FINANCIAL RESERVES FUND
PROSPECTUS
Financial Reserves Fund (the "Fund") seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. The
Fund will invest only in high-quality money market instruments.
Shares of the Fund are offered principally to prospective investors who have a
fiduciary, custody or agency relationship with Society National Bank
("Society"), Cleveland, Ohio, or its affiliates.
SOCIETY ASSET MANAGEMENT, INC. (THE "ADVISER"), A SUBSIDIARY OF SOCIETY NATIONAL
BANK, IS THE INVESTMENT ADVISER TO FINANCIAL RESERVES FUND. FEDERATED SECURITIES
CORP., WHICH IS NOT AFFILIATED WITH THE ADVISER, SOCIETY INVESTMENTS, INC., OR
SOCIETY NATIONAL BANK, IS THE SPONSOR AND DISTRIBUTOR FOR THE FUND. SOCIETY
ASSET MANAGEMENT, INC. AND SOCIETY NATIONAL BANK RECEIVE FEES FOR THEIR SERVICES
FROM THE FUND.
SHARES OF FINANCIAL RESERVES FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, SOCIETY ASSET MANAGEMENT, INC., SOCIETY INVESTMENTS,
INC., SOCIETY NATIONAL BANK, ANY OF THEIR AFFILIATES, OR ANY OTHER BANK. SUCH
SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
Please read this prospectus before investing. It is designed to provide you with
information and to help you decide if the Fund's goals match your own. Retain
this document for future reference.
A Statement of Additional Information, dated December 31, 1993, for the Fund has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference into this prospectus. This Statement is available without
charge upon request from Society National Bank.
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 December 31, 1993
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 3
- ------------------------------------------------------
Investment Objective 3
Matching the Fund to
Your Investment Needs 3
Limiting Investment Risks 4
Portfolio Transactions 5
A FEW WORDS ABOUT DISTRIBUTIONS
AND TAXES 5
- ------------------------------------------------------
Federal Taxes 5
Other Tax Information 5
FINANCIAL RESERVES AND SOCIETY ASSET
MANAGEMENT, INC. 6
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Adviser's Background 6
ADVISER AND SERVICE FEES 6
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Custodian, Transfer Agent and
Dividend Disbursing Agent 7
Distribution of Fund Shares 7
HOW TO BUY SHARES 7
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Share Price 7
Opening an Account 7
Society Customers 7
ADMINISTRATIVE INFORMATION 9
- ------------------------------------------------------
Dividend Distributions 9
Statements and Reports 9
HOW TO REDEEM SHARES 9
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To Redeem 10
For Principal Accounts 10
For Investment Management and
Trust Services Accounts 10
Automatic Purchase and
Redemption Services 10
EFFECT OF BANKING LAWS 10
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PERFORMANCE DATA 11
- ------------------------------------------------------
GLOSSARY 11
- ------------------------------------------------------
FINANCIAL STATEMENTS 13
- ------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS 21
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........................................ None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................ None
Deferred Sales Load (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)............................................. 0.37%
12b-1 Fees................................................................... None
Total Other Expenses......................................................... 0.20%
Total Fund Operating Expenses(2)................................... 0.57%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The Adviser can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.50%.
(2) The Annual Fund Operating Expenses were 0.55% for the fiscal year ended
October 31, 1993. The Annual Fund Operating Expenses in the table above reflect
those expenses which are expected to be incurred for the fiscal year ended
October 31, 1994, and reflects an anticipated reduction in the voluntary waiver
of the investment advisory fee. The Total Fund Operating Expenses are
anticipated to be 0.70% absent the voluntary waiver of the investment advisory
fee.
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 "ADVISER AND SERVICE FEES," "HOW TO BUY SHARES" AND "HOW TO REDEEM
SHARES."
<TABLE>
<CAPTION>
EXAMPLE: 1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period........ $ 6 $ 18 $ 32 $71
</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.
FINANCIAL RESERVES FUND
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Accountants on page 21.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1993+ 1992+ 1991+ 1990 1989 1988 1987 1986 1985 1984
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------
Income from investment
operations
- ------------------------------
Net investment income 0.03 0.04 0.06 0.08 0.09 0.07 0.06 0.07 0.08 0.10
- ------------------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Less distributions
- ------------------------------
Dividends to shareholders
from net
investment income (0.03) (0.04) (0.06) (0.08) (0.09) (0.07) (0.06) (0.07) (0.08) (0.10)
- ------------------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total return* 2.81% 3.76% 6.28% 8.12% 9.14% 7.13% 6.19% 6.87% 8.25% 10.20%
- ------------------------------
Ratios to average net assets
- ------------------------------
Expenses 0.55% 0.55% 0.55% 0.55% 0.56% 0.54% 0.56% 0.57% 0.59% 0.63%
- ------------------------------
Net investment income 2.78% 3.67% 6.12% 7.84% 8.77% 6.92% 6.06% 6.55% 7.92% 9.84%
- ------------------------------
Expense
waiver/reimbursement(a) 0.15% 0.15% 0.07% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------------------
Supplemental Data
- ------------------------------
Net assets, end of period
(000 omitted) $457,872 $523,889 $412,542 $432,905 $369,582 $409,440 $388,938 $231,823 $147,407 $120,734
- ------------------------------
</TABLE>
+ Effective May 16, 1991, Ameritrust Company National Association became
investment adviser to the Fund. Ameritrust was acquired by Society Corporation
on March 16, 1992, and merged into Society National Bank, a wholly-owned
subsidiary of Society Corporation on July 13, 1992. On January 7, 1993,
investment responsibility was transferred to Society Asset Management, Inc.,
another wholly-owned subsidiary of Society Corporation.
* Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) This expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 4).
(See Notes which are an integral part of the financial statements)
INVESTMENT OBJECTIVE AND POLICIES
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INVESTMENT OBJECTIVE
The Fund's investment objective is to seek to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. The
Fund will invest only in high-quality money market instruments. There can be no
assurance that the Fund will achieve its investment objective, but it will
follow the investment style described in the following paragraphs.
The Adviser will invest Fund assets in the following types of high-quality, U.S.
dollar-denominated money market instruments:
- obligations of domestic financial institutions including certificates of
deposit, bankers' acceptances and time deposits.
- obligations of foreign branches of U.S. banks (Eurodollars) including
certificates of deposit, bankers' acceptances and time deposits.
- obligations of the U.S. government or any of its agencies or
instrumentalities which may be backed by the credit-worthiness of the
government as a whole or by the credit-worthiness of the issuing agency.
- short-term corporate obligations, including commercial paper, notes, and
bonds, with remaining maturities of one year or less.
- repurchase agreements with member banks of the Federal Reserve System and
primary dealers in U.S. government securities with respect to any
security in which the Fund is authorized to invest.
- other short-term debt obligations of domestic issuers discussed in this
prospectus.
Currently, the Fund has no intention of purchasing obligations of savings and
loan institutions or savings banks.
The Fund may engage in reverse repurchase agreements which are described in the
Glossary which begins on page 11.
The Fund may invest in obligations of foreign branches of U.S. banks
(Eurodollars). Payment of interest and principal upon these obligations also may
be affected by governmental action in the country of domicile of the branch
(generally referred to as sovereign risk). In addition, evidences of ownership
of portfolio securities may be held outside of the U.S. and the Fund may be
subject to the risks associated with the holding of such property overseas.
Various provisions of federal law governing the establishment and operation of
domestic branches do not apply to foreign branches of domestic banks. The
Adviser carefully considers these factors when making investments. The Fund does
not limit the amount of its assets which can be invested in any one type of
instrument or in any foreign country in which a branch of a U.S. bank or the
parent of a U.S. branch is located. Investments in obligations of foreign
branches of U.S. banks may be subject to an overall limit of 25% of total assets
which may be invested in a single industry.
MATCHING THE FUND TO YOUR INVESTMENT NEEDS
Available cash invested in the Fund earns income at current money market rates
while remaining conveniently liquid. In order to provide full liquidity, the
Fund will seek to maintain a stable $1.00 share price; limit portfolio average
maturity to 120 days or less (however, as a matter of nonfunda-
mental policy and in order to conform with applicable regulation, average
weighted portfolio maturity will be limited to 90 days or less); buy U.S.
dollar-denominated securities which mature in one year or less; and buy only
high quality securities with minimal credit risks. As required by Rule 2a-7
under the Investment Company Act of 1940 ("Rule 2a-7"), the Fund's Board of
Trustees (the "Trustees") will monitor the quality of the Fund's investments.
Of course, a $1.00 share price cannot be guaranteed, but these practices help to
minimize any price fluctuations that might result from rising or declining
interest rates. Accordingly, while the Fund invests in high quality securities,
investors should be aware that an investment is not without risk even if all
securities are paid in full at maturity. All money market instruments, including
U.S. government securities, can change in value when interest rates or an
issuer's creditworthiness changes.
LIMITING INVESTMENT RISKS
The Fund follows specific guidelines in buying portfolio securities:
The Fund will only purchase obligations that (i) are rated high quality by two
of the following four nationally recognized rating services: Duff & Phelps Inc.
("Duff"), Fitch Investors Service, Inc. ("Fitch"), Moody's Investors Service,
Inc. ("Moody's"), and Standard & Poor's Corporation ("S&P"), if rated by two or
more services; (ii) are rated high quality if rated by only one rating service;
or (iii) if unrated, are determined to be of equivalent quality pursuant to
procedures reviewed by the Trustees. Obligations that are not rated are not
necessarily of lower quality than those which are rated, but may be less
marketable and therefore may provide higher yields.
