TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
PROSPECTUS
The shares of Tennessee Tax-Free Bond Fund (the "Fund") offered by this
prospectus represent interests in a non-diversified portfolio of securities
which is an investment portfolio in The Planters Funds (the "Trust"), an
open-end management investment company (a mutual fund).
The investment objective of the Fund is to provide current income exempt from
federal income tax and personal income taxes imposed by the state of Tennessee
and Tennessee municipalities. The Fund invests primarily in a portfolio of
municipal securities which are exempt from federal income tax and personal
income taxes imposed by the state of Tennessee and Tennessee municipalities
("Tennessee Municipal Securities"). These securities include those issued by or
on behalf of the state of Tennessee and Tennessee municipalities as well as
those issued by states, territories and possessions of the United States that
are not issued by or on behalf of Tennessee and its political subdivisions, but
which are exempt from Tennessee state income tax.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF UNION
PLANTERS NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY UNION PLANTERS
NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC"), THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT
IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated February 28,
1994 with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
calling Federated Securities Corp. at 1-800-618-8573.
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 February 28, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Characteristics 3
Participation Interests 4
Variable Rate Municipal Securities 4
Municipal Leases 4
Restricted and Illiquid Securities 5
Investing in Securities of Other
Investment Companies 5
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
Tennessee Municipal Securities 6
Investment Risks 6
Non-Diversification 6
Investment Limitations 7
THE PLANTERS FUNDS INFORMATION 7
- ------------------------------------------------------
Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Portfolio Managers 8
Distribution of Fund Shares 8
Administrative Arrangements 8
Administration of the Fund 8
Administrative Services 8
Custodian 9
Transfer Agent, Dividend
Disbursing Agent and
Portfolio Accounting Services 9
Legal Counsel 9
Independent Auditors 9
Expenses of the Fund 9
NET ASSET VALUE 9
- ------------------------------------------------------
INVESTING IN THE FUND 9
- ------------------------------------------------------
Share Purchases 9
Minimum Investment Required 10
What Shares Cost 10
Purchases at Net Asset Value 10
Dealer Concessions 11
Reducing the Sales Charge 11
Quantity Discounts and Accumulated
Purchases 11
Letter of Intent 11
Reinvestment Privilege 12
Certificates and Confirmations 12
Dividends and Distributions 12
REDEEMING SHARES 12
- ------------------------------------------------------
By Telephone 12
By Mail 13
Signatures 13
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 14
- ------------------------------------------------------
Voting Rights 14
Massachusetts Partnership Law 14
EFFECT OF BANKING LAWS 14
- ------------------------------------------------------
TAX INFORMATION 15
- ------------------------------------------------------
Federal Income Tax 15
State of Tennessee Taxes 15
Other State and Local Taxes 16
PERFORMANCE INFORMATION 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ESTIMATED SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................. 4.00%*
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Deferred Sales Load (as a percentage of the lesser of original purchase price
or redemption proceeds, as applicable)................................................................ None
Redemption Fees (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee............................................................................................ None
ANNUAL FUND OPERATING EXPENSES**
(As a percentage of projected average net assets)
Management Fee (after waiver) (1)....................................................................... 0.13%
12b-1 Fees.............................................................................................. None
Other Expenses (after waiver and reimbursement) (1)..................................................... 0.62%
Total Fund Operating Expenses (2).............................................................. 0.75%
</TABLE>
(1) The estimated management fee and other expenses have been reduced to reflect
the anticipated voluntary waiver of the investment advisory fee by the
investment adviser and of the administrative personnel and services fee by
the administrator. The investment adviser and administrator can terminate
this voluntary waiver at any time at their sole discretion. The maximum
management fee is 0.75%.
(2) Total Fund operating expenses are estimated to be 1.37% absent the
anticipated voluntary waivers detailed in Note (1).
* During the period from February 1, 1994, through and including September 30,
1994, the maximum sales load imposed on the purchase of shares of the Fund
will be 2.00% of the offering price of the shares purchased.
** Expenses in this table are estimated based on expenses expected to be
incurred during the fiscal year ending July 31, 1994. 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 OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "THE PLANTERS FUNDS INFORMATION," AND "INVESTING IN THE FUND."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return; (2)
redemption at the end of each time period; and (3) payment of the maximum sales load........... $47 $63
</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.
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31,
1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.50
- --------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS 0.19
- --------------------------------------------------------------------------------------------------
Net investment income
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.30
- -------------------------------------------------------------------------------------------------- ---------------
Total from investment operations 0.49
- --------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.17)
- -------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 10.82
- -------------------------------------------------------------------------------------------------- ---------------
TOTAL RETURN** 4.84%
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------
Expenses 0.60%(a)
- --------------------------------------------------------------------------------------------------
Net investment income 4.22%(a)
- --------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.98%(a)
- --------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $39,670
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate 14%
- --------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from August 30, 1993 (date of initial
public investment) to January 31, 1994.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Planters Funds (the "Trust") was established as a Massachusetts business
trust under a Declaration of Trust dated May 14, 1993. 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. With respect to this Fund, as
of the date of this prospectus, the Trustees have not established separate
classes of shares.
Shares of the Fund are designed for customers of financial institutions such as
broker/dealers, banks, fiduciaries, and investment advisers as a convenient
means of accumulating an interest in a professionally managed, non-diversified
portfolio investing primarily in Tennessee Municipal Securities. A minimum
initial investment of $1,000 is required. The Fund is not likely to be a
suitable investment for non-Tennessee taxpayers or retirement plans since the
Fund invests in Tennessee Municipal Securities.
Except as otherwise noted in this prospectus, shares of the Fund are sold at net
asset value plus a sales charge and are redeemed at net asset value.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal income tax and personal income taxes imposed by the state of Tennessee
and Tennessee municipalities. The investment objective cannot be changed without
approval of a majority of the Fund's shares. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income tax described above
retains its 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 Tennessee.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of Tennessee Municipal Securities. As a matter of investment policy, which may
not be changed without shareholder approval, under normal market conditions at
least 80% of the Fund's income will be exempt from federal income tax (including
alternative minimum tax) and personal income tax imposed by the state of
Tennessee and Tennessee municipalities. Unless indicated otherwise, the other
investment policies of the Fund described below may be changed by the Trustees
without approval of shareholders. Shareholders will be notified before any
material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Tennessee Municipal Securities in which the Fund
invests are:
obligations issued by or on behalf of the state of Tennessee, its
political subdivisions, or agencies;
debt obligations of any state, territory, or possession of the United
States, including the District of Columbia or any political subdivision
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 investment adviser to the Fund,
exempt from both federal income tax and the personal income taxes imposed by the
state of Tennessee and Tennessee municipalities.
CHARACTERISTICS. The Tennessee Municipal Securities in which the Fund
invests are rated "investment grade," i.e., Baa or above by Moody's
Investor Service, Inc. ("Moody's") or BBB or above by Standard & Poor's
Corporation ("S&P") or Fitch Investors Service, Inc. ("Fitch"). A
description of the rating categories is contained in the Appendix to the
Statement of Additional Information. In certain cases, the Fund's adviser
may choose bonds that are unrated if it judges the bonds to be of
comparable quality to one of the foregoing rating categories. Bonds rated
"BBB" by S&P or "Baa" by Moody's 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. If the Fund purchases an investment grade bond, and the rating of
such bond is subsequently downgraded so that the bond is no longer
classified as investment grade, the Fund is not required to sell the bond,
but will consider whether such action is appropriate. As a matter of
investment policy, under normal market conditions, the Fund will invest at
least 65% of its assets in bonds.
PARTICIPATION INTERESTS. The Fund may purchase participation interests in
Tennessee Municipal Securities from financial institutions such as commercial
banks, savings and loan associations and insurance companies. These
participation interests may take the form of participations, beneficial
interests in a trust, partnership interests or any other form of indirect
ownership that allows the Fund to treat the income from the investment as exempt
from federal income tax. 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.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the Tennessee Municipal Securities
which the Fund purchases may have variable interest rates. Variable interest
rates are ordinarily based on a published interest rate or interest rate index.
