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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, 1996, with the Securities and Exchange Commission ("SEC"). 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. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Trust is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov.).
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, 1996
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
Tennessee Municipal Securities 6
Investment Risks 6
Non-Diversification 6
Investment Limitations 7
THE PLANTERS FUNDS INFORMATION 7
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Management of the Trust 7
Distribution of Fund Shares 8
Administration of the Fund 9
NET ASSET VALUE 9
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INVESTING IN THE FUND 9
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Share Purchases 9
Minimum Investment Required 10
What Shares Cost 10
Reducing the Sales Charge 11
Certificates and Confirmations 12
Dividends and Distributions 12
REDEEMING SHARES 12
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Accounts with Low Balances 13
SHAREHOLDER INFORMATION 14
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Voting Rights 14
Massachusetts Partnership Law 14
EFFECT OF BANKING LAWS 14
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TAX INFORMATION 15
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Federal Income Tax 15
State of Tennessee Taxes 15
Other State and Local Taxes 15
PERFORMANCE INFORMATION 16
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FINANCIAL STATEMENTS 17
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INDEPENDENT ACCOUNTANTS' REPORT 28
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ADDRESSES 29
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SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Charge Imposed on Purchases (as a percentage of offering price)............... 2.00%
Maximum Charge 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
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.00%
12b-1 Fee............................................................................. None
Other Expenses........................................................................ 1.07%
Total Fund Operating Expenses(2)............................................ 1.07%
</TABLE>
(1) The management fee has been reduced to reflect a 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 0.86% for the fiscal year ended July
31, 1996. 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 ended July 31, 1997. Total Fund Operating
Expenses are anticipated to be 1.82% absent the voluntary waiver of the
management fee (See (1) above).
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 charge.......................................... $ 31 $53 $78 $148
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------
1996 1995 1994 (A)
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<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.46 $ 10.22 $ 10.50
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.50 0.51 0.44
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Net realized and unrealized gain (loss) on
investments 0.07 0.24 (0.31)
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Total from investment operations 0.57 0.75 0.13
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LESS DISTRIBUTIONS
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Distributions from net investment income (0.49) (0.51) (0.41)
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NET ASSET VALUE, END OF PERIOD $10.54 $ 10.46 $ 10.22
- --------------------------------------------------- ------ ------- -------
TOTAL RETURN (b) 5.57% 7.60% 1.19%
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RATIOS TO AVERAGE NET ASSETS
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Expenses 0.86% 0.61% 0.56%*
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Net investment income 4.62% 4.93% 4.69%*
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Expense waiver/reimbursement (c) 0.80% 0.95% 0.87%*
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SUPPLEMENTAL DATA
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Net assets, end of period (000 omitted) $29,668 $35,888 $42,400
- ---------------------------------------------------
Portfolio turnover 0% 3% 30%
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</TABLE>
* Computed on an annualized basis.
(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 charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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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 charge and are redeemed at net asset value.
INVESTMENT INFORMATION
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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:
- 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
Ratings 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 associations and insurance companies. These participation
interests may take the form of participations, beneficial interests in a trust,
partnership interests or any other form of indirect ownership that allows the
Fund to treat the income from the investment as exempt from federal income tax.
The financial institutions from which the Fund purchases participation interests
frequently provide or secure irrevocable letters of credit or guarantees to
assure that the participation interests are of high quality.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the Tennessee Municipal Securities
which the Fund purchases may have variable interest rates. Variable interest
rates are ordinarily based on a published interest rate or interest rate index.
Many variable rate municipal securities are subject to payment of principal on
demand by the Fund in not more than seven days. All variable rate municipal
securities will meet the quality standards for the Fund. The Fund's investment
adviser has been instructed by the Trustees to monitor the pricing, quality, and
liquidity of the variable rate municipal securities, including participation
interests held by the Fund, on the basis of published financial information and
reports of the rating agencies and other analytical services.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract or a
participation certificate on any of the above. The lease payments and other
rights under the lease provide for and secure the payments on the certificates.
