about investment limitations, strategies that one or more
of the Funds may employ, and certain investment policies mentioned below, appear
in "Additional Portfolio Strategies" below.
EQUITY FUND
TYPES OF INVESTMENTS
The Fund invests principally in common stocks. Although the Fund may invest in
other securities and in money market instruments, it is the Fund's policy under
normal market conditions to invest at least 65% of its portfolio in equity
securities.
OTHER PERMITTED INVESTMENTS
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged
or converted into a predetermined number of shares of the issuer's
underlying common stock at the option of the holder during a specified
time period. Convertible securities may take the form of convertible
preferred stock or units consisting of "usable" bonds and warrants 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.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in
which, in the investment adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objectives. Otherwise, the Fund may hold or
trade convertible securities. In selecting convertible securities for the
Fund, the Fund's adviser evaluates the investment characteristics of the
convertible security as a fixed income instrument, and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible
security, the Fund's adviser considers numerous factors, including the
economic and political outlook, the value of the security relative to
other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
WARRANTS
Warrants are basically options to purchase common stock at a specific
price (usually at a premium above the market value of the optioned common
stock at issuance) valid for a specific period of time. Warrants may have
a life ranging from less than a year to twenty years or may be perpetual.
However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not
exceed the warrant's exercise price during the life of the warrant, the
warrant will expire as worthless. Warrants have no voting rights, pay no
dividends, and have no rights with respect to the assets of the
corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage
increase or decrease in the market price of the optioned common stock.
TEMPORARY INVESTMENTS
MONEY MARKET INSTRUMENTS
For defensive purposes only, the Fund may invest temporarily in U.S. and
foreign money market instruments during times of unusual market
conditions and to maintain liquidity:
- --------------------------------------------------------------------------------
- prime commercial paper (rated A-1 by Standard & Poor's Corporation
("Standard & Poor's"), P-1 by Moody's Investors Service, Inc.
("Moody's"), or F-1 by Fitch Investors Service ("Fitch")) and Europaper
(rated A-1 or above, or P-1 or above). In the case where commercial
paper or Europaper has received different ratings from different rating
services, such commercial paper or Europaper is an acceptable temporary
investment so long as at least one rating is one of the preceding high
quality ratings and provided the investment adviser has determined that
such investment presents minimal credit risks;
- instruments of domestic and foreign banks and savings and loans if they
have capital, surplus, and undivided profits of over $100,000,000, or
if the principal amount of the instrument is insured by the Federal
Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. These instruments may include Eurodollar Certificates of
Deposit ("ECDs"), Eurodollar Time Deposits ("ETDs"), and Canadian Time
Deposits;
- obligations of the U.S. government or its agencies or
instrumentalities;
- repurchase agreements; and
- other short-term instruments which are not rated but are determined by
the investment adviser to be of comparable quality to the other
temporary obligations in which the Fund may invest.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest are
the same as those set forth under "Short-Intermediate Fund and Government
Income Fund--U.S. Government Securities."
KENTUCKY MUNICIPAL BOND FUND
ACCEPTABLE INVESTMENTS
The Fund pursues its investment objective by investing in a portfolio of
securities at least 65% of which is comprised of Kentucky municipal securities.
The Fund will invest its assets so that, under normal circumstances, at least
80% of its annual interest income is exempt from federal regular income tax or
that at least 80% of its total assets are invested in obligations, the interest
income from which is exempt from federal regular income tax.
CHARACTERISTICS
The municipal securities in which the Fund invests have the
characteristics set forth in the prospectus.
An unrated municipal security will be determined by the Fund's adviser to
meet the quality standards established by the Trustees if it is of
comparable quality to the rated municipal securities which the Fund
purchased. The Trustees consider the creditworthiness of the issuer of a
municipal security, the issuer of a participation interest if the Fund
has the right to demand payment from the issuer of the interest, or the
guarantor of payment by either of those issuers.
The Fund is not required to sell a municipal security if the security's
rating is reduced subsequent to its purchase by the Fund. The investment
adviser considers this event, however, in its determination of whether
the Fund should continue to hold the security in its portfolio. If
Moody's or Standard & Poor's ratings change because of changes in those
organizations or in their rating systems, the Fund will try to use
comparable ratings as standards in accordance with the investment
policies described in the Fund's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Kentucky municipal securities are:
- - municipal notes and tax-exempt commercial paper;
- - serial bonds sold with a series of maturity dates;
- - tax anticipation notes sold to finance working capital needs of municipalities
in anticipation of receiving taxes at a later date;
- - bond anticipation notes sold in anticipation of the issuance of longer-term
bonds in the future;
- - revenue anticipation notes sold in expectation of receipt of federal income
available under the Federal Revenue Sharing Program;
- - prerefunded municipal bonds refundable at a later date (payment of principal
and interest on prerefunded bonds are assured through the first call date by
the deposit in escrow of U.S. government securities); or
- - general obligation bonds secured by a municipality's pledge of taxation.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from other financial institutions irrevocable
letters of credit or guarantees and give the Fund the right to demand payment on
- --------------------------------------------------------------------------------
specified notice (normally within thirty days) from the issuer of the letter of
credit or guarantee. These financial institutions may charge certain fees in
connection with their repurchase commitments, including a fee equal to the
excess of the interest paid on the municipal securities over the negotiated
yield at which the participation interests were purchased by the Fund. By
purchasing participation interests, the Fund is buying a security meeting the
maturity and quality requirements of the Fund and is also receiving the tax-free
benefits of the underlying securities.
In the acquisition of participation interests, the Fund's investment adviser
will consider the following quality factors:
- - the quality of the underlying municipal security (of which the Fund takes
possession);
- - the quality of the issuer of the participation interest; or
- - a guarantee or letter of credit from a high-quality financial institution
supporting the participation interest.
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation or
depreciation is less for variable rate municipal securities than for fixed
income obligations.
