Statement of Additional Information January 31, 2000
FirstMerit Equity Fund
(formerly, Newpoint Equity Fund)
A Portfolio of FirstMerit Funds
(formerly Newpoint Funds)
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for FirstMerit Equity Fund
dated January 31, 2000. Obtain the prospectus without charge by calling
1-800-627-1289.
Contents
How is the Fund Organized? 1
Securities in Which the Fund Invests
1
What do Shares Cost? 11
How is the Fund Sold? 12
How To Buy Shares 13
Massachusetts Partnership Law 13
Account and Share Information 13
Tax Information 14
Who Manages and Provides Services to the Fund?
15
How Does the Fund Measure Performance? 19
Addresses
Federated Securities Corp., Distributor,
subsidiary of Federated Investors
Cusip 337944102
G00580-02 (1/2000)
<PAGE>
8
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of FirstMerit Funds (formerly, Newpoint
Funds) (Trust). The Trust is an open-end management investment company that was
established under the laws of the Commonwealth of Massachusetts on November 12,
1990. The Trust changed its name from "Portage Funds" to "Newpoint Funds" on
January 31, 1995. The Trust changed its name from "Newpoint Funds" to
"FirstMerit Funds" on January 31, 2000. The Trust may offer separate series of
shares representing interests in separate portfolios of securities.
SECURITIES IN WHICH THE FUND INVESTS
Following is a table that indicates which types of securities and investment
techniques are a: o P = Principal investment of the Fund; (shaded in chart) o A
= Acceptable (but not principal) investment of the Fund
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Bank Instruments A
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Borrowing 1 A
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Common Stock P
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Convertible Securities A
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Debt Obligations A
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Depositary Receipts A
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Foreign Securities A
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Futures and Options Transactions A
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Illiquid and Restricted Securities 2 A
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Lending of Portfolio Securities A
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Preferred Stocks P
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Prime Commercial Paper A
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Repurchase Agreements A
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Reverse Repurchase Agreements A
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Securities of Other Investment Companies A
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U.S. Government Securities A
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Warrants A
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When-Issued and Delayed Delivery Transactions A
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Zero Coupon Securities A
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1. The Fund is required to maintain continuous asset coverage to 300% of the
amount borrowed. If the coverage declines to less than 300%, the Fund must sell
sufficient portfolio securities to restore the coverage even if it must sell the
securities at a loss. 2. 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
SECURITIES DESCRIPTIONS, TECHNIQUES AND RISKS
Borrowing. The Fund may borrow money from banks or through reverse repurchase
agreements in amounts up to one-third of total assets and pledge some assets as
collateral. The Fund will pay interest on borrowed money and may incur other
transaction costs. These expenses could exceed the income received or capital
appreciation realized by the Fund from any securities purchased with borrowed
money. With respect to borrowings, the Fund is required to maintain continuous
asset coverage to 300% of the amount borrowed. If the coverage declines to less
than 300%, the Fund must sell sufficient portfolio securities to restore the
coverage even if it must sell the securities at a loss.
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities convertible into shares of common stock at a conversion price
of $10 per share. If the market value of the shares reached $12, the Fund could
realize an additional $2 per share by converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income securities
to compensate for the value of the conversion option. In addition, the
conversion price exceeds the market value of the underlying equity securities at
the time a convertible security is issued. Thus, convertible securities may
provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities permit the Fund to realize some of
the potential appreciation of the underlying equity securities with less risk of
losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
Debt obligations pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a "discount") or more (a "premium") than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security may
change based upon the probability of an early redemption.
The following describes the types of fixed income securities in which the Fund
may invest.
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). Some
GSEs are supported by the full, faith and credit of the United States.
Other GSEs receive support through federal subsidies, loans or other
benefits. A few GSEs have no explicit financial support, but are regarded
as having implied support because the federal government sponsors their
activities. Investors regard agency securities as having low credit risk,
but not as low as Treasury securities.
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Instruments denominated in U.S. dollars and
issued by non-U.S. branches of U.S. or foreign banks are commonly referred
to as Eurodollar instruments. Instruments denominated in U.S. dollars and
issued by U.S. branches of foreign banks are referred to as Yankee
instruments.