Lease obligations may be limited by municipal charter or the nature of the
appropriation for the lease. In particular, lease obligations may be subject to
periodic appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate
trustee cannot accelerate lease obligations upon default. The trustee would only
be able to enforce lease payments as they become due. In the event of a default
or failure of appropriation, it is unlikely that the trustee would be able to
obtain an acceptable substitute source of payment.
If the Fund purchases unrated municipal leases, the Trustees will be responsible
for determining on an ongoing basis, the credit quality of such leases and the
likelihood that a lease will not be canceled.
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 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.
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
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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 Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Union Planters National Bank
("Union Planters" or the "adviser"), the Fund's 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.
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, 1995, the Trust Group of Union Planters had approximately
$1.1 billion under administration, of which it had investment discretion
over approximately $750 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 MANAGER. The following individual is primarily responsible for
the day-to-day management of the Fund's portfolio:
Stacey Wall has been the Fund's portfolio manager since 1996. Mr. Wall has
been the Senior Vice President and Trust Manager for Union Planters Trust &
Investment Management of Mississippi since 1991. Mr. Wall received is
B.B.A. form the University of Mississippi and is a graduate of the Cannon
Financial Institute in Advanced Trust Investments.
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.
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 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 Services Company, 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 Services Company provides these at an
annual rate as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY
MAXIMUM NET ASSETS OF THE
ADMINISTRATIVE FEE FEDERATED FUNDS
- --------------------- ---------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
on assets in excess of $750
.075 of 1% million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$120,000 per Fund. Federated Services Company may voluntarily choose to waive a
portion of its fee.
NET ASSET VALUE
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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 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
responsibility 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 Service 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 charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A SALES CHARGE AS A
PERCENTAGE OF PERCENTAGE OF NET
AMOUNT OF TRANSACTION PUBLIC 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 charge, by Trust customers of Union Planters and
employees and retired employees of Union Planters and its affiliates and their
spouses and children under 21.
No sales charge is imposed for shares purchased through bank trust departments,
investment advisers registered under the Investment Advisers Act of 1940, 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 charge. Any portion of the sales
charge which is not paid to a dealer will be retained by the distributor.
However, the distributor, in its sole discretion, may uniformly offer to pay to
all dealers selling shares of the Fund, all or a portion of the sales charge it
normally retains. If accepted by the dealer, such additional payments will be
predicated upon the amount of Fund shares sold.
The sales charge for shares sold other than through registered broker/dealers
will be retained by the distributor. The distributor may pay fees to banks out
of the sales charge in exchange for sales and/or
administrative services performed on behalf of the bank's customers including
the initiation of customer accounts and purchases of shares.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares of the Fund through:
- quantity discounts and accumulated purchases;
- signing a 13-month letter of intent; or
- using the reinvestment privilege.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on the
previous page, larger purchases reduce the sales charge paid. The Fund will
combine purchases of shares made on the same day by the investor, his spouse,
and his children under age 21 when it calculates the sales charge.
If an additional purchase of shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
shares having a current value at the public offering price of $240,000 and
purchases $10,000 more at the current public offering price, the sales charge on
the additional purchase according to the schedule now in effect would be 1.50%,
not 2.00%.
To receive the sales charge 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 charge after
it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the Fund over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the custodian to hold
up to 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 charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if he does, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. This letter may be
dated as of a prior date to include any purchases made within the past 90 days
towards the dollar fulfillment of the letter of intent. Prior trade prices will
not be adjusted.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge.
Federated Securities Corp. must be notified by the shareholder in writing or by
the shareholder's financial institution of the reinvestment in order to
eliminate a sales charge. If the shareholder redeems shares in the Fund, there
may be tax consequences, and exercise of the reinvestment privilege may result
in additional tax considerations. Shareholders contemplating such transactions
should consult their own tax advisers.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder 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.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date.
Dividends are declared just prior to determining net asset value. Capital gains
realized by the Fund, if any, will be distributed at least once every 12 months.