Many municipal securities with variable interest rates purchased by the Fund are
subject to repayment of principal (usually within seven days) on the Fund's
demand. The terms of these variable rate demand instruments require payment of
principal and accrued interest from the issuer of the municipal obligations, the
issuer of the participation interests, or a guarantor of either issuer.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease payments by
a governmental or non-profit entity. The lease payments and other rights under
the lease provide for and secure the payments on the certificates. Lease
obligations may be limited by municipal charter or the nature of the
appropriation for the lease. In particular, lease obligations may be subject to
periodic appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee cannot accelerate
lease obligations upon default. The trustee would only be able to enforce lease
payments as they became due. In the event of a default or failure of
appropriation, it is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment or that the substitute source of payment
will generate tax-exempt income.
When determining whether municipal leases purchased by the Fund will be
classified as a liquid or illiquid security, the Trustees have directed the
investment adviser to consider certain factors such as: the frequency of trades
and quotes for the security; the volatility of quotations and trade prices for
the security; the number of dealers willing to purchase or sell the security and
the number of potential purchasers; dealer undertakings to make a market in the
security; the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer); the rating of the security and the
financial condition and prospects of the issuer of the security; whether the
lease can be terminated by the lessee; the potential recovery, if any, from a
sale of the leased property upon termination of the lease; the lessee's general
credit strength (e.g., its debt, administrative, economic and financial
characteristics and prospects); the likelihood that the lessee will discontinue
appropriating funding for the lease property because the property is no longer
deemed essential to its operations (e.g., the potential for an "event of
nonappropriation"); any credit enhancement or legal recourse provided upon an
event of nonappropriation or other termination of the lease; and such other
factors as may be relevant to the Fund's ability to dispose of the security.
TEMPORARY INVESTMENTS
For defensive purposes only, the Fund may invest in temporary investments during
times of unusual market conditions and to maintain liquidity. From time to time,
such as when suitable Kentucky municipal securities are not available, the Fund
may invest a portion of its assets in cash. Any portion of the Fund's assets
maintained in cash will reduce the amount of assets in Kentucky municipal
securities and, thereby, reduce the Fund's yield. The Fund might invest in
temporary investments:
- - as a reaction to market conditions;
- - while waiting to invest proceeds of sales of shares or portfolio securities,
although generally proceeds from sales of shares will be invested in municipal
bonds as quickly as possible; or
- - in anticipation of redemption requests.
- --------------------------------------------------------------------------------
SHORT-INTERMEDIATE FUND AND GOVERNMENT INCOME FUND
TYPES OF INVESTMENTS
Under normal circumstances, both Funds will invest at least 65% of the value of
their total assets in securities which are issued or guaranteed as to payment of
principal and interest by the U.S. government or U.S. government agencies or
instrumentalities. The Government Income Fund will attempt to maintain a
dollar-weighted average portfolio maturity between five and twelve years. The
Short-Intermediate Fund will attempt to maintain a dollar-weighted average
portfolio maturity between two and five years.
U.S. GOVERNMENT SECURITIES
The types of U.S. government obligations in which both Funds may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are
backed by:
- the full faith and credit of the U.S. Treasury (such as Farmers Home
Administration and Government National Mortgage Association);
- the issuer's right to borrow from the U.S. Treasury (such as Farmers
Home Administration);
- the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities (such as Federal Home Loan
Banks and Farmers Home Administration); or
- the credit of the agency or instrumentality issuing the obligations
(such as Federal Home Loan Banks, Farmers Home Administration, Federal
Farm Credit Banks, Federal National Mortgage Association, and Federal
Home Loan Mortgage Corporation).
BANK INSTRUMENTS
Both Funds may invest in the instruments of banks and savings and loans
whose deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, both of which are administered by the Federal
Deposit Insurance Corporation, such as certificates of deposit, demand
and time deposits, savings shares, and bankers' acceptances. However,
these instruments are not necessarily guaranteed by those organizations.
In addition, both Funds may invest in:
- Eurodollar Certificates of Deposit ("ECDs") issued by foreign branches
of U.S. or foreign banks;
- Eurodollar Time Deposits ("ETDs"), which are U.S. dollar-denominated
deposits in foreign branches of U.S. or foreign banks;
- Canadian Time Deposits, which are U.S. dollar-denominated deposits
issued by branches of major Canadian banks located in the United
States; and
- Yankee Certificates of Deposit ("Yankee CDs"), which are U.S.
dollar-denominated certificates of deposit issued by U.S. branches of
foreign banks and held in the United States.
WEIGHTED AVERAGE PORTFOLIO MATURITY
Both Funds will determine their dollar-weighted average portfolio
maturity by assigning a "weight" to each portfolio security based upon
the pro rata market value of such portfolio security in comparison to the
market value of the entire portfolio. The remaining maturity of each
portfolio security is then multiplied by its weight, and the results are
added together to determine the weighted average maturity of the
portfolio. For purposes of calculating its dollar-weighted average
portfolio maturity, each Fund will treat variable and floating rate
instruments as having a remaining maturity commensurate with the period
remaining until the next scheduled adjustment to the instrument's
interest rate.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
Both Funds may invest in CMOs. Privately issued CMOs generally represent
an ownership interest in a pool of federal agency mortgage pass-through
securities such as those issued by the Government National Mortgage
Association. The terms and characteristics of the mortgage instruments
may vary among pass-through mortgage loan pools.
The market for such CMOs has expanded considerably since its inception.
The size of the primary issuance market and the active participation in
the secondary market by securities dealers and other investors make
government-related pools liquid.
ADDITIONAL PORTFOLIO STRATEGIES
- --------------------------------------------------------------------------------
FUTURES AND OPTIONS TRANSACTIONS
The Equity Fund and the Government Income Fund may engage in futures and options
transactions as described below.
As a means of reducing fluctuations in the net asset value of shares of each
Fund, the Funds may attempt to hedge all or a portion of their portfolios by
buying and selling financial futures contracts, buying put options on portfolio
securities and listed put options on futures contracts, and writing call options
on futures contracts. The Funds may also write covered call options on portfolio
securities to attempt to increase their current income. The Funds will maintain
their positions in securities, option rights, and segregated cash subject to
puts and calls until the options are exercised, closed, or have expired. An
option position on financial futures contracts may be closed out only on an
exchange which provides a secondary market for options of the same series.
