NEWPOINT EQUITY FUND
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ANNUAL REPORT FOR FISCAL YEAR ENDED NOVEMBER 30, 1995
MANAGEMENT DISCUSSION AND ANALYSIS:
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The stock market performance for 1995 has been very strong with the
Standard & Poor's 500 Index ("S & P 500") and the Dow Jones Industrial
Averages (the "Dow") up approximately 34%. Some additional facts should put
this year's market strength in perspective. The Dow has not had more than a
3.3% correction for the entire year, which has not happened before in this
century. In addition, the Dow has not had a 10% correction in more than
five years, again for the first time in stock market history.
Unfortunately, favorable environments never last forever and we expect some
downside volatility probably sooner rather than later.
During 1995 we have been overweighting the technology, capital goods,
drug, health care sectors. Just recently, we have been moving to overweight
insurance stocks. As we stated in our mid-year review, we feel technology
will be the decades-dominate theme. Companies are continually substituting
capital for labor because of two events. In December, 1990 the Financial
Accounting Standards Board (the "FASB") forced companies to recognize
post-retirement health benefits of employees and their dependents. Prior to
this statement, fully 95% of U.S. companies accounted for these costs on a
pay-as-you-go basis. The impact of this FASB statement was soon felt by
many public companies as they reported huge charges to earnings to
recognize those previously hidden liabilities. These huge losses
traumatized executives into recognizing their high labor costs which
companies had ignored for years. At about the same time, productivity
enhancing technology was accelerating its price decline. The combination of
rising labor costs and falling technology costs has forced corporations to
restructure by adding technology and other capital goods, but not people.
This is a long term shift with capital goods/technology spending growing
from the present 4% of Gross Domestic Product to possibly as high as 12% of
Gross Domestic Product before this trend matures.
Drugs and health care are overweighted because of the large number of
new, innovative drugs being introduced by the drug companies. New products
have offset the cost containment pressure from managed care. We feel
insurance companies are following banking into consolidations and mergers.
There are close to 1000 insurance companies employing two million people in
the U.S. This is about 2% of the U.S. work force. It would seem likely that
technology can replace some of this work force. Replacing people with
capital will enhance shareholder returns. We are enamored of gold because
we feel monetary instability in the near future is likely with most central
banks in deflationary modes. Basic industries are underweighted, but gold
is overweighted. The consumer group is underweighted, but global growers
like Coca-Cola, Gillette and McDonald's Corp. are favored.
We feel the Fund's present structure should provide the best chances
of capital appreciation in 1996 along with the highest possible current
income.
NEWPOINT EQUITY FUND
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GROWTH OF $10,000 INVESTED IN NEWPOINT EQUITY FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Newpoint Equity Fund (the "Fund") from September 13, 1994 (start of performance)
to November 30, 1995 compared to the Standard & Poor's 500 Index ("S&P 500")+
and the Lipper Growth & Income Fund Index ("LGI").++
<TABLE>
<CAPTION>
Lipper Growth &
Measurement Period Newpoint Eq- Income Fund In-
(Fiscal Year Covered) uity Fund S&P 500 dex
<S> <C> <C> <C>
13-Sep-94 9550 10000 10000
30-Nov-94 9382 9611 9541
30-Nov-95 12288 13165 12475
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED NOVEMBER 30, 1995
<TABLE>
<S> <C>
1 Year....................................................................... 25.08%
Start of Performance (September 13, 1994).................................... 18.46%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
This report must be preceded or accompanied by the Fund's prospectus dated
January 30, 1996, and, together with financial statements contained therein,
constitutes the Fund's annual report.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge
= $9,550). The Fund's performance assumes the reinvestment of all dividends
and distributions. The S&P 500 and the LGI have been adjusted to reflect
reinvestment of dividends on securities in the indices.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index is
unmanaged.
++ The Lipper Growth & Income Fund Index average is a compilation of a specified
category of mutual fund total returns reported to Lipper Analytical Services,
Inc. Each Fund is reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
FEDERATED SECURITIES CORP.
(LOGO)
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Distributor
Cusip 651722209
G00940-01 (1/96)
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NEWPOINT EQUITY FUND
(A PORTFOLIO OF NEWPOINT FUNDS)
PROSPECTUS
Newpoint Equity Fund (the "Fund") is a diversified portfolio in Newpoint Funds
(the "Trust"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to achieve growth of capital and income. The
Fund pursues this investment objective by investing primarily in equity
securities of U.S. companies.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
FIRSTMERIT CORP., FIRST NATIONAL BANK OF OHIO, ANY OF THEIR RESPECTIVE
AFFILIATES OR SUBSIDIARIES, OR ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY
FIRSTMERIT CORP., FIRST NATIONAL BANK OF OHIO, ANY OF ITS AFFILIATES, OR ANY
BANK, AND ARE NOT INSURED BY THE U.S. GOVERNMENT, FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER FEDERAL OR STATE GOVERNMENT
AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated January 31,
1996, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information,
or a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge, by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
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 January 31, 1996
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Investment Limitations 8
NEWPOINT FUNDS INFORMATION 8
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Management of Newpoint Funds 8
Distribution of Fund Shares 9
Administration of the Fund 10
Brokerage Transactions 11
Expenses of the Fund 11
NET ASSET VALUE 11
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INVESTING IN THE FUND 11
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Share Purchases 11
Minimum Investment Required 12
What Shares Cost 12
Eliminating or Reducing the Sales Load 13
Systematic Investment Program 14
Subaccounting Services 14
Certificates and Confirmations 14
Dividends and Capital Gains 15
EXCHANGE PRIVILEGE 15
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Exchange-By-Telephone 16
REDEEMING SHARES 16
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Through First National Bank of Ohio
or FirstMerit Securities, Inc. 16
Systematic Withdrawal Program 17
Accounts with Low Balances 17
SHAREHOLDER INFORMATION 18
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Voting Rights 18
EFFECT OF BANKING LAWS 18
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TAX INFORMATION 19
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Federal Income Tax 19
State and Local Taxes 19
PERFORMANCE INFORMATION 19
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FINANCIAL STATEMENTS 20
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 31
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ADDRESSES 32
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SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................. 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............................... None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.23%
12b-1 Fee(2).......................................................................... 0.00%
Total Other Expenses.................................................................. 1.25%
Shareholder Services Fees(3)............................................ 0.00%
Total Fund Operating Expenses(4)............................................ 1.48%
</TABLE>
(1) The management fee of the Fund has been reduced to reflect the voluntary
waiver by the investment adviser. The adviser can terminate its voluntary waiver
of fees at any time at its sole discretion. The maximum management fee is 0.75%.
(2) The Fund has no present intention of paying 12b-1 fees during the fiscal
year ending November 30, 1996. If the Fund were paying 12b-1 fees, the Fund
would be able to pay up to 0.25% of its average daily net assets for 12b-1 fees.
See "Fund Information."
(3) The maximum shareholder services fee is 0.25%.
(4) The total Fund Operating Expenses would have been 2.00% absent the voluntary
waiver of a portion of the management 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 "NEWPOINT FUNDS INFORMATION" AND "INVESTING IN THE FUND."
<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. The Fund
charges no redemption fees............................ $ 59 $90 $ 122 $214
</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.
NEWPOINT EQUITY FUND
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 31.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
------------------
1995 1994**
------ -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.78 $10.00
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.10 0.05
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Net realized and unrealized gain (loss) on investments 2.91 (0.23 )
- ----------------------------------------------------------------------- ------ ------
Total from investment operations 3.01 (0.18 )
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LESS DISTRIBUTIONS
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Distributions from net investment income (0.10) (0.04 )
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Total distributions (0.10) (0.04 )
- ----------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $12.69 $ 9.78
- ----------------------------------------------------------------------- ------ ------
TOTAL RETURN (A) 30.97% (1.76 %)
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RATIOS TO AVERAGE NET ASSETS
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Expenses 1.48% 1.00 %*
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Net investment income 0.88% 2.36 %*
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Expense waiver/reimbursement (b) 0.52% 1.72 %*
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SUPPLEMENTAL DATA
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Net assets, end of period (000 omitted) $25,803 $11,614
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Portfolio turnover 35% 0 %
- -----------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
** Reflects operations for the period from September 13, 1994 (date of initial
public investment) to November 30, 1994. For the period from August 30, 1994
(start of business) to September 12, 1994, the Fund had no investment
activity.
(a) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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Newpoint Funds were established as a Massachusetts business trust under a
Declaration of Trust dated November 12, 1990. Effective January 31, 1995, the
Trust changed its name from "Portage Funds" to "Newpoint Funds", and the Fund
changed its name from "Portage Equity Fund" to "Newpoint Equity Fund." The
Declaration of Trust permits the Trust to offer separate series of shares of
beneficial interest representing interests in separate portfolios of securities.
The shares in any one portfolio may be offered in separate classes. This
prospectus relates only to that portfolio of the Trust known as the Newpoint
Equity Fund. The Trust, as of the date of this prospectus, offers shares in one
other portfolio, the Newpoint Government Money Market Fund.