Dividends and capital gains will be reinvested in additional shares on payment
dates at the ex-dividend date's net asset value without a sales charge, unless
cash payments are requested by writing to your financial institution,
broker/dealer, 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
Shareholder 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.
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 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 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 3, 1996, Union Planters National Bank,
Memphis, Tennessee, acting in various capacities for numerous accounts, was the
owner of record of approximately 2,444,996 shares (87.10%) of the Fund, and
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances. Trustees may be removed by the Trustees or by
shareholders at a special meeting. A special meeting of the shareholders for
this purpose shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of all series in the
Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on behalf
of the Fund. To protect shareholders of the Fund, the Trust has filed legal
documents with Massachusetts that expressly disclaim the liability of
shareholders of the Fund for such acts or obligations of the Trust. These
documents require notice of this disclaimer to be given in each agreement,
obligation, or instrument that the Trust or its Trustees enter into or sign on
behalf of the Fund.
In the unlikely event that a shareholder of the Fund is held personally liable
for the Trust's obligations on behalf of the Fund, the Trust is required to use
the property of the Fund to protect or compensate the shareholder. On request,
the Trust will defend any claim made and pay any judgment against a shareholder
of the Fund for any act or obligation of the Trust on behalf of the Fund.
Therefore, financial loss resulting from liability as a shareholder of the Fund
will occur only if the Trust cannot meet its obligations to indemnify
shareholders and pay judgments against them from the assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956 or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling or distributing securities
in general. Such laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of their customers. The Fund's adviser, Union Planters, is
subject to such banking laws and regulations.
Union Planters believes that it may perform the investment advisory services for
the Fund contemplated by its advisory agreement with the Trust without violating
the Glass-Steagall Act or other applicable banking laws or regulations. Changes
in either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of present or future
statutes and regulations, could prevent Union Planters from continuing to
perform all or a part of the above services for its customers and/or the Fund.
In such event, changes in the operation of a Fund may occur, including the
possible alteration or termination of any automatic or other Fund share
investment or redemption services then being provided by Union Planters, and the
Trustees would consider alternative investment advisers and other means of
continuing available investment services. It is not expected that 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 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 charge, 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.
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
PORTFOLIO OF INVESTMENTS
JULY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- -------------------------------------------------------- --------- -----------
<C> <C> <S> <C> <C>
LONG TERM MUNICIPAL NOTES--95.9%
- --------------------------------------------------------------------------
TENNESSEE--95.9%
--------------------------------------------------------
$ 465,000 Chattanooga-Hamilton County, TN Hospital Authority,
Refunding Revenue Bonds, 5.50% (Erlanger Medical
Center)/(FSA Insured)/(Original Issue Yield: 5.60%),
10/1/2006 AAA $ 476,425
--------------------------------------------------------
1,000,000 Chattanooga-Hamilton County, TN Hospital Authority,
Refunding Revenue Bonds, 5.50% (Erlanger Medical
Center)/(FSA Insured)/(Original Issue Yield: 5.85%),
10/1/2013 AAA 976,590
--------------------------------------------------------
1,130,000 Clarksville, TN, Electric System Refunding Revenue
Bonds, 5.125%, 9/1/2011 A 1,070,257
--------------------------------------------------------
500,000 Clarksville, TN, Water, Sewer & Gas Refunding Revenue
Bonds, 6.125% (MBIA Insured)/(Original Issue Yield:
6.15%), 2/1/2007 AAA 530,490