Currently, only obligations in the top two categories are considered to be rated
high quality for commercial paper. The two highest rating categories of Duff,
Fitch, Moody's and S&P are Duff 1 and Duff 2, Fitch-1 and Fitch-2, Prime-1 and
Prime-2, and A-1 and A-2, respectively. Under Rule 2a-7, the Fund is not
permitted to invest more than 5% of its total assets in securities that would be
considered to be in the second highest rating category, and, subject to this
limitation, the Fund may not invest more than the greater of 1% of its total
assets or $1 million in such securities of any one issuer. However, the Fund
currently has a nonfundamental policy to purchase only commercial paper which is
rated in the single highest category by the rating services as outlined above,
or which, if unrated, is deemed to be of equivalent quality pursuant to
procedures reviewed by the Trustees. The Fund may purchase an instrument rated
below highest quality by a rating service if two other services have given that
instrument a highest quality rating ("split rated" obligation), and if the
Adviser considers that the instrument is of highest quality and presents minimal
credit risks.
For other corporate obligations, the two highest rating categories are Duff 1
and Duff 2, AAA and AA by Fitch, Aaa and Aa by Moody's, and AAA and AA by S&P.
For a more complete description of these ratings see the Appendix to the
Statement of Additional Information.
The Fund will commit no more than 10% of its net assets to repurchase agreements
maturing in more than seven days, subject to the Fund's fundamental limitation
on investments in illiquid securities.
In addition, the Fund has certain other limitations. The Fund will not purchase
a security other than U.S. government securities if, as a result: (a) with
respect to 75% of total assets, more than 5% of total assets would be invested
in the securities of any one issuer (with respect to the remaining 25% of total
assets, the Fund may invest an amount equal to 10% of total assets in bankers'
acceptances, certificates of deposit and time deposits of a single bank),
however, as a matter of nonfundamental policy, the Fund will limit the
percentage allocation of its investments so as to comply with Rule 2a-7, which
generally limits to 5% of total assets the amount which may be invested in the
securities of any one
issuer; or (b) more than 25% of total assets would be invested in a particular
industry, except that the Fund may invest more than 25% of total assets in the
securities of banks.
Currently, the SEC defines the term "bank" to include U.S. banks and their
foreign branches if, in the case of foreign branches, the parent U.S. bank is
unconditionally liable for such obligations. These limitations do not apply to
obligations of the U.S. government or any of its agencies or instrumentalities.
The Fund does not consider utilities or companies engaged in finance generally
to be one industry.
The Fund may borrow money from banks or by engaging in reverse repurchase
agreements, but not in an amount equal to or exceeding 33 1/3% of the current
value of its total assets.
As a matter of operating policy, the Fund does not intend to purchase securities
for investment during periods when the sum of temporary bank borrowings and
reverse repurchase agreements entered into to facilitate redemptions exceeds 5%
of its total assets. This operating policy is not fundamental and may be changed
without shareholder notification.
The limitations and policies discussed in "Investment Objective and Policies"
are considered at the time of purchase; the sale of securities is not required
in the event of a subsequent change in circumstances. Except where noted, the
investment objective, policies, and limitations of the Fund are fundamental and
can only be changed by vote of a majority of the outstanding shares of the Fund.
PORTFOLIO TRANSACTIONS
Money market obligations generally are traded in the over-the-counter market
through broker-dealers. A broker-dealer is a securities firm or bank which makes
a market for securities by offering to buy at one price and sell at a slightly
higher price. The difference between the prices is known as a spread. Since the
Adviser trades a large volume of securities, broker-dealers may be willing to
work with the Fund on a more favorable spread than would be possible for most
individual investors. Typically, there are no commissions paid on the purchase
or sale of the money market obligations in which the Fund may invest.
Portfolio transactions may be directed to those broker-dealers that provide
research services to the extent permitted by law. The Adviser may use this
research information in managing the Fund's assets, as well as assets of other
clients.
A FEW WORDS ABOUT DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Dividends will be declared daily and paid monthly. Substantially all of the
Fund's net interest income and capital gains (if any) will be distributed to
shareholders each year.
FEDERAL TAXES. Distributions from the Fund are taxable as dividends, whether
received in cash or reinvested in additional shares. A tax statement will be
sent by January 31 of each year showing the tax status of the distributions you
received in the past year and a copy will be filed with the IRS.
OTHER TAX INFORMATION. In addition to Federal taxes, you may be subject to state
and local taxes on your investment, depending on the laws in your area.
When you sign your account application you will be asked to certify that your
social security or taxpayer identification number is correct and that you are
not subject to backup withholding for failing to report income to the IRS. If
you violate IRS regulations, the IRS can require the Fund to withhold a portion
of dividends paid to your account.
FINANCIAL RESERVES AND SOCIETY ASSET
MANAGEMENT, INC.
- --------------------------------------------------------------------------------
Financial Reserves is a diversified portfolio of Financial Reserves Fund, an
open-end, management investment company organized as a Massachusetts business
trust under a Declaration of Trust dated June 2, 1982. The Trustees supervise
Fund activities and review the Fund's contractual arrangements with companies
that provide the Fund with services. The Fund is organized as a business trust
and is not required to hold annual shareholder meetings, although special
meetings may be called by shareholders representing 10% or more of the Fund for
purposes such as electing or removing Trustees, changing fundamental policies or
approving a management contract. Each shareholder has one vote for each share
and a fractional vote for a fractional share owned.
ADVISER'S BACKGROUND. Effective January 7, 1993, Society Asset Management,
Inc. was named as investment adviser to the Fund. The Adviser is a
wholly-owned subsidiary of Society National Bank, the Fund's previous
adviser. Society is a wholly-owned subsidiary of Society Corporation, a
bank holding company headquartered at 127 Public Square, Cleveland, Ohio
44114.
At June 30, 1993, Society Corporation had an asset base of approximately
$26 billion, over 440 banking offices in Ohio, Florida, Indiana, and
Michigan, and investment management and trust offices in eight states.
Society Corporation's major business activities include providing
traditional banking and associated financial services to consumer,
business, and commercial markets. Its non-bank subsidiaries include
securities brokerage, insurance, bank credit card processing, and leasing.
Society is the lead affiliate bank of Society Corporation. Society and its
affiliate banks, through their Trust offices, provide administrative and
investment management services for approximately $67 billion in trust
assets, including assets managed by the Adviser.
The Adviser, an Ohio corporation organized on October 23, 1981, is a
registered investment adviser under the Investment Advisers Act of 1940.
The Adviser manages assets of over $16 billion for numerous clients,
including mutual funds, employee benefit plans, endowments, common trust
funds, and individuals.
ADVISER AND SERVICE FEES
- --------------------------------------------------------------------------------
Investment decisions for the Fund are made by the Adviser, subject to direction
by the Trustees. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
The Adviser receives an annual investment advisory fee equal to .50 of 1% of the
average daily net assets of the Fund. Such fee shall be accrued and paid daily
at the rate of 1/365th of .50 of 1% of the daily net assets of the Fund. The
Adviser may from time to time, and for such periods as it deems appropriate,
reduce its compensation to the extent that the Fund's expenses exceed expense
limitations as the Adviser may, by notice to the Fund, voluntarily declare to be
effective, but the Adviser is under no obligation to do so.
Federated Administrative Services ("FAS"), Federated Investors Tower,
Pittsburgh, Pennsylvania, 15222-3779, a subsidiary of Federated Investors,
provides the Fund with certain administrative
personnel and services necessary to operate the Fund, such as legal and
accounting services. FAS provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
on assets in excess of $750
.075 of 1% million
</TABLE>
The annual fee is determined by applying this schedule to the daily net assets
of all the mutual funds advised by the Adviser for which FAS serves as the
administrator. This currently includes, in addition to the Fund, A.T. Ohio
Tax-Free Money Fund, which, as of November 30, 1993 had aggregate net assets of
approximately $290,629,394. The minimum administrative fee received during any
fiscal year shall be at least $50,000 per fund. FAS has the right to voluntarily
waive a portion of its fee.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Society serves as
custodian, transfer agent, dividend disbursing agent, and shareholder servicing
agent for the Fund.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
SHARE PRICE
Each share's net asset value ("NAV") represents the price of one share. NAV is
computed by adding the value of the Fund's securities plus cash and other
assets, deducting liabilities, and then dividing the result by the number of
shares outstanding. The price of one share is its NAV. At a $1.00 share price, a
$1,000 investment buys 1,000 shares. The Fund's NAV is calculated daily, at the
close of the Fund's business day (12:00 noon, Eastern time). Portfolio
securities are valued on the basis of amortized cost. This method of valuation
assumes a steady rate of amortization of any premium or discount from the date
of purchase until maturity. This value does not necessarily reflect daily
changes in the actual market prices of securities. The Fund is open for business
each day both the Federal Reserve Bank of Cleveland and Society are open
("business day"). The following are the designated holiday closings for 1994:
New Year's Day (observed), Dr. Martin Luther King, Jr. Day (observed),
Presidents' Day (observed), Memorial Day (observed), Independence Day, Labor
Day, Columbus Day (observed), Veterans' Day, Thanksgiving Day and Christmas Day
(observed). Each year, the Cleveland office of the Federal Reserve System or
Society may designate different dates for the observance of these holidays as
well as designate holidays for closing in the future.
OPENING AN ACCOUNT
SOCIETY CUSTOMERS. Shares of the Fund can be purchased by investment management
and trust services customers of Society, or its affiliates, customers of Society
or its affiliates who have a Principal Account. Society, as transfer agent, will
coordinate the purchase of shares through the Fund's distributor.
Information, customer account applications, and money market fund investment
authorization forms may be obtained by writing or calling:
Investment Management and Trust Services Accounts:
Society National Bank,
Investment Management and Trust Services
127 Public Square
Cleveland, Ohio 44114-1306
216-689-3000
Toll free 1-800-523-7248, ext. 4-5022
Principal Accounts:
Society National Bank
Customer Service
P.O. Box 94825
Cleveland, Ohio 44101
Phone 1-800-SOCIETY
Customers of Society affiliates may obtain account information and forms at
banking and trust offices of affiliates.
