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, OR ANY 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 September
30, 1995 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 Union Planters Brokerage Services at 1-800-238-7125.
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 September 30, 1995
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Characteristics 4
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 7
Investment Limitations 7
THE PLANTERS FUNDS INFORMATION 7
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Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 8
Adviser's Background 8
Portfolio Managers 8
Distribution of Fund Shares 8
Payments to Financial Institutions 9
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent, Dividend
Disbursing Agent and
Portfolio Accounting Services 9
Independent Auditors 9
NET ASSET VALUE 10
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INVESTING IN THE FUND 10
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Share Purchases 10
Minimum Investment Required 10
What Shares Cost 10
Purchases at Net Asset Value 11
Dealer Concessions 11
Reducing the Sales Load 11
Quantity Discounts and Accumulated
Purchases 11
Letter of Intent 12
Reinvestment Privilege 12
Certificates and Confirmations 12
Dividends and Distributions 13
REDEEMING SHARES 13
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By Telephone 13
By Mail 14
Signatures 14
Accounts with Low Balances 14
SHAREHOLDER INFORMATION 14
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Voting Rights 14
Massachusetts Partnership Law 15
EFFECT OF BANKING LAWS 15
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TAX INFORMATION 16
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Federal Income Tax 16
State of Tennessee Taxes 16
Other State and Local Taxes 16
PERFORMANCE INFORMATION 16
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FINANCIAL STATEMENTS 18
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INDEPENDENT AUDITORS' REPORT 29
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ADDRESSES 30
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I
SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........................... 2.00%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).......................... None
Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds, as applicable)....................... None
Redemption Fee
(as a percentage of amount redeemed, if applicable)......... None
Exchange Fee..................................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of average net assets)
<S> <C>
Management Fee (after waiver)(1)..................................0.00%
12b-1 Fees........................................................None
Other Expenses....................................................0.78%
Total Fund Operating Expenses(2).........................0.78%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 0.75%.
(2) The Total Fund Operating Expenses were 0.61% for the fiscal year ended July
31, 1995. Total Fund Operating Expenses in the table above reflect a
reduction in the voluntary waiver of the administrative personnel and
services fee for the fiscal year ending July 31, 1996. Total Fund Operating
Expenses are anticipated to be 1.53% absent the voluntary waiver of the
management fee (See (1) above).
* Expenses in this table are estimated based on average expenses expected to be
incurred during the fiscal year ending July 31, 1996. During the course of
this period, expenses may be more or less than the 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 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment assuming
(1) 5% annual return; (2) redemption
at the end of each time period;
and (3) payment of the maximum sales load $28 $44 $62 $115
</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.
1
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31, 1995 JULY 31, 1994(A)
<S>
<C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD
$ 10.22 $ 10.50
- ----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------
Net investment income
0.51 0.44
- ----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
0.24 (0.31)
- ----------------------------------------------------------------------------
- ------- -------
Total from investment operations
0.75 0.13
- ----------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------
Distributions from net investment income
(0.51) (0.41)
- ----------------------------------------------------------------------------
- ------- -------
NET ASSET VALUE, END OF PERIOD
$ 10.46 $ 10.22
- ----------------------------------------------------------------------------
- ------- -------
TOTAL RETURN (B)
7.60% 1.19%
- ----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------
Expenses
0.61% 0.56%(c)
- ----------------------------------------------------------------------------
Net investment income
4.93% 4.69%(c)
- ----------------------------------------------------------------------------
Expense waiver/reimbursement (d)
0.95% 0.87%(c)
- ----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$ 35,888 $ 42,400
- ----------------------------------------------------------------------------
Portfolio Turnover
3% 30%
- ----------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from August 30, 1993 (date of initial
public investment) to July 31, 1994. For the period from August 5, 1993
(start of business) to August 29, 1993, all income was distributed to the
administrator.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
2
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 Board of Trustees ("Trustees") has 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 load 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 shareholders 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:
3
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
Rating Group ("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. The prices of fixed income securities fluctuate inversely to the
direction of interest rates. 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
4
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 upon 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. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/less than the market value of the securities
on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
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
5
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. See the Fund's Statement of
Additional Information for a discussion of the state's economy.
6
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, as
amended. 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. 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 Trustee's responsibilities
between meetings of the Trustees.
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 investment adviser, subject to
direction by the Trustees. The investment 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.
7
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 investment adviser has a lending relationship.
ADVISORY FEES. The investment 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 investment 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
investment 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 investment adviser has been managing
trust assets for over 80 years. As of December 31, 1994, the Trust Group of
Union Planters had approximately $1 billion under administration, of which
it had investment discretion over approximately $625 million. The adviser
has served as investment adviser to the Fund since its inception.
As part of it's regular banking operations, Union Planters may make loans
to public companies. Thus, it may be possible, from time to time, for the
Fund to hold or acquire the securities of issuers which are also lending
clients of Union Planters. The lending relationship will not be a factor in
the selection of securities.
PORTFOLIO MANAGERS. The following individuals are primarily responsible
for the day-to-day management of the Fund's portfolio:
Robert G. L. Eason has been a co-portfolio manager since the Fund's
inception. Mr. Eason has been a 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 has also been a co-portfolio manager since the Fund's
inception. Mr. Dorian has been a 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. is the principal distributor for shares of the Fund.
Federated Securities Corp. is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
8
PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, the Adviser, or their
affiliates may offer to pay a fee from their own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include initiating customer accounts, providing
sales literature, or participating in sales, educational and training seminars
(including those held at recreational facilities). Such assistance will be
predicated upon the amount of shares the financial institution sells or may sell
and/or upon the type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be reimbursed by
the Adviser or its affiliates.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, 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. Federated Administrative Services
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. Federated Administrative Services may voluntarily choose to
waive a portion of its fee.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, 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.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Price
Waterhouse LLP, Boston, Massachusetts.