--------------------------------------------------------
500,000 Clarksville, TN, Water, Sewer & Gas Refunding Revenue
Bonds, 6.125% (MBIA Insured)/(Original Issue Yield:
6.328%), 2/1/2012 AAA 520,085
--------------------------------------------------------
250,000 Hamblen County, TN, GO UT Hospital Revenue Bonds, 4.90%
(AMBAC Insured), 5/1/2006 AAA 244,508
--------------------------------------------------------
250,000 Jackson, TN Health Educational & Housing Facilities
Board, Revenue Bonds, 5.90% (Jackson-Madison County
General Hospital)/(MBIA Insured)/(Original Issue Yield:
5.95%), 4/1/2000 AAA 261,048
--------------------------------------------------------
400,000 Jackson, TN, Water & Sewer Refunding Revenue Bonds,
5.125% (AMBAC Insured)/(Original Issue Yield: 5.35%),
1/1/2010 AAA 384,592
--------------------------------------------------------
440,000 Johnson City, TN, Health & Education Refunding Revenue
Bonds, 6.75% (MBIA Insured)/(Original Issue Yield:
6.912%), 7/1/2006 AAA 481,593
--------------------------------------------------------
</TABLE>
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- -------------------------------------------------------- --------- -----------
<S> <C> <S> <C> <C>
LONG TERM MUNICIPAL NOTES--CONTINUED
- --------------------------------------------------------------------------
$ 250,000 (a) Johnson City, TN, Health & Education Refunding Revenue
Bonds, 6.75% (MBIA Insured)/(Original Issue Yield:
6.912%)(United States Treasury PRF), 7/1/2001 (@102) AAA $ 276,640
--------------------------------------------------------
500,000 Knox County, TN Health Education & Housing Facilities
Board, Hospital Facilities Revenue Bonds (Series A),
4.90% (Fort Sanders Alliance)/(MBIA Insured)/(Original
Issue Yield: 5.099%), 1/1/2005 AAA 547,495
--------------------------------------------------------
500,000 (a) Knox County, TN Health Education & Housing Facilities
Board, Hospital Facilities Revenue Bonds (Series C),
7.00% (Fort Sanders Alliance)/(MBIA Insured)/(United
States Treasury PRF), 1/1/2000 (@102) AAA 492,130
--------------------------------------------------------
500,000 Knoxville, TN Gas System, Refunding Revenue Bonds, 5.05%
(Original Issue Yield: 5.10%), 3/1/2008 AA 486,100
--------------------------------------------------------
1,330,000 Knoxville, TN Water System, Refunding Revenue Bonds
(Series M), 5.20% (Original Issue Yield: 5.45%),
3/1/2010 AA 1,308,959
--------------------------------------------------------
1,500,000 Memphis-Shelby County, TN, Airport Refunding Revenue
Bonds, 6.75% (Federal Express Corp.), 9/1/2012 BBB 1,560,615
--------------------------------------------------------
1,500,000 Metropolitan Government Nashville & Davidson County, TN
Health Education Facilities Authority, Refunding Revenue
Bonds, 5.20% (Vanderbilt University), (Original Issue
Yield: 5.55%), 7/1/2018 AA 1,395,225
--------------------------------------------------------
230,000 Metropolitan Government Nashville & Davidson County, TN,
GO UT Refunding Bonds, 5.25% (Original Issue Yield:
5.45%), 5/15/2007 AA 232,532
--------------------------------------------------------
750,000 Metropolitan Government Nashville & Davidson County, TN,
Revenue Bonds (Series A), 6.00% (Original Issue Yield:
6.282%), 5/15/2017 AA 760,388
--------------------------------------------------------
230,000 Metropolitan Government Nashville & Davidson County, TN,
Water & Sewer Refunding Revenue Bonds, 5.20%
(FGIC Insured)/(Original Issue Yield: 5.53%), 1/1/2013 AAA 222,037
--------------------------------------------------------
75,000 Metropolitan Government Nashville & Davidson County, TN,
Water & Sewer Refunding Revenue Bonds, 7.25%, 1/1/2006 A 76,697
--------------------------------------------------------
</TABLE>
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- -------------------------------------------------------- --------- -----------
<S> <C> <S> <C> <C>
LONG TERM MUNICIPAL NOTES--CONTINUED
- --------------------------------------------------------------------------
$ 120,000 Metropolitan Government Nashville & Davidson County, TN,
Water & Sewer Refunding Revenue Bonds, 7.30%, 1/1/2008 A $ 120,457
--------------------------------------------------------
250,000 Metropolitan Government Nashville & Davidson County, TN,
Water & Sewer Revenue Bonds, 5.75% (AMBAC
Insured)/(Original Issue Yield: 6.15%), 1/1/2012 AAA 252,463
--------------------------------------------------------
1,370,000 Montgomery County, TN Public Building Authority, Pooled
Financing Government Obligation Revenue Bonds, 7.50%
(Tennessee County Loan Pool), (Prudential Insurance Co.