The Fund is designed for customers of First National Bank of Ohio and its
affiliates as a convenient means of accumulating an interest in a professionally
managed, diversified portfolio consisting primarily of equity securities of U.S.
companies. A minimum initial investment of $1,000 is required. Except as
otherwise noted in this prospectus, shares of the Fund are sold at net asset
value plus an applicable sales load and redeemed at net asset value.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is to achieve growth of capital and income.
The investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment policies described in this
prospectus.
INVESTMENT POLICIES
Under normal circumstances, the Fund pursues its investment objective by
investing at least 65% of the value of its total assets in equity securities of
U.S. companies. The Fund may also invest in domestic debt securities,
international securities, U.S. government securities, and money market
securities. The Fund's investment adviser, First National Bank of Ohio (the
"Adviser"), attempts to maintain an acceptable level of risk through careful
investment analysis including, but not limited to, the following: the employment
of disciplined value measures (such as price/earnings ratios and price/book
ratios) when selecting equity securities; use of ratings assigned by nationally
recognized statistical rating organizations (where applicable); credit research;
review of issuers' historical performances; examination of issuers' dividend
growth records; and consideration of market trends.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Board of Trustees (the "Trustees") without the approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include the
following:
DOMESTIC EQUITY SECURITIES. The domestic equity securities of the Fund
will usually consist of common and preferred stocks of medium to large
capitalization companies and which are listed on
the New York or American Stock Exchanges or traded in the over-the-counter
market. The companies will be selected by the Adviser based on traditional
research techniques and technical factors, including assessment of earnings
and dividend growth prospects and of the risk and volatility of the
company's industry. Other factors, such as product position or market
share, will also be considered by the Adviser.
DOMESTIC DEBT SECURITIES. The Fund may also invest in debt securities,
including bonds, notes, warrants, zero coupon bonds, and convertible
securities of the U.S. companies described above, all of which are rated
investment grade, i.e., Baa or better by Moody's Investors Service, Inc.
("Moody's"), or BBB or better by Standard & Poor's Ratings Group ("S&P") or
Fitch Investors Service, Inc. ("Fitch") (or, if unrated, are deemed to be
of comparable quality by the Adviser). The Fund may also invest in
securities issued and/or guaranteed as to the payment of principal and
interest by the U.S. government or its agencies or instrumentalities. It
should be noted that securities receiving the lowest investment grade
rating are considered to have some speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher rated
securities. In the event that a security which had an eligible rating when
purchased by the Fund is downgraded below Baa or BBB, the Adviser will
promptly reassess whether the continued holding of the security is
consistent with the Fund's objective. The prices of fixed income securities
generally fluctuate inversely to the direction of interest rates.
OTHER ACCEPTABLE INVESTMENTS. The Fund may invest in equity securities of
non-U.S. companies and corporate and government debt securities denominated
in currencies other than U.S. dollars. In addition, the Fund may invest in
zero coupon bonds and zero coupon convertible securities.
MONEY MARKET INSTRUMENTS. For temporary defensive purposes (up to 100% of
total assets) and to maintain liquidity (up to 35% of total assets), the
Fund may invest in U.S. and foreign short-term money market instruments,
including:
- commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's,
or F-1 or F-2 by Fitch, and Europaper (dollar-denominated commercial
paper issued outside the United States) rated A-1, A-2, Prime-1, or
Prime-2;
- instruments of domestic and foreign banks and savings associations (such
as certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances) if they have capital, surplus, and undivided
profits of over $100,000,000, or if the principal amount of the
instrument is insured by the Bank Insurance Fund ("BIF"), which is
administered by the Federal Deposit Insurance Corporation ("FDIC"), or
the Savings Association Insurance Fund ("SAIF"), which is also
administered by the FDIC. These instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee
CDs"), and Eurodollar Time Deposits ("ETDs");
- obligations of the U.S. government or its agencies or instrumentalities;
- repurchase agreements;
- securities of other investment companies; and
- other short-term instruments which are not rated but are determined by
the Adviser to be of comparable quality to the other obligations in which
the Fund may invest.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities
which may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities.
U.S. GOVERNMENT SECURITIES. The types of U.S. government securities in which
the Fund may invest generally include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes, and bonds) and obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities. These
securities are backed by:
- the full faith and credit of the U.S. Treasury;
- the issuer's right to borrow from the U.S. Treasury;
- the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
- the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
- Federal Farm Credit Banks;
- Federal Home Loan Banks;
- Federal National Mortgage Association;
- Student Loan Marketing Association; and
- Federal Home Loan Mortgage Corporation.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the original seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
securities of other investment companies, but it will not own more than 3% of
the total outstanding voting stock of any investment company, invest more than
5% of its total assets in any one investment company, or invest more than 10% of
its total assets in investment companies in general. The Fund will invest in
other investment companies primarily for the purpose of investing short-term
cash which has not yet been invested in other portfolio instruments. It should
be noted that investment companies incur certain expenses, such as management
fees and, therefore, any investment by the Fund in shares of another investment
company would be subject to such duplicate expenses. The Adviser will waive its
investment advisory fee on assets invested in securities of such investment
companies.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities up to one-third of the value of its total
assets, on a short-term or long-term basis, to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the Adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100% of the value of the securities loaned at all times.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, over-the-counter options, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.
PUT AND CALL OPTIONS. The Fund may purchase both put and call options on its
portfolio securities. These options will be used as a hedge to attempt to
protect securities which the Fund holds or will be purchasing against decreases
or increases in value. The Fund may purchase call and put options for the
purpose of offsetting previously written call options of the same series. If the
Fund is unable to effect a closing purchase transaction with respect to covered
options it has written, the Fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the options
expire or are exercised.
The Fund may also write covered call and put options on all or any portion of
its portfolio to generate income for the Fund. By writing a call option, the
Fund becomes obligated during the term of the option to deliver the securities
underlying the option upon payment of the exercise price. By writing a put
option, the Fund becomes obligated during the term of the option to purchase the
securities underlying the option at the exercise price if the option is expired.
The Fund will write call options on securities either held in its portfolio or
which it has the right to obtain without payment of further consideration or for
which it has segregated cash or U.S. government securities in the amount of any
additional consideration.
The Fund may purchase and write over-the-counter options on portfolio securities
in negotiated transactions with the buyers or writers of the options when
options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Adviser.
Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to hedge against the effect of changes in the value of portfolio
securities due to anticipated changes in interest rates and market conditions.
Futures contracts call for the delivery of particular instruments at a certain
time in the future. The seller of the contract agrees to make delivery of the
type of instrument called for in the contract, and the buyer agrees to take
delivery of the instrument at the specified future time.
Stock index futures contracts are based on indices that reflect the market value
of common stock of the firms included in the indices. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect securities in its portfolio against
decreases in value. When the Fund writes a call option on a futures contract, it
is undertaking the obligation of selling a futures contract at a fixed price at
any time during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, the Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option.
The Fund may also write put options and purchase call options on futures
contracts as a hedge against rising purchase prices of portfolio securities. The
Fund will use these transactions to attempt to protect its ability to purchase
portfolio securities in the future at price levels existing at the time it
enters into the transactions. When the Fund writes a put option on a futures
contract, it is undertaking to buy a particular futures contract at a fixed
price at any time during a specified period if the option is exercised. As a
purchaser of a call option on a futures contract, the Fund is entitled (but not
obligated) to purchase a futures contract at a fixed price at any time during
the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's net assets. When the Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contract is unleveraged. When the Fund sells
futures contracts, it will either own or have the right to receive the
underlying future or security, or will make deposits to collateralize the
position as discussed above.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the Adviser could be incorrect in its
expectations about the direction or extent of market factors such as stock
price movements. In these events, the Fund may lose money on the futures
contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the Adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will
exist for any particular futures contract or option at any particular time.
The Fund's ability to establish and close out futures and options positions
depends on this secondary market.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 10% of the value of its total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
See "Investment Objective and Policies" in the Statement of Additional
Information.
NEWPOINT FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF NEWPOINT FUNDS
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
of the powers of the Trust except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by First National Bank of Ohio, the
Fund's investment 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.
Both the Fund and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in
initial public offerings; and prohibit taking profits on securities held for
less than sixty days. Violations of the codes are subject to review by the Board
of Trustees, and could result in severe penalties.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.75 of 1% of the Fund's average daily net assets. The fee paid by
the Fund, while higher than the advisory fee paid by other mutual funds in
general, is comparable to fees paid by other mutual funds with similar
objectives and policies. The investment advisory contract provides for the
voluntary reimbursement of expenses by the Adviser to the extent any Fund
expenses exceed such lower expense limitation as the Adviser may, by notice
to the Fund, voluntarily declare to be effective. The Adviser can terminate
this voluntary reimbursement of expenses at any time at its sole
discretion. The Adviser has undertaken to reimburse the Fund for operating
expenses in excess of limitations established by certain states.