FINANCIAL FUTURES CONTRACTS. A futures contract is a firm commitment by two
parties: the seller who agrees to make delivery of the specific type of security
called for in the contract ("going short"), and the buyer who agrees to take
delivery of the security ("going long") at a certain time in the future.
With respect to the Equity Fund, financial futures contracts call for the
delivery of shares of common stocks represented in a particular index.
With respect to the Government Income Fund, in the fixed income securities
market, prices move inversely to interest rates. A rise in rates means a drop in
price. Conversely, a drop in rates means a rise in price. In order to hedge its
holdings of fixed income securities against a rise in market interest rates, the
Fund could enter into contracts to deliver securities at a predetermined price
(i.e., "go short") to protect itself against the possibility that the prices of
its fixed income securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in the future at
a predetermined price) to hedge against a decline in market interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Funds may purchase listed put
options on financial futures contracts. Unlike entering directly into a futures
contract, which requires the purchaser to buy a financial instrument on a set
date at a specified price, the purchase of a put option on a futures contract
entitles (but does not obligate) its purchaser to decide on or before a future
date whether to assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during the term
of an option, the related futures contracts will also decrease in value and the
option will increase in value. In such an event, a Fund will normally close out
its option by selling an identical option. If the hedge is successful, the
proceeds received by a Fund upon the sale of the second option will be large
enough to offset both the premium paid by a Fund for the original option plus
the decrease in value of the hedged securities.
Alternatively, a Fund may exercise its put option to close out the position. To
do so, it would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the option) and
exercise the option. A Fund would then deliver the futures contract in return
for payment of the strike price. If a Fund neither closes out nor exercises an
option, the option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS. In addition to purchasing put
options on futures, the Funds may write listed call options on futures contracts
to hedge their portfolios. When a Fund writes a call option on a futures
contract, it is undertaking the obligation of assuming a short futures position
(selling a futures contract) at the fixed strike price at any time during the
life of the option if the option is exercised. As stock prices fall or as market
interest rate rise, as applicable, causing the prices of futures to go down, a
Fund's obligation under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of a Fund's call option position to
increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that a
Fund keeps the premium received for the option. This premium can substantially
offset the drop in value of a Fund's fixed income or indexed portfolio which is
occurring as interest rates rise.
Prior to the expiration of a call written by a Fund, or exercise of it by the
buyer, a Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the premium
received by a Fund for the initial option. The net premium income of a Fund will
then substantially offset the decrease in value of the hedged securities.
A Fund will not maintain open positions in futures contracts it has sold or call
options it has written on futures contracts if, in the aggregate, the value of
the open positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, a Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
"MARGIN" IN FUTURES TRANSACTIONS. Unlike the purchase or sale of a security, the
Funds do not pay or receive money upon the purchase or sale of a futures
contract. Rather, the Funds are required to deposit an amount of "initial
margin" in cash or U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in
- --------------------------------------------------------------------------------
futures transactions is different from that of margin in securities transactions
in that initial margin in futures transactions does not involve the borrowing of
funds by a Fund to finance the transactions. Initial margin is in the nature of
a performance bond or good faith deposit on the contract which is returned to a
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day a Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by a Fund but is instead settlement
between a Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, a Fund will
mark to market its open futures positions.
The Funds are also required to deposit and maintain margin when they write call
options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES. The Funds may purchase put
options on portfolio securities to protect against price movements in particular
portfolio securities. A put option gives a Fund, in return for a premium, the
right to sell the underlying security to the writer (seller) at a specified
price during the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES. The Funds may also write
covered call options to generate income. As writer of a call option, a Fund has
the obligation, upon exercise of the option during the option period, to deliver
the underlying security upon payment of the exercise price. A Fund may only sell
call options either on securities held in its portfolio or on securities which
it has the right to obtain without payment of further consideration (or has
segregated cash in the amount of any additional consideration).
RISKS. When the Funds use financial futures and options on financial futures as
hedging devices, there is a risk that the prices of the securities subject to
the futures contracts may not correlate perfectly with the prices of the
securities in a Fund's portfolio. This may cause the futures contract and any
related options to react differently than the portfolio securities to market
changes. In addition, the Funds' investment adviser could be incorrect in its
expectations about the direction or extent of market factors such as stock price
movements or interest rate movements, as applicable. In these events, a Fund may
lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the investment adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. A Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
REPURCHASE AGREEMENTS
The Funds require their custodian to take possession of the securities subject
to repurchase agreements and these securities are marked to market daily. To the
extent that the original seller does not repurchase the securities from a Fund,
a Fund could receive less than the repurchase price on any sale of such
securities. In the event that a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by a Fund might be delayed pending
court action. The Funds believe that, under the regular procedures normally in
effect for custody of a Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of a Fund and
allow retention or disposition of such securities. The Funds will only enter
into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's adviser to be
creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Equity Fund, the Short-Intermediate Fund, and the Government Income Fund may
also enter into reverse repurchase agreements. These transactions are similar to
borrowing cash. In a reverse repurchase agreement, a Fund transfers possession
of a portfolio instrument to another person, such as a financial institution,
broker, or dealer, in return for a percentage of the instrument's market value
in cash and agrees that, on a stipulated date in the future, it will repurchase
the portfolio instrument by remitting the original consideration, plus interest,
at an agreed upon rate. The use of reverse repurchase agreements may enable a
Fund to avoid selling portfolio instruments at a time when a sale may be deemed
to be disadvantageous, but the ability to enter into reverse repurchase
agreements does not ensure that a Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may engage in when-issued and delayed delivery transactions. These
transactions are arrangements in which a Fund purchases securities with payment
and delivery scheduled for a future time. A Fund engages in when-issued and
- --------------------------------------------------------------------------------
delayed delivery transactions only for the purpose of acquiring portfolio
securities consistent with its investment objective and policies, not for
investment leverage. In when-issued and delayed delivery transactions, a Fund
relies on the seller to complete the transaction. The seller's failure to
complete the transaction may cause a Fund to miss a price or yield considered to
be advantageous.
These transactions are made to secure what is considered to be an advantageous
price or yield for a Fund. 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. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of a Fund
sufficient to make payment for the securities to be purchased are segregated at
the trade date. These securities are marked to market daily and are maintained
until the transaction is settled.