Many variable rate municipal securities are subject to payment of principal on
demand by the Fund in not more than seven days. All variable rate municipal
securities will meet the quality standards for the Fund. The Fund's investment
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 and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract or a
participation certificate on any of the above. 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 become 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.
If the Fund purchases unrated municipal leases, the Trustees will be responsible
for determining on an ongoing basis, the credit quality of such leases and the
likelihood that a lease will not be cancelled.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest 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 restriction on resale under federal securities laws. To the extent
these securities are deemed to be illiquid, the Fund will limit its purchases,
together with other securities considered to be illiquid, to 15% of its net
assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it 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 Fund 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. In when-issued and delayed delivery transactions, the Fund relies
on the seller to complete the transaction. The seller's failure to complete the
transaction may cause the Fund to miss a price or yield considered to be
advantageous.
TEMPORARY INVESTMENTS. The Fund normally invests its assets so that at least
80% of its annual interest income is exempt from federal income tax and the
personal income taxes imposed by the state of Tennessee and Tennessee
municipalities and at least 65% of the value of its total assets will be
invested in bonds. 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; and repurchase agreements
(arrangements in which the organization selling the Fund a bond or temporary
investment agrees at the time of sale to repurchase it at a mutually agreed upon
time and price).
The investment adviser will limit temporary investments to those rated within
the investment grade categories described under "Acceptable
Investments--Characteristics" (if rated) or of comparable quality (if unrated).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal income tax or
personal income taxes imposed by the state of Tennessee or Tennessee
municipalities.
TENNESSEE MUNICIPAL SECURITIES
Tennessee Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, 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.
Tennessee Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and 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 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.
INVESTMENT RISKS
Yields on municipal securities depend on a variety of factors, including: the
general conditions of the short-term municipal bond market and the municipal
bond market; the size and maturity of the particular offering; and the rating of
the issue. Further, any adverse economic conditions or developments affecting
the issuer or its municipalities could impact the Fund's portfolio. The ability
of the Fund to achieve its investment objective also depends on the continuing
ability of the issuers of Tennessee Municipal Securities and participation
interests, or the credit enhancers of either, to meet their obligations for the
payment of interest and principal when due.
Investing in municipal securities which meet the Fund's quality standards may
not be possible if the issuer or its municipalities do not maintain their
current credit ratings. In addition, certain constitutional amendments,
legislative measures, executive orders, administrative regulations, and voter
initiatives could result in adverse consequences affecting municipal securities.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. 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 investment in a
diversified portfolio of securities 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 intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year:
(a) with regard to at least 50% of the Fund's total assets, no more than 5% of
its total assets are invested in the securities of a single issuer; and
(b) no more than 25% of its total assets are invested in the securities of a
single issuer.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the 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, the Fund may borrow up to
one-third of the value of its total assets and pledge assets as necessary to
secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
THE PLANTERS FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees ("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 Fund are made by Union Planters National Bank
("Union Planters" or the "adviser"), the Fund's adviser, subject to direction by
the Trustees. The adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the assets of
the Fund.
From time to time, to the extent consistent with the objective, policies and
restrictions of the Fund, the Fund may invest in securities of issuers with
which the adviser has a lending relationship.
ADVISORY FEES. The adviser receives an investment advisory fee at an
annual rate equal to 0.75% of the Fund's average daily net assets. The fee
paid by the Fund, while higher than the advisory fees 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
the 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 fee or reimburse the Fund for
certain other expenses, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Founded in 1869, Union Planters, a national banking
association, is a wholly-owned subsidiary of Union Planters Corporation
(the "Corporation") a multi-bank holding company headquartered in Memphis,
Tennessee. Union Planters is a commercial bank offering a wide range of
banking services to its customers. The adviser has been managing trust
assets for over 80 years. As of December 31, 1992, the Trust Group of Union
Planters had approximately $900 million under administration, of which it
had investment discretion over approximately $490 million. The adviser has
served as investment adviser to the Fund since its inception.
PORTFOLIO MANAGERS. The following individuals are primarily responsible
for the day-to-day management of the Fund's portfolio:
Robert G. L. Eason, Vice President and Senior Fixed Income Portfolio
Manager of Union Planters since 1989. From 1983-1989, Mr. Eason was
Portfolio Manager at First Tennessee National Bank.
P. Thomas Dorian, Senior Vice President of Union Planters since 1989. From
1987-1989, Mr. Dorian was Vice President of Union Planters. Mr. Dorian has
been a Chartered Financial Analyst since 1985.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. ("FSC") is the principal distributor for shares of
the Fund. FSC is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. FSC is a
subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS. The distributor may pay financial institutions
such as banks, fiduciaries, custodians for public funds, investment advisers and
broker-dealers a fee based upon the average net asset value of shares of their
customers invested in the Fund for providing administrative services.
Administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer 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 inquiries regarding the
Funds; assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as the Fund reasonably requests.
This fee, if paid, will be reimbursed by the adviser and not the Fund.
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.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with
certain administrative personnel and services necessary to operate the 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
$120,000 per Fund. FAS may voluntarily choose to waive a portion of its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts ("State
Street"), is custodian for the securities and cash of the Fund.
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 Fund. It also
provides certain accounting and recordkeeping services with respect to the
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 Fund are Price
Waterhouse, Boston, Massachusetts.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of Trust expenses.
The expenses borne by the Fund include, but are not limited to, the costs 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 Fund and shares of the
Fund; taxes and commissions; issuing, purchasing, repurchasing, and redeeming
shares; fees for custodian, transfer agent, dividend disbursing agent,
shareholder servicing agents, and registrars; printing, mailing, auditing,
accounting, and legal expenses; reports to shareholders and government agencies;
meetings of Trustees and shareholders and proxy solicitations therefor;
insurance premiums; association membership dues; and such nonrecurring and
extraordinary items as may arise.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and all other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Wire System are open for business. An individual investor can purchase
shares of the Fund by telephoning Union Planters Brokerage Services at
1-800-238-7125 or by calling his financial institution (such as a bank or an
investment dealer). Orders through a financial institution are considered
received when the Fund is notified of the purchase order. Purchase orders
through a registered broker/dealer must be received by the broker before 4:00
p.m. (Eastern time) and must be transmitted by the broker to the Fund before
5:00 p.m. (Eastern time) in order for shares to be purchased at that day's
price. Purchase orders through other financial institutions must be received by
the financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for shares to be purchased at that day's price. It is the
financial institution's responsibilty to transmit orders promptly.
Financial institutions and investment advisers can purchase shares through FSC
by calling 1-800-618-8573, such purchase orders must be received by FSC before
4:00 p.m. (Eastern time) in order for shares to be purchased at that day's
public offering price. Texas residents must purchase shares of the Fund through
FSC at 1-800-618-8573. In connection with the sale of shares, the distributor
may, from time to time, offer certain items of nominal value to any shareholder
or investor. The Fund reserves the right to reject any purchase request.
Payment may be made by either check or federal funds. Payments should be made to
your financial institution, broker/dealer or FSC, as appropriate. It is the
Fund's policy to be as fully invested as possible so that maximum interest may
be earned. To this end, all payments from shareholders must be in federal funds
or be converted into federal funds before shareholders begin to earn dividends.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,000. Subsequent investments
must be in amounts of at least $100.
WHAT SHARES COST
Shares of the Fund are sold at their net asset value next determined after an
order is received plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
<S> <C> <C>
Less than $50,000 4.00% 4.17%
$50,000 but less than $100,000 3.50% 3.63%
$100,000 but less than $250,000 3.00% 3.09%
$250,000 but less than $500,000 2.00% 2.04%
$500,000 but less than $750,000 1.50% 1.52%
$750,000 but less than $1,000,000 1.00% 1.01%
$1 million or more 0.00%
</TABLE>
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving
Day and Christmas Day.
During the period from February 1, 1994, through and including September 30,
1994, the maximum sales charge imposed on the purchase of shares of the Fund
will be 2.00% of the offering price of the shares purchased.
PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset
value, without a sales charge, by Trust customers of Union Planters and
employees and retired employees of Union Planters and its affiliates and their
spouses and children under 21.
No sales charge is imposed for shares purchased through bank trust departments,
investment advisers registered under the Investment Advisers Act of 1940,
insurance companies and credit unions. However, investors who purchase shares
through a trust department or investment adviser may be charged an additional
service fee by that institution.
DEALER CONCESSIONS. For sales of shares of the Fund, a dealer will normally
receive up to 85% of the applicable sales charge. Any portion of the sales
charge which is not paid to a dealer will be retained by the distributor.
However, the distributor, in its sole discretion, may uniformly offer to pay to
all dealers selling shares of the Fund, all or a portion of the sales charge it
normally retains. If accepted by the dealer, such additional payments will be
predicated upon the amount of Fund shares sold.
The sales charge for shares sold other than through registered broker/dealers
will be retained by the distributor. The distributor may pay fees to banks out
of the sales charge in exchange for sales and/or administrative services
performed on behalf of the bank's customers including the initiation of customer
accounts and purchases of shares.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares of the Fund through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent; or
using the reinvestment privilege.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on the
previous page, larger purchases reduce the sales charge paid. The Fund will
combine purchases of shares made on the same day by the investor, his spouse,
and his children under age 21 when it calculates the sales charge.
If an additional purchase of shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
shares having a current value at the public offering price of $40,000 and
purchases $10,000 more at the current public offering price, the sales charge on
the additional purchase according to the schedule now in effect would be 3.50%,
not 4.00%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing at the time the purchase is made that
shares are already owned or that purchases are being combined. The Fund will
reduce the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the Fund over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the custodian to hold
up to 4.00% of the total amount intended to be purchased in escrow (in shares)
until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if he does, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased.
This letter may be dated as of a prior date to include any purchases made within
the past 90 days towards the dollar fulfillment of the letter of intent. Prior
trade prices will not be adjusted.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge.
Federated Securities Corp. must be notified by the shareholder in writing or by
the shareholder's financial institution of the reinvestment in order to
eliminate a sales charge. If the shareholder redeems shares in the Fund, there
may be tax consequences, and exercise of the reinvestment privilege may result
in additional tax considerations. Shareholders contemplating such transactions
should consult their own tax advisers.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
requested by contacting your financial institution, broker/dealer or FSC, as
appropriate.
Detailed statements that include account balances, information on each purchase
or redemption, and a report of dividends are sent to each shareholder.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date.
Dividends are declared just prior to determining net asset value. Capital gains
realized by the Fund, if any, will be distributed at least once every 12 months.
Dividends and capital gains will be 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 your financial institution,
broker/dealer or FSC, as appropriate.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemption
must be received in proper form.
BY TELEPHONE. A shareholder may redeem shares by calling his financial
institution (such as a bank or an investment dealer) to request the redemption.
Shares will be redeemed at the net asset value next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
must be received by the financial institution and transmitted to the Fund before
4:00 p.m. (Eastern time) in order for shares to be redeemed at that day's net
asset value. The financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption instructions to the
Fund. The financial institution may charge customary fees and commissions for
this service.
For orders received before 4:00 p.m. (Eastern time), proceeds will normally be
wired the next day to the shareholder's account as instructed on the
shareholder's authorization form or a check will be sent to the address of
record. Proceeds delivered in the form of a check will be sent within seven days
after a proper request for redemption has been received, provided the transfer
agent has received the purchase price for the shares from the shareholder.
Before a financial institution may request redemption by telephone on behalf of
a shareholder, an authorization form permitting the Fund to accept redemption
requests by telephone must be completed.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, 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 FSC. If, at any time, the Fund should determine it
necessary to terminate or modify this method of redemption, shareholders would
be promptly notified.
BY MAIL. Shareholders may redeem shares by sending a written request to FSC as
appropriate. 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. Shareholders should
call FSC at 1-800-618-8573 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
the 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 FDIC;
a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
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 Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum of $1,000 due to shareholder
redemptions.
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 the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote. As of February 10, 1994, Union Planters National Bank,
Memphis, Tennessee, acting in various capacities for numerous accounts, was the
owner of record of 3,535,067 shares (95.24%) of the Fund, and therefore, may,
for certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
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 Trust's or the Fund's operation and for the election of Trustees
under certain circumstances. Trustees may be removed by the Trustees or by
shareholders at a special meeting. A special meeting of the shareholders for
this purpose shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of all series in the
Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on behalf
of the Fund. To protect shareholders of the Fund, the Trust has filed legal
documents with Massachusetts that expressly disclaim the liability of
shareholders of the 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 that the Trust or its Trustees enter into or sign on
behalf of the Fund.
In the unlikely event that a shareholder of the Fund is held personally liable
for the Trust's obligations on behalf of the Fund, the Trust is required to use
the property of the Fund to protect or compensate the shareholder. On request,
the Trust will defend any claim made and pay any judgment against a shareholder
of the Fund for any act or obligation of the Trust on behalf of the Fund.
Therefore, financial loss resulting from liability as a shareholder of the Fund
will occur only if the Trust cannot meet its obligations to indemnify
shareholders and pay judgments against them from the assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956 or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling or distributing securities
in general. Such laws and regulations do not prohibit such a holding company or
affiliate 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 their customers. The Fund's adviser, Union
Planters, is subject to such banking laws and regulations.
Union Planters believes that it may perform the investment advisory services for
the Fund contemplated by its advisory agreement with the Trust without violating
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 present or future
statutes and regulations, could prevent Union Planters from continuing to
perform all or a part of the above services for its customers and/or the Fund.
In such event, changes in the operation of a Fund may occur, including the
possible alteration or termination of any automatic or other Fund share
investment or redemption services then being provided by Union Planters, and the
Trustees would consider alternative investment advisers and other means of
continuing available investment services. It is not expected that existing
Fund's shareholders would suffer any adverse financial consequences (if another
adviser with equivalent abilities to Union Planters is found) as a result of any
of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund expects to pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code ("the Code") applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies.
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.
STATE OF TENNESSEE TAXES
Under existing Tennessee law, as long as the Fund qualifies as a separate
"regulated investment company" under the Code, then the dividends from the Fund
are exempt from the Tennessee Individual Income Tax also known as the Hall
Income Tax, pursuant to Tennessee Code Annotated Sec.