ADVISER'S BACKGROUND. First National Bank of Ohio, a national banking
association formed in 1947, is a wholly-owned subsidiary of FirstMerit
Corp. (formerly known as "First Bancorporation of Ohio"). Through its
subsidiaries and affiliates, FirstMerit Corp. offers a full range of
financial services to the public, including commercial lending, depository
services, cash management, brokerage services, retail banking, credit card
services, mortgage banking, investment advisory services, and trust
services.
As of December 31, 1995, the Trust Division of First National Bank of Ohio
had approximately $2.6 billion in assets under administration, of which it
had investment discretion over $1.1 billion. First National Bank of Ohio
has served as the Fund's investment adviser since the Fund's inception.
As part of its regular banking operations, First National Bank of Ohio may
make loans to public companies. Thus, it may be possible, from time to
time, for the Fund to hold or acquire the securities of issuers which are
also lending clients of First National Bank of Ohio. The lending
relationship will not be a factor in the selection of securities.
The portfolio manager of the Fund is Wesley C. Meinerding, a Vice President
and Trust Officer with First National Bank of Ohio. Mr. Meinerding manages
corporate and personal trust portfolios at First National Bank of Ohio.
Prior to joining FirstMerit Corp. in December 1982, Mr. Meinerding managed
trust and bank assets at First National Bank in Massillon, corporate and
personal trusts at Harter Bank and Trust, and pension assets at Firestone
Tire and Rubber Company. Mr. Meinerding has managed the Fund since the
Fund's inception.
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
distributor for a number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with
Investment Company Act Rule 12b-1 (the "Distribution Plan"), the Fund may pay to
the distributor an amount, computed at an annual rate of up to 0.25 of 1% of the
Fund's average daily net asset value, to finance any activity which is
principally intended to result in the sale of shares subject to the Distribution
Plan. The distributor
may select financial institutions such as banks, fiduciaries, custodians for
public funds, investment advisers, and broker/dealers to provide sales support
services as agents for their clients or customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Trustees
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Administrative Services
provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE NEWPOINT FUNDS
- --------------------- ------------------------------------
<S> <C>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$100,000 for the Fund. Federated Administrative Services may choose voluntarily
to waive a portion of its fee.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") with respect to shares of the Fund. Under the Services
Plan, financial institutions will enter into shareholder service agreements to
provide administrative support services to their customers who from time to time
may be owners of record or beneficial owners of shares of the Fund. In return
for providing these support services, a financial institution may receive
payments at a rate not exceeding 0.25 of 1% of the average daily net assets of
shares of the Fund beneficially owned by the financial institution's customers
for whom it is holder of record or with whom it has a servicing relationship.
These administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Fund; assisting clients in changing dividend options, account designations and
addresses; and providing such other services as the Fund reasonably requests.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Distribution and Shareholder Services Plans,
certain financial institutions may be compensated by the Adviser for the
continuing investment of their customers' assets in the Fund. These payments
will be made directly by the Adviser from its assets, and will not be made from
the assets of the Fund or by the assessment of a sales load on Fund shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling shares of the Fund. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of Trust expenses.
The expenses of the Fund include, but are not limited to, the cost of:
organizing the Trust and continuing its existence; Trustees' fees; investment
advisory and administrative services; printing prospectuses and other Fund
documents for shareholders; registering the Trust, the Fund, and shares of the
Fund; taxes and commissions; issuing, purchasing, repurchasing, and redeeming
shares; fees for custodians, transfer agents, dividend disbursing agents,
shareholder servicing agents, and registrars; printing, mailing, auditing,
accounting, and legal expenses; reports to shareholders and governmental
agencies; meetings of Trustees and shareholders and proxy solicitations
therefor; distribution fees; insurance premiums; association membership dues;
and such non-recurring and extraordinary items as may arise. However, the
Adviser may voluntarily reimburse the Fund the amount, up to the amount of the
advisory fee, by which operating expenses exceed limitations imposed by certain
states.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. In connection with qualified
account relationships in the Trust
Department of First National Bank of Ohio, Fund shares may be purchased by
telephone through procedures established with First National Bank of Ohio and
its affiliates. Individual investors may place orders to purchase shares either
by telephone or by mail. Texas residents should purchase shares of the Fund
through Federated Securities Corp. at 1-800-356-2805. In connection with the
sale of Fund shares, the distributor may from time to time offer certain items
of nominal value to any shareholder or investor. The Fund reserves the right to
reject any purchase request.
THROUGH FIRST NATIONAL BANK OF OHIO OR FIRSTMERIT SECURITIES, INC. Trust
customers placing an order to purchase shares of the Fund may open an account by
calling First National Bank of Ohio at 216-384-7300. Information needed to
establish the account will be taken over the telephone.
Individual investors placing an order to purchase shares of the Fund may
telephone FirstMerit Securities, Inc. at 216-384-7230. An account may be opened
by completing a new account application form available from FirstMerit
Securities, Inc., 4100 Embassy Parkway, Akron, Ohio 44333.
Payment may be made by check, transfer from an Automated Clearing House ("ACH")
member institution, federal funds or by debiting a customer's account at First
National Bank of Ohio. Purchase orders must be received by 3:30 p.m. (Eastern
time) in order for shares to be purchased at that day's price. Purchases by
check are considered received after payment by check is converted into federal
funds and is received by the Fund. When payment is made with federal funds, the
order is considered received when federal funds are received by the Fund. Shares
cannot be purchased on days on which the New York Stock Exchange is closed or on
federal holidays restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,000. Subsequent investments may
be in amounts of $100 or more. The Fund may waive the initial minimum investment
from time to time.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales load, as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES LOAD AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NEW AMOUNT INVESTED
- ------------------------------------------- ---------------------- --------------------
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million or more 0.00% 0.00%
</TABLE>
The net asset value is determined at 12:00 noon (Eastern time), 3:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are
received; and (iii) the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
PURCHASES AT NET ASSET VALUE. Shareholders who are trust customers of First
National Bank of Ohio and its subsidiaries are exempt from the sales load. In
addition, the following persons may purchase shares of the Fund at net asset
value, without a sales load: employees and retired employees of First National
Bank of Ohio, Federated Securities Corp., or their affiliates, or any bank or
investment dealer who has a sales agreement with Federated Securities Corp. with
regard to the Fund, and members of the families (including parents,
grandparents, siblings, spouses, children, aunts, uncles, and in-laws) of such
employees or retired employees.
SALES LOAD REALLOWANCE. For sales of shares of the Fund, a dealer will normally
receive up to 85% of the applicable sales load. Any portion of the sales load
which is not paid to a dealer will be retained by the distributor. The
distributor will, periodically, uniformly offer to pay cash or promotional
incentives in the form of trips to sales seminars at luxury resorts, tickets or
other items to all dealers selling shares of the Fund. Such payments will be
predicated upon the amount of shares of the Fund that are sold by the dealer.
The sales load for shares sold other than through registered broker/dealers will
be retained by the distributor. The distributor may pay fees to banks out of the
sales load in exchange for sales and/or administrative services performed on
behalf of the banks' customers in connection with the initiation of customer
accounts and purchases of Fund shares.
ELIMINATING OR REDUCING THE SALES LOAD
The sales load can be eliminated or reduced on the purchase of shares through:
- quantity discounts and accumulated purchases;
- signing a 13-month letter of intent; or
- using the reinvestment privilege.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table under "What
Shares Cost," larger purchases eliminate or reduce the sales load paid. The Fund
will combine purchases made on the same day by the investor, the investor's
spouse, and the investor's children under age 21 when it calculates the
applicable sales load. In addition, the sales load, if applicable, can be
eliminated or reduced for purchases made at one time by a trustee or fiduciary
for a single trust estate or a single fiduciary account.
If an additional purchase of Fund shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$90,000 and he purchases $10,000 more at the current public offering price, the
sales load on the additional purchase according to the schedule now in effect
would be 3.75%, not 4.50%.
To receive the sales load elimination or reduction, FirstMerit Securities, Inc.
or the distributor must be notified by the shareholder in writing at the time
the purchase is made that Fund shares are already owned or that purchases are
being combined. The Fund will reduce the sales load after it confirms the
purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
Fund shares over the next 13 months, the sales load may be eliminated or reduced
by signing a letter of intent to that effect. This letter of intent includes a
provision for a sales load adjustment depending on the amount actually purchased
within the 13-month period and a provision for the Fund's custodian to hold up
to 4.50% of the total amount intended to be purchased in escrow (in shares of
the Fund) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales load.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
load applicable to the total amount intended to be purchased. This letter may be
dated as of a prior date to include any purchases made within the past 90 days.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 60 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales load. First
National Bank of Ohio or the distributor must be notified by the shareholder in
writing or by his financial institution of the reinvestment in order to
eliminate a sales load. If the shareholder redeems his shares in the Fund, there
may be tax consequences. Shareholders contemplating such transactions should
consult their own tax advisers.