After a customer account is established with Society National Bank or its
affiliates, subsequent Fund investments can be made by sending a check, made
payable to the customer account, to Society National Bank or the affiliate with
which the account relationship is established, at the appropriate address noted
above under "Opening An Account". Society customers who have a principal account
should contact Society National Bank Customer Service Department for further
information and instructions for wiring funds. Investment management and trust
services customers of Society and its affiliates should contact their account
representative. Subsequent purchases will be made as provided for in the
customer's account agreement.
Texas residents must purchase shares of the Fund through Federated Securities
Corp. at 1-800-618-8573.
Minimum initial and subsequent investments may be fixed from time to time by
Society in the customer's account agreement and application forms. No minimum
for initial and subsequent investments has been established by the Fund. Fund
purchases will be processed at the next NAV calculated for the business day on
which an investment has been converted to federal funds. Fund purchases will be
made on the day Society receives federal funds and investments will begin to
earn dividends as of the day of purchase.
In order to make investments which will immediately generate income, the Fund
must have federal funds available to it (i.e., monies credited to its custodian
bank by a Federal Reserve Bank). Investments in the Fund are accepted (i) on the
day received if federal funds are received by wire that day or if monies
immediately convertible to federal funds are received as of 12:00 noon, Eastern
time or (ii) when checks have been converted to federal funds (normally within
one business day after the receipt of the check(s)).
The Fund reserves the right to suspend the offering of shares for a period of
time and to reject any specific purchase order.
ADMINISTRATIVE INFORMATION
- --------------------------------------------------------------------------------
DIVIDEND DISTRIBUTIONS
Dividends will be accrued throughout the month and distributed on the first
business day of the following month. Dividends will be reinvested automatically
by Society or its affiliates through the purchase of full and fractional shares.
Reinvestment of dividends provides for the purchase of new shares based on the
NAV as of the close of business on the day dividends are distributed. For
additional information see "A Few Words About Distributions and Taxes," on page
5.
STATEMENTS AND REPORTS
Society will furnish periodic statements to shareholders indicating share
balances and other information which affects a shareholder's account. A
statement with tax information will be mailed by January 31 of each year and
will also be filed with the IRS. At least twice a year, shareholders will
receive the Fund's financial statements.
These shareholder services are provided at no extra cost. However, shareholders
may be required to pay a fee for special services, such as a request for a
historical transcript of an account.
Shareholders purchasing shares of the Fund through a program of services offered
by a securities dealer, financial institution, or investment adviser, should
read the program materials in conjunction with this prospectus. Certain features
of the Fund may be modified in these programs, and additional administrative
charges may be imposed for the services rendered.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shareholders may redeem all or a portion of their Fund shares on any business
day. Shares will be redeemed at the next NAV calculated after a redemption
request has been received and accepted.
Payment may be withheld until investments made by check have been collected
(which can take up to 10 calendar days). Shares redeemed do not receive the
dividend declared on the day of redemption.
If in certain circumstances making immediate payment could adversely affect the
Fund, it may take up to seven (7) days for payment to be made. Redemption may be
suspended or payment dates postponed when the New York Stock Exchange is closed
(or when trading is restricted) for any reason other than its customary weekend
or holiday closings, or under any emergency circumstances as determined by the
Securities and Exchange Commission to merit such action.
Signatures on written redemption requests and the telephone authorization must
be guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member firm of the New York, American, Boston, Midwest or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), 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.
This prospectus should be read in conjunction with the customer agreement and
other materials provided by Society or its affiliates describing related bank or
trust services. Society or its affiliates may charge a fee for related bank or
trust services.
TO REDEEM:
FOR PRINCIPAL ACCOUNTS
Written instructions may direct any withdrawal amount from a principal account
to be deposited in an existing commercial bank account in the United States. The
instructions should specify the commercial bank, account name, account number
and the dollar amount. Instructions should be sent to Society National Bank,
Customer Service at the address listed under the section "How to Buy Shares"
above or delivered to any Society National Bank branch office.
FOR INVESTMENT MANAGEMENT AND TRUST SERVICES ACCOUNTS
Trust, agency and custody account customers of Investment Management and Trust
Services should send written instructions or direct their inquiries to:
Financial Reserves Fund
c/o Society National Bank
P.O. Box 5937
Cleveland, Ohio 44101
Attention: Your Trust Officer or
Fund Accounting T-5
For accounts established with affiliates, the assigned account representative
should be contacted.
AUTOMATIC PURCHASE AND REDEMPTION SERVICES
Investment management and trust services customers and current Principal Account
customers may request that Society, as transfer agent, automatically purchase
and redeem shares of the Fund in the customer account in accordance with their
instructions.
This prospectus should be read in conjunction with the customer agreement and
other materials provided by Society describing this service. Society or its
affiliates may charge a fee for this or other account related services.
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.
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
Adviser is subject to such banking laws and regulations.
The Adviser believes that it may perform the investment advisory services for
the Fund contemplated by its advisory agreement with the Fund 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 Society or the Adviser 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 the Fund may occur, including the
possible alteration or termination of any automatic or other Fund share
investment and redemption services then being provided by Society or the
Adviser, and the Trustees would consider alternative investment advisers and
other means of continuing available investment services. It is not expected that
Fund shareholders would suffer any adverse financial consequences (if another
adviser with equivalent abilities to the Adviser is found) as a result of any of
these occurrences.
PERFORMANCE DATA
- --------------------------------------------------------------------------------
The annualized yield for the seven-day period ended October 31, 1993 was 2.76%
and the effective yield was 2.80%.
From time to time the Fund may advertise its "yield" and "effective yield" in
advertisements or in reports or other communications. Both yield figures are
based on historical earnings and are not intended to indicate future
performance. The "yield" of the Fund refers to the income generated by an
investment in the Fund over a seven-day period, expressed as an annual
percentage rate. That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield," although
calculated similarly, will be slightly higher than the yield because it assumes
that income earned from the investment is reinvested (the compounding effect of
reinvestment).
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the Fund after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
GLOSSARY
- --------------------------------------------------------------------------------
BANKERS' ACCEPTANCES: Negotiable obligations of a bank to pay a draft that has
been drawn on it by a customer. These obligations are backed by large banks and
usually backed by goods in international trade.
CERTIFICATES OF DEPOSIT: Negotiable certificates representing a commercial
bank's obligations to repay funds deposited with it, earning specified rates of
interest over given periods.
COMMERCIAL PAPER: Short-term promissory notes of large corporations with high
quality credit ratings issued to finance their current operations. Commercial
paper which is not rated is not necessarily of lower quality than that which is
rated, but may be less marketable and therefore may provide a higher yield.
CORPORATE OBLIGATIONS: Bonds and notes issued by corporations and other business
organizations in order to finance their longer-term credit needs.
MONEY MARKET: Refers to the marketplace where short-term, high-grade debt
securities are traded. These securities include U.S. government obligations,
commercial paper, certificates of deposit, bankers' acceptances, time-deposits
and short-term corporate obligations. Money market instruments may carry fixed
rates of return or have variable or floating interest rates.
REPURCHASE AGREEMENTS: Transactions whereby the Fund purchases a security at one
price and simultaneously promises to sell that same security back to the
original owner at a higher price. Currently, the Fund will only enter into
repurchase agreements with member banks of the Federal Reserve System or with
primary dealers in U.S. government securities. In the event of the bankruptcy of
the other party to a repurchase agreement, the Fund could experience delays in
recovering its cash. To the extent that, in the meantime, the value of the
securities the Fund purchased may have decreased, the Fund could experience a
loss. In all cases, Society reviews the creditworthiness of the other party to
the agreement and must find it satisfactory before engaging in a repurchase
agreement.
REVERSE REPURCHASE AGREEMENTS: Transactions where the Fund temporarily transfers
possession of a portfolio security to another party, such as a bank or a
broker-dealer, in return for cash, and agrees to buy the security back at a
future date and price. The Fund can invest the cash it receives or use it to
meet redemption requests. If the Fund reinvests the cash at a rate higher than
the rate reflected by the terms of the agreement, it may earn additional income.
At the same time, the Fund is exposed to greater potential fluctuations in the
value of its assets when engaging in reverse repurchase agreements.
At all times that a reverse repurchase agreement is outstanding, the Fund will
maintain cash and liquid securities in a segregated account at its custodian
bank with a value at least equal to its obligation under the agreement.
Securities and other assets held in the segregated account may not be sold while
the reverse repurchase agreement is outstanding, unless other suitable assets
are substituted.
TIME DEPOSITS: Non-negotiable deposits in a banking institution earning a
specified interest rate over a given period of time. Investments in time
deposits are subject to the Fund's 10% limitation on illiquid securities.
U.S. GOVERNMENT OBLIGATIONS: Debt securities issued or guaranteed by the U.S.
Treasury or by an agency or instrumentality of the U.S. government. Not all U.S.
government obligations are backed by the full faith and credit of the United
States. For example, securities issued by the Federal Farm Credit Bank or by the
Federal National Mortgage Association are supported by the agency's right to
borrow money from the U.S. Treasury under certain circumstances. Securities
issued by the Federal Home Loan Banks are supported only by the credit of the
agency. There is no guarantee that the government will support these types of
securities, and therefore they involve more risk than government obligations
which are backed by the full faith and credit of the United States.