67-2-104(f) in proportion to the income attributable to interest on bonds or
securities of the United States government or any agency or instrumentality
thereof or to the bonds of the state of Tennessee, or any county or municipality
or political subdivision thereof, including any agency, board, authority or
commission of any of the foregoing.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from state income taxes in states
other than Tennessee 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 Fund advertises total return, yield, and tax-equivalent
yield. Total return represents the change, over a specified period of time, in
the value of an investment in shares 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 the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by shares
over a thirty-day period by the maximum offering price per share on the last day
of the period. This number is then annualized using semi-annual compounding. The
tax-equivalent yield of shares is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that shares would have had to earn to
equal its actual yield, assuming a specific tax rate. The yield and the
tax-equivalent yield do not necessarily reflect income actually earned by shares
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
The performance information reflects the effect of the sales load, which, if
excluded, would increase the total return, yield, and tax-equivalent yield.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
TENNESSEE TAX-FREE BOND FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
<C> <S> <C> <C>
- ------------- ------------------------------------------------------------------- ------------- --------------
MUNICIPAL SECURITIES--100.1%
- ----------------------------------------------------------------------------------
$ 500,000 Anderson County, TN, 6.30%, Refunding UT GO Bonds, (Rural High
School) Callable 1/1/97 @ 102, 7/1/2001 A $ 536,370
-------------------------------------------------------------------
250,000 Chattanooga--Hamilton County, TN Hospital Authority Revenue, 7.00%,
Refunding Bonds, (Enlarger Medical Center), Callable 10/1/96 @ 102,
(MBIA Insured),
10/1/97 AAA 278,470
-------------------------------------------------------------------
465,000 Chattanooga--Hamilton County, TN Hospital Authority Revenue, 5.50%,
Refunding Bonds, (Enlarger Medical Center)/(FSA Insured)/(Original
Issue Yield: 5.60%),
10/1/2006 AAA 496,499
-------------------------------------------------------------------
1,000,000 Chattanooga--Hamilton County, TN Hospital Authority Revenue, 5.50%,
Refunding Bonds, (Enlarger Medial Center), Callable 10/1/2003 @
102, (FSA Insured)/
(Original Issue Yield: 5.85%), 10/1/2013 AAA 1,020,650
-------------------------------------------------------------------
1,000,000 Clarksville, TN Electric System Revenue, 5.125%, Refunding and
Improvement Bonds, Callable 9/1/2003
@ 102, 9/1/2011 A 998,220
-------------------------------------------------------------------
735,000 Clarksville, TN Water, Sewer and Gas Systems, 6.125%,
Refunding and Improvement Revenue Bonds, Callable
2/1/2002 @ 102, (Original Issue Yield: 6.15%), 2/1/2007 AAA 812,748
-------------------------------------------------------------------
500,000 Clarksville, TN Water, Sewer and Gas Systems, 6.125%,
Refunding and Improvement Revenue Bonds, Callable
2/1/2002 @ 102, (MBIA Insured)/(Original Issue
Yield: 6.328%), 2/1/2012 AAA 542,760
-------------------------------------------------------------------
400,000 Hamblen County, TN Hospital Revenue, 4.90%, UT GO Bonds, Callable
5/1/99 @ 102, (AMBAC Insured),
5/1/2006 AAA 406,064
-------------------------------------------------------------------
100,000 Hamblen County, TN Hospital Revenue, 5.00%, UT GO Bonds, Callable
5/1/99 @ 102, (AMBAC Insured),
5/1/2007 AAA 101,509
-------------------------------------------------------------------
400,000 Hamilton County, TN Industrial Development Revenue, 9.50%,
Refunding Bonds, (Series 1985), Callable 9/1/95
@ 102, 9/1/96 (Escrowed to Maturity) (AAA)** 448,460
-------------------------------------------------------------------
185,000 Jackson, TN Health, Educational and Housing Facilities Revenue,
5.70%, (Jackson--Madison County General
Hospital)/(MBIA Insured), 4/1/99 AAA 199,088
-------------------------------------------------------------------
1,000,000 Jackson, TN Health, Educational and Housing Facilities Revenue,
5.90%, (Jackson--Madison County General
Hospital)/(MBIA Insured), 4/1/2000 AAA 1,093,710
-------------------------------------------------------------------
1,250,000 Johnson City, TN Health and Educational Facilities, 6.75%,
Refunding and Improvement Revenue Bonds, (Johnson City Med),
Callable 7/1/2001 @ 102, (MBIA Insured)/(Original Issue Yield:
6.912%), 7/1/2006 AAA 1,426,538
-------------------------------------------------------------------
1,000,000 Knox County, TN Health, Educational and Housing Facilities Revenue,
7.00%, (Fort Sanders Alliance)/(Series C), Callable 1/1/2000 @ 102,
(MBIA Insured), 1/1/2008 AAA 1,171,280
-------------------------------------------------------------------
280,000 Knox County, TN Health, Educational and Housing Facilities Revenue,
4.85%, Refunding Bonds, (Mercy Health Care System)/(Series
B)/(AMBAC Insured)/(Original
Issue Yield: 5.00%), 9/1/2000 AAA 291,998
-------------------------------------------------------------------
650,000 Knox County, TN Health, Educational and Housing Facilities Revenue,
5.00%, Refunding Bonds, (Fort Sanders Medical Center)/(MBIA
Insured)/(Original Issue Yield: 5.05%), 1/1/2001 AAA 680,108
-------------------------------------------------------------------
745,000 Knox County, TN Health, Educational and Housing Facilities Revenue,
5.40%, Refunding Bonds, (Fort Sanders Medical Center), Callable
1/1/2002 @ 102, (MBIA
Insured)/(Original Issue Yield: 5.50%), 1/1/2005 AAA 786,526
-------------------------------------------------------------------
805,000 Knox County, TN Health, Educational and Housing Facilities Revenue,
4.90%, Refunding Bonds, (Fort Sanders
Alliance)/(Series A), Callable 1/1/2004 @ 102, (MBIA
Insured)/(Original Issue Yield: 5.10%), 1/1/2005 AAA 820,657
-------------------------------------------------------------------
475,000 Knoxville, TN, 5.80%, UT GO Bonds, Refunding and
Improvements Revenue,(Series A), Callable 5/1/96
@ 102, 5/1/99 AA- 501,662
-------------------------------------------------------------------
1,000,000 Knoxville, TN Natural Gas Revenue, 5.05%, Refunding Bonds, Callable
3/1/2000 @ 102, (Original Issue Yield: 5.10%), 3/1/2008 AA 1,007,870
-------------------------------------------------------------------
250,000 Knoxville, TN Water Revenue, 5.20%, Refunding and Improvement
Bonds, Callable 3/1/2000 @ 102, (Original
Issue Yield: 5.45%), 3/1/2010 AA 251,133
-------------------------------------------------------------------
100,000 Madison County, TN, 5.35%, UT GO Bonds, (School
Improvements)/(Series A), 8/1/99 A 106,503
-------------------------------------------------------------------
1,200,000 Memphis-Shelby County, TN Airport, 6.75%, Refunding Revenue Bonds,
(Federal Express Corp.), Callable
9/1/2002 @ 102, 9/1/2012 BBB 1,308,372
-------------------------------------------------------------------
600,000 Memphis,TN, Zero Coupon, UT GO Bonds, (Recreational Facilities
Improvements)/(Series C), Callable 12/1/95
@ 102, 12/1/2004 AAA 1,288,902
-------------------------------------------------------------------
465,000 Memphis, TN Electric System Revenue, 5.00%, Refunding Bonds,
(Series A)/(Original Issue Yield: 5.05%), 1/1/99 AA 487,669
-------------------------------------------------------------------
490,000 Metropolitan Government Nashville and Davidson County, TN, 6.00%,
UT GO Bonds (Public and School Improvements), Callable 3/1/94 @ 102
1/2, 3/1/2000 AA 504,460
-------------------------------------------------------------------
100,000 Metropolitan Government Nashville and Davidson County, TN, 4.625%,
Refunding UT GO Bonds, (Original Issue Yield: 4.796%), 5/15/2000 AA 103,494
-------------------------------------------------------------------
230,000 Metropolitan Government Nashville and Davidson County, TN, 5.25%,
Refunding UT GO Bonds, (Original Issue Yield: 5.45%), 5/15/2007 AA 241,912
-------------------------------------------------------------------
1,500,000 Metropolitan Government Nashville and Davidson County, TN Health
and Educational Facilities Revenue, 5.20%, Refunding Bonds,
(Vanderbilt University), Callable
7/1/2003 @ 102, (Original Issue Yield: 5.55%), 7/1/2018 AA 1,497,870
-------------------------------------------------------------------
770,000 Metropolitan Government Nashville and Davidson County, TN Water and
Sewer Revenue, 7.25%, Refunding Bonds, Callable 1/1/96 @ 102,
1/1/2006 A 835,573
-------------------------------------------------------------------
400,000 Metropolitan Government Nashville and Davidson County, TN Water and
Sewer Revenue, 7.30%, Refunding Bonds, Callable 1/1/96 @ 102,
1/1/2008 A 434,432
-------------------------------------------------------------------
535,000 Metropolitan Government Nashville and Davidson County, TN Water and
Sewer Revenue, 5.50%, Callable
1/1/2002 @ 102, (AMBAC Insured)/(Original Issue Yield: 5.55%),
1/1/2003 AAA 577,169
-------------------------------------------------------------------
250,000 Metropolitan Government Nashville and Davidson County, TN Water and
Sewer Revenue, 5.75%, Callable
1/1/2002 @ 102, (AMBAC Insured)/(Original Issue Yield:
6.15%), 1/1/2012 AAA 263,505
-------------------------------------------------------------------
230,000 Metropolitan Government Nashville and Davidson County, TN Water and
Sewer Revenue, 5.20%, Refunding Bonds, (FGIC Insured)/(Original
Issue Yield: 5.53%),
1/1/2013 AAA 233,315
-------------------------------------------------------------------
1,385,000 Montgomery County, TN Public Building Authority Revenue, 7.50%,
Callable 6/15/94 @ 100, (Prudential Insurance Company of America
Insured), 12/15/2000 AA+ 1,386,953
-------------------------------------------------------------------
800,000 Mt. Juliet, TN Public Building Authority Revenue, 7.00%, (Series
O), Callable 2/1/2001 @ 102, (MBIA Insured),
2/1/2006 AAA 926,472
-------------------------------------------------------------------
1,500,000 Putram County, TN, 5.125%, UT GO Bonds, (Public Improvements),
Callable 4/1/2003 @ 102, (MBIA Insured)/ (Original Issue Yield:
5.35%), 4/1/2011 AAA 1,506,855
-------------------------------------------------------------------
250,000 Putram County, TN, 5.125%, UT GO Bonds, (Public Improvements),
Callable 4/1/2003 @ 102, (MBIA Insured)/ (Original Issue Yield:
5.35%), 4/1/2012 AAA 248,665
-------------------------------------------------------------------
220,000 Rutherford County, TN, 5.00%, UT GO Bonds, Cap.