SYSTEMATIC INVESTMENT PROGRAM
Shareholders who are individual investors and have opened an account may add to
their investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account or by transfer from an ACH member institution and
invested in shares. A shareholder may apply for participation in this program
through FirstMerit Securities, Inc. Due to the fact that shares are sold with a
sales load, it is not advisable for shareholders to purchase shares while
participating in this program.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
shares of the Fund in a fiduciary, agency, custodial, or similar capacity may
charge or pass through subaccounting fees as part of or in addition to normal
trust or agency account fees. They may also charge fees for other services
provided which may be related to the ownership of Fund shares. This prospectus
should, therefore, be read together with any agreement between the customer and
the institution with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder and dividend confirmations are sent to each shareholder to report
dividends paid.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared and paid monthly. Dividends are declared just prior to
determining net asset value. Capital gains realized by the Fund, if any, will be
distributed at least once every 12 months. Dividends and capital gains will be
automatically reinvested in additional shares on payment dates at the
ex-dividend date net asset value without a sales load, unless cash payments are
requested by writing to the Fund or First National Bank of Ohio or FirstMerit
Securities, Inc., as appropriate.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
A shareholder may exchange shares of Newpoint Equity Fund for shares of Newpoint
Government Money Market Fund by calling or sending a written request to
FirstMerit Securities, Inc. In addition, shares of Newpoint Equity Fund may also
be exchanged for certain other funds distributed by Federated Securities Corp.
that are not advised by First National Bank of Ohio ("Federated Funds"). For
further information on the availability of Federated Funds for exchanges, call
FirstMerit Securities, Inc. Exchanges are subject to the minimum initial
investment requirements of the fund into which the exchange is being made. Prior
to any exchange, the shareholder must receive a copy of the current prospectus
of the fund into which an exchange is to be effected.
Shares may be exchanged at net asset value, plus the difference between the
Fund's sales load (if any) already paid and any sales load of the fund into
which Fund shares are to be exchanged, if higher.
When an exchange is made from a fund with a sales load to a fund with no sales
load, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales load would be at net asset
value.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore,
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege of any shareholder who makes more
than six exchanges of shares of the Fund in a year, or three in a calendar
quarter. Shareholders would be notified prior to any modification or
termination.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, Fund shares submitted for
exchange will be redeemed at the next-determined net asset value.
Written exchange instructions may require a signature guarantee. Exercise of
this privilege is treated as a sale for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The exchange privilege may be terminated at any time. Shareholders
will be notified of the termination of the exchange privilege. A shareholder may
obtain further information on the exchange privilege by calling FirstMerit
Securities, Inc. at 216-384-7230.
EXCHANGE-BY-TELEPHONE
Instructions for exchanges between portfolios which are part of the Newpoint
Funds may be given by telephone to FirstMerit Securities, Inc. at 216-384-7230.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations.
Orders for exchanges received prior to 3:30 p.m. (Eastern time) on any day that
the Fund is open for business will be executed as of the close of business that
day. Orders for exchanges received after 3:30 p.m. (Eastern time) on any
business day will be executed at the close of the next business day. The
telephone exchange privilege may be modified or terminated at any time.
Shareholders will be notified of such modification or termination.
Telephone exchange 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.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after First
National Bank of Ohio receives the redemption request. Redemptions will be made
on days on which the Fund computes its net asset value. Redemption requests
cannot be executed on days on which the New York Stock Exchange is closed or on
federal holidays when wire transfers are restricted. Requests for redemption can
be made in person or by telephone for Trust customers. Individual investors can
make requests for redemption in person, by telephone or by mail through
FirstMerit Securities, Inc.
THROUGH FIRST NATIONAL BANK OF OHIO OR FIRSTMERIT SECURITIES, INC.
BY TELEPHONE. A shareholder who is a Trust customer of First National Bank of
Ohio may redeem shares of the Fund by telephoning First National Bank of Ohio at
216-384-7300. A shareholder who is an individual investor/customer of FirstMerit
Securities, Inc. may redeem shares by telephoning 216-384-7230. For calls
received before 3:30 p.m. (Eastern time), proceeds will normally be wired the
following day to the shareholder's account at First National Bank of Ohio,
transferred through ACH to a member institution, or a check will be sent to the
address of record. In no event will proceeds be sent more than seven days after
a proper request for redemption has been received. An authorization form
permitting the Fund to accept telephone requests must first be completed.
Authorization forms and information on this service are available from
FirstMerit Securities, Inc. Telephone redemption instructions may be
electronically recorded. If reasonable procedures are not followed by the Fund,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be utilized, such as a written request to Federated
Services Company or FirstMerit Securities, Inc.
If, at any time, the Fund shall determine it necessary to terminate or modify
this method of redemption, shareholders would be promptly notified.
BY MAIL. Shares may also be redeemed by sending a written request to FirstMerit
Securities, Inc. Call FirstMerit Securities, Inc. for specific instructions
before redeeming by letter. The shareholder will be
asked to provide in the request his name, the Fund name, his account number, and
the share or dollar amount requested. If share certificates have been issued,
they must be properly endorsed and should be sent by registered or certified
mail with the written request.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Fund or a redemption payable other
than to the shareholder of record must have their signatures guaranteed by:
- a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the FDIC;
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the 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.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a Systematic
Withdrawal Program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. A shareholder may apply for
participation in this program through FirstMerit Securities, Inc. Depending upon
the amount of the withdrawal payments, the amount of dividends paid and capital
gains distributions with respect to Fund shares, and the fluctuation of the net
asset value of Fund shares redeemed under this program, redemptions may reduce,
and eventually deplete, the shareholder's investment in the Fund. For this
reason, payments under this program should not be considered as yield or income
on the shareholder's investment in the Fund. Due to the fact that shares are
sold with a sales load, it is not advisable for shareholders to be purchasing
shares of the Fund while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $1,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders of the Fund for vote. All shares of each
portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular portfolio, only shares of that portfolio are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or Fund's operation and for the election of Trustees under
certain circumstances. As of January 11, 1996, Parcol & Co., First National Bank
of Ohio, Akron, Ohio, owned approximately 2,063,144 shares (100%) of the Fund,
and therefore may, for certain purposes, be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Trustees may be removed by the shareholders at a special meeting. A special
meeting of the shareholders for this purpose shall be called by the Trustees
upon the written request of shareholders owning at least 10% of the outstanding
shares of all series of the Trust entitled to vote.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
from acting as investment adviser, transfer agent, or custodian to such an
investment company or from purchasing shares of such a company as agent for and
upon the order of their customers. The Fund's investment adviser First National
Bank of Ohio is subject to such banking laws and regulations.
First National Bank of Ohio believes, based on the advice of its counsel, 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 First National Bank of Ohio from continuing to perform all or a
part of the above services. If this happens, changes in the operation of the
Fund may occur, including the possible alteration or termination of any
automatic or other share investment or redemption services then being provided,
and the Trustees would consider alternative investment advisers and other means
of continuing available investment services. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. The Fund will provide detailed tax information for
reporting purposes.
STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information normally reflects the effect of the maximum sales
load which, if excluded, would increase the total return and yield.
From time to time, the Fund may advertise its performance using certain
financial publications and/ or compare its performance to certain indices.