FINANCIAL RESERVES FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <C> <S> <C>
- ----------- ----------------------------------------------------------------- ------------
CORPORATE BONDS--2.2%
- ----------------------------------------------------------------------------------
$10,000,000 Bear Stearns Cos., Inc., 3.65%, 8/31/94 $ 10,000,000
----------------------------------------------------------------- ------------
CERTIFICATES OF DEPOSIT--7.9%
- ----------------------------------------------------------------------------------
10,000,000 Harris Bank, 3.19%, 11/1/93 10,000,000
-----------------------------------------------------------------
22,000,000 Huntington Bank, 3.40%-3.56%, 8/2/94-8/25/94 22,000,000
-----------------------------------------------------------------
4,200,000 Morgan Bank (Toronto), 3.38%, 11/29/93 4,200,000
----------------------------------------------------------------- ------------
TOTAL CERTIFICATES OF DEPOSIT 36,200,000
----------------------------------------------------------------- ------------
*NOTES--VARIABLE--20.7%
- ----------------------------------------------------------------------------------
20,000,000 CIT Group Holdings, Inc., 3.43%, 11/5/93 19,996,338
-----------------------------------------------------------------
15,000,000 FCC National Bank, Wilmington, Delaware, 3.33%, 11/2/93 15,000,000
-----------------------------------------------------------------
10,000,000 Goldman Sachs Group L.P., 3.19%, 11/15/93 10,000,000
-----------------------------------------------------------------
15,000,000 Merrill Lynch & Co., Inc., 3.24%-3.43%, 11/1/93-11/3/93 15,000,000
-----------------------------------------------------------------
20,000,000 Pacific Mutual, 3.31%, 11/1/93-11/29/93 20,000,000
-----------------------------------------------------------------
10,000,000 Peoples Security Life, 3.36%, 11/29/93 10,000,000
-----------------------------------------------------------------
5,000,000 United States Leasing International, Inc., 3.58%, 4/24/94 5,000,000
----------------------------------------------------------------- ------------
TOTAL NOTES--VARIABLE 94,996,338
----------------------------------------------------------------- ------------
NOTES--11.7%
- ----------------------------------------------------------------------------------
8,500,000 AT&T Capital Corp., 4.35%, 8/26/94 8,557,640
-----------------------------------------------------------------
20,000,000 Comerica Bank, Detroit, Michigan, 3.35%, 9/14/94 19,982,984
-----------------------------------------------------------------
5,000,000 Ford Motor Credit Corp., 7.90%, 8/15/94 5,167,899
-----------------------------------------------------------------
10,000,000 Pittsburgh National Bank, 3.75%, 8/2/94 10,019,986
-----------------------------------------------------------------
5,000,000 PNC Bank Corp., 3.70%, 9/5/94 5,009,454
-----------------------------------------------------------------
5,000,000 Shearson Lehman Brothers, Inc., 3.50%, 5/19/94 5,000,000
----------------------------------------------------------------- ------------
TOTAL NOTES 53,737,963
----------------------------------------------------------------- ------------
</TABLE>
FINANCIAL RESERVES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <C> <S> <C>
- ----------- ----------------------------------------------------------------- ------------
**COMMERCIAL PAPER--41.9%
- ----------------------------------------------------------------------------------
BANKING--1.1%
-----------------------------------------------------------------
$ 5,000,000 NBD Bancorp, Inc., 3.12%, 11/15/93 $ 4,993,933
----------------------------------------------------------------- ------------
ELECTRONICS--1.0%
-----------------------------------------------------------------
5,000,000 Pioneer Electronics Capital, Inc., 3.14%, 11/30/93 4,987,353
----------------------------------------------------------------- ------------
FINANCE--AUTOMOTIVE--1.1%
-----------------------------------------------------------------
5,000,000 Nissan Capital of America Inc., 3.15%, 11/2/93 4,999,562
----------------------------------------------------------------- ------------
FINANCE--COMMERCIAL--9.5%
-----------------------------------------------------------------
16,911,000 General Electric Capital Corp., 3.30%, 11/1/93-5/20/94 16,727,667
-----------------------------------------------------------------
7,000,000 Merrill Lynch & Co., Inc., 3.27%, 2/25/94 6,926,243
-----------------------------------------------------------------
20,000,000 Transamerica Corp., 3.09%-3.14%, 11/15/93-12/8/93 19,956,031
----------------------------------------------------------------- ------------
Total 43,609,941
----------------------------------------------------------------- ------------
FUNDING CORPORATION--21.5%
-----------------------------------------------------------------
19,000,000 Asset Securitization Cooperative Corp., 3.10%-3.14%,
11/3/93-11/19/93 18,982,750
-----------------------------------------------------------------
20,801,000 Blue Hawk Funding Corp., 3.10%-3.12%, 11/2/93-11/19/93 20,784,564
-----------------------------------------------------------------
23,570,000 Broadway Capital, Inc., 3.12%-3.15%, 11/17/93-11/24/93 23,533,763
-----------------------------------------------------------------
15,180,000 Fleet Funding Corp., 3.10%, 11/12/93 15,165,621
-----------------------------------------------------------------
10,000,000 Goldman Sachs Group L.P., 3.34%, 1/7/94 9,939,328
-----------------------------------------------------------------
10,000,000 Lehman Brothers Holdings, Inc., 3.25%, 3/10/94 9,883,542
----------------------------------------------------------------- ------------
Total 98,289,568
----------------------------------------------------------------- ------------
LEASING--4.4%
-----------------------------------------------------------------
20,000,000 PHH Corp., 3.08%-3.09%, 11/4/93-11/17/93 19,983,736
----------------------------------------------------------------- ------------
MISCELLANEOUS--1.1%
-----------------------------------------------------------------
5,000,000 Waste Management, Inc., 3.25%, 12/10/93 4,982,396
----------------------------------------------------------------- ------------
RETAIL--2.2%
-----------------------------------------------------------------
10,000,000 KMart Corp., 3.09%, 11/3/93 9,998,283
----------------------------------------------------------------- ------------
TOTAL COMMERCIAL PAPER 191,844,772
----------------------------------------------------------------- ------------
</TABLE>
FINANCIAL RESERVES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <C> <S> <C>
- ----------- ----------------------------------------------------------------- ------------
GOVERNMENT SECURITIES--15.3%
- ----------------------------------------------------------------------------------
GOVERNMENT AGENCIES--10.9%
-----------------------------------------------------------------
$10,000,000 Federal Farm Credit Banks, 3.20%, 11/5/93 $ 10,000,000
-----------------------------------------------------------------
10,000,000 Federal National Mortgage Association, 3.60%, 11/5/93 10,000,000
-----------------------------------------------------------------
10,000,000 Student Loan Marketing Association, 3.34%, 11/2/93 9,992,333
-----------------------------------------------------------------
20,000,000 Student Loan Marketing Association, 3.34%, 11/2/93 20,000,000
----------------------------------------------------------------- ------------
Total Government Agencies 49,992,333
----------------------------------------------------------------- ------------
U.S. TREASURY NOTES--4.4%
-----------------------------------------------------------------
20,000,000 11.75%, 11/15/93 20,064,531
----------------------------------------------------------------- ------------
TOTAL GOVERNMENT SECURITIES 70,056,864
-----------------------------------------------------------------
TOTAL INVESTMENTS (AT AMORTIZED COST) $456,835,937+
----------------------------------------------------------------- ------------
</TABLE>
*Current rate and next demand date shown.
**Each issue shows the rate of discount at the time of purchase.
+Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
$457,872,216 at October 31, 1993.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL RESERVES FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities at value (Note 1A) $456,835,937
- --------------------------------------------------------------------------------
Cash 1,323
- --------------------------------------------------------------------------------
Interest receivable 2,232,340
- -------------------------------------------------------------------------------- ------------
Total assets 459,069,600
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Dividends payable $1,143,227
- -------------------------------------------------------------------
Accrued expenses and other liabilities 54,157
- ------------------------------------------------------------------- ----------
Total liabilities 1,197,384
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 457,872,216 shares of beneficial interest outstanding $457,872,216
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Price Per Share
($457,872,216 / 457,872,216 shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL RESERVES FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest income (Note 1C) $15,859,748
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee (Note 4) $2,383,062
- --------------------------------------------------------------------
Trustees' fees 35,057
- --------------------------------------------------------------------
Administrative personnel and services (Note 4) 594,916
- --------------------------------------------------------------------
Insurance premiums 14,743
- --------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and
expenses (Note 4) 161,980
- --------------------------------------------------------------------
Registration fees 90,403
- --------------------------------------------------------------------
Auditing fees 29,851
- --------------------------------------------------------------------
Legal fees 5,953
- --------------------------------------------------------------------
Printing and postage 11,438
- --------------------------------------------------------------------
Miscellaneous 8,884
- -------------------------------------------------------------------- ----------
Total expenses 3,336,287
- --------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) (714,919)
- -------------------------------------------------------------------- ----------
Net expenses 2,621,368
- --------------------------------------------------------------------------------- -----------
Net investment income $13,238,380
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL RESERVES FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------
1993 1992
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------
Net investment income $ 13,238,380 $ 16,779,342
- ----------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2)--
- -----------------------------------------------------------
Dividends to shareholders from net investment income (13,238,380) (16,779,342)
- -----------------------------------------------------------
Distributions to shareholders from net realized gain
on investment transactions -- (5,028)
- ----------------------------------------------------------- --------------- ---------------
Change in net assets from distributions to
shareholders (13,238,380) (16,784,370)
- ----------------------------------------------------------- --------------- ---------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- -----------------------------------------------------------
Proceeds from sale of shares 3,644,576,588 3,109,375,364
- -----------------------------------------------------------
Cost of shares redeemed (3,710,593,276) (2,998,028,683)
- ----------------------------------------------------------- --------------- ---------------
Change in net assets from Fund share transactions (66,016,688) 111,346,681
- ----------------------------------------------------------- --------------- ---------------
Change in net assets (66,016,688) 111,341,653
- -----------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------
Beginning of period 523,888,904 412,547,251
- ----------------------------------------------------------- --------------- ---------------
End of period $ 457,872,216 $ 523,888,904
- ----------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL RESERVES FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Financial Reserves Fund (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best
method currently available for valuing portfolio securities is amortized cost. The Fund's
use of the amortized cost method to value its portfolio securities is conditioned on its
compliance with Rule 2a-7 under the Investment Company Act of 1940, as amended.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System or to
have segregated within the custodian bank's vault, all securities held as collateral in
support of repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's underlying securities to ensure the existence of a proper level of
collateral.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees. Risks may arise from
the potential inability of counterparties to honor the terms of the repurchase agreement.