Outlay Notes, (School Improvements), 6/1/2000 AA- 231,306
-------------------------------------------------------------------
460,000 Rutherford County, TN, 5.10%, UT GO Bonds, Cap.
Outlay Notes, (School Improvements), 6/1/2001 AA- 486,464
-------------------------------------------------------------------
480,000 Shelby County, TN, 6.20%, Refunding UT GO Bonds,
(Series A), Callable 3/1/2000 @ 101 1/2, (Original Issue
Yield: 6.30%), 3/1/2006 AA+ 522,312
-------------------------------------------------------------------
500,000 Shelby County, TN, 5.875%, Refunding UT GO Bonds,
(Series B), Callable 3/1/2001 @ 101 1/2, (Original Issue
Yield: 5.95%), 3/1/2007 AA+ 537,600
-------------------------------------------------------------------
500,000 Shelby County, TN, 5.10%, UT GO Bonds, (Public Improvements),
Callable 3/1/2001 @ 101, (Original Issue Yield: 5.25%), 3/1/2011 AA+ 504,185
-------------------------------------------------------------------
1,000,000 Shelby County, TN Health, Educational and Housing
Facilities Revenue, 6.00%, (St. Joseph Hospital East, Inc.),
Callable 3/1/2005 @ 100, 3/1/2005 AAA 1,116,750
-------------------------------------------------------------------
93,000 Shelby County, TN Health, Educational and Housing
Facilities Revenue, 6.20%, (Methodist Health System)/
(Series C), (MBIA Insured), 8/1/2013 AAA 93,353
-------------------------------------------------------------------
1,250,000 Shelby County, TN Health, Educational and Housing Facilities
Revenue, 7.40%, (Methodist Health System)/(Series A), Callable
6/1/98 @ 102, (MBIA Insured), 6/1/2003 AAA 1,427,725
-------------------------------------------------------------------
465,000 Shelby County, TN Health, Educational and Housing
Facilities Revenue, 5.00%, Refunding Bonds, (Le Bonhuer Childrens
Medical Center)/(Series D)/(MBIA Insured)/ (Original Issue Yield:
5.10%, 8/15/2001 AAA 488,204
-------------------------------------------------------------------
425,000 Tennessee Housing Development Agency, 6.40%, Revenue Bonds,
(Homeownership Program--Issue U), 7/1/2000 A+ 457,053
-------------------------------------------------------------------
430,000 Tennessee Housing Development Agency, 6.90%, Revenue Bonds,
(Homeownership Program--Issue U), 7/1/2001 @ 102, 7/1/2005 A+ 468,128
-------------------------------------------------------------------
1,500,000 Tennessee Housing Development Agency Mortgage, 5.40%, Refunding
Revenue Bonds, (Series A), Callable
7/1/2003 @ 102, 7/1/2004 A+ 1,581,825
-------------------------------------------------------------------
235,000 Tennessee Housing Development Agency Mortgage, 5.65%, Refunding
Revenue Bonds, (Series A), Callable
7/1/2003 @ 102, 1/1/2007 A+ 236,556
-------------------------------------------------------------------
500,000 Tennessee Housing Development Agency Mortgage, 5.70%, Refunding
Revenue Bonds, (Series A), Callable
7/1/2003 @ 102, 1/1/2008 A+ 505,410
-------------------------------------------------------------------
500,000 Tennessee Housing Development Agency Mortgage, 5.70%, Refunding
Revenue Bonds, (Series A), Callable
7/1/2003 @ 102, 7/1/2008 A+ 505,410
-------------------------------------------------------------------
550,000 Tennessee Housing Development Agency Mortgage, 5.85%, Refunding
Revenue Bonds, (Series A), Callable
7/1/2003 @ 102, 7/1/2013 A+ 559,592
-------------------------------------------------------------------
1,000,000 Tennessee State, 6.60%, UT GO Bonds, (Miscellaneous
Improvements)/(Series B), Callable 6/1/2001 @ 101 1/2,
6/1/2004 AA+ 1,142,700
-------------------------------------------------------------------
300,000 Tennessee State, 6.10%, Refunding UT GO Bonds, (Series A), 6/1/2000 AA+ 335,988
-------------------------------------------------------------------
265,000 Tennessee State, 5.375%, UT GO Bonds, (Public Improve-
ments)/(Series A), Callable 7/1/2002 @ 101 1/2, (Original Issue
Yield: 5.45%), 7/1/2003 AA+ 287,498
-------------------------------------------------------------------
500,000 Tennessee State, 5.50%, UT GO Bonds, (Public Improvements)/(Series
A), Callable 7/1/2002 @ 101 1/2, (Original Issue Yield: 5.65%),
7/1/2005 AA+ 540,210
-------------------------------------------------------------------
500,000 Tennessee State Local Development Authority, 5.65%,
Refunding Revenue Bonds, (Series A), Callable 3/1/2003
@ 102, 3/1/2007 AA- 526,930
-------------------------------------------------------------------
195,000 Tennessee State School Board Authority, 5.75%, Refunding Revenue
Bonds, Callable 9/13/93 @ 101 1/4, (GO of Auth Insured), 5/1/2006 AA 197,982
-------------------------------------------------------------------
1,035,000 Williamson County, TN, 6.00%, Refunding UT GO Bonds, 3/1/2008 AA 1,148,674
------------------------------------------------------------------- --------------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST $38,803,581) $ 39,726,296
------------------------------------------------------------------- --------------
</TABLE>
* For explanations of credit ratings, see the Fund's Statement of Additional
Information.
** The issuer of this security has placed U.S. government securities in escrow
with a trustee. The proceeds from the government securities will be used to
pay principal and interest on the security. While this security is unrated,
the Fund's managers are of the opinion that it is comparable to the highest
quality ratings issued by Moody's or Standard & Poors.
\ The cost of investments for federal income tax purposes amounts to
$38,803,581. The net realized appreciation of investments on a federal income
tax basis amounts to $922,715 which is comprised of $929,391 appreciation and
$6,676 depreciation at January 31, 1994.
Note: The category of investments is shown as a percentage of net assets
($39,669,673) at January 31, 1994.
The following abbreviations are used in this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
FGIC--Financial Guaranty Insurance Co.