9
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.
Texas residents must purchase shares of the Fund through Federated Securities
Corp. 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, Union Planters Brokerage Services or
Federated Securities Corp., 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 load as follows:
10
<TABLE>
<CAPTION>
SALES LOAD AS A SALES LOAD AS A
PERCENTAGE OF PUBLIC PERCENTAGE OF NET
AMOUNT OF TRANSACTION OFFERING PRICE AMOUNT INVESTED
<S> <C> <C>
Less than $250,000 2.00% 2.04%
$250,000 but less than $500,000 1.50% 1.52%
$500,000 but less than $1,000,000 1.00% 1.01%
$1,000,000 or more 0.00% --
</TABLE>
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, 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.
PURCHASES AT NET ASSET VALUE. Shares of the fund may be purchased at net asset
value, without a sales load, 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 load is imposed for shares purchased through bank trust departments,
investment advisers registered under the Investment Advisers Act of 1940, as
amended, 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 load. Any portion of the sales load
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 load it normally
retains. If accepted by the dealer, such additional payments will be predicated
upon the amount of Fund shares sold.
The sales load 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 load 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 LOAD
The sales load 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 load paid. The Fund will
combine purchases of shares made on
11
the same day by the investor, his spouse, and his children under age 21 when it
calculates the sales load.
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 $240,000 and
purchases $10,000 more at the current public offering price, the sales load on
the additional purchase according to the schedule now in effect would be 1.50%,
not 2.00%.
To receive the sales load reduction, Federated Securities Corp. must be notified
by the shareholder in writing or by the shareholder's financial institution at
the time the purchase is made that shares are already owned or that purchases
are being combined. The Fund will reduce the sales load 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 load may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales load adjustment depending on the amount actually purchased
within the 13-month period and a provision for the custodian to hold up to 2.00%
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 load.
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 load 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 load.
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 load. 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, Union
Planters Brokerage Services or Federated Securities Corp., as appropriate.
Detailed statements that include account balances, information on each purchase
or redemption, and a report of dividends are sent to each shareholder.
12
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 load, unless
cash payments are requested by writing to your financial institution,
broker/dealer, Union Planters Brokerage Services or Federated Securities Corp.,
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 Federated
Services Company 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 Federated Securities Corp. If, at any time, the
Fund should determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
13
BY MAIL. Shareholders may redeem shares by sending a written request to
Federated Securities Corp., 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 Federated Securities Corp. 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 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 September 6, 1995, Union Planters National Bank,
Memphis, Tennessee, acting in various capacities for numerous accounts, was the
owner of record of approximately 3,088,907 shares (90.96%) 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.
14
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
15
that the Fund's existing 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, as amended ("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, shareholders of the Fund will not be subject to
Tennessee personal income taxes on Fund dividends to the extent that such
dividends represent "exempt-interest dividends" as defined in the Code, which
are directly attributable to (i) interest on obligations of the state of
Tennessee or any of its political subdivisions; or (ii) interest on certain
obligations of the United States, or any agency or instrumentality thereof.
To the extent that distributions by the Fund are derived from capital gains on
such obligations, or from dividends or capital gains on other types of
obligations, such distributions will be subject to Tennessee income taxes.
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 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 number is then
16
annualized using semi-annual compounding. 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
specific tax rate. The yield and the tax-equivalent yield do not necessarily
reflect income actually earned by the Fund and, therefore, may not correlate to
the dividends or other distributions paid to shareholders.
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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
17
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
PORTFOLIO OF INVESTMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
CREDIT
AMOUNT
RATING* VALUE
- ------------ ------------------------------------------------------------------
- ------- ----------- -------------
<C> <S>
<C> <C>
MUNICIPAL NOTES--98.6%
- --------------------------------------------------------------------------------
- -------
TENNESSEE--98.6%
------------------------------------------------------------------
- -------