of America Insured), 12/15/2000 AA+ 1,387,851
--------------------------------------------------------
800,000 Mount Juliet, TN Public Building Authority, Revenue
Bonds (Series O), 7.00% (MBIA Insured), 2/1/2006 AAA 878,448
--------------------------------------------------------
1,200,000 Putnam County, TN, GO UT Bonds, 5.125% (MBIA
Insured)/(Original Issue Yield: 5.35%), 4/1/2011 AAA 1,145,124
--------------------------------------------------------
750,000 Shelby County, TN Health Education & Housing Facilities
Board, Refunding Revenue Bonds (Series A), 7.40%
(Methodist Health System, Inc.)/(MBIA Insured)/(Original
Issue Yield: 7.50%), 6/1/2003 AAA 800,453
--------------------------------------------------------
1,000,000 (a) Shelby County, TN Health Education & Housing Facilities
Board, Revenue Bonds, 6.00% (St. Joseph Hospital East,
Inc.)/(Original Issue Yield: 6.37%), 3/1/2005 (Escrowed
to Maturity) AAA 1,031,240
--------------------------------------------------------
500,000 Shelby County, TN, GO UT Bonds, (Series A), 5.10%
(Original Issue Yield: 5.25%), 3/1/2011 AA+ 482,280
--------------------------------------------------------
250,000 Shelby County, TN, GO UT Refunding Bonds (Series B),
5.875% (Original Issue Yield: 5.95%), 3/1/2007 AA+ 259,928
--------------------------------------------------------
750,000 Tennessee Housing Development Agency, Refunding Revenue
Bonds (Series A), 5.40%, 7/1/2004 A+ 753,803
--------------------------------------------------------
1,250,000 Tennessee Housing Development Agency, Refunding Revenue
Bonds (Series A), 5.70%, 1/1/2008 A+ 1,259,838
--------------------------------------------------------
1,205,000 Tennessee Housing Development Agency, Refunding Revenue
Bonds (Series A), 5.70%, 7/1/2008 A+ 1,214,483
--------------------------------------------------------
</TABLE>
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- -------------------------------------------------------- --------- -----------
<S> <C> <S> <C> <C>
LONG TERM MUNICIPAL NOTES--CONTINUED
- --------------------------------------------------------------------------
$1,800,000 Tennessee Housing Development Agency, Refunding Revenue
Bonds (Series A), 5.85%, 7/1/2013 A+ $ 1,802,376
--------------------------------------------------------
430,000 Tennessee Housing Development Agency, Revenue Bonds,
(Homeownership Program-Issue U), 6.90%, 7/1/2005 A+ 452,609
--------------------------------------------------------
500,000 Tennessee State Local Development Authority, Refunding
Revenue Bonds (Series A), 5.65%, 3/1/2007 AA- 518,725
--------------------------------------------------------
495,000 Tennessee State Local Development Authority, Revenue
Bonds, 6.10% (Community Provider Pooled Loan)/
(State Aid Withholding Guaranty), 10/1/2007 A- 517,067
--------------------------------------------------------
500,000 Tennessee State School Board Authority, Refunding
Revenue Bonds (Series A), 6.25% (Higher Education
Facility) (Original Issue Yield: 6.309%), 5/1/2017 AA 520,070
--------------------------------------------------------
195,000 Tennessee State School Board Authority (GO of
Authority), Refunding Revenue Bonds , 5.75%, 5/1/2006 AA 189,517
--------------------------------------------------------
700,000 Tennessee State, GO UT Bonds (Series A), 5.55%, 3/1/2010 AA+ 712,152
--------------------------------------------------------
450,000 (a) Tennessee State, GO UT Bonds (Series B), 6.60% (Original
Issue Yield: 6.60%), (United States Treasury PRF)
6/1/2001 (@ 101 1/2) AA+ 493,722
--------------------------------------------------------
250,000 Tennessee State, GO UT Refunding Bonds (Series A),
6.10%, 6/1/2000 AA+ 265,323
--------------------------------------------------------
1,035,000 Williamson County, TN GO UT Refunding Bonds, 6.00%
(Original Issue Yield: 6.216%), 3/1/2008 AA 1,103,993
-------------------------------------------------------- -----------
TOTAL LONG TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $28,520,257) $28,466,328
-------------------------------------------------------- -----------
</TABLE>
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ---------- -------------------------------------------------------- --------- -----------
SHORT TERM MUNICIPAL NOTES--2.7%
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------
$ 800,000 Metropolitan Nashville Tennessee AA, (Series 1993)
Weekly VRDNs (FGIC Insured)/(Societe Generale, Paris
LIQ)
(AT AMORTIZED COST) AAA $ 800,000
-------------------------------------------------------- -----------
TOTAL INVESTMENTS (B) (IDENTIFIED COST $29,320,257) $29,266,328
-------------------------------------------------------- -----------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
(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 for federal tax purposes amounts to $29,320,257. The net unrealized
depreciation of investments on a federal tax basis amounts to $53,929, which
is composed of $275,589 appreciation and $329,518 depreciation at July 31,
1996.
Note: The categories of investments are shown as a percentage of net assets
($29,667,800) at July 31, 1996.
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
LIQ--Liquidity Agreement
MBIA--Municipal Bond Investors Assurance
PRF--Prerefunded
UT--Unlimited Tax
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost
$29,320,257) $29,266,328
- --------------------------------------------------------------------------------
Income receivable 426,409
