Following is the Annual Report for the Tennessee Tax-Free Bond Fund, covering
the twelve-month reporting period ended July 31, 1998. If you have any
questions or comments, please contact your investment representative.
Investment Review
- -------------------------------------------------------------------------------
The Tennessee Tax-Free Bond Fund continues to invest in a mix of instruments
intended to provide income free of federal and state taxes for Tennessee
residents. In keeping with the fund's investment policies, only investment
grade bonds were purchased or held by the fund during the fiscal year ended
July 31, 1998, with AAA rated securities comprising the largest percentage of
assets.
Overall, interest rates declined significantly during the fiscal year. The
ten-year treasury yield declined by about 1/2 percent. Municipal yields did
not move nearly as much; ten-year AAA rated municipal yields declined by less
than 1/5 of 1%. The disparity between declines in treasury yields and tax-free
bond yields was more pronounced in lower rated sectors. Also, the fiscal year
began with historically tight spreads between higher and lower rated municipal
issues. Consequently, the fund emphasized issues in the highest credit
ratings. Net redemptions during the year meant this goal was accomplished
primarily by liquidations of lower rated issues.
The fund's total rate of return for the fiscal year ended July 31, 1998, was
3.91%, or 1.86% adjusted for the 2% sales charge.* The net asset value ended
the year essentially where it began, $10.90 at the end of the twelve-month
reporting period versus $10.91 at the beginning. A monthly double-tax free
income stream totaling $0.43 per share accounted for the entire total return.
Since the Tennessee Tax-Free Bond Fund began operation on August 30, 1993, it
has produced an annualized total return of 5.32%, or 4.90% adjusted for the 2%
sales charge.*
*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, 1998, compared to the Lehman Brothers 10 Year Municipal
Bond Index ("LB10YRMBI")+ and the Lipper Intermediate Municipal Bond Average
("LIMBA").++
"Graphic representation "A" omitted. See Appendix."
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED JULY 31, 1998
1 Year............................................................... 1.86%
Start of Performance (8/30/93)....................................... 4.90%
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.
* 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.
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
PORTFOLIO OF INVESTMENTS
JULY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
--------- ---------------------------------------------- ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL NOTES--95.5%
--------------------------------------------------------
TENNESSEE--95.5%
----------------------------------------------
$ 215,000 Chattanooga-Hamilton County, TN Hospital
Authority, Refunding Revenue Bonds, 5.50%
(Erlanger Medical Center)/(FSA INS)/(Original
Issue Yield: 5.600%), 10/1/2006 AAA $ 230,835
----------------------------------------------
1,000,000 Chattanooga-Hamilton County, TN Hospital
Authority, Refunding Revenue Bonds, 5.50%
(Erlanger Medical Center)/(FSA INS)/(Original
Issue Yield: 5.850%), 10/1/2013 AAA 1,037,350
----------------------------------------------
1,000,000 Clarksville, TN, Electric System Refunding
Revenue Bonds, 5.125%, 9/1/2011 A 1,008,230
----------------------------------------------
500,000 Clarksville, TN, Water Sewer & Gas Refunding
Revenue Bonds, 6.125% (MBIA INS)/(Original
Issue Yield: 6.328%), 2/1/2012 AAA 537,130
----------------------------------------------
250,000 Germantown, TN, GO UT Refunding Bonds, 4.100%,
1/1/2000 AAA 251,825
----------------------------------------------
600,000 Germantown, TN, GO UT, 4.200%, 1/1/2001 AAA 606,372
----------------------------------------------
250,000 Jackson, TN Health Educational & Housing Facilities Board, Hospital
Revenue Bonds, 5.900% (Jackson-Madison County General
Hospital)/(MBIA INS)/(Original Issue Yield:
5.950%), 4/1/2000 AAA 258,070
----------------------------------------------
400,000 Jackson, TN, Water & Sewer Refunding Revenue
Bonds, 5.125% (AMBAC INS)/(Original Issue
Yield: 5.350%), 1/1/2010 AAA 409,640
----------------------------------------------
440,000 Johnson City, TN Health & Education Facilities
Board, Refunding Revenue Bonds, 6.750%
(Johnson City Medical Center Hospital)/(MBIA
INS)/(Original Issue Yield: 6.912%), 7/1/2006 AAA 479,164
----------------------------------------------
250,000 Johnson City, TN Health & Education Facilities
Board, Revenue Bonds, 6.750% (MBIA
INS)/(United States Treasury PRF)/(Original
Issue Yield: 6.912%), 7/1/2001 (@102) AAA 273,230