NEWPOINT EQUITY FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--81.3%
- --------------------------------------------------------------------------------------
BASIC INDUSTRY--10.7%
-------------------------------------------------------------------
8,000 Aluminum Company of America $ 468,000
-------------------------------------------------------------------
4,000 Dow Chemical Co. 283,500
-------------------------------------------------------------------
8,000 Eastman Chemical Co. of Wisconsin 525,000
-------------------------------------------------------------------
6,750 Engelhard Corp. 157,781
-------------------------------------------------------------------
4,000 International Paper Co. 152,500
-------------------------------------------------------------------
3,500 Monsanto Co. 400,750
-------------------------------------------------------------------
6,000 Rockwell International Corp. 294,000
-------------------------------------------------------------------
40,000 Santa Fe Pacific Gold Corp. 480,000
------------------------------------------------------------------- -----------
Total 2,761,531
------------------------------------------------------------------- -----------
CAPITAL GOODS--9.2%
-------------------------------------------------------------------
8,000 Baker Hughes, Inc. 163,000
-------------------------------------------------------------------
8,000 Briggs & Stratton Corp. 333,000
-------------------------------------------------------------------
1,900 Caterpillar, Inc. 116,613
-------------------------------------------------------------------
9,000 Deere & Co. 295,875
-------------------------------------------------------------------
6,000 Dover Corp. 233,250
-------------------------------------------------------------------
3,100 General Electric Co. 208,475
-------------------------------------------------------------------
4,000 Halliburton Co. 173,500
-------------------------------------------------------------------
15,000 * Ionics, Inc. 648,750
-------------------------------------------------------------------
3,000 Schlumberger Ltd. 190,500
------------------------------------------------------------------- -----------
Total 2,362,963
------------------------------------------------------------------- -----------
CAPITAL GOODS TECHNOLOGY--16.6%
-------------------------------------------------------------------
5,000 AMP, Inc. 200,625
-------------------------------------------------------------------
3,000 Apple Computer 114,375
-------------------------------------------------------------------
2,000 * Applied Materials, Inc. 97,250
-------------------------------------------------------------------
3,000 Automatic Data Processing, Inc. 238,875
-------------------------------------------------------------------
</TABLE>
NEWPOINT EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
CAPITAL GOODS TECHNOLOGY--CONTINUED
-------------------------------------------------------------------
3,500 Avnet, Inc. $ 164,500
-------------------------------------------------------------------
3,500 Boeing Co. 255,063
-------------------------------------------------------------------
7,000 * Compaq Computer Corp. 346,500
-------------------------------------------------------------------
4,000 Diebold, Inc. 229,500
-------------------------------------------------------------------
4,000 Hewlett-Packard Co. 331,500
-------------------------------------------------------------------
9,000 Intel Corp. 547,875
-------------------------------------------------------------------
6,000 Micron Technology, Inc. 328,500
-------------------------------------------------------------------
1,000 * Microsoft Corp. 87,125
-------------------------------------------------------------------
6,000 Motorola, Inc. 367,500
-------------------------------------------------------------------
5,400 Raytheon Co. 240,300
-------------------------------------------------------------------
7,000 * Silicon Graphics, Inc. 255,500
-------------------------------------------------------------------
8,000 * Storage Technology Corp. 198,000
-------------------------------------------------------------------
3,000 United Technologies Corp. 281,250
------------------------------------------------------------------- -----------
Total 4,284,238
------------------------------------------------------------------- -----------
CONSUMER CYCLICAL--6.3%
-------------------------------------------------------------------
4,000 Armstrong World Industries, Inc. 239,500
-------------------------------------------------------------------
5,000 Chrysler Corp. 259,375
-------------------------------------------------------------------
4,000 Eastman Kodak Co. 272,000
-------------------------------------------------------------------
3,700 General Motors Corp. 179,450
-------------------------------------------------------------------
5,000 General Motors Corp., Class E 252,500
-------------------------------------------------------------------
7,000 Nike, Inc., Class B 406,000
------------------------------------------------------------------- -----------
Total 1,608,825
------------------------------------------------------------------- -----------
CONSUMER GROWTH STAPLES--17.4%
-------------------------------------------------------------------
4,000 American Home Products Corp. 365,000
-------------------------------------------------------------------
10,000 * Amgen, Inc. 496,250
-------------------------------------------------------------------
4,000 Coca-Cola Co. 303,000
-------------------------------------------------------------------
3,500 Columbia/HCA Healthcare Corp. 180,687
-------------------------------------------------------------------
</TABLE>
NEWPOINT EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
CONSUMER GROWTH STAPLES--CONTINUED
-------------------------------------------------------------------
2,000 Eli Lilly & Co. $ 199,000
-------------------------------------------------------------------
8,000 Gillette Co. 415,000
-------------------------------------------------------------------
8,000 McDonalds Corp. 357,000
-------------------------------------------------------------------
9,000 Medtronic, Inc. 493,875
-------------------------------------------------------------------
3,400 Merck & Co., Inc. 210,375
-------------------------------------------------------------------
8,000 * Officemax Inc. 182,000
-------------------------------------------------------------------
16,600 * Perrigo Co. 217,875
-------------------------------------------------------------------
4,000 Pfizer, Inc. 232,000
-------------------------------------------------------------------
3,400 Schering Plough Corp. 195,075
-------------------------------------------------------------------
11,000 * Thermo Cardiosystems, Inc. 642,125
------------------------------------------------------------------- -----------
Total 4,489,262
------------------------------------------------------------------- -----------
CONSUMER STAPLES--4.7%
-------------------------------------------------------------------
3,100 CPC International, Inc. 213,125
-------------------------------------------------------------------
5,100 Heinz (H.J.) Co. 162,562
-------------------------------------------------------------------
2,500 Procter & Gamble Co. 215,937
-------------------------------------------------------------------
4,500 Sara Lee Corp. 145,125
-------------------------------------------------------------------
7,000 Seagram Co. Ltd. 255,500
-------------------------------------------------------------------
8,000 Walgreen Co. 233,000
------------------------------------------------------------------- -----------
Total 1,225,249
------------------------------------------------------------------- -----------
ENERGY--4.6%
-------------------------------------------------------------------
3,400 Exxon Corp. 263,075
-------------------------------------------------------------------
11,000 Horsham Corp. 149,875
-------------------------------------------------------------------
5,000 Mobil Corp. 521,875
-------------------------------------------------------------------
2,000 Royal Dutch Pete Co. 256,750
------------------------------------------------------------------- -----------
Total 1,191,575
------------------------------------------------------------------- -----------
</TABLE>
NEWPOINT EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
FINANCIAL--6.6%
-------------------------------------------------------------------
4,500 American International Group, Inc. $ 403,875
-------------------------------------------------------------------
2,600 Banc One Corp. 99,125
-------------------------------------------------------------------
8,000 Federal Home Loan Mtg Corp. 616,000
-------------------------------------------------------------------
3,400 NationsBank Corp. 242,675
-------------------------------------------------------------------
8,800 PNC Bank Corp. 257,400
-------------------------------------------------------------------
10,000 Reliance Group Holdings, Inc. 88,750
------------------------------------------------------------------- -----------
Total 1,707,825
------------------------------------------------------------------- -----------
TRANSPORTATION--1.4%
-------------------------------------------------------------------
4,000 CSX Corp. 350,500
-------------------------------------------------------------------
UTILITIES--3.8%
-------------------------------------------------------------------
10,000 * Airtouch Communications, Inc. 291,250
-------------------------------------------------------------------
4,000 Consolidated Natural Gas Co. 177,500
-------------------------------------------------------------------
5,000 MCI Communications Corp. 133,750
-------------------------------------------------------------------
7,000 Questar Corp. 226,625
-------------------------------------------------------------------
3,000 SBC Communications, Inc. 162,000
------------------------------------------------------------------- -----------
Total 991,125
------------------------------------------------------------------- -----------
TOTAL COMMON STOCKS (IDENTIFIED COST $16,212,478) 20,973,093
------------------------------------------------------------------- -----------
</TABLE>
NEWPOINT EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
**REPURCHASE AGREEMENTS--18.8%
- --------------------------------------------------------------------------------------
4,852,000 National City Bank, 5.85%, dated 11/30/1995, due 12/1/1995
(AT AMORTIZED COST) $ 4,852,000
------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $21,064,478) $25,825,093+
------------------------------------------------------------------- -----------
</TABLE>
* Non-income producing securities.
** The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $21,064,478. The
net unrealized appreciation of investments on a federal tax cost basis
amounts to $4,760,615, which is comprised of $4,932,211 appreciation and
$171,596 depreciation at November 30, 1995.
Note: The categories of investments are shown as a percentage of net assets
($25,802,560) at November 30, 1995.