- --------------------------------------------------------------------------------
Receivable for shares sold 38,000
- --------------------------------------------------------------------------------
Deferred expenses 13,330
- -------------------------------------------------------------------------------- -----------
Total assets 29,744,067
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable to Bank $52,097
- ----------------------------------------------------------------------
Accrued expenses 24,170
- ---------------------------------------------------------------------- -------
Total liabilities 76,267
- -------------------------------------------------------------------------------- -----------
Net Assets for 2,814,322 shares outstanding $29,667,800
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $29,818,636
- --------------------------------------------------------------------------------
Net unrealized depreciation of investments (53,929)
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (204,782)
- --------------------------------------------------------------------------------
Undistributed net investment income 107,875
- -------------------------------------------------------------------------------- -----------
Total Net Assets $29,667,800
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
Net Asset Value Per Share ($29,667,800 / 2,814,322 shares outstanding) $10.54
- -------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/98 of $10.54)* $10.76
- -------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest $1,712,775
- ----------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $ 234,612
- ---------------------------------------------------------------------
Administrative personnel and services fee 120,000
- ---------------------------------------------------------------------
Custodian fees 21,862
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 32,573
- ---------------------------------------------------------------------
Directors'/Trustees' fees 12,467
- ---------------------------------------------------------------------
Auditing fees 13,062
- ---------------------------------------------------------------------
Legal fees 1,473
- ---------------------------------------------------------------------
Portfolio accounting fees 52,466
- ---------------------------------------------------------------------
Share registration costs 16,862
- ---------------------------------------------------------------------
Printing and postage 3,264
- ---------------------------------------------------------------------
Insurance premiums 3,554
- ---------------------------------------------------------------------
Miscellaneous 8,482
- --------------------------------------------------------------------- ---------
Total expenses 520,677
- ---------------------------------------------------------------------
Waiver and reimbursements--
- ---------------------------------------------------------
Waiver of investment advisory fee $(234,612)
- ---------------------------------------------------------
Reimbursement of other operating expenses (17,000) (251,612)
- --------------------------------------------------------- --------- ---------
Net expenses 269,065
- ---------------------------------------------------------------------------------- ----------
Net investment income 1,443,710
- ---------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------
Net realized gain on investments 60,400
- ----------------------------------------------------------------------------------
Net change in unrealized depreciation of investments 284,790
- ---------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 345,190
- ---------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $1,788,900
- ---------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------
1996 1995
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------
Net investment income $ 1,443,710 $ 1,872,063
- -----------------------------------------------------------------
Net realized gain (loss) on investments ($51,494 net loss and
$153,288 net loss, respectively, as computed for federal tax
purposes) 60,400 (215,683)
- -----------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 284,790 1,023,037
- ----------------------------------------------------------------- ----------- ------------
Change in net assets resulting from operations 1,788,900 2,679,417
- ----------------------------------------------------------------- ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------
Distributions from net investment income (1,444,519) (1,887,110)
- ----------------------------------------------------------------- ----------- ------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------
Proceeds from sale of shares 1,564,767 3,372,891
- -----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 136,585 145,754
- -----------------------------------------------------------------
Cost of shares redeemed (8,265,453) (10,823,155)
- ----------------------------------------------------------------- ----------- ------------
Change in net assets resulting from share transactions (6,564,101) (7,304,510)
- ----------------------------------------------------------------- ----------- ------------
Change in net assets (6,219,720) (6,512,203)
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of period 35,887,520 42,399,723
- ----------------------------------------------------------------- ----------- ------------