----------------------------------------------
500,000 Knox County, TN Health Education & Housing Facilities Board,
Hospital Facilities Revenue Bonds (Series A), 4.900% (Fort Sanders
Alliance)/(MBIA INS)/(Original Issue Yield:
5.099%), 1/1/2005 AAA 516,225
----------------------------------------------
1,000,000 County, TN, GO UT, 4.75%, 2/1/2006 AA 1,024,400
---------------------------------------------
1,030,000 Knoxville, TN Water System, Refunding Revenue
Bonds (Series M), 5.200% (Original Issue
Yield: 5.450%), 3/1/2010 AA 1,047,129
---------------------------------------------
700,000 Memphis, TN, GO UT, 5.000% (Original Issue
Yield: 5.100%), 10/1/2018 AA 689,899
---------------------------------------------
1,000,000 Metropolitan Government Nashville & Davidson
County, TN HEFA, Refunding Revenue Bonds,
5.200% (Vanderbilt University), 7/1/2018 AA 1,000,820
---------------------------------------------
750,000 Metropolitan Government Nashville & Davidson
County, TN, Revenue Bonds (Series A), 6.000%
(Original Issue Yield: 6.282%), 5/15/2017 AA 812,348
---------------------------------------------
230,000 Metropolitan Government Nashville & Davidson
County, TN, Water & Sewer Refunding Revenue
Bonds, 5.200% (FGIC INS)/(Original Issue
Yield: 5.530%), 1/1/2013 AAA 239,241
---------------------------------------------
160,000 Montgomery Co, TN Public Building Authority,
Pooled Financing Government Obligation
Revenue Bonds, 7.500% (Tennessee County Loan
Pool)/(Prudential Insurance Co. of America
INS), 12/15/2000 AA- 162,205
---------------------------------------------
800,000 Mount Juliet, TN Public Building Authority,
Revenue Bonds (Series O), 7.000% (MBIA INS),
2/1/2006 AAA 868,912
---------------------------------------------
1,000,000 Putnam County, TN, GO UT Bonds, 5.125% (MBIA
INS)/(Original Issue Yield: 5.350%), 4/1/2011 AAA 1,016,290
---------------------------------------------
400,000 Shelby County, TN Health Education & Housing
Facilities Board, Revenue Bonds, 6.000% (St.
Joseph Hospital East, Inc.)/(Original Issue
Yield: 6.370%), 3/1/2005 Aaa 421,852
---------------------------------------------
500,000 Shelby County, TN, GO UT Bonds, 5.100%
(Original Issue Yield: 5.250%), 3/1/2011 AA+ 508,150
---------------------------------------------
250,000 Shelby County, TN, GO UT Refunding Bonds (Series B), 5.875%
(Original Issue Yield:
5.950%), 3/1/2007 AA+ 264,468
---------------------------------------------
400,000 Sullivan County, TN Health Educational &
Housing Facilities Board, Revenue Bonds,
5.750% (Holston Valley Health Board)/(MBIA
INS)/(Original Issue Yield: 5.930%),
2/15/2013 AAA 422,708
---------------------------------------------
1,000,000 Tennessee Housing Development Agency,
Refunding Revenue Bonds (Series A), 5.850%,
7/1/2013 A+ 1,038,480
---------------------------------------------
500,000 Tennessee State Local Development Authority,
Refunding Revenue Bonds (Series A), 5.650%,
3/1/2007 AA- 534,615
---------------------------------------------
495,000 Tennessee State Local Development Authority,
Revenue Bonds, 6.100% (Community Provider
Pooled Loan Program)/(Tennessee State GTD),
10/1/2007 A 540,099
---------------------------------------------
500,000 Tennessee State School Board Authority, Higher Education Facilities
Revenue Bonds (Series A), 6.250% (Original Issue Yield:
6.309%), 5/1/2017 AA 537,265
---------------------------------------------
175,000 Tennessee State School Board Authority,
Refunding Revenue Bonds, 5.750%, 5/1/2006 AA 175,168
---------------------------------------------
700,000 Tennessee State, GO UT Bonds (Series A),
5.550%, 3/1/2010 AAA 743,988
---------------------------------------------
450,000 (a) Tennessee State, GO UT Bonds (Series B), 6.600% (United States
Treasury PRF)/(Original
Issue Yield: 6.600%), 6/1/2001 (@101.5) AAA 487,490
---------------------------------------------
785,000 Williamson County, TN, GO UT Refunding Bonds,
6.000% (Original Issue Yield: 6.217%),
3/1/2008 Aa1 874,843
--------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL NOTES
(IDENTIFIED COST $18,339,133) 19,018,441
--------------------------------------------- -----------
MUTUAL FUND--3.1%
--------------------------------------------------------
610,097 Tennessee Municipal Cash Trust Fund (AT NET
ASSET VALUE) 610,097
--------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST
$18,949,230)(B) $19,628,538
--------------------------------------------- -----------
</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 $18,949,230. The
net unrealized appreciation of investments on a federal tax basis amounts to
$679,308 which is comprised of $680,855 appreciation and $1,547 depreciation
at July 31, 1998.