(See Notes which are an integral part of the Financial Statements)
NEWPOINT EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in repurchase agreements $ 4,852,000
- -----------------------------------------------------------------
Investments in other securities 20,973,093
- ----------------------------------------------------------------- -----------
Total Investments in securities, at value
(identified and tax cost $21,064,478) $25,825,093
- -------------------------------------------------------------------------------
Cash 680
- -------------------------------------------------------------------------------
Income receivable 43,595
- -------------------------------------------------------------------------------
Receivable for shares sold 2,267
- ------------------------------------------------------------------------------- -----------
Total assets 25,871,635
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Accrued expenses 69,075
- ----------------------------------------------------------------- -----------
Total liabilities 69,075
- ------------------------------------------------------------------------------- -----------
Net Assets for 2,033,868 shares outstanding $25,802,560
- ------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------
Paid in capital $20,731,513
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,760,615
- -------------------------------------------------------------------------------
Accumulated net realized gain on investments 305,031
- -------------------------------------------------------------------------------
Undistributed net investment income 5,401
- ------------------------------------------------------------------------------- -----------
Total Net Assets $25,802,560
- ------------------------------------------------------------------------------- -----------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per
Share:
- -------------------------------------------------------------------------------
Net Asset Value Per Share ($25,802,560 / 2,033,868 shares outstanding) $12.69
- ------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/95.50 of $12.69)* $13.29
- ------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
NEWPOINT EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Dividends $ 311,549
- -----------------------------------------------------------------------------------
Interest 166,812
- ----------------------------------------------------------------------------------- ----------
Total income 478,361
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $ 152,062
- ----------------------------------------------------------------------
Administrative personnel and services fee 99,999
- ----------------------------------------------------------------------
Custodian fees 21,684
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 23,877
- ----------------------------------------------------------------------
Directors'/Trustees' fees 2,380
- ----------------------------------------------------------------------
Auditing fees 14,385
- ----------------------------------------------------------------------
Legal fees 5,992
- ----------------------------------------------------------------------
Portfolio accounting fees 43,577
- ----------------------------------------------------------------------
Share registration costs 21,679
- ----------------------------------------------------------------------
Printing and postage 8,344
- ----------------------------------------------------------------------
Insurance premiums 5,058
- ----------------------------------------------------------------------
Miscellaneous 5,220
- ---------------------------------------------------------------------- ---------
Total expenses 404,257
- ----------------------------------------------------------------------
Waiver and reimbursements--
- ----------------------------------------------------------------------
Waiver of investment advisory fee $(104,787)
- ---------------------------------------------------------- ---------
Net expenses 299,470
- ----------------------------------------------------------------------------------- ----------
Net investment income 178,891
- ----------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------
Net realized gain on investments 305,031
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 5,022,005
- ----------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 5,327,036
- ----------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $5,505,927
- ----------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEWPOINT EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------
1995 1994*
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------
Net investment income $ 178,891 $ 55,497
- ----------------------------------------------------------------
Net realized gain (loss) on investments
($305,031 and $0, respectively, as computed for federal tax
purposes) 305,031 --
- ----------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 5,022,005 (261,390)
- ---------------------------------------------------------------- ----------- -----------
Change in net assets resulting from operations 5,505,927 (205,893)
- ---------------------------------------------------------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------
Distributions from net investment income (179,687) (49,300)
- ----------------------------------------------------------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------
Proceeds from sale of shares 9,177,923 11,906,802
- ----------------------------------------------------------------
Cost of shares redeemed (316,027) (37,185)
- ---------------------------------------------------------------- ----------- -----------
Change in net assets resulting from share transactions 8,861,896 11,869,617
- ---------------------------------------------------------------- ----------- -----------
Change in net assets 14,188,136 11,614,424
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 11,614,424 --
- ---------------------------------------------------------------- ----------- -----------
End of period (including undistributed net investment income of
$5,401 and $6,197, respectively) $25,802,560 $11,614,424
- ---------------------------------------------------------------- ----------- -----------
</TABLE>
* For the period from August 30, 1994 (date of initial public investment) to
November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
NEWPOINT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Newpoint Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end, management investment company. The
Trust consists of two portfolios, the Newpoint Equity Fund and the Newpoint
Government Money Market Fund. The financial statements included herein are only
those of Newpoint Equity Fund (the "Fund"), a diversified portfolio. The
financial statements of the other portfolio are presented separately. The assets
of each portfolio are segregated and a shareholder's interest is limited to the
portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.
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 under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
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 the guidelines and/or
standards reviewed or established by the Board of Trustees (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.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code").
NEWPOINT EQUITY FUND
- --------------------------------------------------------------------------------
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- ------------------
<S> <C> <C>
- --------------------------------------------------
Shares sold 872,874 1,191,903
- --------------------------------------------------
Shares redeemed (27,157) (3,752)
- -------------------------------------------------- ------------- --------------
Net change resulting from share transactions 845,717 1,188,151
- -------------------------------------------------- ------------- --------------
</TABLE>
* For the period from August 30, 1994 (start of business) to November 30, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--First National Bank of Ohio, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to .75 of 1% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive a portion of its fee and/or reimburse
certain operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
TRANSFER AND DIVIDEND DISBURSING AGENT AND PORTFOLIO ACCOUNTING FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. This fee is based on the size, type, and number of accounts and
transactions made by shareholders.
FServ also maintains the Trust's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average daily net assets for the
period, plus out-of-pocket expenses.
NEWPOINT EQUITY FUND
- --------------------------------------------------------------------------------
ORGANIZATIONAL EXPENSES--Organizational expenses of $35,000 were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following effective date. For the period ended
November 30, 1995, the Fund paid $2,917 pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended November 30, 1995, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $12,828,042
- ------------------------------------------------------------------------------- -----------
SALES $ 6,038,247
- ------------------------------------------------------------------------------- -----------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
NEWPOINT FUNDS
(Newpoint Equity Fund):
We have audited the accompanying statement of assets and liabilities of Newpoint
Equity Fund (an investment portfolio of Newpoint Funds, a Massachusetts business
trust), including the schedule of portfolio investments, as of November 30,
1995, and the related statements of operations for the year then ended and
changes in net assets, and the financial highlights (see page 2 of the
prospectus) for the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Newpoint Equity Fund, an investment portfolio of Newpoint Funds, as of November
30, 1995, and the results of its operations for the year then ended and the
changes in net assets, and the financial highlights for the periods presented,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
January 12, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Newpoint Equity Fund
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
First National Bank of Ohio 121 South Main Street
Akron, Ohio 44308-1440
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
and Portfolio Accounting Services
Federated Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEWPOINT EQUITY FUND
(A PORTFOLIO OF NEWPOINT FUNDS)
PROSPECTUS
A Open-end, Diversified
Management Investment Company
January 31, 1996
LOGO
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
CUSIP 651722209
G00580-01 (1/96)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEWPOINT EQUITY FUND
A PORTFOLIO OF NEWPOINT FUNDS
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus
of the Newpoint Equity Fund (the "Fund" ) dated January 31, 1996. This
Statement is not a prospectus itself. To receive a copy of the prospectus,
write to First National Bank of Ohio, 121 South Main Street, Akron, Ohio
44308-1440.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1996
First National Bank of Ohio,
Investment Adviser
FEDERATED SECURITIES
CORP.
Distributor
A subsidiary of
Federated Investors
GENERAL INFORMATION ABOUT THE FUND1
INVESTMENT OBJECTIVE AND POLICIES1
CONVERTIBLE SECURITIES 1
ZERO COUPON SECURITIES 1
WARRANTS 2
INTERNATIONAL SECURITIES 2
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 2
REPURCHASE AGREEMENTS 3
RESTRICTED AND ILLIQUID
SECURITIES 3
FUTURES AND OPTIONS TRANSACTIONS3
FUTURES CONTRACTS 3
"MARGIN" IN FUTURES TRANSACTIONS4
PUT OPTIONS ON FINANCIAL FUTURES
CONTRACTS 4
STOCK INDEX OPTIONS 4
CALL OPTIONS ON FINANCIAL FUTURES
CONTRACTS 5
PURCHASING PUT AND CALL OPTIONS
ON PORTFOLIO SECURITIES 5
WRITING COVERED PUT AND CALL
OPTIONS ON PORTFOLIO SECURITIES5
OVER-THE-COUNTER OPTIONS 5
REVERSE REPURCHASE AGREEMENTS 5
PORTFOLIO TURNOVER 6
INVESTMENT LIMITATIONS 6
NEWPOINT FUNDS MANAGEMENT 8
FUND OWNERSHIP 12
TRUSTEES COMPENSATION 13
TRUSTEE LIABILITY 13
INVESTMENT ADVISORY SERVICES 14
ADVISER TO THE FUND 14
ADVISORY FEES 14
OTHER SERVICES 14
FUND ADMINISTRATION 14
CUSTODIAN AND PORTFOLIO
RECORDKEEPER 14
TRANSFER AGENT 14
INDEPENDENT PUBLIC ACCOUNTANTS 14
BROKERAGE TRANSACTIONS 15
PURCHASING SHARES 15
DISTRIBUTION AND SHAREHOLDER
SERVICES PLANS 15
CONVERSION TO FEDERAL FUNDS 15
DETERMINING NET ASSET VALUE 16
DETERMINING MARKET VALUE OF
SECURITIES 16
TRADING IN FOREIGN SECURITIES 16
REDEEMING SHARES 16
REDEMPTION IN KIND 16
MASSACHUSETTS PARTNERSHIP LAW 17
TAX STATUS 17
THE FUND'S TAX STATUS 17
FOREIGN TAXES 17
SHAREHOLDERS' TAX STATUS 17
TOTAL RETURN 17
YIELD 18
PERFORMANCE COMPARISONS 18
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in Newpoint Funds (the "Trust"), which was established
as a Massachusetts business trust under a Declaration of Trust dated November
12, 1990. Effective January 31, 1995, the Trust changed its name from "Portage
Funds" to "Newpoint Funds." The Declaration of Trust permits the Trust to offer
separate series of shares of beneficial interest representing interests in
separate portfolios of securities.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve growth of capital and income. The
investment objective cannot be changed without the approval of shareholders. The
policies described below may be changed by the Board of Trustees (the
"Trustees") without shareholder approval. Shareholders will be notified before
any material change in these policies becomes effective.
CONVERTIBLE SECURITIES
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used, in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar non-convertible securities of the same
company. The interest income and dividends from convertible bonds and preferred
stocks provide a stable stream of income with generally higher yields than
common stocks, but lower than non-convertible securities of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances where, in the
opinion of First National Bank of Ohio, the Fund's investment adviser (the
"Adviser"), the investment characteristics of the underlying common shares will
assist the Fund in achieving its investment objective. Otherwise, the Fund will
hold or trade the convertible securities. In selecting convertible securities
for the Fund, the Adviser evaluates the investment characteristics of the
convertible security as a fixed income instrument and the investment potential
of the underlying equity security for capital appreciation. In evaluating these
matters with respect to a particular convertible security, the Adviser considers
numerous factors, including the economic and political outlook, the value of the
security relative to other investment alternatives, trends in the determinants
of the issuer's profits, and the issuer's management capability and practices.