The Kentucky Municipal Bond Fund may also sell municipal securities on a delayed
delivery basis with settlement taking place more than five days after the sale
as a normal form of portfolio transaction. It is the investment adviser's
experience that it is not unusual in the municipal securities market for
settlement periods to be slightly longer than this period.
As a matter of policy, 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 20% of the total value of their assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Equity Fund, the Short-Intermediate Fund and
the Government Income Fund lend portfolio securities must be valued daily and,
should the market value of the loaned securities increase, the borrower must
furnish additional collateral to the particular Fund. During the time portfolio
securities are on loan, the borrower pays a Fund any dividends or interest paid
on such securities. Loans are subject to termination at the option of a Fund or
the borrower. A Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker.
The Equity Fund, the Short-Intermediate Fund and the Government Income Fund do
not have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to the
investment.
RESTRICTED AND ILLIQUID SECURITIES
The Equity Fund, the Short-Intermediate Fund, and the Government Income Fund may
invest in commercial paper issued in reliance on the exemption from registration
afforded by Section 4(2) of the Securities Act of 1933. Section 4(2) commercial
paper is restricted as to disposition under federal securities law and is
generally sold to institutional investors, such as the Funds, who agree that
they are purchasing the paper for investment purposes and not with a view to
public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors, like the Funds, through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Funds believe that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Funds intend,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the Funds' investment adviser, as liquid and not subject to the
investment limitation applicable to illiquid securities. In addition, because
Section 4(2) commercial paper is liquid, the Funds intend to not subject such
paper to the limitation applicable to restricted securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") Staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933 (the "Rule"). The Rule is a nonexclusive safe-harbor for certain
secondary market transactions involving securities subject to restrictions on
resale under federal securities laws. The Rule provides an exemption from
registration for resales of otherwise restricted securities to qualified
institutional buyers. The Rule was expected to further enhance the liquidity of
the secondary market for securities eligible for resale under Rule 144A. The
Funds believe that the Staff of the SEC has left the question of determining the
liquidity of all restricted securities to the Trustees. The Trustees consider
the following criteria in determining the liquidity of certain restricted
securities:
- - the frequency of trades and quotes for the security;
- - the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
- - dealer undertakings to make a market in the security; and
- - the nature of the security and the nature of the marketplace trades.
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Funds may trade or dispose of portfolio securities as considered necessary
to meet their respective investment objectives. For the period ended January 31,
1994, the Equity, Kentucky Municipal Bond, Short-Intermediate, and Government
Income Funds' portfolio turnover rates were 59%, 5%, 21%, and 21%, respectively.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that a Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed
and except to the extent that the Equity Fund and the Government Income
Fund may enter into futures contracts. The Funds will not borrow money or
engage in reverse repurchase agreements, where applicable, for investment
leverage, but rather as a temporary, extraordinary, or emergency measure
to facilitate management of the portfolio by enabling a Fund to meet
redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. A Fund will not purchase
any securities while borrowings in excess of 5% of its total assets are
outstanding.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any securities
on margin, but may obtain such short-term credits as are necessary for
clearance of purchases and sales of securities. With respect to the
Equity Fund and the Government Income Fund, the deposit of payment by the
Fund of initial or variation margin in connection with financial futures
contracts or related options transactions is not considered the purchase
of a security on margin.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets, except to
secure permitted borrowings. In those cases, the Equity Fund,
Short-Intermediate Fund, and Government Income Fund may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets of a Fund at the time of the
pledge. The Kentucky Municipal Bond Fund may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value
of its total assets at the time of the pledge. For purposes of this
limitation, the following are not deemed to be pledges (where
applicable): margin deposits for the purchase and sale of financial
futures contracts and related options and segregation or collateral
arrangements made in connection with options activities.
LENDING CASH OR SECURITIES
The Equity Fund, Short-Intermediate Fund, and Government Income Fund will
not lend any of their assets, except portfolio securities, up to
one-third of the value of their total assets. This shall not prevent a
Fund from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted
by a Fund's investment objective, policies, and limitations or the
Declaration of Trust.
The Kentucky Municipal Bond Fund will not lend any of its assets, except
that it may acquire publicly or nonpublicly issued municipal securities
or temporary investments or enter into repurchase agreements in
accordance with its investment objective, policies, and limitations or
its Declaration of Trust.
INVESTING IN COMMODITIES
The Funds will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except that, the Equity Fund, Kentucky
Municipal Bond Fund, and Government Income Fund may purchase put options
on portfolio securities and on financial futures contracts and related
options as a hedging strategy and not for speculative purposes. In
addition, the Equity Fund and Government Income Fund reserve the right to
hedge the portfolio by entering into financial futures contracts and to
sell calls on financial futures contracts.
INVESTING IN REAL ESTATE
The Equity Fund, Short-Intermediate Fund, and Government Income Fund will
not buy or sell real estate including limited partnership interests,
although they may invest in the securities of companies whose business
involves the purchase or sale of real estate or in securities which are
secured by real estate or which represent interests in real estate. The
Kentucky Municipal Bond Fund will not buy or sell real estate, although
it may invest in municipal bonds secured by real estate or interests in
real estate.
- --------------------------------------------------------------------------------
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the Equity Fund,
Short-Intermediate Fund, and Government Income Fund will not purchase
securities of any one issuer (other than cash, cash items or securities
issued or guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements collateralized by
such securities), if as a result, more than 5% of the value of its total
assets would be invested in the securities of that issuer.
CONCENTRATION OF INVESTMENTS
The Equity Fund, Short-Intermediate Fund, and Government Income Fund will
not invest 25% or more of their total assets in any one industry.
However, the Short-Intermediate Fund and Government Income Fund will
invest 25% or more of the value of its total assets in securities issued
or guaranteed by the U.S. government, its agencies, or instrumentalities.
The Kentucky Municipal Bond Fund will not purchase securities if, as a
result of such purchase, 25% or more of the value of its total assets
would be invested in any one industry, or in industrial development bonds
or other securities, the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items.
UNDERWRITING
The Funds will not underwrite any issue of securities, except as a Fund
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities which a Fund may purchase pursuant
to its investment objective, policies, and limitations.