Accordingly, the Fund could receive less than the repurchase price on the sale of
collateral securities.
C. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest and discount earned (net of premium), including original issue discount as
required by the Internal Revenue Code, plus realized gains, if any, on portfolio
securities.
D. FEDERAL TAXES--The Fund has qualified and intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended.
It is the Fund's policy to comply with the provisions of the Internal Revenue Code
available to investment companies and to distribute to shareholders each year all of its
taxable income. Accordingly, no provision for federal tax is necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objectives and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain security positions
such that sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
F. OTHER--Investment transactions are accounted for on the date of the transaction.
</TABLE>
FINANCIAL RESERVES FUND
- --------------------------------------------------------------------------------
(2) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly.
(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). At
October 31, 1993, capital paid-in aggregated $457,872,216. Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------
1993 1992
- ------------------------------------------------------------ -------------- --------------
<S> <C> <C>
Shares outstanding, beginning of period 523,888,904 412,542,223
- ------------------------------------------------------------
Shares sold 3,644,576,588 3,109,375,364
- ------------------------------------------------------------
Shares redeemed (3,710,593,276) (2,998,028,683)
- ------------------------------------------------------------ -------------- --------------
Shares outstanding, end of period 457,872,216 523,888,904
- ------------------------------------------------------------ -------------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Effective January 7, 1993, Society Asset Management, Inc., became the Fund's
investment adviser ("Adviser"). Adviser receives for its services an annual
investment advisory fee equal to 0.50 of 1% of average daily net assets. Prior
to January 7, 1993, Society National Bank served as the Fund's investment
adviser and received for its services an annual investment advisory fee equal to
0.50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
waive some or all of its investment advisory fee and may terminate any such
voluntary waiver at any time at its sole discretion. Prior to May 17, 1993, if
the total expenses of the Fund exceeded 0.55 of 1% of average daily net assets,
the Adviser was required to waive the amount of any such excess, up to 0.15 of
1% of average daily net assets. For the year ended October 31, 1993, the Adviser
earned an investment advisory fee of $2,383,062 of which $714,919 was waived in
accordance with such an agreement.
Society National Bank performs services as custodian of the assets of the Fund
and as transfer, dividend disbursing and shareholder servicing agent for the
Fund. For the year ended October 31, 1993, Society received $161,980 for these
services. Society has retained Federated Services Company, a subsidiary of
Federated Investors, to perform certain responsibilities as recordkeeper of the
Fund.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services at an annual fee determined by applying a
rate schedule ranging from 0.15% on the first $250 million of daily net assets
to .075% on assets in excess of $750 million of all the mutual funds advised by
Society Asset Management, Inc., for which FAS serves as the administrator. For
the year ended October 31, 1993, FAS earned $594,916.
Federated Securities Corporation, a subsidiary of Federated Investors, is the
principal distributor for shares of the Fund.
Certain Officers of the Fund are Officers and Trustees of FAS.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Financial Reserves Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights (included on page 2) present
fairly, in all material respects, the financial position of Financial Reserves
Fund (the "Fund") at October 31, 1993, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the ten years indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1993 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE
Boston, Massachusetts
December 17, 1993
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Financial Reserves Fund 127 Public Square
Cleveland, Ohio 44114-1306
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Society Asset Management, Inc. 127 Public Square
Cleveland, Ohio 44114-1306
- ------------------------------------------------------------------------------------------------
Administrator
Federated Administrative Services Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian, Transfer Agent and Dividend Disbursing Agent
Society National Bank 900 Euclid Avenue (T-5)
Cleveland, Ohio 44115
- ------------------------------------------------------------------------------------------------
Legal Counsel
Squire, Sanders & Dempsey 4900 Society Center
127 Public Square
Cleveland, Ohio 44114
- ------------------------------------------------------------------------------------------------
Independent Accountants
Price Waterhouse 160 Federal Street
Boston, Massachusetts 02110
- ------------------------------------------------------------------------------------------------
</TABLE>
Financial Reserves
Fund
December 31, 1992
Prospectus
Federated Securities Corp.,
Distributor
A Subsidiary of
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Society National Bank
Investment Adviser
1052901A (12/93)
FINANCIAL RESERVES FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the Fund's current prospectus, dated December 31, 1993.
Please retain this Statement for future reference. To obtain an additional copy
of the prospectus, or the Statement of Additional Information, please call
Society National Bank ("Society") at (216) 689-8178.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1993
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
INVESTMENT POLICIES AND LIMITATIONS 1
- ---------------------------------------------------------------
PORTFOLIO TRANSACTIONS 2
- ---------------------------------------------------------------
VALUATION OF PORTFOLIO SECURITIES 4
- ---------------------------------------------------------------
YIELD INFORMATION 4
- ---------------------------------------------------------------
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 5
- ---------------------------------------------------------------
TAXES 5
- ---------------------------------------------------------------
TRUSTEES AND OFFICERS 5
- ---------------------------------------------------------------
SOCIETY NATIONAL BANK 6
- ---------------------------------------------------------------
ADVISORY CONTRACT 7
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 8
- ---------------------------------------------------------------
DESCRIPTION OF THE FUND 8
- ---------------------------------------------------------------
Shareholder and Trustee Liability 8
Voting Rights 8
Independent Accountants 9
APPENDIX 10
- ---------------------------------------------------------------
INVESTMENT ADVISER
Society Asset Management, Inc.
(the "Adviser"--includes
references to its predecessors,
Society National Bank and
Ameritrust Company
National Association, unless
context indicates otherwise.)
DISTRIBUTOR
Federated Securities Corp.
("Distributor")
ADMINISTRATOR
Federated Administrative Services
("Administrator")
INVESTMENT POLICIES AND LIMITATIONS
- --------------------------------------------------------------------------------
The following policies supplement those set forth in the prospectus. Unless
otherwise noted, whenever an investment policy or limitation states a maximum
percentage of the Fund's assets that may be invested in any security or other
asset, or sets forth a policy regarding quality standards, such standard or
percentage limitation shall be determined immediately after and as a result of
the Fund's acquisition of such security or other asset. Accordingly, any later
increase or decrease resulting from a change in values, net assets, or other
circumstances will not be considered when determining whether the investment
complies with the Fund's investment policies and limitations.
The following are the Fund's fundamental investment limitations set forth in
their entirety. The Fund's fundamental limitations cannot be changed without
consent of a "majority of the outstanding shares" (as defined in the Investment
Company Act of 1940) of the Fund. The Fund will not:
(1) purchase the securities of any issuer (other than obligations issued or
guaranteed as to principal and interest by the United States government, its
agencies or instrumentalities) if, as a result thereof: (i) more than 5% of its
total assets would be invested in the securities of such issuer, provided,
however, that in the case of certificates of deposit, time deposits and bankers'
acceptances up to 25% of the Fund's total assets may be invested without regard
to such 5% limitation, but shall instead be subject to a 10% limitation; (ii)
more than 25% of its total assets would be invested in the securities of one or
more issuers having their principal business activities in the same industry,
provided, however, that it may invest more than 25% of its total assets in the
obligations of banks. Neither finance companies as a group nor utility companies
as a group are considered a single industry for purposes of this policy;
(2) purchase the securities of a company if such purchase, at the time thereof,
would cause more than 5% of the Fund's total assets to be invested in securities
of companies, which, including predecessors, have a record of less than three
years' continuous operation;
(3) borrow money except (i) from a bank for temporary or emergency purposes (not
for leveraging or investment) or (ii) by engaging in reverse repurchase
agreements, provided that (i) and (ii) in combination ("borrowings") do not
exceed an amount equal to one third of the current value of its total assets
(including the amount borrowed) less liabilities (not including the amount
borrowed) at the time the borrowing is made;
(4) make loans to other persons, except (i) by the purchase of debt obligations
in which the Fund is authorized to invest in accordance with its investment
objective, and (ii) by engaging in repurchase agreements. In addition, the Fund
may lend its portfolio securities to broker-dealers or other institutional
investors, provided that the borrower delivers cash or cash equivalents as
collateral to the Fund and agrees to maintain such collateral so that it equals
at least 100% of the value of the securities loaned. Any such securities loan
may not be made if, as a result thereof, the aggregate value of all securities
loaned exceeds 33 1/3% of the total assets of the Fund;
(5) pledge assets, except that the Fund may pledge not more than one third of
its total assets (taken at current value) to secure borrowings made in
accordance with limitation (3) above;
(6) knowingly purchase a security which is subject to legal or contractual
restrictions on resale or for which there is no readily available market or
engage in a repurchase agreement maturing in more than seven days with respect
to any security if, as a result, more than 10% of the Fund's net assets (taken
at current value) would be invested in such securities;
(7) purchase or retain the securities of any issuer, any of whose officers,
directors, or security holders is a trustee, director, or officer of the Fund or
of its investment adviser, if or so long as the Board of Trustees, directors,
and officers of the Fund and of its investment adviser together own beneficially
more than 5% of any class of securities of such issuer;
(8) act as an underwriter (except as it may be deemed such in a sale of
restricted securities);
(9) purchase securities on margin (but the Fund may obtain such credits as may
be necessary for the clearance of purchases and sales of securities);
(10) write or purchase any put or call option;
(11) make short sales of securities;
(12) invest in companies for the purpose of exercising control or management;
(13) buy or sell real estate, commodities, or commodity (futures) contracts or
invest in oil, gas or other mineral exploration or development programs;
(14) purchase the securities of other investment companies or investment trusts;
or
(15) issue senior securities.