Commercial paper is an issuer's draft or note with a maturity of less than
nine months. Companies typically issue commercial paper to fund current
expenditures. Most issuers constantly reissue their commercial paper and
use the proceeds (or bank loans) to repay maturing paper. Commercial paper
may default if the issuer cannot continue to obtain liquidity in this
fashion. The short maturity of commercial paper reduces both the market and
credit risk as compared to other debt securities of the same issuer.
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types
of corporate debt security. The credit risks of corporate debt securities
vary widely among issuers.
Treasury securities are direct obligations of the federal government of the
United States. Investors regard Treasury securities as having the lowest
credit risk.
Zero Coupon Securities do not pay interest or principal until final
maturity. Most debt securities provide periodic payments of interest
(referred to as a "coupon payment"). In contrast, investors buy zero coupon
securities at a price below the amount payable at maturity. The difference
between the price and the amount paid at maturity represents interest on
the zero coupon security. This increases the market and credit risk of a
zero coupon security, because an investor must wait until maturity before
realizing any return on the investment.
There are many forms of zero coupon securities. Some securities are
originally issued at a discount and are referred to as "zero coupon" or
"capital appreciation" bonds. Others are created by separating the right to
receive coupon payments from the principal due at maturity, a process known
as "coupon stripping." Treasury STRIPs, IOs and POs are the most common
forms of "stripped" zero coupon securities. In addition, some securities
give the issuer the option to deliver additional securities in place of
cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as "pay-in-kind" or "PIK" securities.
Depositary Receipts. American Depositary Receipts (ADRs) are receipts, issued by
a U.S. bank, that represent an interest in shares of a foreign-based
corporation. ADRs provide a way to buy shares of foreign-based companies in the
U.S. rather than in overseas markets. European Depositary Receipts (EDRs) and
Global Depositary Receipts (GDRs) are receipts, issued by foreign banks or trust
companies, or foreign branches of U.S. banks, that represent an interest in
shares of either a foreign or U.S. corporation. Depositary Receipts may not be
denominated in the same currency as the underlying securities into which they
may be converted, and are subject to currency risks. Depositary Receipts involve
many of the same risks of investing directly in foreign securities.
Foreign Securities. The international equity securities in which the Fund may
invest include international stocks traded domestically or abroad through
various stock exchanges, ADRs, and International Depositary Receipts ("IDRs").
The international fixed income securities will include ADRs, IDRs, and
government securities of other nations.
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.
Futures and Options Transactions. As a means of reducing fluctuations in its net
asset value, the Fund may, but is not required to, buy and sell futures
contracts and options on futures contracts, and buy put and call options on
portfolio securities and securities indices to hedge its portfolio. The Fund may
also, but is not required to, write covered put and call options on portfolio
securities to attempt to increase its current income or to hedge its portfolio.
There is no assurance that a liquid secondary market 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.
Futures Contracts. A futures contract is a commitment by two parties
under which one party agrees to make delivery of an asset (seller) and
another party agrees to take delivery of the asset at a certain time in
the future. A futures contract may involve a variety of assets including
commodities (such as oil, wheat, or corn) or a financial asset (such as a
security). The Fund may purchase and sell financial futures contracts to
hedge against anticipated changes in the value of its portfolio without
necessarily buying or selling the securities. Although some financial
futures contracts call for making or taking delivery of the underlying
securities, in most cases these obligations are closed out before the
settlement date. The closing of a futures contract is accomplished by
purchasing or selling an identical offsetting futures contract. Other
financial futures contracts call for cash settlements.
The Fund may purchase and sell stock index futures contracts to hedge
against anticipated price changes with respect to any stock index traded
on a recognized stock exchange or board of trade. A stock index futures
contract is an agreement in which two parties agree to take or make
delivery of an amount of cash equal to the difference between the price
of the original contract and the value of the index at the close of the
last trading day of the contract. No physical delivery of the underlying
securities in the index is made. Settlement is made in cash upon
termination of the contract.
Margin In Futures Transactions. Since the Fund does not pay or receive
money upon the purchase or sale of a futures contract, it is required to
deposit an amount of initial margin in cash, U.S. government securities
or highly-liquid debt securities as a good faith deposit. The margin is
returned to the Fund upon termination of the contract. Initial margin in
futures transactions does not involve borrowing to finance the
transactions.