DEALING IN PUTS AND CALLS
The Kentucky Municipal Bond Fund will not buy or sell puts, calls,
straddles, spreads, or any combination of these.
Except as noted, the above investment limitations cannot be changed with respect
to a Fund without shareholder approval. The following limitations, however, may
be changed by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 15% of the value of their net assets
in illiquid securities, including repurchase agreements providing for
settlement more than seven days after notice, and certain restricted
securities not determined by the Trustees to be liquid; and, in the case
of the Equity Fund and Government Income Fund, specifically including
over-the-counter options. To comply with certain state restrictions, the
Equity Fund, Short-Intermediate Fund, and Government Income Fund will
limit these transactions to 10% of the value of its net assets. (If state
restrictions change, this latter restriction may be revised without
shareholder approval.)
INVESTING IN RESTRICTED SECURITIES
The Equity Fund, Short-Intermediate Fund, and Government Income Fund will
not purchase restricted securities if immediately thereafter more than
10% of the total assets of a Fund, taken at market value, would be
invested in such securities (except for commercial paper issued under
Section 4(2) of the Securities Act of 1933). To comply with certain state
restrictions, the Equity Fund will limit these transactions to 5% of its
total assets. (If state restrictions change, this latter restriction may
be revised without shareholder approval or notification.) The Kentucky
Municipal Bond Fund will not invest more than 10% of the value of its
total assets in securities subject to restrictions on resale under the
Securities Act of 1933.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds will limit their respective investment in other investment
companies to no more than 3% of the total outstanding voting stock of any
investment company, invest no more than 5% of its total assets in any
investment company, and invest no more than 10% of its total assets in
investment companies in general. The Funds will purchase securities of
investment companies only in open-market transactions involving only
customary broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation, or
acquisition of assets. It should be noted that investment companies incur
certain expenses such as management fees and, therefore, any investment
by a Fund in shares of another investment company would be subject to
such duplicate expenses. The Funds will invest in other investment
companies primarily for the purpose of investing its short-term cash on a
temporary basis. The adviser will waive its investment advisory fee on
assets invested in securities of open-end investment companies.
- --------------------------------------------------------------------------------
INVESTING IN NEW ISSUERS
The Equity Fund, Short-Intermediate Fund, and Government Income Fund will
not invest more than 5% of the value of their total assets in securities
of issuers which have records of less than three years of continuous
operations, including the operation of any predecessor. The Kentucky
Municipal Bond Fund will not invest more than 5% of the value of its
total assets in industrial development bonds where the principal and
interest are the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations,
including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Equity Fund, Short-Intermediate Fund, and Government Income Fund will
not purchase or retain the securities of any issuer if the officers and
Trustees of the Trust or its investment adviser, owning individually more
than 1/2 of 1% of the issuer's securities, together own more than 5% of
the issuer's securities.
INVESTING IN FOREIGN SECURITIES
The Equity Fund will not invest more than 5% of its total assets in
securities of foreign issuers.
INVESTING IN MINERALS
A Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although the
Short-Intermediate Fund and Government Income Fund may purchase the
securities of issuers which invest in or sponsor such programs. The
Equity Fund may invest in debentures or equity stock interests.
ARBITRAGE TRANSACTIONS
To comply with certain state restrictions, the Equity Fund will not enter
into transactions for the purpose of engaging in arbitrage. If state
requirements change, this restriction may be revised without shareholder
notification.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Equity Fund, Short-Intermediate Fund, and Government Income Fund will
not purchase securities of a company for the purpose of exercising
control or management.
INVESTING IN WARRANTS
The Equity Fund will not invest more than 5% of its assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on the New York or American Stock
Exchanges to 2% of its total assets. (If state restrictions change, this
latter restriction may be revised without notice to shareholders.) For
purposes of this investment restriction, warrants will be valued at the
lower of cost or market, except that warrants acquired by the Fund in
units with or attached to securities may be deemed to be without value.
INVESTING IN PUT OPTIONS
Neither the Equity Fund nor the Government Income Fund will purchase put
options on securities other than put options on stock indices (in the
case of the Equity Fund), unless the securities are held in a Fund's
portfolio and not more than 5% of the value of a Fund's net assets would
be invested in premiums on open put option positions.
WRITING COVERED CALL OPTIONS
Neither the Equity Fund nor the Government Income Fund will write call
options on securities unless the securities are held in a Fund's
portfolio or unless a Fund is entitled to them in deliverable form
without further payment or after segregating cash in the amount of any
further payment.
Except with respect to the Funds' policy of borrowing money, if a percentage
limitation is adhered to at the time of investment, a later increase or decrease
in percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Funds have no present intention to borrow money in excess of 5% of the total
value of its net assets during the coming fiscal year.
To comply with registration requirements in certain states, the Equity Fund and
Government Income Fund (1) will limit the aggregate value of the assets
underlying covered call options or put options written by a Fund to not more
than 25% of its net assets, (2) will limit the premiums paid for options
purchased by a Fund to 20% of its net assets, and (3) will limit the margin
deposits on futures contracts entered into by a Fund to 5% of its net assets.
(If state requirements change, these restrictions may be revised without
shareholder notification.)
- --------------------------------------------------------------------------------
Each Fund of the Trust has the ability to issue more than one class of shares. A
Fund does not consider the issuance of separate classes of shares to constitute
an issue of "senior securities" within the meaning of the investment limitations
set forth above.
For purposes of its policies and limitations, the Funds consider certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
TRADEMARK FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Liberty National Bank and
Trust Company of Kentucky, Federated Investors, Federated Securities Corp.,
Federated Services Company, Federated Administrative Services, and the Funds (as
defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John F. Donahue*+ Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors Trustee Advisers, Federated Management, and Federated Research; Director, AEtna Life
Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire
Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice
President of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, John R.
Wood/IPC Commercial Wood and Associates, Inc., Realtors; President, Northgate Village
Department Development Corporation; General Partner or Trustee in private real estate
John R. Wood and ventures in Southwest Florida; Director, Trustee or Managing General Partner
Associates, Inc., of the Funds; formerly, President, Naples Property Management, Inc.