End of period (including undistributed net investment income of
$107,875 and $108,684, respectively) $29,667,800 $ 35,887,520
- ----------------------------------------------------------------- ----------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Planters Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act") as an open-end, management investment company.
The financial statements included herein are only those of Tennessee Tax-Free
Bond Fund (the "Fund"), a non-diversified portfolio. At July 31, 1996, the Trust
did not offer any other portfolios. 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.
(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.
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 the
pricing service deems relevant. Short-term securities are valued at the
prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
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.
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, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $204,782, 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 as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
----------------- -------------------
<S> <C>
2003 $153,288
2004 $ 51,494
</TABLE>
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
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 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.
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 of that state than would be a
comparable tax-exempt mutual fund that invests nationally. In order to
reduce the credit risk associated with such factors at July 31, 1996, 38.3%
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 20.3% of total investments.
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 the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
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,
----------------------
1996 1995
- ---------------------------------------------------------------------- -------- ----------
<S> <C> <C>
Shares sold 148,617 333,883
- ----------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 12,949 14,443
- ----------------------------------------------------------------------
Shares redeemed (777,662) (1,066,291)
- ---------------------------------------------------------------------- -------- ----------
Net change resulting from share transactions (616,096) (717,965)
- ---------------------------------------------------------------------- -------- ----------
</TABLE>
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
(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 0.75% of the Fund's average daily net assets. The Adviser
may voluntarily choose to waive any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.
As of July 31, 1996, Union Planters National Bank was the owner of record of
approximately 2,451,999 shares, which is 87.2% of the Fund.
ADMINISTRATIVE FEE--Federated Services Company ("FServ") provides the Fund with
certain administrative personnel and services. The fee paid to FServ is based on
the level of average aggregate net assets of the Fund for the period.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary Federated Shareholder Services Company ("FSSC"), serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $35,622 were borne initially
by FServ. The Fund has agreed to reimburse FServ for the organizational expenses
during the five year period following effective date. For the period ended July
31, 1996, the Fund paid $6,260 pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended July 31, 1996, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
PURCHASES $ --
- -------------------------------------------------------------------------------- ----------
SALES $7,180,727
- -------------------------------------------------------------------------------- ----------
</TABLE>
INDEPENDENT ACCOUNTANTS' REPORT
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
TENNESSEE TAX-FREE BOND FUND
(a Portfolio of the Planters Fund):
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, 1996, the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereinafter 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, 1996 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 12, 1996
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 8600
and Trust Company Boston, Massachusetts 02266-8600
- ----------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Shareholder Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------
Independent Accountants
Price Waterhouse LLP 160 Federal Street
Boston, Massachusetts 02110
- ----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TENNESSEE TAX-FREE
BOND FUND
PROSPECTUS
A Non-Diversified Portfolio
of The Planters Funds
An Open-End, Management
Investment Company
September 30, 1996
Union Planters National Bank
Investment Adviser
LOGO
Cusip 727426108
3072709A (9/96)
LOGO
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR THE FISCAL YEAR ENDED JULY 31, 1996
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
The Tennessee Tax-Free Bond 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 allows the fund to seek 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 maintained
a fairly stable asset base. At the close of the fiscal year ended July 31,
1996, investors had a total of $29.7 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 July 31,
1996, there were 43 separate holdings within the portfolio.