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
TENNESSEE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
Note: The categories of investments are shown as a percentage of net assets
($19,906,736) at July 31, 1998.
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
GTD--Guaranty HEFA--Health and Education Facilities Authority INS--Insured
MBIA--Municipal Bond Investors Assurance PRF--Prerefunded UT--Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
- ----------------------------------------------------------------
Total investments in securities, at value (identified and
tax cost $18,949,230) $19,628,538
- ----------------------------------------------------------------
Cash 8,256
- ----------------------------------------------------------------
Income receivable 303,951
- ----------------------------------------------------------------
Receivable for shares sold 4,580
- ----------------------------------------------------------------
Other assets 813
- ---------------------------------------------------------------- -----------
Total assets 19,946,138
- ----------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------
Accrued expenses 39,402
- ---------------------------------------------------------------- -----------
Net Assets for 1,826,537 shares outstanding $19,906,736
- ---------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------
Paid in capital $19,159,093
- ----------------------------------------------------------------
Net unrealized appreciation of investments 679,308
- ----------------------------------------------------------------
Accumulated net realized loss on investments (5,089)
- ----------------------------------------------------------------
Undistributed net investment income 73,424
- ---------------------------------------------------------------- -----------
Total Net Assets $19,906,736
- ---------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
- ----------------------------------------------------------------
Net Asset Value Per Share ($19,906,736/1,826,537 shares
outstanding) $10.90
- ---------------------------------------------------------------- -----------
Offering Price Per Share (100/98.00 of $10.90)* $11.12
- ---------------------------------------------------------------- -----------
Redemption Proceeds Per Share $10.90
- ---------------------------------------------------------------- -----------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------
Interest $1,155,591
- -------------------------------------------------------------- ----------
EXPENSES:
- ----------------------------------------------------
Investment advisory fee $169,700
- ----------------------------------------------------
Administrative personnel and services fee 120,001
- ----------------------------------------------------
Transfer and dividend disbursing agent fees and
expenses 29,243
- ----------------------------------------------------
Directors'/Trustees' fees 15,761
- ----------------------------------------------------
Auditing fees 23,947
- ----------------------------------------------------
Legal fees 1,116
- ----------------------------------------------------
Portfolio accounting fees 50,390
- ----------------------------------------------------
Share registration costs 24,678
- ----------------------------------------------------
Miscellaneous 4,445
- ---------------------------------------------------- --------
Total expenses 439,281
- ----------------------------------------------------
Waivers--
- ----------------------------------------------------
Waiver of investment advisory fee (169,700)
- ---------------------------------------------------- --------
Net expenses 269,581
- -------------------------------------------------------------- ----------
Net investment income 886,010
- -------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------
Net realized gain on investments 131,970
- --------------------------------------------------------------
Net change in unrealized depreciation of investments (151,527)
- -------------------------------------------------------------- ----------
Net realized and unrealized loss on investments (19,557)
- -------------------------------------------------------------- ----------
Change in net assets resulting from operations $ 866,453
- -------------------------------------------------------------- ----------
</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 YEAR ENDED
JULY 31, 1998 JULY 31, 1997
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------
OPERATIONS--
- --------------------------------------------------
Net investment income $ 886,010 $ 1,181,895
- --------------------------------------------------
Net realized gain on investments ($131,970 and
$67,723, respectively, as computed for federal tax
purposes) 131,970 67,723
- --------------------------------------------------
Net change in unrealized appreciation/depreciation (151,527) 884,764
- -------------------------------------------------- ----------- -----------
Change in net assets resulting from operations 866,453 2,134,382
- -------------------------------------------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------
Distributions from net investment income (887,438) (1,214,918)
- -------------------------------------------------- ----------- -----------
SHARE TRANSACTIONS--
- --------------------------------------------------
Proceeds from sale of shares 588,837 1,420,926
- --------------------------------------------------
Net asset value of shares issued to shareholders
in payment of distributions declared 155,726 110,472
- --------------------------------------------------
Cost of shares redeemed (6,666,092) (6,269,412)
- -------------------------------------------------- ----------- -----------
Change in net assets resulting from share
transactions (5,921,529) (4,738,014)
- -------------------------------------------------- ----------- -----------
Change in net assets (5,942,514) (3,818,550)
- --------------------------------------------------