Realtors
3255 Tamiami Trail North
Naples, FL
- --------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
23rd Floor Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan
Pittsburgh, PA Homes, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA Cross of Massachusetts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat 'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales* President, Vice President, Treasurer, and Trustee, Federated Investors; Vice President
Federated Investors Treasurer and and Treasurer, Federated Advisers, Federated Management, and Federated
Tower Trustee Research; Executive Vice President, Treasurer, and Director, Federated
Pittsburgh, PA Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer,
and Director, Federated Administrative Services; Trustee or Director of some
of the Funds; Vice President and Treasurer of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director,
225 Franklin Street Trustee, or Managing General Partner of the Funds; formerly, President,
Boston, MA State Street Bank and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc..
- --------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat 'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial,
F.A.
- --------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Library
Learning Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Management
University of Pittsburgh Center; Director, Trustee, or Managing General Partner of the Funds;
Pittsburgh, PA President Emeritus, University of Pittsburgh; formerly, Chairman, National
Advisory Council for Environmental Policy & Technology.
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; President and Director,
Tower Federated Administrative Services; Trustee, Federated Services Company;
Pittsburgh, PA President or Vice President of the Funds; Director, Trustee, or Managing
General Partner of some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Trustee, Federated Services
Pittsburgh, PA Company; Executive Vice President, Secretary, and Director, Federated
Administrative Services; Director and Executive Vice President, Federated
Securities Corp.; Vice President and Secretary of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President,
Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Vice President of the Funds;
Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance Company and President
of its Federated Research Division.
- --------------------------------------------------------------------------------------------------------------------------------
Craig P. Churman Vice President Vice President, Federated Administrative Services; Vice President and
Federated Investors and Assistant Assistant Treasurer of some of the Funds.
Tower Treasurer
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
+ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
THE FUNDS
For purposes of the table above, "the Funds" and "Funds" mean the following
investment companies: A. T. Ohio Municipal Money Fund; American Leaders Fund,
Inc.; Annuity Management Series; Automated Cash Management Trust; Automated
Government Money Trust; The Boulevard Funds; California Municipal Cash Trust;
Cash Trust Series II; Cash Trust Series, Inc., DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs Fund;
Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc.-1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain Funds;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111
Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust For Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S.
Treasury Obligations.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding shares of each Fund.
As of March 5, 1994, the following shareholders of record owned 5% or more of
the outstanding shares of the Funds: Loutraq and Loucourt, c/o Liberty National
Bank and Trust Company of Kentucky, Louisville, Kentucky, owned approximately
4,066,848 shares (32.50%) and approximately 7,517,181 shares (60.08%),
respectively, of Trademark Equity Fund; Loutraq and Loucourt, c/o Liberty
National Bank and Trust Company of Kentucky, Louisville, Kentucky, owned
approximately 3,004,486 shares (29.03%) and approximately 6,806,342 shares
(65.76%), respectively, of Trademark Government Income Fund; Loutraq, c/o
Liberty National Bank and Trust Company of Kentucky, Louisville, Kentucky, owned
approximately 5,030,695 shares (78.86%) of Trademark Kentucky Municipal Bond
Fund; and Loutraq and Loucourt, c/o Liberty National Bank and Trust Company of
Kentucky, Louisville, Kentucky, owned approximately 1,607,814 shares (29.62%),
and approximately 2,901,902 shares (53.47%), respectively, of Trademark
Short-Intermediate Government Fund.
TRUSTEE LIABILITY
The Trademark Funds' Declaration of Trust provides that the Trustees are not
liable for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason
- --------------------------------------------------------------------------------
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUNDS
The Trust's investment adviser is Liberty National Bank and Trust Company of
Kentucky ("Liberty National" or the "Adviser"). It provides investment advisory
services through its Trust Division.
The Adviser shall not be liable to the Trust, a Fund, or any shareholder of any
of the Funds for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Liberty National to restrict the
flow of non-public information, the Funds' investments are typically made
without any knowledge of Liberty National's or its affiliates' lending
relationships with an issuer.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
For the period ended January 31, 1994, the Trust's adviser earned advisory fees
as follows: from the Equity Fund, $829,553 of which $376,044 was voluntarily
waived; from Kentucky Municipal Bond Fund, $215,477 of which $91,761 was
voluntarily waived; from Short-Intermediate Fund, $255,364 of which $77,057 was
voluntarily waived; and from Government Income Fund, $463,072 of which $108,452
was voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If a Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the Adviser will reimburse a
Fund for its expenses over the limitation.
If a Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Funds for the fees set forth in the
prospectus. For the period ended January 31, 1994, the Funds incurred costs for
administrative services as follows: from the Equity Fund, $142,829; from
Kentucky Municipal Bond Fund, $62,930; from Short-Intermediate Fund, $62,328;
and from Government Income Fund, $113,008. John A. Staley, IV, an officer of the
Funds, holds approximately 15% of the outstanding common stock and serves as a
director of Commercial Data Services, Inc., a company which provides computer
processing services to Federated Administrative Services. For the year ended
January 31, 1994, Federated Administrative Services paid approximately $161,054
for services provided by Commercial Data Services, Inc.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the 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.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser 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.
For the period from February 19, 1993 (date of initial public investment) to
January 31, 1994, the Equity Fund paid $224,798 in commissions on brokerage
transactions.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares of the Funds are sold at their net asset value without a sales charge on
days on which the New York Stock Exchange and Federal Reserve Wire System are
open for business. The procedure for purchasing shares of the Funds is explained
in the prospectus under "Investing in the Funds."
DISTRIBUTION PLAN
With respect to the Funds, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the SEC pursuant to the Investment Company Act of 1940.