ZERO COUPON SECURITIES
The Fund may invest in zero coupon bonds and zero coupon convertible securities,
whose prices are more sensitive to fluctuations in interest rates than are
conventional bonds and convertible securities. The Fund may invest in zero
coupon bonds in order to receive the rate of return through the appreciation of
the bond. This application is extremely attractive in a falling rate environment
as the price of the bond rises rapidly in value as opposed to regular coupon
bonds. A zero coupon bond makes no periodic interest payments and the entire
obligation becomes due only upon maturity.
Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities accretes at a stated yield until the security reaches its
face amount at maturity. Zero coupon convertible securities are convertible into
a specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the holder
with the opportunity to sell the bonds back to the issuer at a stated price
before maturity.
Federal tax law requires the holder of a zero coupon security to recognize
income from the security prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for federal
income taxes, the Fund will be required to distribute income accrued from zero
coupon securities which it owns, and may have to sell portfolio securities
(perhaps at disadvantageous times) in order to generate cash to satisfy these
distribution requirements.
WARRANTS
The Fund may invest in warrants. Warrants provide an option to purchase common
stock at a specific price (usually at a premium above the market value of the
optioned common stock at issuance) valid for a specific period of time. Warrants
may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
underlying common stock. The Fund will not invest more than 5% of the value of
its total assets in warrants. No more than 2% of this 5% may be in warrants
which are not listed on the New York or American Stock Exchanges. Warrants
acquired in units or attached to securities may be deemed to be without value
for purposes of this policy.
INTERNATIONAL SECURITIES
The international equity securities in which the Fund may invest include
international stocks traded domestically or abroad through various stock
exchanges, American Depositary Receipts ("ADRs"), and International Depositary
Receipts ("IDRs"). The international fixed income securities will include ADRs,
IDRs, and government securities of other nations, and will be rated investment
grade (i.e., Baa or better by Moody's Investors Service, Inc. or BBB or better
by Standard and Poor's Rating Group) or deemed by the Adviser to be of an
equivalent quality. In the event that an international debt security which had
an eligible rating when purchased is downgraded below the ratings of Baa or BBB,
the Adviser will promptly reassess whether continued holding of the security is
consistent with the Fund's objective. The Fund may also invest in shares of
open-end and closed-end management investment companies which invest primarily
in international securities described above.
Investing in foreign securities carries substantial risks in addition to those
associated with domestic investments. Foreign securities may be denominated in
foreign currencies. Therefore, the value in U.S. dollars of the Fund's assets
and income may be affected by changes in exchange rates and regulations.
Although the Fund values its assets daily in U.S. dollars, it will not convert
its holding of foreign currencies to U.S. dollars daily. When the Fund converts
its holdings to another currency, it may incur currency conversion costs.
Foreign exchange dealers realize a profit on the difference between the prices
at which they buy and sell currencies.
Other differences between investing in foreign and U.S. companies include:
o less publicly available information about foreign companies;
o the lack of uniform financial accounting standards applicable to foreign
companies;
o less readily available market quotations on foreign companies;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o generally lower foreign stock market volume;
o the likelihood that foreign securities may be less liquid or more volatile;
o generally higher foreign brokerage commissions;
o possible difficulty in enforcing contractual obligations or obtaining court
judgments abroad because of differences in the legal systems;
o unreliable mail service between countries; and
o political or financial changes which adversely affect investments in some
countries.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Adviser to be
creditworthy pursuant to guidelines established by the Trustees.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933 (the "Rule"). The Rule is a non-exclusive safe-harbor for certain
secondary market transactions involving registration for resales of otherwise
restricted securities to qualified institutional buyers. The Rule was expected
to further enhance the liquidity of the secondary market for securities eligible
for resale under the Rule. The Fund believes that the staff of the SEC has left
the question of determining the liquidity of all restricted securities to the
Trustees. The Trustees may consider the following criteria in determining the
liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933 and treats
such commercial paper as liquid. Section 4(2) commercial paper is restricted as
to disposition under federal securities law and is generally sold to
institutional investors, such as the Fund, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Fund through or with the assistance of the issuer or investment dealers who make
a market in Section 4(2) commercial paper, thus providing liquidity.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts, buying put and call options on
portfolio securities and put options on financial futures contracts, and writing
call options on futures contracts. The Fund may also write covered call options
on its portfolio securities and covered put options to attempt to increase its
current income. The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position on financial futures
contracts may be closed out over-the-counter or on a nationally recognized
exchange which provides a secondary market for options of the same series.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to hedge against the
effects of changes in the value of portfolio securities due to anticipated
changes in interest rates and market conditions without necessarily buying or
selling the securities. The Fund also may purchase and sell stock index futures
to hedge against changes in prices. The Fund will not engage in futures
transactions for speculative purposes.
A futures contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future. For example, in the fixed income
securities market, prices move inversely to interest rates. A rise in rates
means a drop in price. Conversely, a drop in rates means a rise in price. In
order to hedge its holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the possibility
that the prices of its fixed income securities may decline during the Fund's
anticipated holding period. The Fund would "go long" (agree to purchase
securities in the future at a predetermined price) to hedge against a decline in
market interest rates.
Stock index futures contracts are based on indices that reflect the market value
of common stock of the firms included in the indices. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that initial margin in futures transactions does not involve the
borrowing of funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the Fund will
mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts to
protect portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price.
Generally, if the hedged portfolio securities decrease in value during the term
of an option, the related futures contracts will also decrease in value and the
option will increase in value. In such an event, the Fund will normally close
out its option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be large
enough to offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the position.
To do so, it would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in return
for payment of the strike price. If the Fund neither closes out nor exercises an
option, the option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national securities
exchanges or traded in the over-the-counter market. A stock index fluctuates
with changes in the market values of the stocks included in the index.
The effectiveness of purchasing stock index options will depend upon the extent
to which price movements in the Fund's portfolio correlate with price movements
of the stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular stock,
whether the Fund will realize a gain or loss from the purchase of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Fund of options on stock indices will be subject to the
ability of the Adviser to predict correctly movements in the directions of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed and
over-the-counter call options on financial futures contracts to hedge its
portfolio against an increase in market interest rates. When the Fund writes a
call option on a futures contract, it is undertaking the obligation of assuming
a short futures position (selling a futures contract) at the fixed strike price
at any time during the life of the option if the option is exercised. As stock
prices fall or market interest rates rise, causing the prices of futures to go
down, the Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call option
position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that the
Fund keeps the premium received for the option. This premium can substantially
offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by the
buyer, the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium income of the Fund
will then substantially offset the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the value
of the open positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put and call options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put option
gives the Fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of the
option. A call option gives the Fund, in return for a premium, the right to buy
the underlying securities from the seller.
WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered put and call options to generate income and
thereby protect against price movements in particular securities in the Fund's
portfolio. As the writer of a call option, the Fund has the obligation upon
exercise of the option during the option period to deliver the underlying
security upon payment of the exercise price. As the writer of a put option, the
Fund has the obligation to purchase a security from the purchaser of the option
upon the exercise of the option.
The Fund may only write call options either on securities held in its portfolio
or on securities which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any additional
consideration). In the case of put options, the Fund will segregate cash or U.S.
Treasury obligations with a value equal to or greater than the exercise price of
the underlying securities.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio securities
in negotiated transactions with the buyers or writers of the options when
options on the portfolio securities held by the Fund are not traded on an
exchange.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund in a
dollar amount sufficient to make payment for the obligations to be purchased are
segregated at the trade date. These securities are marked to market daily and
are maintained until the transaction is settled.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking short-
term profits, securities in its portfolio will be sold whenever the Adviser
believes it is appropriate to do so in light of the Fund's investment objective,
without regard to the length of time a particular security may have been held.
For the period from November 30, 1994 to November 30, 1995, the Fund's portfolio
turnover rate was 35%.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options transactions is not considered the
purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed;
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the Fund by enabling the
Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value of
total assets at the time of the pledge. For purposes of this limitation,
the following will not be deemed to be pledges of the Fund's assets: (a)
the deposit of assets in escrow in connection with the writing of covered
put or call options and the purchase of securities on a when-issued basis;
and (b) collateral arrangements with respect to (i) the purchase and sale
of stock options (and options on stock indices) and (ii) initial or
variation margin for futures contracts. Margin deposits for the purchase
and sale of futures contracts and related options are not deemed to be a
pledge.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer, and will not acquire more than 10% of the outstanding voting
securities of any one issuer.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that the Fund may engage
in transactions involving financial futures contracts or options on
financial futures contracts.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the Fund
from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the Trust's
Declaration of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry (other than securities issued by the U.S. government, its
agencies or instrumentalities).
The above investment limitations cannot be changed without shareholder approval.