As the value of the underlying futures contract changes daily, 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. It may be viewed as settlement between the Fund and the broker of
the amount one would owe the other if the futures contract expired. When
the Fund purchases futures contracts, an amount of cash and/or 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 to collateralize the
position and insure that the use of futures contracts is unleveraged. The
Fund is also required to deposit and maintain margin when it writes call
options on futures contracts. The Fund will not enter into a futures
contract or purchase an option thereon for other than hedging purposes if
immediately thereafter the initial margin deposits for futures contracts
held by it, plus premiums paid by it for open options on futures
contracts, would exceed 5% of the market value of its net assets, after
taking into account the unrealized profits and losses on those contracts
it has entered into. However, in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be
excluded in computing such 5%.
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. 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.
The Fund may also write (sell) listed put options on financial futures
contracts to hedge its portfolio against a decrease in market interest
rates or an increase in stock prices. The Fund will use these
transactions to purchase portfolio securities in the future at price
levels existing at the time it enters into the transaction. When the Fund
sells a put on a futures contract, it receives a cash premium in exchange
for granting to the buyer of the put the right to receive from the Fund,
at the strike price, a short position in such futures contract. This is
so even though the strike price upon exercise of the option is greater
than the value of the futures position received by such holder. As market
interest rates decrease or stock prices increase, the market price of the
underlying futures contract normally increases. When the underlying
futures contract increases, the buyer of the put option has less reason
to exercise the put because the buyer can sell the same futures contract
at a higher price in the market. If the value of the underlying futures
position is not such that exercise of the option would be profitable to
the option holder, the option will generally expire without being
exercised. The premium received by the Fund can then be used to offset
the higher prices of portfolio securities to be purchased in the future.
In order to avoid the exercise of an option sold by it, generally the
Fund will cancel its obligation under the option by entering into a
closing purchase transaction, unless it is determined to be in the Fund's
interest to deliver the underlying futures position. A closing purchase
transaction consists of the purchase by the Fund of an option having the
same term as the option sold by the Fund, and has the effect of canceling
the Fund's position as a seller. The premium which the Fund will pay in
executing a closing purchase transaction may be higher than the premium
received when the option was sold, depending in large part upon the
relative price of the underlying futures position at the time of each
transaction. If the hedge is successful, the cost of buying the second
option will be less than the premium received by the Fund for the initial
option.
Call Options on Financial Futures Contracts. The Fund may write (sell)
listed and over-the-counter call options on financial futures contracts
to hedge its portfolio. When the Fund writes a call option on a futures
contract, it undertakes to sell a futures contract at the fixed price at
any time during the life of the option. As stock prices fall or market
interest rates rise, causing the prices of futures to go down, the Fund's
obligation 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 may buy a listed call option on a financial futures contract to
hedge against decreases in market interest rates or increases in stock
price. The Fund will use these transactions to purchase portfolio
securities in the future at price levels existing at the time it enters
into the transaction. When the Fund purchases a call on a financial
futures contract, it receives in exchange for the payment of a cash
premium the right, but not the obligation, to enter into the underlying
futures contract at a strike price determined at the time the call was
purchased, regardless of the comparative market value of such futures
position at the time the option is exercised. The holder of a call option
has the right to receive a long (or buyer's) position in the underlying
futures contract. As market interest rates fall or stock prices increase,
the value of the underlying futures contract will normally increase,
resulting in an increase in value of the Fund's option position. When the
market price of the underlying futures contract increases above the
strike price plus premium paid, the Fund could exercise its option and
buy the futures contract below market price. Prior to the exercise or
expiration of the call option, the Fund could sell an identical call
option and close out its position. If the premium received upon selling
the offsetting call is greater than the premium originally paid, the Fund
has completed a successful hedge.
Limitation on Open Futures Positions. The Fund will not maintain open
positions in futures contracts it has sold or call options it has written
on futures contracts if together the value of the open positions exceeds
the current market value of the Fund's 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 Securities. The Fund may purchase put
options on portfolio securities to protect against price movements in the
Fund's 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. The Fund may purchase call
options on securities acceptable for purchase to protect against price
movements by locking in on a purchase price for the underlying security.
A call option gives the Fund, in return for a premium, the right to buy
the underlying security from the seller at a specified price during the
term of the option.