The Plan provides for payment of fees to Federated Securities Corp. to finance
any activity which is principally intended to result in the sale of a Fund's
shares subject to the Plan. Such activities may include the advertising and
marketing of shares of a Fund; preparing, printing, and distributing
prospectuses and sales literature to prospective shareholders, brokers, or
administrators; and implementing and operating the Plan. Pursuant to the Plan,
Federated Securities Corp. may pay fees to brokers for distribution and
administrative services and to administrators for administrative services
provided to the Funds. The administrative services are provided by a
representative who has knowledge of the shareholder's particular circumstances
and goals, and include, but are not limited to: communicating account openings;
communicating account closings; entering purchase transactions; entering
redemption transactions; providing or arranging to provide accounting support
for all transactions, wiring funds and receiving funds for purchases and
redemptions of Fund shares, confirming and reconciling all transactions,
reviewing the activity in Fund accounts and providing training and supervision
of broker personnel; posting and reinvesting dividends to Fund accounts or
arranging for this service to be performed by the Funds' transfer agent; and
maintaining and distributing current copies of prospectuses and shareholder
reports to the beneficial owners of Fund shares and prospective shareholders.
EXCHANGING SECURITIES FOR FUND SHARES
- --------------------------------------------------------------------------------
Investors may exchange securities they already own for shares of any Fund, or
they may exchange a combination of securities and cash for Fund shares. Any
securities to be exchanged must meet the investment objective and policies of a
Fund, must have a readily ascertainable market value, must be liquid, and must
not be subject to restrictions on resale. An investor should forward the
securities in negotiable form with an authorized letter of transmittal to
Liberty National. A Fund will notify the investor of its acceptances and
valuation of the securities within five business days of their receipt by
Federated Services Company.
A Fund values such securities in the same manner as it values its assets. The
basis of the exchange will depend upon the net asset value of Fund shares on the
day the securities are valued. One share of a 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, subscriptions, conversion,
or other rights attached to the securities become the property of a Fund, along
with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is currently 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.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Funds' net asset values generally change each day. The days on which the net
asset value is calculated by the Funds are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
The market values of the Equity Fund's portfolio securities, other than options,
are determined as follows:
- - for equity securities, according to the last sale price on a national
securities exchange, if available;
- - in the absence of recorded sales for listed equity securities, according to
the mean between the last closing bid and asked prices;
- - for unlisted equity securities, the latest bid prices;
- - for bonds and other fixed income securities, as determined by an independent
pricing service;
- - for short-term obligations, according to the mean between the bid and asked
prices, as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of less than 60 days at the time of
purchase, at amortized cost unless the Trustees determine this is not for
value; or
- - for all other securities, at fair value as determined in good faith by the
Trustees.
The market value of the Short-Intermediate and the Government Income Funds'
portfolio securities (other than options, in the case of the Government Income
Fund) are determined as follows:
- - as provided by an independent pricing service;
- - for short-term obligations, according to the mean between the bid and asked
prices, as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of less than 60 days at the time of
purchase, at amortized cost unless the Trustees determine this is not for
value; or
- - at fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
- - yield;
- - quality;
- - coupon rate;
- - maturity;
- - type of issue;
- - trading characteristics; and
- - other market data.
The Equity Fund and the Government Income Fund will value futures contracts,
options, put options on futures and financial futures at their market values
established by the exchanges at the close of option trading on such exchanges
unless the Trustees determine in good faith that another method of valuing
option positions is necessary.
With respect to the Kentucky Municipal Bond Fund, the Trustees use an
independent pricing service to value municipal bonds. The independent pricing
service takes into consideration yield, stability, risk, quality, coupon rate,
maturity, type of issue, trading characteristics, special circumstances of a
security or trading market, and any other factors or market data it considers
relevant in determining valuations for normal institutional size trading units
of debt securities, and does not rely exclusively on quoted prices.
With respect to the Kentucky Municipal Bond Fund, the Trustees have decided that
the fair value of debt securities authorized to be purchased by the Fund with
remaining maturities of 60 days or less at the time of purchase shall be their
amortized cost value, unless the particular circumstances of the security
indicate otherwise. Under this method, portfolio instruments and assets are
valued at the acquisition cost as adjusted for amortization of premium or
accumulation of discount rather than at current market value. The Executive
Committee of the Trustees periodically assesses this method of valuation and
recommends changes where necessary to assure that the Fund's portfolio
instruments are valued at their fair value as determined in good faith by the
Trustees.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders of a Fund may exchange shares of that Fund for shares of other
Funds advised by Liberty National, subject to certain conditions. Exchange
procedures are explained in the prospectus under "Exchange Privilege."
REDEEMING SHARES
- --------------------------------------------------------------------------------
Each Fund redeems shares at the next computed net asset value after a Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
- --------------------------------------------------------------------------------
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from a Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which each Fund is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of any Fund's net
asset value during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because they expect to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, each Fund
must, among other requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
With respect to the Equity Fund, Short-Intermediate Fund, and Government Income
Fund, shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. No portion of any income dividend
paid by a Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.
With respect to the Kentucky Municipal Bond Fund, no portion of any income
dividend paid by the Fund is eligible for the dividends received deduction
available to corporations.
CAPITAL GAINS
With respect to the Equity Fund, Short-Intermediate Fund, and Government
Income Fund, long-term capital gains distributed to shareholders will be
treated as long-term capital gains regardless of how long shareholders
have held Fund shares.
With respect to the Kentucky Municipal Bond Fund, capital gains or losses
may be realized by the Fund on the sale of portfolio securities and as a
result of discounts from par value on securities held to maturity. Sales
would generally be made because of:
- the availability of higher relative yields;
- differentials in market values;
- new investment opportunities;
- changes in creditworthiness of an issuer; or
- an attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
From February 19, 1993 (date of initial public investment) to January 31, 1994,
the cumulative total return for the Government Income Fund was 6.98%. From
February 19, 1993 (date of initial public investment) to January 31, 1994, the
cumulative total returns for the Equity Fund and Short-Intermediate Fund were
14.72% and 4.61%, respectively. From March 12, 1993 (date of initial public
investment) to January 31, 1994, the cumulative total return for the Kentucky
Municipal Bond Fund was 8.05%.
The average annual total return for each Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares purchased
at the beginning of
- --------------------------------------------------------------------------------
the period with $1,000, less any applicable sales load, adjusted over the period
by any additional shares, assuming the monthly reinvestment of all dividends and
distributions.
YIELD
- --------------------------------------------------------------------------------
The yields for the Equity Fund, Kentucky Municipal Bond Fund, Short-Intermediate
Fund, and Government Income Fund for the thirty-day period ended January 31,
1994 were 1.63%, 3.93%, 4.00% and 4.61%, respectively.