The following limitations are not fundamental and may be changed without
shareholder notification.
(i) The Fund does not currently intend to purchase obligations of savings and
loan institutions and savings banks.
(ii) The Fund does not currently intend to purchase commercial paper which is
not rated in the single highest category by Duff & Phelps Inc., Fitch Investors
Service, Inc., Standard & Poor's Corporation, or Moody's Investors
- --------------------------------------------------------------------------------
Service, Inc., or if unrated, which is not deemed to be of equivalent quality
pursuant to procedures reviewed by the Trustees.
(iii) The Fund does not currently intend to purchase securities for investment
during periods when the sum of temporary bank borrowings and reverse repurchase
agreements (described in fundamental limitation (3)) entered into to facilitate
redemptions exceeds 5% of its total assets.
(iv) The Fund does not currently intend to lend more than 5% of its portfolio
securities.
Fundamental limitation (3) is construed in conformity with the Investment
Company Act of 1940, and if at any time Fund borrowings exceed an amount equal
to one third of the current value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings) at the time the
borrowing is made due to a decline in net assets, such borrowings will be
reduced within three days (not including Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation.
Repurchase agreements are transactions by which the Fund purchases a security
and simultaneously commits to resell that security to the seller at an agreed
upon price on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon incremental amount which is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value (at least equal to the amount of the agreed upon
resale price and marked to market daily) of the underlying security. The Fund
may engage in a repurchase agreement with respect to any security in which the
Fund is authorized to invest even though the underlying security matures in more
than one year. Whether a repurchase agreement is the purchase and sale of a
security or a collateralized loan has not been definitively established. This
might become an issue in the event of the bankruptcy of the other party to the
transaction. While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delay and costs to the Fund in
connection with bankruptcy proceedings), it is the policy of the Fund to limit
repurchase transactions to those member banks of the Federal Reserve System and
primary dealers in U.S. government securities whose creditworthiness has been
reviewed and found satisfactory by the Adviser under policies established and
reviewed by the Board of Trustees ("Trustees").
In a reverse repurchase agreement, the Fund temporarily transfers possession of
a portfolio instrument to another party, such as a financial institution or
broker-dealer, in return for cash. At the same time, the Fund agrees to
repurchase the instrument at an agreed upon time (normally within seven days)
and price including interest payment. The Fund expects that it will engage in
reverse repurchase agreements when it is able to invest the cash so acquired at
a rate higher than the rate reflected by the agreement, which would increase the
income earned
by the Fund. The Fund could also engage in reverse repurchase agreements as a
means of raising cash to satisfy redemption requests without the necessity of
selling portfolio instruments.
When the Fund engages in a reverse repurchase agreement, any fluctuations in the
market value of either the securities transferred to another party or the
securities in which the proceeds may be invested would affect the market value
of the Fund's assets. As a result, such transactions may increase fluctuation in
the market value of the Fund's assets (as opposed to the amortized cost value of
its assets used in determining its net asset value per share). While there is a
potential risk that large fluctuations in the market value of the Fund's assets
could affect the Fund's net asset value per share, this risk is not
significantly increased by engaging in reverse repurchase agreements in the
Adviser's opinion. If the Fund reinvests the proceeds of a reverse repurchase
agreement at a rate lower than the rate reflected by the agreement, engaging in
the agreement will lower the Fund's yield.
At all times that a reverse repurchase agreement is outstanding, the Fund will
maintain cash and liquid securities in a segregated account at its custodian
bank with a value at least equal to its obligation under the agreement.
Securities and other assets held in the segregated account may not be sold while
the reverse repurchase agreement is outstanding, unless other suitable assets
are substituted.
While the Adviser does not consider reverse repurchase agreements to involve
borrowing money, reverse repurchase agreements will be included within the
aggregate limitation on "borrowings" contained in the Fund's fundamental
limitation (3).
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
All orders for the purchase or sale of portfolio securities are placed on behalf
of the Fund by the Adviser, pursuant to authority contained in the Investment
Advisory Contract. The Adviser is also responsible for the placement of
transaction orders for other investment companies and accounts for which it or
its affiliates act as investment adviser. Securities purchased and sold by the
Fund will be traded on a net basis (i.e., without commission) through principals
acting for their own account and not as agents or otherwise involve transactions
directly with the issuer of the
- --------------------------------------------------------------------------------
instrument. In selecting broker-dealers, subject to applicable limitations of
federal securities laws, the Adviser will consider various relevant factors,
including, but not limited to, the size and type of the transaction; the nature
and character of the markets for the security to be purchased or sold; the
execution efficiency, settlement capability, and financial condition of the
broker-dealer firm; the broker-dealer's execution services rendered on a
continuing basis; and the reasonableness of any commissions.
The Fund may execute portfolio transactions with broker-dealers who provide
research and/or execution services to the Fund and/or other accounts over which
the Adviser or its affiliates exercise investment discretion. Such services may
include advice concerning the value of securities; the advisability of investing
in, purchasing or selling securities; the availability of securities or the
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement). The
Adviser maintains a listing of broker-dealers who provide such services on a
regular basis. However, because many transactions on behalf of the Fund are
placed with broker-dealers (including broker-dealers on the list) without regard
to the furnishing of such services to the Fund, it is not possible to estimate
the proportion of such transactions directed to such broker-dealers solely
because such services were provided. The selection of such broker-dealers is
generally made by the Adviser (to the extent possible consistent with execution
considerations) based upon the quality of research and/or execution services
provided.
The receipt of research from broker-dealers that execute transactions on behalf
of the Fund may be useful to the Adviser in rendering investment management
services to the Fund and/or its other clients; and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf of
other Society Asset Management, Inc. clients may be useful to the Adviser in
carrying out its obligations to the Fund. The receipt of such research has not
reduced the Adviser's normal independent research activities; however, it
enables the Adviser to avoid the additional expenses that could be incurred if
the Adviser tried to develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws, broker-dealers
may receive commissions for agency transactions that are in excess of the amount
of commissions of other broker-dealers in recognition of their research and/or
execution services. In order to cause the Fund to pay such higher commissions,
the Adviser must determine in good faith that such commissions are reasonable in
relation to the value of the brokerage and/or research services provided by such
executing broker-dealers viewed in terms of a particular transaction or the
Adviser's overall responsibilities to the Fund and its other clients. In
reaching this determination, the Adviser will not attempt to place specific
dollar value on the brokerage and/or research services provided or to determine
what portion of the compensation should be related to those services. The
Adviser is authorized to use research services provided by and place portfolio
transactions with brokerage firms that have provided assistance in the
distribution of shares of the Fund, or shares of other funds, to the extent
permitted by law. The Fund currently purchases securities in principal
transactions only and, therefore, does not currently pay commissions to
broker-dealers.
The Trustees periodically review the Adviser's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the compensation paid by the Fund over
representative periods of time to determine if they are reasonable in relation
to the benefits to the Fund.
If the Fund engages in agency transactions on which commissions are paid, from
time to time the Trustees will review whether the recapture for the benefit of
the Fund of some portion of the brokerage commissions or similar fees paid by
the Fund on portfolio transactions is legally permissible and advisable.
Although substantially the same personnel provide investment advisory services
to the Fund and to other clients of, or funds managed by the Adviser, investment
decisions for the Fund are made independently from those of such other funds or
accounts managed by the Adviser or accounts managed by affiliates of the
Adviser. It sometimes happens that the same security is held in the portfolio of
more than one of these funds or accounts. Simultaneous transactions are
inevitable when several funds or accounts are managed by the same investment
adviser, particularly when the same security is suitable for the investment
objective of more than one fund.
When two or more funds are simultaneously engaged in the purchase or sale of the
same security, the prices and amounts are allocated in accordance with a formula
considered by the officers of the funds involved to be equitable to each fund.
In some cases this system could have a detrimental effect on the price of volume
of the security as far as the Fund is concerned. In other cases, however, the
ability of the Fund to participate in volume transactions will produce better
execution for the Fund. While the Trustees will continue to scrutinize
simultaneous transactions, it is their current opinion that the desirability of
retaining Society Asset Management, Inc. as investment adviser to the Fund
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
- --------------------------------------------------------------------------------
The Fund's portfolio holdings are valued on each business day on the basis of
amortized cost. This technique involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on shares of the
Fund computed as described above may tend to be higher than a like computation
made by a fund with identical investments utilizing a method of valuation based
upon market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the Fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
Fund would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing solely market values, and existing investors in
the Fund would receive less investment income. The converse would apply in a
period of rising interest rates.
The valuation of the Fund's portfolio instruments based upon their amortized
cost and the concomitant maintenance of the Fund's per share net asset value
("NAV") of $1.00 is permitted in accordance with Rule 2a-7 under the Investment
Company Act of 1940, pursuant to which the Fund must adhere to certain
conditions. Pursuant to Rule 2a-7, the Fund must maintain a dollar-weighted
average portfolio maturity of 90 days of less, purchase only those U.S. dollar
denominated instruments having remaining maturities of thirteen months or less
and invest only in securities determined under the supervision of the Trustees
to present minimal credit risks and which, if rated, meet quality rating
standards set forth in the Rule, or, in the case of any instrument which is not
rated, which are of comparable quality as determined pursuant to procedures
reviewed by the Trustees. The maturities of certain variable rate demand
instruments held in the Fund's portfolio are determined in accordance with Rule
2a-7, which currently requires that the maturity of such instruments be deemed
to be the longer of the demand period or the period remaining until the next
interest rate adjustment, although stated maturities may be in excess of one
year.