$ 1,000,000 Chattanooga--Hamilton County, TN, Hospital Authority Revenue,
5.50%
Refunding Bonds, (Erlanger Medical Center)/ (Callable 10/1/2003 @
102)/(FSA Insured)/(Original Issue Yield: 5.85%), 10/1/2013
AAA $ 949,280
------------------------------------------------------------------
- -------
465,000 Chattanooga--Hamilton County, TN, Hospital Authority Revenue,
5.50%
Refunding Bonds, (Erlanger Medical Center)/ (FSA
Insured)/(Original Issue
Yield: 5.60%), 10/1/2006
AAA 472,724
------------------------------------------------------------------
- -------
1,130,000 Clarksville, TN, Electric System Revenue, 5.125% Refunding and
Improvement Bonds, (Callable 9/1/2003 @ 102), 9/1/2011
A 1,032,085
------------------------------------------------------------------
- -------
735,000 Clarksville, TN, Water, Sewer and Gas Systems, 6.125%
Refunding and Improvement Revenue Bonds, (Callable
2/1/2002 @ 102)/(MBIA Insured)/(Original Issue Yield: 6.15%),
2/1/2007
AAA 781,232
------------------------------------------------------------------
- -------
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 510,110
------------------------------------------------------------------
- -------
400,000 Hamblen County, TN, Hospital Revenue, 4.90% UT GO Bonds, (Callable
5/1/1999 @ 102)/(AMBAC Insured), 5/1/2006
AAA 392,112
------------------------------------------------------------------
- -------
500,000 Jackson, TN, Health, Educational and Housing Facilities Revenue,
5.90%,
(Jackson-Madison County General Hospital)/ (MBIA Insured),
4/1/2000 AAA 525,270
------------------------------------------------------------------
- -------
400,000 Jackson, TN, Water and Sewer Authority Revenue, 5.125% Refunding
Bonds,
(Callable 1/1/2003 @ 102)/(AMBAC Insured), 1/1/2010
AAA 381,732
------------------------------------------------------------------
- -------
440,000 Johnson City, TN, Health and Educational Facilities, 6.75%
Refunding Revenue Bonds, (Johnson City Medical)/(Callable 7/1/2001
@
102)/(MBIA Insured)/(Original Issue Yield: 6.912%), 7/1/2006
AAA 480,586
------------------------------------------------------------------
- -------
</TABLE>
18
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
CREDIT
AMOUNT
RATING* VALUE
- ------------ ------------------------------------------------------------------
- ------- ----------- -------------
<C> <S>
<C> <C>
MUNICIPAL NOTES--CONTINUED
- --------------------------------------------------------------------------------
- -------
$ 810,000 Johnson City, TN, Health and Educational Facilities, 6.75%
Refunding Revenue Bonds, (Johnson City Medical)/(MBIA
Insured)/(Original Issue Yield: 6.912%)/(Pre-Refunded
7/1/2001 @ 102), 7/1/2006 (a)
AAA $ 913,000
------------------------------------------------------------------
- -------
750,000 Knox County, TN, Health, Educational and Housing Facilities
Revenue,
4.90%, (Fort Sanders Alliance)/(Series A)/(Callable 1/1/2004 @
102)/(MBIA
Insured)/(Original Issue Yield: 5.10%), 1/1/2005
AAA 726,870
------------------------------------------------------------------
- -------
750,000 Knox County, TN, Health, Educational and Housing Facilities
Revenue,
7.00%, (Fort Sanders Alliance)/(Series C)/(MBIA Insured)/(Pre-
Refunded
1/1/2000 @ 102), 1/1/2008 (a)
AAA 838,230
------------------------------------------------------------------
- -------
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 954,220
------------------------------------------------------------------
- -------
1,330,000 Knoxville, TN, Water Revenue, 5.20% Refunding and
Improvement Bonds, (Series M), (Callable 3/1/2000 @ 102)/
(Original Issue
Yield: 5.45%), 3/1/2010
AA 1,271,001
------------------------------------------------------------------
- -------
1,750,000 Memphis-Shelby County, TN, Airport Revenue, 6.75% Refunding Bonds,
(Federal Express Corp.)/(Callable 9/1/2002 @ 102), 9/1/2012
BBB 1,814,715
------------------------------------------------------------------
- -------
230,000 Metropolitan Government Nashville and Davidson County, TN, 5.25%
Refunding UT GO Bonds, (Original Issue Yield: 5.45%), 5/15/2007
AA 230,782
------------------------------------------------------------------
- -------
750,000 Metropolitan Government Nashville and Davidson County, TN,
Electric
Revenue, 6.00%, (Series A)/(Callable 5/15/2002 @ 102)/(Original
Issue
Yield: 6.282%), 5/15/2017
AA 750,420
------------------------------------------------------------------
- -------
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 1,361,910
------------------------------------------------------------------
- -------
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 217,635
------------------------------------------------------------------
- -------
</TABLE>
19
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
CREDIT
AMOUNT
RATING* VALUE
- ------------ ------------------------------------------------------------------
- ------- ----------- -------------
<C> <S>
<C> <C>
MUNICIPAL NOTES--CONTINUED
- --------------------------------------------------------------------------------
- -------
$ 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 $ 248,672
------------------------------------------------------------------
- -------
500,000 Metropolitan Government Nashville and Davidson County, TN, Water
and
Sewer Revenue, 7.25% Refunding Bonds, (Callable 1/1/1996 @ 102),
1/1/2006 A 518,215
------------------------------------------------------------------
- -------
400,000 Metropolitan Government Nashville and Davidson County, TN, Water
and
Sewer Revenue, 7.30% Refunding Bonds, (Callable 1/1/1996 @ 102),
1/1/2008 A 413,476
------------------------------------------------------------------
- -------
1,375,000 Montgomery County, TN, Public Building Authority Revenue, 7.50%,
(Tennessee County Loan Pool)/(Callable 12/15/1995 @
100)/(Prudential
Insurance Company of America Insured), 12/15/2000
AA+ 1,394,828
------------------------------------------------------------------