The following investment limitations may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers with records of less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Adviser, owning individually more
than 1/2 of 1% of the issuer's securities, together own more than 5% of the
issuer's securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no more
than 3% of the total outstanding voting stock of any investment company,
invest no more than 5% of its total assets in any one investment company,
and invest no more than 10% of its total assets in investment companies in
general. The Fund will purchase securities of investment companies only in
open-market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, or acquisition of assets.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 5% of the value of its total assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed time
deposits with maturities over seven days, over-the-counter options, and
certain restricted securities not determined by the Trustees to be liquid.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of the value of its net assets in
warrants. No more than 2% of this 5% may be warrants which are not listed
on the New York Stock or American Stock Exchanges.
INVESTING IN OPTIONS
The Fund will not purchase put or call options on securities or futures
contracts if more than 5% of the value of the Fund's total assets would be
invested in premiums on open option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its total assets in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan association having capital, surplus, and undivided profits
in excess of $100,000,000 at the time of investment to be "cash items."
To comply with registration requirements in certain states, the Fund (1) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (2) will
limit the premiums paid for options purchased by the Fund to 5% of its net
assets, and (3) will limit the margin deposits on futures contracts entered into
by the Fund to 5% of its net assets. (If state requirements change, these
restrictions may be revised without shareholder notification.)
NEWPOINT FUNDS MANAGEMENT
Officers and Trustees are listed with their addresses, principal occupations,
and present positions.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Executive Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr.
Donahue is the son of John F. Donahue, Chairman of the Company.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; President, Executive Vice
President and Treasurer of some of the Funds.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and Secretary of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Trust's Executive Committee. The Executive Committee of
the Board of Trustees handles the responsibilities of the Board of
Trustees between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FTI Funds;
Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term
U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 3-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; RIMCO Monument Funds; Star Funds; The Starburst Funds; The
Starburst Funds II; Stock and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free
Instruments Trust; Trust for Financial Institutions; Trust For Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; The Virtus Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 6, 1996, the following shareholders of record owned 5% or more of
the outstanding shares of the Fund: Parcol and Co., Akron, OH, owned
approximately 2,063,234 shares (100%).
TRUSTEES COMPENSATION
NAME , AND AGGREGATE
POSITION WITH THE COMPENSATION FROM
TRUST THE TRUST+
John F. Donahue,
Chairman and Trustee $ -0-
Thomas G. Bigley,
Trustee $1,068.00
John T. Conroy, Jr.,
Trustee $1,170.00
William J. Copeland,
Trustee $1,170.00
J. Christopher Donahue
Trustee $ -0-
James E. Dowd,
Trustee $1,170.00
Lawrence D. Ellis, M.D.,
Trustee $1,068.00
Edward L. Flaherty, Jr.,
Trustee $1,170.00
Edward C. Gonzales,
President and Trustee $ -0-
Peter E. Madden,
Trustee $1,068.00
Gregor F. Meyer,
Trustee $1,068.00
John E. Murray, Jr.
Trustee $1,068.00
Wesley W. Posvar,
Trustee $1,068.00
Marjorie P. Smuts,
Trustee $1,068.00
+The aggregate compensation is paid by the Trust, which is comprised of two
portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will only be liable
for their own willful defaults. If reasonable care has been exercised in the
selection of officers, agents, employees, or investment advisers, a Trustee
shall not be liable for any neglect or wrongdoing of any such person. However,
they are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is First National Bank of Ohio. It is a wholly-
owned subsidiary of FirstMerit Corp. Because of the internal controls maintained
by First National Bank of Ohio to restrict the flow of non-public information,
Fund investments are typically made without any knowledge of First National Bank
of Ohio's or its affiliates' lending relationships with an issuer.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. For the fiscal year ended November 30,
1995, and for the period from September 13, 1994 (date of initial public
investment) to November 30, 1994, the Adviser earned $152,062, and $17,604,
respectively, of which $123,730, and $17,604, respectively, were voluntarily
waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2 1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1 1/2% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the amount
of the excess, subject to an annual adjustment. If the expense limitation
is exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, 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 November 30, 1995, and for the period
from September 13, 1994 (date of initial public investment) to November 30,
1994, the Administrator earned $99,999, and $21,370, respectively, of which $0
and $17,000 ,was voluntarily waived.
CUSTODIAN AND PORTFOLIO RECORDKEEPER
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund.
TRANSFER AGENT
Federated Services Company, Boston, MA, a subsidiary of Federated Investors, is
transfer agent and dividend disbursing agent for the Fund. It also provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the adviser or its affiliates in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The adviser and its
affiliates exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
During the fiscal year ended 1995, and for the period from September 13, 1994
(date of initial public investment) to November 30, 1994, the Fund paid total
brokerage commissions of $20,651, and $22,352, respectively.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, shares of the
Fund are sold at their net asset value plus a sales charge, if any, on days the
New York Stock Exchange and the Federal Reserve Wire System are open for
business. The procedure for purchasing shares of the Fund is explained in the
prospectus under "Investing in the Fund."
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS
These arrangements permit the payment of fees to financial institutions and the
distributor to stimulate distribution activities and to cause services to be
provided to shareholders by a representative who has knowledge of the
shareholder's particular circumstances and goals. These activities and services
may include, but are not limited to: marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory, computer,
and other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing dividend
options, account designations, and addresses.
By adopting the distribution plan, the Trustees expect that the Fund will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying potential
investors whose needs are served by the Fund's objectives, and properly
servicing these accounts, it may be possible to curb sharp fluctuations in rates
of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended November 30, 1995, Federated Securities Corp. earned
distribution fees of $23,877, none of which were waived; and for the period from
September 13, 1994, (date of initial public investment) to November 30, 1994,
$5,868 in distribution fees were earned, all of which were voluntarily waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. First National Bank of Ohio
and Federated Services Company acts as the shareholder's agent in depositing
checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
The net asset value generally changes each day. The days on which the net asset
value is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a national
securities exchange, if applicable;
o in the absence of recorded sales for listed equity securities, according to
the mean between the last closing bid and asked prices;
o for unlisted equity securities, latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of 60 days or less at the time of
purchase, at amortized cost; or
o for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
options trading on such exchanges, unless the Trustees determine in good faith
that another method of valuing option positions is necessary.
Over-the-counter put options will be valued at the mean between the bid and the
asked prices. Covered call options will be valued at the last sale price on the
national exchange on which such option is traded. Unlisted call options will be
valued at the latest bid price as provided by brokers.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing its net asset value, the
Fund values foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Trustees, although the actual calculation may be done by
others.
REDEEMING SHARES
Shares are redeemed at the next computed net asset value after First National
Bank of Ohio receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Shares." Redemption requests cannot
be executed on days on which the New York Stock Exchange is closed or on federal
holidays when wire transfers are restricted.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Fund will pay all
or a portion of the remainder of the redemption in portfolio instruments, valued
in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument the Trust or
its Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required by the Declaration of Trust to
use its property to protect or compensate the shareholder. On request, the Trust
will defend any claim made and pay any judgment against a shareholder for any
act or obligation of the Trust. Therefore, financial loss resulting from
liability as a shareholder will occur only if the Trust itself cannot meet its
obligations to indemnify shareholders and pay judgments against them from its
assets.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned during
the year.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to the Fund if the Fund were a regular corporation and to the extent
designated by the Fund as so qualifying. These dividends and any short-term
capital gains are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
Fund shares.
TOTAL RETURN
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares purchased
at the beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
Cumulative total return reflects total performance over a specific period of
time. This total return assumes and is reduced by the payment of the maximum
sales load. The Fund's total return is representative of less than three months
of investment activity since the start of performance.
The Fund's cumulative total returns for the one year period ended November 30,
1995 and for the period from September 13, 1994 (date of initial public
investment) to November 30, 1995, are 25.08% and 22.88%, respectively.
YIELD
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the SEC) earned by the Fund over a thirty-day period by the
maximum offering price per share of the Fund on the last day of the period. This
value is then annualized using semi-annual compounding. This means that the
amount of income generated during the thirty-day period is assumed to be
generated each month over a twelve-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by the
Fund because of certain adjustments required by the SEC and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
The Fund's yield for the thirty-day period ended November 30, 1995, was .94%.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and the maximum offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all income dividends and capital gains distributions,
if any. From time to time, the Fund will quote its Lipper ranking in the
"growth and income" category in advertising and sales literature.
o STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, and financial and
public utility companies, can be used to compare to the total returns of
funds whose portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's index assumes reinvestments of all
dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
in Standard & Poor's figures.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
G00580-02 (1/96)
APPENDIX
A. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it, which shows that an initial investment of $10,000 in
Newpoint Equity Fund on September 18, 1994, would have grown to $12,475 by
November 30, 1995.. The "x" axis reflects the cost of investment, the "y" axis
reflects computation periods from 1994 to 1995, and the right margin reflects a
total investment range from $8,000 to $14,000. The chart further indicates the
ending market value attributable to principal, as well as the ending market