It is the intention of the Fund to maintain an NAV of $1.00 but there can be no
assurance of this. The Trustees have established procedures designed to
stabilize, to the extent reasonably possible, the Fund's price per share as
computed for the purpose of sales and redemptions at a single value. These
procedures include review of the Fund's portfolio holdings pursuant to
procedures reviewed at such intervals as the Trustees may deem appropriate, to
determine whether the NAV calculated by using available market quotations
deviates from $1.00 and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders. In the event the
Trustees determine that such a deviation exists, they may take such corrective
action as they regard as necessary and appropriate, which may include the sale
of portfolio instruments prior to maturity to realize capital gains or losses or
to shorten average portfolio maturity; withholding dividends; redeeming shares
in kind; or establishing an NAV by using available market quotations.
The Trustees monitor adherence to the rules and regulations of the SEC,
including credit quality and maturity standards. Further, the Trustees regularly
receive reports comparing the market value of the Fund to its amortized cost
value.
YIELD INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may advertise its performance compared to similar
funds or portfolios using certain indices, reporting services, and financial
publications. This comparative performance may include averages or medians
prepared by Lipper Analytical Services, Inc. ("Lipper"), or Donoghue's Money
Fund Average ("Donoghue's"). Lipper is a widely recognized independent service
which monitors the performance of mutual funds. Donoghue's reports average
yields which include the effect of reinvesting distributions for over 400
taxable and tax-exempt money market funds. The Lipper performance analysis
includes the reinvestment of dividends and capital gains distributions, but does
not take sales charges into consideration and is prepared without regard to tax
consequences.
Yields quoted in advertising may be based on any historical seven-day period.
Yield information may be useful in reviewing the Fund's performance and for
providing a basis for comparison with other investment alternatives. The Fund's
yield will fluctuate, unlike investments which pay a fixed yield for a stated
period of time. Also, other investment companies may calculate yields on a
different basis and may hold portfolio securities of different quality and
maturities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
- --------------------------------------------------------------------------------
If, in the opinion of the Trustees, conditions exist that make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
NAV of the Fund. Shareholders receiving any such securities or other property on
redemption may realize either a gain or loss for tax purposes and will incur any
costs of sale.
The Fund is open for business and its NAV per share is calculated on every day
on which both the Cleveland office of the Federal Reserve System and the Fund's
custodian bank, Society, are open. To the extent that securities held by the
Fund are traded on days the Fund is closed for business, the Fund's NAV per
share may be affected on days when investors may not purchase or redeem shares.
TAXES
- --------------------------------------------------------------------------------
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended. By so qualifying, the
Fund will not be subject to federal income taxes to the extent that it
distributes all of its taxable income for each fiscal year. In addition, by
distributing during each calendar year substantially all of its interest income,
net realized capital gains and certain other income, if any, the Fund will not
be subject to a federal excise tax. The Fund may distribute any net realized
short term gains once each year or more frequently if necessary in order to
maintain the Fund's NAV at $1.00 per share. The Fund does not expect to realize
any long term capital gains. Any additional portfolios created under the Trust
instrument pursuant to which the Trust was established will be taxed as separate
entities.
This information is only a summary of the tax consequences generally affecting
the Fund and its shareholders, and no attempt has been made to discuss
individual tax consequences. In addition to federal income taxes, shareholders
of the Fund may be subject to state and local taxes on distributions received
from the Fund. Investors should consult their tax advisors to determine whether
the Fund is suitable to their particular tax situation.
Net interest income of the Fund (from the time of the immediately preceding
declaration) consists of interest accrued or discount earned (including both
original issue and market discount) on the securities in the Fund less
amortization of premium and the estimated expenses applicable to that dividend
period. The amount of discount or premium on portfolio instruments is fixed at
the time of their purchase.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and executive officers of the Fund are listed below. Except as
indicated, each individual has held his position with the Fund since May, 1991,
and the office shown or other offices in the same company for the last five
years.
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
James H. Bodurtha* Trustee Chairman and Chief Executive Officer, China Enterprise
One International Place Management Corporation; Partner in the law firm of
Suite 3010 Squire, Sanders & Dempsey (1980-1993).
Boston, MA
- ----------------------------------------------------------------------------------------------------------------
Edward P. Campbell Trustee Vice President of Nordson Corporation (manufacturer of
Nordson Corporation application equipment, 1988); Vice President of Finance of
28601 Clemens Road BP America, Inc. (oil company, August 1987-April 1988);
Westlake, OH Vice President of Finance of The Standard Oil Company
(August 1986-July 1987); Vice President of Acquisitions and
Divestitures of The Standard Oil Company (May-July 1986);
Vice President of Retail Sales of Sohio Oil Company
(September 1985-
April 1986); and a member of the Supervisory Committee
of Society's Collective Investment Retirement Fund (1987).
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
James E. Gulick Trustee Adjunct Professor, Master of Business Administration
3961 West Valley Drive Program, Baldwin-Wallace College (1991); Executive Director
Fairview Park, OH of Cleveland Commission on Higher Education (September
1990-July 1992); and various Senior Officer positions with
Brush Wellman Inc. (beryllium products electronics and
equipment components, 1979-1990) including Vice President,
Planning and Administration (1987-1990), President of
Equipment Components Group (1984-1987), President, S.K.
Wellman Co. (1985-1987); and a member of the Supervisory
Committee of Society's Collective Investment Retirement
Fund (1991).
- ----------------------------------------------------------------------------------------------------------------
Harald Miller, CPA Trustee Principal of Barnes, Wendling, Cook & O'Connor, Inc.
1215 Superior Avenue (Certified Public Accountants, 1992); President of Harald
Suite 400 Miller, Inc. (Certified Public Accounting, 1989-1992);
Cleveland, OH Principal of Miller, Miller & Haney, Inc. (Certified Public
Accounting 1973-1989); and a member of the Supervisory
Committee of Society's Collective Investment Retirement
Fund (1987).
- ----------------------------------------------------------------------------------------------------------------
Thomas F. Morrissey Trustee Associate Dean of Weatherhead School of Management, Case
Case Western Reserve Western Reserve University (1989); Professor of Banking and
University Finance of Weatherhead School of Management, Case Western
Weatherhead School Reserve University (1970-1989); and a member of the
of Management Supervisory Committee of Society's Collective Investment
Cleveland, OH Retirement Fund (1987).
- ----------------------------------------------------------------------------------------------------------------
Edward C. Gonzales President and Vice President, Treasurer and Trustee, Federated Investors;
Federated Investors Treasurer Vice President and Treasurer, Federated Advisers, Federated
Tower Management, and Federated Research; Executive Vice
Pittsburgh, PA President, Treasurer and Director, Federated Securities
Corp.; Chairman, Treasurer and Director, Federated
Administrative Services, Inc.; Trustee, President, Vice
President and Treasurer of numerous other investment
companies that are advised, administered, or distributed by
affiliates of Federated Investors.
- ----------------------------------------------------------------------------------------------------------------
Jeffrey W. Sterling Vice President Vice President of Federated Administrative Services.
Federated Investors and Assistant
Tower Treasurer
Pittsburgh, PA
- ----------------------------------------------------------------------------------------------------------------
Jay S. Neuman Secretary Corporate Counsel, Federated Investors; prior to January,
Federated Investors 1991, Associate Counsel, The Boston Company Advisors, Inc.
Tower
Pittsburgh, PA
- ----------------------------------------------------------------------------------------------------------------
* Mr. Bodurtha is deemed to be an interested person of the Fund and Society under the 1940 Act because the law
firm in which he was formerly a partner, Squire, Sanders & Dempsey, provides legal services to Society and the
Fund.
</TABLE>
The fees and expenses of the non-interested Trustees are paid by the Fund.
During the fiscal year ended October 31, 1993, the non-interested persons then
serving as Trustees, as a group, received a total of $35,057 in their capacities
as Trustees of the Fund. On November 30, 1993, the Trustees and officers of the
Fund, as a group, beneficially owned less than 1% of the outstanding shares of
the Fund.
SOCIETY NATIONAL BANK
- --------------------------------------------------------------------------------
Society National Bank, 900 Euclid Avenue, Cleveland, Ohio 44115, serves as
custodian of the assets of the Fund and as transfer, dividend disbursing and
shareholder servicing agent for the Fund. Society is a full service bank and
conducts a broad range of banking and trust services. Under the custodian
agreement, Society holds the Fund's
- --------------------------------------------------------------------------------
portfolio securities and keeps all necessary records and documents relating to
its duties. Effective May 16, 1991, Society's fees for custody services are
based upon the market value of Fund securities held in custody (subject to
certain minimum fees), plus certain securities transaction charges, plus
out-of-pocket expenses; and Society's fees for transfer agent and related
services are based on the number of shareholder accounts it maintains for the
Fund, plus out-of-pocket expenses.
ADVISORY CONTRACT
- --------------------------------------------------------------------------------
Under the investment advisory contract with the Fund, Society Asset Management,
Inc., 127 Public Square, Cleveland, Ohio 44114-1306 serves as investment adviser
to the Fund, and, subject to the supervision of the Trustees, directs the
investments of the Fund in accordance with its investment objective, policies
and limitations. The Adviser also provides the Fund with all necessary office
facilities and personnel for servicing the Fund's investments, and pays the
salaries and fees of all personnel of the Fund or the Adviser in performing
services relating to research, statistical, and investment activities.