- -------
800,000 Mt. Juliet, TN, Public Building Authority Revenue, 7.00%, (Series
O)/(Callable 2/1/2001 @ 102)/(MBIA Insured),
2/1/2006
AAA 888,712
------------------------------------------------------------------
- -------
1,500,000 Putnam 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 1,405,380
------------------------------------------------------------------
- -------
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+ 472,220
------------------------------------------------------------------
- -------
500,000 Shelby County, TN, 5.875% Refunding UT GO Bonds, (Series
B)/(Callable
3/1/2000 @ 101-1/2)/(Original Issue Yield: 5.95%),
3/1/2007
AA+ 520,585
------------------------------------------------------------------
- -------
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+ 507,432
------------------------------------------------------------------
- -------
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 (Escrowed to Maturity) (a)
AAA 1,072,990
------------------------------------------------------------------
- -------
</TABLE>
20
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
CREDIT
AMOUNT
RATING* VALUE
- ------------ ------------------------------------------------------------------
- ------- ----------- -------------
<C> <S>
<C> <C>
MUNICIPAL NOTES--CONTINUED
- --------------------------------------------------------------------------------
- -------
$ 1,250,000 Shelby County, TN, Health, Educational and Housing
Facilities Revenue, 7.40% Refunding Bonds, (Methodist
Health System)/(Series A)/(Callable 6/1/1998 @ 102)/(MBIA
Insured),
6/1/2003
AAA $ 1,368,750
------------------------------------------------------------------
- -------
1,250,000 Tennessee Housing Development Agency Mortgage, 5.40% Refunding
Revenue
Bonds, (Series A)/(Callable 7/1/2003 @ 102), 7/1/2004
A+ 1,257,837
------------------------------------------------------------------
- -------
235,000 Tennessee Housing Development Agency Mortgage, 5.65% Refunding
Revenue
Bonds, (Series A)/(Callable 7/1/2003 @ 102), 1/1/2007
A+ 236,048
------------------------------------------------------------------
- -------
1,500,000 Tennessee Housing Development Agency Mortgage, 5.70% Refunding
Revenue
Bonds, (Series A)/(Callable 7/1/2003 @ 102), 7/1/2008
A+ 1,501,035
------------------------------------------------------------------
- -------
1,205,000 Tennessee Housing Development Agency Mortgage, 5.70% Refunding
Revenue
Bonds, (Series A)/(Callable 7/1/2003 @ 102), 7/1/2008
A+ 1,205,831
------------------------------------------------------------------
- -------
2,050,000 Tennessee Housing Development Agency Mortgage, 5.85% Refunding
Revenue
Bonds, (Series A)/(Callable 7/1/2003 @ 102), 7/1/2013
A+ 2,001,025
------------------------------------------------------------------
- -------
400,000 Tennessee Housing Development Agency, 6.40% Revenue Bonds,
(Homeownership
Program-Issue U), 7/1/2000
A+ 418,276
------------------------------------------------------------------
- -------
430,000 Tennessee Housing Development Agency, 6.90% Revenue Bonds,
(Homeownership
Program-Issue U)/(Callable 7/1/2001 @ 102), 7/1/2005
A+ 454,350
------------------------------------------------------------------
- -------
500,000 Tennessee State Local Development Authority, 5.65% Refunding
Revenue
Bonds, State Loan Program, (Series A)/ (Callable 3/1/2003 @ 102),
3/1/2007
AA- 512,990
------------------------------------------------------------------
- -------
495,000 Tennessee State Local Development Authority, 6.10% Revenue Bonds,
(Community Provider Pooled Loan Program)/(State Aid
Withholding)/(Callable 10/1/2004 @ 102), 10/1/2007
A- 511,558
------------------------------------------------------------------
- -------
195,000 Tennessee State School Board Authority, 5.75% Refunding Revenue
Bonds,
(Callable 5/1/1996 @ 100-1/2)/(GO of Authority), 5/1/2006
AA 196,745
------------------------------------------------------------------
- -------
</TABLE>
21
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
CREDIT
AMOUNT
RATING* VALUE
- ------------ ------------------------------------------------------------------
- ------- ----------- -------------
<C> <S>
<C> <C>
MUNICIPAL NOTES--CONTINUED
- --------------------------------------------------------------------------------
- -------
$ 750,000 Tennessee State School Board Authority, 6.25% Refunding Revenue
Bonds,
(Higher Educational Facilities)/(Series A)/ (Callable 5/1/2002 @
101-1/2), 5/1/2017
AA $ 779,873
------------------------------------------------------------------
- -------
700,000 Tennessee State, 5.55% GO Bonds, (Series A), (Callable
3/1/2005 @ 100), 3/1/2010
AA+ 707,735
------------------------------------------------------------------
- -------
250,000 Tennessee State, 6.10% Refunding UT GO Bonds, (Series A),
6/1/2000
AA+ 269,658
------------------------------------------------------------------
- -------
750,000 Tennessee State, 6.60% UT GO Bonds, (Miscellaneous
Improvements)/(Series
B)/(Callable 6/1/2001 @ 101-1/2), 6/1/ 2004
AA+ 829,673
------------------------------------------------------------------
- -------
1,035,000 Williamson County, TN, 6.00% Refunding UT GO Bonds,
3/1/2008
AA 1,097,928
------------------------------------------------------------------
- ------- -------------
TOTAL LONG-TERM MUNICIPAL SECURITIES (B)
(IDENTIFIED COST $35,734,455)
$ 35,395,736
------------------------------------------------------------------
- ------- -------------
</TABLE>
(a) 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.
(b) The cost of investments for federal tax purposes amounts to $35,734,455. The
net unrealized depreciation of investments on a federal tax basis amounts to
$338,719, which is comprised of $287,289 appreciation and $626,008
depreciation at July 31, 1995.
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
Note: The category of investments is shown as a percentage of net assets
($35,887,520) at July 31, 1995.