NET ASSETS:
- --------------------------------------------------
Beginning of period 25,849,250 29,667,800
- -------------------------------------------------- ----------- -----------
End of period (including undistributed net
investment income of $73,424 and $74,852,
respectively) $19,906,736 $25,849,250
- -------------------------------------------------- ----------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
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,
-------------------------------------------
1998 1997 1996 1995 1994(A)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $10.91 $10.54 $10.46 $10.22 $10.50
- ----------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------
Net investment income 0.44 0.45 0.50 0.51 0.44
- ----------------------------------
Net realized and unrealized gain
(loss) on investments (0.02) 0.38 0.07 0.24 (0.31)
- ---------------------------------- ------- ------- ------- ------- -------
Total from investment operations 0.42 0.83 0.57 0.75 0.13
- ---------------------------------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
- ----------------------------------
Distributions from net investment
income (0.43) (0.46) (0.49) (0.51) (0.41)
- ---------------------------------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.90 $10.91 $10.54 $10.46 $10.22
- ---------------------------------- ------- ------- ------- ------- -------
TOTAL RETURN (B) 3.91% 8.12% 5.57% 7.60% 1.19%
- ----------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------
Expenses 1.19% 1.10% 0.86% 0.61% 0.56%*
- ----------------------------------
Net investment income 3.92% 4.23% 4.62% 4.93% 4.69%*
- ----------------------------------
Expense waiver/reimbursement (c) 0.75% 0.75% 0.80% 0.95% 0.87%*
- ----------------------------------
SUPPLEMENTAL DATA
- ----------------------------------
Net assets, end of period (000
omitted) $19,907 $25,849 $29,668 $35,888 $42,400
- ----------------------------------
Portfolio turnover 4% 11% 0% 3% 30%
- ----------------------------------
</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)
TENNESSEE TAX-FREE BOND FUND
(A PORTFOLIO OF THE PLANTERS FUNDS)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998
- -------------------------------------------------------------------------------
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, 1998, 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. Investments in
other open-end regulated investment companies are valued at net asset 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, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $5,089, 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:
EXPIRATION YEAR EXPIRATION AMOUNT
--------------- -----------------
2004 $5,089
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.
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,
--------------------
1998 1997
- ---------------------------------------------- --------- ---------
<S> <C> <C>
Shares sold 53,992 132,996
- ----------------------------------------------
Shares issued to shareholders in payment of
distributions declared 14,293 10,391
- ----------------------------------------------
Shares redeemed (611,569) (587,888)
- ---------------------------------------------- --------- ---------
Net change resulting from share transactions (543,284) (444,501)
- ---------------------------------------------- --------- ---------
</TABLE>
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. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
As of July 31, 1998, Union Planters National Bank was the owner of record of
approximately 1,652,464 shares, which is 90.5% 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.
The administrative fee received during the period of the Administrative
Services Agreement shall be at least $120,000 per portfolio and $25,000 per
each additional class of shares.
TENNESSEE TAX-FREE BOND FUND
- -------------------------------------------------------------------------------
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.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended July 31, 1998, were as follows:
<TABLE>
<S> <C>
- ---------
PURCHASES $ 949,922
- --------- ----------
SALES $6,838,355
- --------- ----------
</TABLE>
7. 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, 1998, 35.6% of the securities in the portfolio of investments were
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 22.3% of total investments.
INDEPENDENT ACCOUNTANTS' 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 present fairly, in all material respects, the financial position of
the Tennessee Tax-Free Bond Fund (the "Fund") at July 31, 1998, the results of
its operations for the year then ended, and the changes in its net assets and
the financial highlights for the periods indicated, in conformity with generally
accepted auditing principals. 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, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
September 16, 1998
LOGO
Cusip 727426108
G01601-01 (9/98)
A. The graphic representation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left quadrant
of the graphic presentation. The Tennessee Tax-Free Bond Fund is represented by
a solid line, whereas Lehman Brothers 10 Year Municipal Bond Index is
represented by a broken dotted line and the Lipper Intermediate Municipal Bond
Average is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a hypothetical investment
of $10,000 in the Tennessee Tax-Free Bond Fund and Lehman Brothers 10 Year
Municipal Bond Index and Lipper Intermediate Municipal Bond Average for the
period from August 30, 1993 (start of performance) to July 31, 1998. The "y"
axis reflects the cost of the investment. The "x" axis reflects computation
periods from the ending value of the hypothetical investment in the Tennessee
Tax-Free Bond Fund as compared to Lehman Brothers 10 Year Municipal Bond Index
and Lipper Intermediate Municipal Bond Average; the ending values are $12,397;
$13,444; and $12,653, respectively.