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. For the year ended October 31, 1993, the
Adviser earned $2,383,062 in advisory fees, of which $714,919 was waived. For
the period from July 13, 1992 to October 31, 1992, Society National Bank, the
Fund's previous adviser, earned $722,053 in advisory fees, which was reduced by
$216,616, because of undertakings to limit Fund expenses. For the period from
November 1, 1991 through July 12, 1992, and the period from May 16, 1991 through
October 31, 1991, Ameritrust Company National Association, the Fund's former
adviser, earned $1,562,099 and $1,025,673, respectively, in advisory fees, which
was reduced by $468,629 and $307,687, respectively, because of undertakings to
limit the Fund's expenses.
In addition to the advisory fee, the Fund pays all of its expenses, without
limitation, that are not assumed by those parties. The Fund pays for the
typesetting, printing and mailing of its prospectuses, Statements of Additional
Information, reports and proxy material to existing shareholders, legal expenses
and the fees of the custodian, auditor and non-interested Trustees. Other
charges paid by the Fund include interest, taxes, brokerage commissions, the
Fund's proportionate share of insurance premiums and Investment Company
Institute dues, and the costs of registering shares under federal and state
securities laws. The Fund also is liable for such nonrecurring or extraordinary
expenses as may arise, including costs of litigation to which the Fund is a
party, and any obligation it may have to indemnify its officers and Trustees
with respect to litigation.
Prior to May 16, 1991, Fidelity Management & Research Co. ("FMR") served as
investment adviser to the Fund. For the period from November 1, 1990 through May
15, 1991, the Fund paid FMR (its former investment adviser) fees of $627,945 for
its services as investment adviser to the Fund, based on an annual fee rate of
.25% of average daily net assets.
Pursuant to a state expense limitation regulation, the Adviser has agreed to
reimburse the Fund if, and to the extent that, the Fund's aggregate operating
expenses, including the management fee but generally excluding interest, taxes,
brokerage commissions and extraordinary expenses, are in excess of specified
percentages of average daily net assets of the Fund for its fiscal year. The
limitations applicable to the Fund are currently at an annual rate of 2 1/2% on
the first $30 million of average net assets, 2% on the next $70 million and
1 1/2% of assets in excess of that amount.
Prior to May 16, 1991, the Fund had an agreement with Fidelity Service Co.
("Service"), an affiliate of FMR, 82 Devonshire St., Boston, MA 02109, under
which Service determined the NAV per share and dividends and maintained the
accounting records of the Fund, for an annual base fee (ranging from $40,000 to
$200,000), based on the Fund's average daily net assets; transaction fees
charged for various portfolio transactions; and reimbursements for related
out-of-pocket expenses. Transaction fees ranged from $5 to $40 for each
portfolio transaction, depending on the type of transaction, and were adjusted
to reflect labor cost increases. For the period from November 1, 1990 through
May 15, 1991, Service received $52,463 for pricing and bookkeeping services.
The Glass-Steagall Act generally prohibits federally chartered or supervised
banks from engaging in the business of underwriting, selling or distributing
securities. Although the scope of this prohibition under the Glass-Steagall Act
has not been fully defined, it should not prohibit the activities of Society or
the Adviser in informing its customers of, and performing investment and
redemption services in connection with the Fund, and in providing services to
the Fund as adviser, custodian, transfer, shareholder servicing and dividend
disbursing agent. If because of changes in law or regulation or because of new
interpretations of existing law, Society, the Adviser, or the Fund were
prevented from continuing these arrangements, it is expected that other
arrangements would be made for these services and that shareholders would not
suffer adverse financial consequences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed herein,
and banks and financial institutions may be required to register as dealers
pursuant to state law.
Changes in either federal or state statutes and regulations relating to the
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of such or
future statutes and regulations, could prevent Society from continuing to
perform all or a part of the contemplated services for its customers and/or the
Fund. If Society were prohibited from engaging in the contemplated
customer-related activities, the Trustees would consider alternative means of
continuing available cash management services. In such event, changes in the
operation of the Fund may occur, including possible termination of any automatic
or other Fund share investment and redemption services then being provided by
Society. It is not expected that existing shareholders would suffer any adverse
financial consequences as a result of any of these occurrences. If Society or
the Adviser were prohibited from serving the Fund in any of its present
capacities as adviser, custodian, transfer, shareholder servicing and dividend
disbursing agent, the Trustees would seek an alternative provider of such
service(s).
ADMINISTRATIVE SERVICES
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Federated Administrative Services ("FAS"), a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the fiscal year ended October 31, 1993, 1992,
and the period from May 16, 1991 to October 31, 1991, the Fund paid fees to FAS
for administrative services of $594,916, $577,085 and $259,334, respectively.
Prior to May 16, 1991, Ameritrust served as the Fund's administrator. For its
services as administrator (including custodian, transfer agent, dividend
disbursing agent and shareholder servicing agent) prior to May 16, 1991,
Ameritrust received a monthly fee at an annual rate of .25% of the average daily
net assets of the Fund, plus out-of-pocket expenses for items such as postage,
forms and mail insurance. For the fiscal year ended October 31, 1991, the fee
paid to Ameritrust amounted to $768,858.
DESCRIPTION OF THE FUND
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The Fund is organized as a Massachusetts business trust by Declaration of Trust
dated June 2, 1982. The Declaration of Trust permits the Trustees to create
additional series (or "portfolios"), each of which will issue a separate class
of shares. There is currently one portfolio of the Fund.
SHAREHOLDER AND TRUSTEE LIABILITY
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under certain circumstances, shareholders of such a trust might be held
personally liable for the obligations of the trust. The Declaration of Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Fund and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Fund or the
Trustees. The Declaration of Trust provides for indemnification out of the Fund
property of any shareholder held personally liable for the obligations of the
Fund. The Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Fund and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Society believes that, in view of the above, the risk of personal
liability to any shareholder is remote.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which a Trustee
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
VOTING RIGHTS
The Fund's capital consists of shares of beneficial interest. The shares have no
preemptive or conversion rights; the voting and dividend rights, the right of
redemption and the privilege of exchange are described in the Prospectus. Shares
are fully paid and nonassessable, except as set forth under the heading
"Shareholder and Trustee Liability" above. In the event that additional
portfolios are created for this Fund, shares of the Fund regardless of the
portfolio, entitle their holders to one vote per share and fractional votes for
fractional shares held. However, separate votes would be taken by each portfolio
on matters affecting an individual portfolio. For example, a change in
investment policy for a portfolio would be voted upon only by shareholders of
the portfolio involved. Additionally, approval of the Management Contract is a
matter to be determined separately by each portfolio. Approval by the
shareholders of one portfolio is effective as to that portfolio whether or not
sufficient votes are received from the shareholders of the other portfolios to
approve such a Contract as to those portfolios. As set forth in the Declaration
of Trust, shareholders representing 10% or more of the Fund may call meetings
for any purpose, including the purpose of voting on removal of one or more
Trustees. The Fund may be terminated upon the sale of its assets to another
diversified, open-end management investment company, or upon liquidation and
distribution of the assets of the
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Fund, if approved by the vote of the holders of a majority of the outstanding
shares of the Fund. If not so terminated, the Fund will continue indefinitely.
As of November 30, 1993, the following shareholders of record owned 5% or more
of the outstanding shares of the Fund: Presbyterian Healthcare System Various
Custody Accounts, Dallas, Texas, owned approximately 30,010,380 Shares (5.75%);
Case Western Reserve University Various Custody Accounts, Cleveland, Ohio, owned
approximately 31, 583, 582 Shares (6.06%); Community Mutual Various Custody
Accounts, Columbus, Ohio, owned approximately 32,754,534 Shares (6.28%);
University Hospitals Various Custody Accounts, Cleveland, Ohio, owned
approximately 53,334,864 Shares (10.23%).
INDEPENDENT ACCOUNTANTS
Price Waterhouse, 160 Federal Street, Boston, MA 02110 serves as the Fund's
independent accountants, providing services including the audit of annual
financial statements.
APPENDIX
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DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS
PRIME-1 (or related institutions) have a superior capacity for repayment of
short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2 (or related supporting institution) have a strong capacity for repayment
of short-term promissory obligations. This will normally be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
DESCRIPTION OF FITCH INVESTOR'S SERVICE, INC.'S COMMERCIAL PAPER RATINGS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
DESCRIPTION OF FITCH INVESTOR'S SERVICE, INC.'S CORPORATE BOND RATINGS
AAA--Bonds of this rating are regarded as strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions, and
liable to but slight market fluctuation other than through changes in the money
rate. The factor last named is of importance, varying with the length of
maturity. Such bonds are mainly senior issues of strong companies, and are most
numerous in the railway and public utility fields, though some industrial
obligations have this rating. The prime feature of an AAA bond is showing of
earnings several times or many times interest requirements with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Other features may enter, such as a wide margin of
protection through collateral security or direct lien on specific property as in
the case of high-class equipment certificates or bonds that are first mortgages
on valuable real estate. Sinking funds or voluntary reduction of the debt, by
call or purchase are often factors, while guarantee or assumption by parties
other than the original debtor may influence the rating.
AA--Bonds in this group are of safety virtually beyond question, and as a class
are readily salable while many are highly active. Their merits are not greatly
unlike those of the "AAA" class, but a bond so rated may be of junior though
strong lien--in many cases directly following an AAA bond--or the margin of
safety is strikingly broad.
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The issue may be the obligation of a small company, strongly secured but
influenced as to rating by the lesser financial power of the enterprise and more
local type of market.
DESCRIPTION OF DUFF & PHELPS INC. COMMERCIAL PAPER RATINGS
DUFF 1--High certainty of timely payment. Liquidity factors are excellent and
supported by strong fundamental protection factors. Risk factors are minor.
DUFF 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing internal funds needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
DESCRIPTION OF DUFF & PHELPS INC. CORPORATE BOND RATINGS
DUFF 1--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
DUFF 2--High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
1052901B (12/93)