FSA--Financial Security Assurance
GO--General Obligation
MBIA--Municipal Bond Investors Assurance
UT--Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified and tax cost, $38,803,581) $ 39,726,296
- --------------------------------------------------------------------------------------------------
Interest receivable 496,082
- --------------------------------------------------------------------------------------------------
Receivable for Investments sold 881,618
- --------------------------------------------------------------------------------------------------
Receivable for Funds shares sold 318,608
- --------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 15,637
- -------------------------------------------------------------------------------------------------- --------------
Total assets 41,438,241
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased $ 1,502,790
- -----------------------------------------------------------------------------------
Payable to bank 147,516
- -----------------------------------------------------------------------------------
Payable for Fund shares repurchased 50,339
- -----------------------------------------------------------------------------------
Accrued expenses 67,923
- ----------------------------------------------------------------------------------- -------------
Total liabilities 1,768,568
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 3,666,098 shares of beneficial interest outstanding $ 39,669,673
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid-in capital $ 38,703,331
- --------------------------------------------------------------------------------------------------
Unrealized appreciation of investments 922,715
- --------------------------------------------------------------------------------------------------
Net realized gain on investments 5,447
- --------------------------------------------------------------------------------------------------
Undistributed net investment income 38,180
- -------------------------------------------------------------------------------------------------- --------------
Total $ 39,669,673
- -------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, and Redemption Price Per Share
($39,669,673 / 3,666,098 shares of beneficial interest outstanding) $10.82
- -------------------------------------------------------------------------------------------------- --------------
Computation of Offering Price: Offering price Per Share
(100/96 of 10.82)* $ 11.27
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
*On sales of $50,000 or more, the offering price is reduced as stated under
"What Shares Cost" in the prospectus. During the period from February 1, 1994,
through and including September 30, 1994, the maximum sales charge imposed on
the purchase of shares of the Fund will be 2% of the offering price of the
shares purchased.
(See Notes which are an integral part of the Financial Statements)
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM AUGUST 5, 1993
(START OF BUSINESS) TO JANUARY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 664,323
- --------------------------------------------------------------------------------------------------
EXPENSES--
- --------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 103,304
- -------------------------------------------------------------------------------------
Administrative personnel and services (Note 5) 50,254
- -------------------------------------------------------------------------------------
Custodian expenses (Note 5) 14,088
- -------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees (Note 5) 16,833
- -------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 24,564
- -------------------------------------------------------------------------------------
Legal fees 3,426
- -------------------------------------------------------------------------------------
Insurance premiums 897
- -------------------------------------------------------------------------------------
Miscellaneous 4,088
- ------------------------------------------------------------------------------------- -----------
Total expenses 217,454
- -------------------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 90,600
- --------------------------------------------------------------------------
Waiver of administrative personnel and services (Note 5) 44,166 134,766
- -------------------------------------------------------------------------- --------- -----------
Net expenses 82,688
- -------------------------------------------------------------------------------------------------- -------------
Net investment income $ 581,635
- -------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (identified cost basis) 5,447
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 922,715
- -------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain on investments 928,162
- -------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 1,509,797
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31, 1994*
(UNAUDITED)
<S> <C>
- ------------------------------------------------------------------------------------------- ---------------------
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------------------
Net investment income $ 581,635
- -------------------------------------------------------------------------------------------
Net realized gain on investments transactions ($5,447 net gain
as computed for federal tax purposes) (Note 2C) 5,447
- -------------------------------------------------------------------------------------------
Change in unrealized appreciation of investments 922,715
- ------------------------------------------------------------------------------------------- ---------------------
Change in net assets resulting from operations 1,509,797
- ------------------------------------------------------------------------------------------- ---------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (543,455)
- ------------------------------------------------------------------------------------------- ---------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -------------------------------------------------------------------------------------------
Proceeds from sale of shares 41,130,119
- -------------------------------------------------------------------------------------------
Net asset value on shares issued to shareholders in payment
of dividends declared 95,973
- -------------------------------------------------------------------------------------------
Cost of shares redeemed (2,522,761)
- ------------------------------------------------------------------------------------------- ---------------------
Change in net assets from Fund share transactions 38,703,331
- ------------------------------------------------------------------------------------------- ---------------------
Change in net assets 39,669,673
- -------------------------------------------------------------------------------------------
NET ASSETS--
- -------------------------------------------------------------------------------------------
Beginning of period --
- ------------------------------------------------------------------------------------------- ---------------------
End of period (including undistributed net investment income of $38,180) $ 39,669,673
- ------------------------------------------------------------------------------------------- ---------------------
</TABLE>
* For the period from August 5, 1993 (start of business) to January 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JANUARY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Planters Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The financial
statements included herein are only those of Tennessee Tax-Free Bond Fund (the
"Fund"), a non-diversified portfolio of the Trust. At January 31, 1994 the Trust
did not have any other Portfolios effective.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Municipal bonds are valued at fair value. An
independent pricing service values the 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 factor 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.
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state, than would be a comparable general
tax-exempt mutual fund. In order to reduce the risk associated with such
factors, at January 31, 1994, 41.9% of the securities in the portfolio of
investments were backed by letters of credit or bond insurance of various
financial institutions and financial guaranty assurance agencies of various
financial institutions. The aggregate percentages by financial institutions
ranged from 0.5% to 29.4% of total investments.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code (the "Code") applicable to investment companies and
distribute to shareholders each year all of its net income. Accordingly, no
provision for federal tax is necessary. Dividends paid by the Fund
representing net interest received on tax-exempt municipal securities are
not includable by shareholders as gross income for federal income tax
purposes, because the Fund intends to meet certain requirements of the Code
applicable to regulated investment companies which will enable the Fund to
pay tax-exempt interest dividends. The portion of such interest, if any,
private activity bonds issued after August 7, 1986, may be considered a tax
preference item to shareholders for the purpose of computing the
alternative minimum tax.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the 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 Fund 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.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to the
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 Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS
Dividends from net investment income are declared and paid monthly.
Distributions of any net realized capital gains will be made at least once every
twelve months. Dividends and capital gain 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) for each
class of shares. At January 31, 1994 capital paid-in aggregated $38,703,331.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
ENDED
1/31/94*
<S> <C>
- ----------------------------------------------------------------------------------------------------- -----------
Shares outstanding, beginning of period --
- -----------------------------------------------------------------------------------------------------
Shares sold 3,894,354
- -----------------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 9,002
- -----------------------------------------------------------------------------------------------------
Shares redeemed (237,258)
- ----------------------------------------------------------------------------------------------------- -----------
Shares outstanding, end of period 3,666,098
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
*The period from August 5, 1994 (start of business) to January 31, 1994.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Union Planters National Bank, the Fund's investment adviser ("Adviser"),
receives for its services an annual investment advisory fee equal to .75 of 1%
of the Fund's average daily net assets. The Adviser has voluntarily agreed to
waive a portion of its fee. The Adviser can modify or terminate this voluntary
waiver at any time at its sole discretion. For the period ended January 31,
1994, the investment advisor earned $103,304 of which $90,600 was voluntarily
waived.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services, and receives for its services an annual
fee equal to .150 of 1% on the first $250 million of average aggregate daily net
assets of the Trust; .125 of 1% on the next $250 million; .100 of 1% on the next
$250 million; and .075 of 1% on average aggregate daily net assets in excess of
$750 million. FAS may voluntarily choose to waive a portion of its fee. For the
period ended January 31, 1994, FAS earned $50,254, of which $44,166 was
voluntarily waived.
For the services to be provided to the Funds pursuant to the Custodian
Agreement, the Funds pays State Street Bank (the "Custodian") an annual fee
equal to .02 of 1% on the first $250 million of average aggregate daily net
assets of the Trust; .015 of 1% of average aggregate daily net assets from $250
million to $500 million; and .01 of 1% of average aggregate daily net assets
over $500 million.
Federated Services Company ("FSC") is transfer agent for the shares of the Funds
and dividend disbursing agent for the Funds. It also provides certain accounting
and recordkeeping services with respect to the Fund's portfolios of investments.
Certain of the Officers and Trustees of the Fund are Officers and Trustees of
the companies mentioned in this Note to the financial statements.