The following acronyms are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
FGIC--Financial Guaranty Insurance Company
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)
22
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C> <C>
ASSETS:
- --------------------------------------------------------------------------------
- -------------------
Investments in securities (identified cost and tax cost, $35,734,455)
$ 35,395,736
- --------------------------------------------------------------------------------
- -------------------
Income receivable
509,360
- --------------------------------------------------------------------------------
- -------------------
Deferred expenses
19,592
- --------------------------------------------------------------------------------
- ------------------- -------------
Total assets
35,924,688
- --------------------------------------------------------------------------------
- -------------------
LIABILITIES:
- --------------------------------------------------------------------------------
- -------------------
Payable to portfolio accounting agent
$ 9,189
- --------------------------------------------------------------------------------
- --------
Payable to bank
6,753
- --------------------------------------------------------------------------------
- --------
Accrued expenses
21,226
- --------------------------------------------------------------------------------
- -------- ---------
Total liabilities
37,168
- --------------------------------------------------------------------------------
- ------------------- -------------
NET ASSETS for 3,430,418 shares of beneficial interest outstanding
$ 35,887,520
- --------------------------------------------------------------------------------
- ------------------- -------------
NET ASSETS CONSISTS OF:
- --------------------------------------------------------------------------------
- -------------------
Paid in capital
$ 36,382,737
- --------------------------------------------------------------------------------
- -------------------
Net unrealized depreciation of investments
(338,719)
- --------------------------------------------------------------------------------
- -------------------
Accumulated net realized loss on investments
(265,182)
- --------------------------------------------------------------------------------
- -------------------
Undistributed net investment income
108,684
- --------------------------------------------------------------------------------
- ------------------- -------------
Total Net Assets
$ 35,887,520
- --------------------------------------------------------------------------------
- ------------------- -------------
NET ASSET VALUE, and Redemption Proceeds Per Share:
($35,887,520 / 3,430,418 shares of beneficial interest outstanding)
$10.46
- --------------------------------------------------------------------------------
- ------------------- -------------
Computation of Offering Price:
Offering Price Per Share (100/98 of $10.46)*
$10.67
- --------------------------------------------------------------------------------
- ------------------- -------------
</TABLE>
*See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
23
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
<C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
- -------------------
Interest income
$ 2,103,592
- --------------------------------------------------------------------------------
- -------------------
EXPENSES:
- --------------------------------------------------------------------------------
- -------------------
Investment advisory fee
$ 284,526
- --------------------------------------------------------------------------------
- -------
Administrative personnel and services fee
120,001
- --------------------------------------------------------------------------------
- -------
Custodian fees
21,379
- --------------------------------------------------------------------------------
- -------
Transfer agent and dividend disbursing agent fees and expenses
28,657
- --------------------------------------------------------------------------------
- -------
Trustees' fees
9,001
- --------------------------------------------------------------------------------
- -------
Auditing fees
15,000
- --------------------------------------------------------------------------------
- -------
Legal fees
6,851
- --------------------------------------------------------------------------------
- -------
Portfolio accounting fees
57,079
- --------------------------------------------------------------------------------
- -------
Share registration costs
18,246
- --------------------------------------------------------------------------------
- -------
Printing and postage
17,001
- --------------------------------------------------------------------------------
- -------
Insurance premiums
4,541
- --------------------------------------------------------------------------------
- -------
Miscellaneous
8,773
- --------------------------------------------------------------------------------
- ------- ----------
Total expenses
591,055
- --------------------------------------------------------------------------------
- -------
Deduct--
- --------------------------------------------------------------------------------
- -------
Waiver of investment advisory fee $
284,526
- ---------------------------------------------------------------------------
Waiver of administrative personnel and services fee
75,000 359,526
- --------------------------------------------------------------------------- ---
- ------- ----------
Net expenses
231,529
- --------------------------------------------------------------------------------
- ------------------- ------------
Net investment income
1,872,063
- --------------------------------------------------------------------------------
- ------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
- -------------------
Net realized loss on investments
(215,683)
- --------------------------------------------------------------------------------
- -------------------
Net change in unrealized depreciation on investments
1,023,037
- --------------------------------------------------------------------------------
- ------------------- ------------
Net realized and unrealized gain (loss) on investments
807,354
- --------------------------------------------------------------------------------
- ------------------- ------------
Change in net assets resulting from operations
$ 2,679,417
- --------------------------------------------------------------------------------
- ------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
24
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
- ------------------------------
JULY 31, 1995 JULY 31, 1994*
- ------------- -------------
<S>
<C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------------
Net investment income
$ 1,872,063 $ 1,564,175
- ------------------------------------------------------------------------------
Net realized loss on investment transactions ($153,288 and $0 net loss,
respectively, as computed for federal tax purposes)
(215,683) (49,499)
- ------------------------------------------------------------------------------
Net change in unrealized depreciation on investments
1,023,037 (1,361,756)
- ------------------------------------------------------------------------------
- --------------- ----------------
Change in net assets resulting from operations
2,679,417 152,920
- ------------------------------------------------------------------------------
- --------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------------
Distributions from net investment income
(1,887,110) (1,440,444)
- ------------------------------------------------------------------------------
- --------------- ----------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------------------------
Proceeds from sale of shares
3,372,891 50,071,452
- ------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared
145,754 151,236
- ------------------------------------------------------------------------------
Cost of shares redeemed
(10,823,155) (6,535,441)
- ------------------------------------------------------------------------------
- --------------- ----------------
Change in net assets resulting from share transactions
(7,304,510) 43,687,247
- ------------------------------------------------------------------------------
- --------------- ----------------
Change in net assets
(6,512,203) 42,399,723
- ------------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------------
Beginning of period
42,399,723 --
- ------------------------------------------------------------------------------
- --------------- ----------------
End of period (including undistributed net investment income of $108,684 and
$123,731, respectively)
$ 35,887,520 $ 42,399,723
- ------------------------------------------------------------------------------
- --------------- ----------------
</TABLE>
*For the period from August 5, 1993 (start of business) to July 31, 1994.
(See Notes which are an integral part of the Financial Statements)
25
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Planters Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as a non-diversified, open-end management
investment company. The financial statements presented herein are those of
Tennessee Tax-Free Bond Fund (the "Fund"). At July 31, 1995, the Trust did not
offer any other portfolios.
(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. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing
service taking into consideration yield, liquidity, risk, credit, quality,
coupon, maturity, type of issue, and any other factors or market data it
deems relevant in determining valuations for normal institutional size
trading units of debt securities. The independent pricing service does not
rely exclusively on quoted prices.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At July 31, 1995, the Fund, for federal tax purposes, had a capital loss
carryforward of $153,288, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire in 2003.