Writing Covered Call and Put Options on Securities. The Fund may write
covered call and put options to generate income and thereby protect
against price movements in the Fund's portfolio securities. As 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. The Fund may only sell 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 or U.S. government securities in the amount of any additional
consideration). As a 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. 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.
Stock Index Options. The Fund may purchase or sell put or call 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. Upon the exercise of
the option, the holder of a call option has the right to receive, and the
writer of a put option has the obligation to deliver, a cash payment
equal to the difference between the closing price of the index and the
exercise price of the option. 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. The value of an index option depends upon movements in the
level of the index rather than the price of a particular stock.
Accordingly, successful use by the Fund of options on stock indices will
be subject to the Adviser correctly predicting 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.
Over-the-Counter Options. 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. The Fund may generally
purchase and write over-the-counter options on portfolio securities or
securities indices in negotiated transactions with the buyers or writers
of the options when options on the Fund's portfolio securities or
securities indices are not traded on an exchange. The Fund purchases and
writes options only with investment dealers and other financial
institutions deemed creditworthy by the Adviser.
Risks. If 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 or currency in the Fund's portfolio. This may cause the
futures contract and any related options to react differently to market
changes than the portfolio securities. 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 could
lose money on the futures contract or option.
If a 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, 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.
Illiquid and Restricted Securities. Illiquid securities are those that cannot
readily be sold within seven days. Restricted securities are securities that
have restrictions with respect to their resale. Generally, the restrictions are
on whom or to what type of entity they can be sold. Often, issuers of securities
may not want to register them with the SEC, so they will sell them to a specific
class of investors under Rule 144A or Regulation D of the Securities Act of
1933. Purchasers of these "private placements" must be institutional investors
(mutual funds, insurance companies, etc.), and there may be minimum purchase
amounts. The reason 144A securities may be "illiquid" is that a fund that
purchases them cannot just sell them on the open market - they must find another
qualified institutional buyer to purchase the security under Rule 144A.
However, not all restricted securities are "illiquid". The SEC permits a fund's
board to make a determination that certain 144A securities or Section 4(2) paper
issues are liquid. Conversely, not all illiquid securities are restricted.
Lending of Portfolio Securities. In order to generate additional income, the
Fund may lend portfolio securities. When the Fund lends portfolio securities, it
will receive either cash or liquid securities as collateral from the borrower.
The Fund will reinvest cash collateral in short-term liquid securities that
qualify as an otherwise acceptable investment for the Fund. If the market value
of the loaned securities increases, the borrower must furnish additional
collateral to the Fund. During the time portfolio securities are on loan, the
borrower pays the Fund any dividends or interest paid on such securities. Loans
are subject to termination at the option of the Fund or the borrower. The Fund
may pay reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to a securities lending agent or broker. When the Fund
lends its portfolio securities, it may not be able to get them back from the
borrower on a timely basis. If this occurs, the Fund may lose certain investment
opportunities.
Repurchase Agreements and Reverse Repurchase Agreements. The Fund's custodian is
required to take possession of the securities subject to repurchase agreements.
These securities are marked to market daily. To the extent that the original
seller defaults and 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 files for bankruptcy or becomes
insolvent, disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that, under the procedures normally in effect
for custody of the 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.
Reverse repurchase agreement transactions are similar to borrowing cash. In a
reverse repurchase agreement, the Fund sells a portfolio security 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 security at a price
equal to the original sale price plus interest. The Fund may use reverse
repurchase agreements for liquidity and may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous.
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 maintained until the transaction is settled.
Securities of Other Investment Companies. In conjunction with the Fund's ability
to invest in the securities of other investment companies, the Fund may invest
in the securities of affiliated money market funds as an efficient means of
managing the Fund's uninvested cash.
Temporary Investments. There may be times when market conditions warrant a
defensive position. During these market conditions the Fund may temporarily
invest without limit in short-term debt obligations (money market instruments).
These investments include commercial paper, bank instruments, U.S. government
obligations, repurchase agreements, and securities of other investment
companies. The Fund's temporary investments must be of comparable quality to its
primary investments.
Warrants give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. Rights are the same as warrants, except they are typically
issued to existing stockholders.