(6) INVESTMENT TRANSACTIONS
Purchases and sales and maturities of investments excluding short-term
securities, for the period ended January 31, 1994 were as follows:
<TABLE>
<S> <C>
PURCHASES $ 43,346,434
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 4,445,003
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
THIS PAGE INTENTIONALLY LEFT BLANK
THIS PAGE INTENTIONALLY LEFT BLANK
THIS PAGE INTENTIONALLY LEFT BLANK
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Tennessee Tax-Free Bond Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Union Planters National Bank P.O. Box 387
Memphis, Tennessee 38147
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank P.O. Box 8604
and Trust Company Boston, Massachusetts 02266-8604
- ---------------------------------------------------------------------------------------------------------------------
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
Price Waterhouse 160 Federal Street
Boston, Massachusetts 02110
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
TENNESSEE TAX-FREE
BOND FUND
PROSPECTUS
A Non-Diversified Portfolio
of The Planters Funds
An Open-End, Management
Investment Company
February 28, 1994
Union Planters National Bank
Investment Adviser
<logo> FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3072709A (2/94)
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of shares of Tennessee Tax-Free Bond Fund (the "Fund")
dated February 28, 1994. This Statement is not a prospectus itself. To
receive a copy of the prospectus write or call Federated Securities
Corp. at 1-800-618-8573.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated February 28, 1994
<logo> FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 2
Temporary Investments 2
Repurchase Agreements 2
Portfolio Turnover 2
Investment Limitations 2
Investment Risks 4
MANAGEMENT OF THE TRUST 4
- ---------------------------------------------------------------
Board of Trustees 4
Officers and Trustees 4
Fund Ownership 6
Trustee Liability 6
The Funds 6
INVESTMENT ADVISORY SERVICES 7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 7
ADMINISTRATIVE SERVICES 7
- ---------------------------------------------------------------
Administrative Arrangements 8
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PURCHASING SHARES 8
- ---------------------------------------------------------------
DETERMINING NET ASSET VALUE 8
- ---------------------------------------------------------------
Valuing Municipal Bonds 8
Use of Amortized Cost 8
REDEEMING SHARES 9
- ---------------------------------------------------------------
Redemption in Kind 9
TAX STATUS 9
- ---------------------------------------------------------------
The Fund's Tax Status 9
Shareholder's Tax Status 9
TOTAL RETURN 9
- ---------------------------------------------------------------
YIELD 10
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 10
- ---------------------------------------------------------------
Tax-Equivalency Table 10
PERFORMANCE COMPARISONS 11
- ---------------------------------------------------------------
APPENDIX 12
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in The Planters Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust dated
May 14, 1993.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income exempt from federal
income tax and personal income taxes imposed by the state of Tennessee and
Tennessee municipalities. The investment objective cannot be changed without the
approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in a portfolio of municipal securities which are
exempt from federal income tax and personal income taxes imposed by the state of
Tennessee and Tennessee municipalities ("Tennessee Municipal Securities"). The
municipal securities in which the Fund invests include those issued by or on
behalf of the state of Tennessee and Tennessee municipalities as well as those
issued by states, territories, and possessions of the United States which are
exempt from federal income tax and personal income taxes imposed by the state of
Tennessee and Tennessee municipalities.
CHARACTERISTICS
The Tennessee municipal securities in which the Fund invests have the
characteristics set forth in the prospectus. If ratings made by Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P") or Fitch's Investors Service ("Fitch's") 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 Tennessee municipal securities include:
governmental lease certificates of participation issued by state or
municipal authorities where payment is secured by installment payments
for equipment, buildings, or other facilities being leased by the state
or municipality;
municipal notes and tax-exempt commercial paper;
serial bonds;
tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes;
bond anticipation notes sold in anticipation of the issuance of
long-term bonds;
pre-refunded municipal bonds whose timely payment of interest and
principal is ensured by an escrow of U.S. government obligations; and
general obligation bonds.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from another financial institution
irrevocable letters of credit or guarantees and give the Fund the right
to demand payment of the principal amounts of the participation interests
plus accrued interest on short notice (usually within seven days).
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
In determining the liquidity of municipal lease securities, the adviser,
under the authority delegated by the Board of Trustees, will base its
determination on the following factors: (a) whether the lease can be
terminated by the lessee; (b) the potential recovery, if any, from a sale
of the leased property upon termination of the lease; (c) the lessee's
general credit strength (e.g., its debt, administrative, economic and
financial characteristics, and prospects); (d) the likelihood that the
lessee will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to its operations
(e.g., the potential for an event of nonappropriation); and (e) any
credit enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage. These transactions are made to secure
what is considered to be an advantageous price and yield for the 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 expenses, other than normal transaction costs, are incurred. However,
liquid assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These assets
are marked to market daily and maintained until the transaction is settled.
During the current year, the Fund does not anticipate investing more than 20% of
its total assets in when-issued and delayed delivery transactions.
TEMPORARY INVESTMENTS
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.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Fund believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund may only enter into repurchase agreements with
banks and other recognized financial institutions such as broker/dealers which
are found by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
From time to time, such as when suitable Tennessee 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
Tennessee municipal securities and thereby reduce the Fund's yield.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered necessary to
meet its investment objective. It is not anticipated that the portfolio trading
engaged in by the Fund will result in its annual rate of portfolio turnover
exceeding 100%.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed. The Fund will not borrow money for
investment leverage, but rather as a temporary extraordinary, or
emergency measure to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets except to
secure permitted borrowings. In those cases, it 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.
UNDERWRITING
The Fund will not underwrite any issue of securities except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies and limitations.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in municipal bonds secured
by real estate or interests in real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up
to one-third of the value of its total assets. The Fund may, however,
acquire publicly or non-publicly issued municipal bonds or temporary
investments or enter into repurchase agreements in accordance with its
investment objective, policies and limitations.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.
CONCENTRATION OF INVESTMENTS
The 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, under other than normal market conditions, the Fund may invest
more than 25% of the value of its assets in cash or cash items,
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these money market
instruments, i.e., repurchase agreements.
The above investment limitations cannot be changed 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 ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE FUND
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Fund 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 RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in securities
subject to restrictions on resale under the Securities Act of 1933,
except for commercial paper issued under Section 4(2) of the Securities
Act of 1933 and certain other restricted securities which meet the
criteria for liquidity as established by the Board of Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement in
more than seven days after notice, and certain restricted securities not
determined by the Trustees to be liquid, including certain municipal
leases.
INVESTING IN NEW ISSUERS
The 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 MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
securities of issuers which invest in or sponsor such programs.
Except with respect to 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 Fund does not expect to borrow money or pledge securities in excess
of 5% of the value of its net assets during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be cash items.
INVESTMENT RISKS
The Fund's performance can be expected to be closely tied to the prevailing
economic conditions of the state of Tennessee as a whole, its particular
geographic regions, and the industries located within state.
Traditionally divided into three geographic regions, the State's economy has
historically been dominated by agriculture in the west, manufacturing in the
east, and government in the middle region. Though trade and services have
replaced agriculture in terms of total output, manufacturing continues to be the
largest single sector of the economy. While the Gross State Product of Tennessee
was in excess of $100 billion in 1991 and the state placed 20th in national
rank, manufacturing comprised 24% of total production in that year. The recent
decision by Saturn and Nissan to locate automobile production facilities in the
state suggests that manufacturing, with its inherent susceptibility to economic
downturns, will continue to dominate.
Tennessee's economy experienced many of the problems associated with the
national economy during the past recession. Though it consistently remained
below the national average, the state's unemployment rate rose significantly
during the prior recessionary period. Also, overbuilding of commercial and
residential properties in prior years caused the state to experience some
difficulties with declining real estate values.
Along with the national economy, Tennessee has recently experienced a slow
recovery. Although moderate rates of economic growth in past recoveries along
with a steady influx of transplant corporations have helped the state avoid the
dramatic "boom and bust" cycle experienced by many sunbelt states, the recent
recession did put pressure on governmental receipts and outlays.
The constitution of the state requires a balanced budget. This constraint along
with relatively low debt and expenditure per capita ratios has helped the state
maintain its current long term bond rating of AAA by S&P and Aaa by Moody's.