Additionally, net capital losses of $111,894 attributable to security
transactions incurred after October 31, 1994 are treated as arising on
August 1, 1995, the first day of the Fund's next taxable year.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make
26
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
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
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1995 1994*
- ----- -----
<S>
<C> <C>
Shares sold
333,883 4,761,847
- --------------------------------------------------------------------------------
- --------
Shares issued to shareholders in payment of distributions declared
14,443 14,402
- --------------------------------------------------------------------------------
- --------
Shares redeemed
(1,066,291) (627,866)
- --------------------------------------------------------------------------------
- -------- ----------- ----------
Net change resulting from share transactions
(717,965) 4,148,383
- --------------------------------------------------------------------------------
- -------- ----------- ----------
</TABLE>
*For the period from August 5, 1993 (start of business) to July 31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Union Planters National Bank, the Fund's investment
adviser (the "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 may voluntarily choose to waive all or a portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
As of July 31, 1995, Union Planters National Bank was the owner of record of
approximately 3,124,137 shares, which is 91.07% of the Fund.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES AND PORTFOLIO
ACCOUNTING FEES-- Federated Services Company ("FServ") serves as transfer and
dividend disbursing agent for the
27
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
Fund for which it receives a fee. The fee is based on the size, type, and number
of accounts and transactions made by shareholders.
FServ also maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($35,622) were initially borne
by FAS. The Fund has agreed to reimburse FAS for such organizational expenses
during the five year period following August 5, 1993 (the date the Fund became
effective). For the year ended July 31, 1995, the Fund paid $2,367 pursuant to
this agreement.
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended
July 31, 1995, were as follows:
<TABLE>
<S>
<C>
PURCHASES
$ 1,030,211
- --------------------------------------------------------------------------------
- -------------------- ------------
SALES
$ 8,179,850
- --------------------------------------------------------------------------------
- -------------------- ------------
</TABLE>
(6) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers in
that state than would be a comparable general tax-exempt mutual fund. In order
to reduce the credit risk associated with such factors, at July 31, 1995, 35.3%
of the securities in the portfolio of investments are backed by letters of
credit or bond insurance of various financial institutions and financial
guaranty assurance agencies. The value of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not exceed
23.8% of total investments.
28
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
TENNESSEE TAX-FREE BOND FUND
(a Portfolio of the Planters Funds):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments (except for the Credit Ratings), and the related
statements of operations and of changes in net assets and the financial
highlights (included on page 2 of the Prospectus) present fairly, in all
material respects, the financial position of the Tennessee Tax-Free Bond Fund
(the "Fund") at
July 31, 1995, the results of operations for the year then ended, and the
changes in net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at July 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 7, 1995
29
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
- --------------------------------------------------------------------------------
- -------------------------------------
Independent Auditors
Price Waterhouse LLP 160
Federal Street
Boston,
Massachusetts 02110
- --------------------------------------------------------------------------------
- -------------------------------------
</TABLE>
30
TENNESSEE TAX-FREE
BOND FUND
PROSPECTUS
A Non-Diversified Portfolio
of The Planters Funds
An Open-End, Management
Investment Company
September 30, 1995
[logo] FEDERATED SECURITIES CORP.
----------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Cusip 727426108
3072709A (9/95)
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
September 30, 1995. This Statement is not a prospectus itself. To receive
a copy of the prospectus write or call Union Planters Brokerage Services
at 1-800-238-7125.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated September 30, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
GENERAL INFORMATION ABOUT THE FUND 1 TRANSFER AGENT AND DIVIDEND
INVESTMENT OBJECTIVE AND POLICIES 1 DISBURSING AGENT 10
ACCEPTABLE INVESTMENTS 1 BROKERAGE TRANSACTIONS 11
WHEN-ISSUED AND DELAYED DELIVERY PURCHASING SHARES 11
TRANSACTIONS 2 DETERMINING NET ASSET VALUE 11
TEMPORARY INVESTMENTS 2 VALUING MUNICIPAL BONDS 11
REPURCHASE AGREEMENTS 2 USE OF AMORTIZED COST 11
PORTFOLIO TURNOVER 2 REDEEMING SHARES 12
INVESTMENT LIMITATIONS 2 REDEMPTION IN KIND 12
INVESTMENT RISKS 4 TAX STATUS 12
MANAGEMENT OF THE TRUST 5 THE FUND'S TAX STATUS 12
FUND OWNERSHIP 8 SHAREHOLDER'S TAX STATUS 12
TRUSTEES' COMPENSATION 8 TOTAL RETURN 13
TRUSTEE LIABILITY 9 YIELD 13
INVESTMENT ADVISORY SERVICES 10 TAX-EQUIVALENT YIELD 13
ADVISER TO THE FUND 10 TAX-EQUIVALENCY TABLE 13
ADVISORY FEES 10 PERFORMANCE COMPARISONS 14
ADMINISTRATIVE SERVICES 10 APPENDIX 16
General Information About the Fund
Tennessee Tax-Free Bond 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 Rating Group
("S&P") or Fitch's Investors Service, Inc. ("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 ("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 made to secure what is considered to be an advantageous
price or 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 other 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 are maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 20% of the total value of its
assets.
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 affect 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%. For the period from August 5, 1993 (start of business) to July
31, 1994, the portfolio turnover rate was 30%. For the fiscal year ended July
31, 1995, the portfolio turnover rate was 3%.