The yield of each Fund is calculated by dividing the net investment income per
share (as defined by the SEC) earned by each Fund over a thirty-day period by
the maximum offering price per share of each Fund on the last day of the period.
This value is then annualized using semi-annual compounding. This means that the
amount of income generated during the thirty-day period is assumed to be
generated each month over a twelve-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by a Fund
because of certain adjustments required by the SEC and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
the performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The tax-equivalent yield for the Kentucky Municipal Bond Fund is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that the
Fund would have had to earn to equal its actual yield, assuming the maximum
effective federal rate for individuals, and also assuming that income is 100%
tax-exempt.
The Fund's tax equivalent yield for the thirty-day period ended January 31,
1994, was 5.95%, assuming a 28% tax rate and 6.24%, assuming a 31% tax rate.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's portfolio
generally remains free from federal regular income tax,* and is often free from
state and local taxes as well. As the table below indicates, a "tax-free"
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1994
STATE OF KENTUCKY
<TABLE>
<CAPTION>
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
- ---------------------------------------------------------------------------------------------------------------------
21.00% 34.00% 37.00% 45.60%
---------- --------------- ---------------- --------------
42.00%
-----------------
<S> <C> <C> <C> <C> <C>
Joint Return: $1-38,000 $38,001-91,850 $91,851-140,000 $140,001-250,000 Over $250,000
Single Return: $1-22,750 $22,751-55,100 $55,101-140,000 $140,001-250,000 Over $250,000
- ---------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- ---------------------------------------------------------------------------------------------------------------------
2.50% 3.16% 3.79% 3.97% 4.31% 4.60%
3.00 3.80 4.55 4.76 5.17 5.51
3.50 4.43 5.30 5.56 6.03 6.43
4.00 5.06 6.06 6.35 6.90 7.35
4.50 5.70 6.82 7.14 7.76 8.27
5.00 6.33 7.58 7.94 8.62 9.19
5.50 6.96 8.33 8.73 9.48 10.11
6.00 7.59 9.09 9.52 10.34 11.03
6.50 8.23 9.85 10.32 11.21 11.95
7.00 8.86 10.61 11.11 12.07 12.87
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
Each Fund's performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolio securities;
- - changes in each Fund's expenses; and
- - various other factors
Each Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return.
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. The financial
publications and/or indices which a Fund uses in advertising may include:
- - MERRILL LYNCH COMPOSITE 1-5 YEAR TREASURY INDEX is comprised of approximately
66 issues of U.S. Treasury securities maturing between 1 and 4.99 years, with
coupon rates of 4.25% or more. These total return figures are calculated for
one, three, six, and twelve-month periods and year-to-date and include the
value of the bond, plus income and any price appreciation or depreciation.
- - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various categories by making
comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time.
From time to time, each Fund will quote its Lipper ranking in the applicable
funds category in advertising and sales literature.
- - SALOMON BROTHERS 2-YEAR, 3-YEAR, 4-YEAR, AND 5-YEAR TREASURY YIELD CURVE
INDICES are unmanaged indices comprised of the most recently issued 2-year,
3-year, 4-year, and 5-year U.S. Treasury notes, respectively. Index returns
are calculated as total returns for periods of one, three, six, and twelve
months as well as year-to-date.
- - LEHMAN INTERMEDIATE GOVERNMENT INDEX is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government or any
agency thereof, or any quasi-federal corporation, and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and minimum maturity of one year and
maximum maturity of ten years are included.
- - DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations as well as public utility and transportation
companies. The DJIA indicates daily changes in the average price of stocks in
any of its categories. It also reports total sales for each group of
industries. Because it represents the top corporations of America, the DJIA
index is a leading economic indicator for the stock market as a whole.
- - STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, and financial and public
utility companies. In addition, the Standard & Poor's index assumes
reinvestment of all dividends paid by stocks listed on the index. Taxes due on
any of these distributions are not included, nor are brokerage or other fees
calculated in the Standard & Poor's figures.
- - LEHMAN GOVERNMENT/CORPORATE TOTAL INDEX is comprised of approximately 5,000
issues which include non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed-rate,
non-convertible domestic bonds of companies in industry, public utilities, and
finance. Tracked by Shearson Lehman, the index has an average maturity of nine
years. It calculates total return for one month, three month, twelve month,
and ten year periods, and year-to-date.
- - MERRILL LYNCH 1-10 YEAR GOVERNMENT INDEX is an unmanaged index comprised of
U.S. government securities with maturities between 1 and 10 years. Index
returns are calculated as total returns for periods of one, three, six and
twelve months, as well as year-to-date. The index is produced by Merrill
Lynch, Pierce, Fenner & Smith, Inc.
- - LEHMAN GOVERNMENT (LT) INDEX, for example, is an index composed of bonds
issued by the U.S. government or its agencies which have at least $1 million
outstanding in principal and which have maturities of ten years or longer.
Index figures are total return figures calculated monthly.
- - LEHMAN 5 YEAR MUNICIPAL INDEX is an index comprised of approximately 3,000
municipal securities issued throughout the U.S. Only securities rated Baa or
higher by Moody's or BBB or higher by Standard & Poor's are included.
Securities in the index must have a minimum outstanding principal of $50
million and have a maturity of between four and six years.
- - LEHMAN 10 YEAR MUNICIPAL INDEX is an index comprised of approximately 4,900
municipal securities issued throughout the U.S. Only securities rated Baa or
higher by Moody's or BBB or higher by Standard & Poor's are included.
Securities in the index must have a minimum outstanding principal of $50
million and have a maturity of between eight and twelve years.
- --------------------------------------------------------------------------------
- - MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Funds may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Funds based
on monthly/quarterly reinvestment of dividends over a specified period of time.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION MUNICIPAL BOND RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation a matter of policy.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL/CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have an adverse impact on these bonds and, therefore, impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category.
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign(+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rate PRIME-1 (for related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well-established access to a
range of financial markets and assured sources of alternative liquidity.
P-2--Issuers rated PRIME-2 (for related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
3071504B (3/94)