While Tennessee is one of only nine states which have such ratings, the ability
of the state to maintain this rating given the current economic and political
environment is by no means certain. Additionally, the ability of the Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of Tennessee municipal securities and participation interests, or the
credit enhancers of either, to meet their obligations for the payment of
interest and principal when due.
MANAGEMENT OF THE TRUST
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The Trust is managed by a Board of Trustees ("Trustees"). The Trustees are
responsible for managing the business affairs of the Trust and for exercising
all of the powers of Trust except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Union Planters National
Bank, Federated Investors, Federated Securities Corp., Federated Services
Company, and Federated Administrative Services, and the Funds (as defined
below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue\* Chairman Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower and Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of J. Christopher Donahue, Vice President and Trustee of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporaton; Senior Vice President, John
Wood/IPC Commercial R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Development Corporation; General Partner or Trustee in private real
John R. Wood and estate ventures in Southwest Florida; Director, Trustee, or Managing
Associates, Inc., Realtors General Partner of the Funds; formerly, President, Naples Property
3255 Tamiami Trail North Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-23rd Floor Director, Trustee, or Managing General Partner of the Funds; formerly
Pittsburgh, PA Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan 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,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. 3471 Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
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,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Edward C. Gonzales* President, Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower Treasurer President and Treasurer, Federated Advisers, Federated Management and
Pittsburgh, PA and Trustee Federated Research; Trustee, Federated Services Company; Executive Vice
President, Treasurer, and Director, Federated Securities Corp; Chairman,
Treasurer, and Trustee, Federated Administrative Services; Trustee of
some of the Funds; Vice President and Treasurer of the Funds.
Peter E. Madden Trustee Consultant; Trustee, Lahey Clinic Foundation, Inc.; Director, Trustee,
225 Franklin Street or Managing General Partner of the Funds; formerly, President, State
Boston, MA Street Bank & 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, Trustee, or Managing General Partner of the Funds; formerly,
Pittsburgh, PA 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
Learning Library Center, Inc. and U.S. Space Foundation; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and 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* Federated Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Investors Tower Federated Management, and Federated Research; President and Trustee,
Pittsburgh, PA Federated Administrative Services; Trustee, Federated Services Company;
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 Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower and Assistant Investors; Vice President, Secretary and Trustee, Federated Advisers,
Pittsburgh, PA Treasurer Federated Management, and Federated Research; Trustee, Federated
Services 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.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Com-
pany and President of its Federated Research Division.
Judy Mackin Vice President Vice President, Federated Administrative Services; Vice President and
Federated Investors Tower Assistant Treasurer of some of the Funds.
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.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be 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.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; BankSouth
Select Funds; The Boulevard Funds; California Municipal Cash Trust; Cash Trust
Series Inc.; Cash Trust Series II; 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 Term Trust, Inc.--1999; Liberty U.S.
Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash 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; 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.;
Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust
for Government Cash Reserves; Trust for Short-Term U.S. Government Securities;
and Trust for U.S. Treasury Obligations.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Union Planters National Bank ("Union Planters"
or the "adviser"). Union Planters is a wholly-owned subsidiary of Union Planters
Corporation, a multi-bank holding company headquartered in Memphis, Tennessee.
The adviser shall not be liable to the Trust, the Fund or any shareholder of the
Fund 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 Fund.
From time to time, to the extent consistent with the objective, policies and
restrictions of the Fund, the Fund may invest in securities of issuers with
which the adviser has a lending relationship.
ADVISORY FEES
For its advisory services, Union Planters receives an annual investment advisory
fee as described in the prospectus.
For the period from August 5, 1993 (start of business) to January 31, 1994, the
adviser earned advisory fees of $103,304, of which $90,600 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 the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2.5% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1.5% per year
of the remaining average net assets, the adviser will reimburse the Trust
for its expenses over the limitation.
If the 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 Fund for the fees set forth in the prospectus. John A. Staley,
IV, an officer of the Fund, 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 period from August 5, 1993, (start of business) to January 31, 1994, the
administrator earned $50,254 in administrative costs of which $44,166 was
voluntarily waived.
ADMINISTRATIVE ARRANGEMENTS
The distributor may pay financial institutions a fee based upon the average net
asset value of shares of their customers for providing administrative services.
This fee, if paid, will be reimbursed by the adviser and not the Fund.
CUSTODIAN
State Street Bank and Trust company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund.
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 use those which 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 Board of Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
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 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.
From August 5, 1993, (start of business) to January 31, 1994, the Fund paid no
commissions on brokerage transactions .
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares of the Fund are sold at their net asset value with a sales charge on days
the New York Stock Exchange and Federal Reserve Wire System are open for
business. The procedure for purchasing shares is explained in the prospectus
under "Investing in the Fund."
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated for the Fund are described in the prospectus.
VALUING MUNICIPAL BONDS
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.
USE OF AMORTIZED COST
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 continually 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.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at the next computed net asset value after the Fund receives
the redemption request. Redemption procedures are explained in the prospectus
under "Redeeming Shares." Although Union Planters does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Fund will pay all
or a portion of the remainder of the redemption in portfolio instruments, valued
in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable. To the extent available, such securities will be readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transactions costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the 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.
SHAREHOLDER'S TAX STATUS
No portion of any income dividend paid by the Fund is eligible for the dividends
received deduction available to corporations.
CAPITAL GAINS
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.
Distributions of long-term capital gains are taxed as such, whether they are
taken in cash or reinvested, and regardless of the length of time that the
shareholder has owned shares. Any loss by a shareholder on shares held for less
than six months and sold after a capital gains distribution will be treated as a
long-term capital loss to the extent of the capital gains distribution.
TOTAL RETURN
- --------------------------------------------------------------------------------
Cumulative total return reflects the Fund's total performance over a specific
period of time. The cumulative total return for the Fund for the period from
August 30, 1993, (date of initial public investment) to January 31, 1994 was
4.84%.This total return is representative of only five months of activity since
the date of initial public investment.
The average annual total return for the 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 net asset value 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 Funds' yield for the thirty-day period ended January 31, 1994, was 4.06%
based on offer price.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the 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 the Fund because of certain adjustments
required by the Securities and Exchange Commission 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 the Fund,
performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Funds' tax-equivalent yield for the thirty-day period ended January 31, 1994
was 6.15%.
The tax-equivalent yield of the 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 state and federal combined tax rate of 34%,
and assuming that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the Fund's
portfolio generally remains free from federal regular income tax, and often is
free from taxes imposed by the state of Tennessee and Tennessee municipalities.*
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.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes. However, the Fund has no current
intention to generate taxable income.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1994
STATE OF TENNESSEE
- -----------------------------------------------------------------------------------------------------------------------
TAX BRACKET:
<S> <C> <C> <C> <C> <C>
FEDERAL: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE: 21.00% 34.00% 37.00% 42.00% 45.60%
- -----------------------------------------------------------------------------------------------------------------------
JOINT RETURN: $1-38,000 $38,001-91,850 $91,851-140,000 $140,001-250,000 OVER $250,000
SINGLE RETURN: $1-22,175 $22,751-55,100 $55,101-140,000 $140,001-250,000 OVER $250,000
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.50% 1.90% 2.27% 2.38% 2.59% 2.76%
2.00 2.53 3.03 3.17 3.45 3.68
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
</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. If you itemize deductions, your taxable yield equivalent will
be lower.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of the Fund 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 the Fund's expenses; and
various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return as
described above.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio comparisons of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund 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.
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 Fund may quote total returns
which are calculated on non-standardized base periods. The total returns
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S CORPORATION MUNICIPAL BOND RATINGS
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 effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
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 as 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 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 sometime 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 generic rating category; 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 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 adverse impact on these bonds, and therefore, impair timely
payment.
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 AND POOR'S MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety charactertics will be given a plus (+)
designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.
STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This highest category designation indicates that the degree of safety
regarding timely payment is either overwhelming or very 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
PRIME-1--Issuers rated PRIME-1 (or 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 structure with moderate reliance on debt and ample
asset protection.
Broad margins in earning coverage of fixed financial charges and high internal
cash generation.
Well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or 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.
3072709B (2/94)