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. Cash items may include obligations such as:
- certificates of deposit (including those issued by domestic and foreign
branches of FDIC insured banks);
- obligations issued or guaranteed as to principal and interest by the
U.S. government or any of its agencies or instrumentalities; and
- repurchase agreements.
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 the 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
significant recovery in economic activity. 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 Standard and Poor's Rating
Group and Aaa by Moody's Investors Service Inc. 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.
Management of the Trust
Officers and Trustees are listed with their addresses, present positions with
Tennessee Tax-Free Bond Fund, and principal occupations during the past five
years.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chi
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Me
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Treasurer, and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; Executive Vice President and
Treasurer of the Funds.
Peter E. Madden
70 Westcliff Road
Westin, MA
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; 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
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research Corp.
; Trustee, Federated Services Company; Executive Vice President, Secretary, and
Trustee, Federated Administrative Services; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive Vice
President and Secretary of the Funds.
Judith J. Mackin
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 30, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and Assistant
Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the 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.
As of September 6, 1995, the following shareholder of record owned 5% or more of
the outstanding shares of the Fund: National Financial Services Corp. (as record
owner holding shares for its clients), New York, New York owned approximately
253,161 shares (7.45%), Union Planters National Bank, Memphis, Tennessee, acting
in various capacities for numerous accounts owned approximately 3,088,907 shares
(90.96%).
Trustees' Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST *#
John F. Donahue $0
Trustee
Thomas G. Bigley $780
Trustee
John T. Conroy, Jr. $857
Trustee
William J. Copeland $857
Trustee
James E. Dowd $857
Trustee
Lawrence D. Ellis, M.D. $780
Trustee
Edward L. Flaherty, Jr. $857
Trustee
Edward C. Gonzales $0
Trustee
Peter E. Madden $630
Trustee
Gregor F. Meyer $780
Trustee
John E. Murray, Jr. $520
Trustee
Wesley W. Posvar $780
Trustee
Marjorie P. Smuts $780
Trustee
*Information is furnished for the fiscal year ended July 31, 1995.
#The aggregate compensation is provided for the Trust which is comprised of one
portfolio. The Fund is the only investment company in the Fund Complex.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Cash Trust; Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; 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 Institutional Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term
U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 3-5 Years; 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; Insurance
Management Series; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc.
- - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds;
Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut Funds;
Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund,
Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust For Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; The Virtus Funds; and World Investment Series, Inc.
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.
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.
Because of the internal controls maintained by Union Planters to restrict the
flow of non-public information, Fund investments are typically made without any
knowledge of Union Planters National Bank or its affiliates' lending
relationships with an issuer. The investment 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 investment 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 July 31, 1994, the
investment adviser earned advisory fees of $249,876, of which $237,172 was
voluntarily waived. For the fiscal year ended July 31, 1995, the investment
adviser earned advisory fees of $284,526, all of which was voluntarily waived.
State Expense Limitations
The investment 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 investment 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 investment 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 as described in the
prospectus. For the fiscal year ended July 31, 1995, Federated Administrative
Services earned $120,001, of which $75,000 was voluntarily waived. (Prior to
March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of
Federated Investors, served as the Trust's administrator. For purposes of this
Statement of Additonal Information, Federated Administrative Services and
Federated Administrative Services, Inc., may hereinafter collectively be
referred to as the "Administrators"). For the period from August 5, 1993 (start
of business) to July 31, 1994, the Administrators earned $110,137, of which
$53,269 was voluntarily waived.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the size,
type and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The fee
paid for this service is based upon the level of the Fund's average net assets
for the period plus out-of-pocket expenses.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the investment adviser looks for prompt execution of the order at a
favorable price. In working with dealers, the investment 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
investment adviser makes decisions on portfolio transactions and selects brokers
and dealers subject to review by the Trustees.
The investment adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Fund or to
the investment 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 investment 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 investment adviser and
other accounts. To the extent that receipt of these services may supplant
services for which the investment adviser or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
From August 5, 1993 (start of business) to July 31, 1994, the Fund paid $650 in
commissions on brokerage transactions. For the fiscal year ended July 31, 1995,
the Fund paid no commissions on brokerage transactions.
Purchasing Shares
Shares of the Fund are sold at their net asset value with a sales load 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 the Fund 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, as amended 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 could receive less than the
redemption value of their securities when they are sold or mature and could
incur certain transactions costs if they are sold.
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, as amended,
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. 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.
Distributions of short-term capital gains, if any, are taxed as ordinary income.
Total Return
The average annual total returns for the Fund for the fiscal year ended July
31,1995, and for the period from August 30, 1993 (date of initial public
investment) through July 31, 1994, were 3.25% and 2.31%, respectively. These
returns assume the maximum sales load applicable during the period (4.00%).
The average annual total returns for the Fund for the fiscal year ended July
31,1995, and for the period from August 30, 1993 (date of initial public
investment) through July 31, 1994, assuming a maximum sales load of 2.00% (the
maximum sales load beginning October 1, 1995) were 5.43% and 3.44%,
respectively.
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 offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
Yield
The Fund's yield for the thirty-day period ended July 31, 1995, was 4.56% based
on offering price assuming a 4.00% maximun sales load. The Fund's yield for the
thirty-day period ended July 31, 1995, was 4.66% based on offering price
assuming a 2.00% sales load.
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 Fund's tax-equivalent yield for the thirty-day period ended July 31, 1995
was 6.91% based on offering price assuming a maximum sales load of 4.00%. The
Funds' tax-equivalent yield for the thirty-day period ended July 31, 1995 was
7.06% based on offering price assuming a sales load of 2.00%.
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.