The past twelve months have been a period of some volatility in
interest rates in the municipal bond market. The Federal Reserve Board
began to lower interest rates in early calendar year 1995. This process
continued throughout the year. Because bond prices and interest rates tend
to move in opposite directions, the trend towards lower rates positively
impacted the net asset value of the fund during the second half of calendar
year 1995.
The fund began the fiscal year with a net asset value of $10.46.
Although the share price fell to slightly lower levels of $10.37 during
August, this proved to be a temporary setback. The municipal bond market
and the fund rallied for the balance of calendar year 1995.
Anticipating the more favorable environment for municipal bonds, the
managers of the fund extended the average maturity of the portfolio during
the year. This positioned the fund to more fully participate in the market
rally. Share prices climbed steadily during the final months of calendar
year 1995. The fund's net asset value reached a high of $10.91 in early
February. The fund closed the fiscal year with a net asset value of $10.54
on July 31, 1996.
During the 12 month reporting period ended July 31, 1996, the fund had
income distributions of $.49 per share. Combining this income with the
changes in share price and the effect of the 2.0% sales charge resulted in
a total return of 3.50%* for the reporting period.
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN TENNESSEE TAX-FREE BOND FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Tennessee Tax-Free Bond Fund (the "Fund") from August 30, 1993 (start of
performance) to July 31, 1996, compared to the Lehman Brothers 10 Year Municipal
Bond Index ("LB10YRMBI")+ and the Lipper Intermediate Municipal Bond Average
("LIMBA").++
(GRAPHIC) SEE APPENDIX
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED JULY 31, 1996
<TABLE>
<S> <C>
1 Year.................................................................. 3.50%
Start of Performance (8/30/93).......................................... 4.16%
</TABLE>
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, 1996, AND TOGETHER WITH 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 charge on 8/30/93 of 4.00% ($10,000 investment minus $400
sales charge = $9,600). The Fund's maximum sales charge was reduced to 2.00%
on 9/30/95. The Fund's performance assumes the reinvestment of all dividends
and distributions. The LB10YRMBI and the LIMBA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
** Total Return quoted reflects the current 2.00% sales charge.
+ The LB10YRMBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.
++ The LIMBA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the respective categories and is not adjusted to reflect any sales charges.
However, this total return is reported net of expenses or other fees that the
SEC requires to be reflected in a fund's performance.
LOGO
Cusip 727426108
G00513-01 (9/96)
APPENDIX
The graphic representation here displayed consists of a legend in the upper
left quadrant indicating the components of the corresponding line graph.
The solid black line represents Tennessee Tax-Free Bond (the Fund); the
dotted line represents the Lipper Intermediate Municipal Bond Average
(LIMBA), and the broken line represents the Lehman Brothers 10 Year
Municipal Bond Index (LB10YRMBI). The line graph is a visual representation
of the narrative text above it, which shows that initial investments of
$9,600 in the Fund, and $10,000 in the LIMBA, and the LB10YRMBI on
8/30/93, would have reinvested total values of $11,035, $11,223, and
$11,530 on 7/31/96. The `x'' axis reflects annual computation periods
from 8/30/93 to 7/31/96. The `y'' axis reflects the beginning values of
the hypothetical investments measured in increments of $1,000 ranging from
$9,000 to $13,000.