TAXABLE YIELD EQUIVALENT FOR 1995
State of Tennessee
TAX BRACKET:
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 $1- $39,001- $94,251- $143,601- OVER
RETURN 39,000 94,250 143,600 256,500 256,500
SINGLE $1- $23,351- $56,551- $117,951- OVER
RETURN 23,350 56,550 117,950 256,500 256,500
Tax-Exempt
Yield Taxable Yield Equivalent
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%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator
of past or future performance of 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 offering price per share fluctuate daily. Both net earnings and offering
price 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 offering price 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 Ratings Group ("S&P") Municipal Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from 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 (-): Ratings 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., ("Moody's") 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 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., ("Fitch") 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 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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
Standard and Poor's Ratings Group 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
sign (+) 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 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 Ratings Group Commercial Paper Ratings
A-1--This highest category designation indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Moody's Investors Service, Inc., Commercial Paper Ratings
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.
CUSIP 727426108
3072709B (9/95)
TENNESSEE TAX-FREE BOND FUND
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ANNUAL REPORT FOR FISCAL YEAR ENDED JULY 31, 1995
MANAGEMENT DISCUSSION AND ANALYSIS
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The Tennessee Tax-Free Bond Fund (the "Fund") is a municipal bond fund
which invests in obligations issued by or on behalf of the State of
Tennessee, its political subdivisions or agencies. The managers of the Fund
expect to continue investing exclusively in Tennessee domiciled municipals.
This investment strategy should allow the Fund to continue paying monthly
dividends which are free from both federal and State of Tennessee personal
income taxes.
Since the beginning of the Fund's operations, the Fund has enjoyed a
favorable rate of growth in assets. At the close of the fiscal year ended
July 31, 1995, investors had a total of $35.9 million in net assets under
the Fund's management. The Fund invests in a wide variety of securities
across sector types. In an attempt to mitigate credit risk, the Fund's
security selection process requires the use of issues rated investment
grade or above by one or more of the national municipal bond rating
services. As of fiscal year end, there were 45 separate holdings within the
portfolio.
The prior twelve months have been a period of some volatility in
interest rates in the municipal bond market. The Federal Reserve began to
raise interest rates in February of 1994. This process continued during the
year. Because bond prices and interest rates tend to move in opposite
directions this trend towards higher rates negatively impacted the net
asset value of the fund during the fall of calendar 1994.
The Fund began the fiscal year with a net asset value of $10.22. The
low point in net asset value was reached during November when the fund's
NAV fell to $9.45. Fortunately, this proved to be a temporary setback and
the market began to improve in December of 1994.
Anticipating this more favorable environment for municipal bonds, the
managers of the fund began to extend the average maturity of the portfolio
during this time. This positioned the fund to more fully participate in the
market rally. Share prices climbed steadily during the first five months of
calendar 1995. The net asset value reached a high of $10.64 in early June.
The fund closed the fiscal year with a net asset value of $10.46 on July
31, 1995.
The Fund's fiscal year end for reporting purposes is July 31, 1995.
During the period from August 1, 1994 through July 31, 1995, the Fund
generated income of $.506 per share. Combining this income with the changes
in share price and the effect of the 2.0% sales load resulted in a total
return of 5.43% for the period. On a net asset value basis (which does not
reflect the sales load) the Fund's total return for this period was 7.60%.
Beginning September 30, 1995, the Fund will be offered to investors with a
maximum sales load of 2.0%.
TENNESSEE TAX-FREE BOND FUND
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GROWTH OF $10,000 INVESTED IN TENNESSEE TAX-FREE BOND FUND
The graph below illustrates the hypothetical investment of $10,000 in
Tennessee Tax-Free Bond Fund (the "Fund") from August 30, 1993 (start of
performance) to July 31, 1995, compared to the Lehman Brothers 10 Year Municipal
Bond Index ("LBMB") and the Lipper Intermediate Municipal Bond Index ("LIMB").
Graphic Representation Omitted (See attached Appendix)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
This report must be preceded or accompanied by the Fund's prospectus dated
September 30, 1995, and together with the financial statements contained
therein, constitutes the Fund's annual report.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales load of 2.00% ($10,000 investment minus $200 sales load =
$9,800). The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBMB and the LIMB have been adjusted to reflect
reinvestment of dividends on securities in the indices.
**Total return quoted reflects all applicable sales loads and contingent
deferred sales charges.
The LBMB and the LIMB are not adjusted to reflect sales loads, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance. The
LIMB Average is a compilation of a specified category of mutual fund total
returns reported to Lipper Analytical Services, Inc. Each fund is reported net
of sales loads, expenses, or other fees that the SEC requires to be reflected
in a fund's performance.
FEDERATED SECURITIES CORP.
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Distributor
G00513-01 (9/95)
APPENDIX
A1. The graphic presentation here displayed consists of a line graph titled
"Growth of $10,000 Invested in Tennessee Tax-Free Bond Fund. The corresponding
components of the line graph are listed underneath. The Tennessee Tax-Free
Bond Fund (the "Fund") is represented by a brokenline. The Lipper Intermediate
Municipal Bond Index (the "LIMB") is represented by a dotted line.
The Lehman Brothers 10 Year Municipal Bond Index (the "LBMB") is represented
by a solid line.
The line graph is a visual representation of a comparison of change in value
of a hypothetical $10,000 investment in the Fund and the LIMB and the LBMB.
The "x" axis reflects computation periods from the start of performance
(August 30, 1993) to July 31, 1995. The "y" axis reflects the cost of the
investment, ranging from $9,500 to $11,000. The right margin reflects the
ending value of the hypothetical investment in the Fund as compared to the
LIMB, and the LBMB. The ending values are $10,670, $10,699 and $10,893,
respectively.