When-Issued and Delayed Delivery Transactions. These transactions are made to
secure what is considered to be an advantageous price or yield. 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. Other than
normal transaction costs, no fees or expenses are incurred. However, liquid
assets of the Fund are segregated on the Fund's records at the trade date in an
amount sufficient to make payment for the securities to be purchased. These
assets are marked to market daily and are maintained until the transaction has
been settled.
INVESTMENT LIMITATIONS
Diversification of Investments. With respect to securities comprising 75% of the
value of its total assets, the Fund will not purchase securities of any one
issuer (other than cash; cash items; securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such U.S. government securities; and
securities of other investment companies) if, as a result, more than 5% of the
value of its total assets would be invested in securities of that issuer, or the
Fund would own more than 10% of the outstanding voting securities of that
issuer.
Borrowing Money and Issuing Senior Securities . The Fund may borrow money,
directly or indirectly, and issue senior securities to the maximum extent
permitted under the 1940 Act.
Investing in Real Estate. The Fund may not purchase or sell real estate,
provided that this restriction does not prevent the Fund from investing in
issuers which invest, deal, or otherwise engage in transactions in real estate
or interests therein, or investing in securities that are secured by real estate
or interests therein. The Fund may exercise its rights under agreements relating
to such securities, including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement until that real estate
can be liquidated in an orderly manner.
Investing in Commodities. The Fund may not purchase or sell physical
commodities, provided that the Fund may purchase securities of companies that
deal in commodities.
As a matter of non-fundamental operating policy, for purposes of the commodities
policy, investments in transactions involving futures contracts and options,
forward currency contracts, swap transactions and other financial contracts that
settle by payment of cash are not deemed to be investments in commodities.
Underwriting. The Fund may not underwrite the securities of other issuers,
except that the Fund may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under circumstances where it
may be considered to be an underwriter under the Securities Act of 1933.
Lending Cash or Securities. The Fund may not make loans, provided that this
restriction does not prevent the Fund from purchasing debt obligations, entering
into repurchase agreements, lending its assets to broker/dealers or
institutional investors and investing in loans, including assignments and
participation interests.
Concentration of Investments. The Fund will not make investments that will
result in the concentration of its investments in the securities of issuers
primarily engaged in the same industry. Government securities, municipal
securities and bank instruments will not be deemed to constitute an industry.
As a matter of non-fundamental operating policy in applying the concentration
restriction: (1) utility companies will be divided according to their services,
for example, gas, gas transmission, electric and telephone will each be
considered a separate industry; (2) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; and (3) asset-backed securities will be classified according to the
underlying assets securing such securities.
To conform to the current view of the SEC staff that only domestic bank
instruments may be excluded from industry concentration limitations, as a matter
of non-fundamental policy, the Fund will not exclude foreign bank instruments
from industry concentration limitation tests as long as the policy of the SEC
remains in effect. In addition, investments in bank instruments, and investments
in certain industrial development bonds funded by activities in a single
industry, will be deemed to constitute investment in an industry, except when
held for temporary defensive purposes. The investment of more than 25% of the
value of the Fund's total assets in any one industry will constitute
`concentration.
The above limitations cannot be changed by the Board of Trustees (Board) unless
authorized by the by the "vote of a majority of its outstanding voting
securities," as defined by the Investment Company Act. The following
limitations, however, may be changed by the Board without shareholder approval.
Shareholders will be notified before any material change in these limitations
becomes effective.
Buying on Margin. The Fund will not purchase securities on margin, provided that
the Fund may obtain short-term credits necessary for the clearance of purchases
and sales of securities, and further provided that the Fund may make margin
deposits in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions, and other financial contracts or
derivative instruments.
Pledging Assets. The Fund will not mortgage, pledge, or hypothecate any of its
assets, provided that this shall not apply to the transfer of securities in
connection with any permissible borrowing or to collateral arrangements in
connection with permissible activities.
Investing in Securities of Other Investment Companies. The Fund may invest its
assets in securities of other investment companies, including the securities of
affiliated money market funds, as an efficient means of carrying out its
investment policies and managing its uninvested cash.
Investing in Illiquid Securities. The Fund will not purchase securities for
which there is no readily available market, or enter into repurchase agreements
or purchase time deposits maturing in more than seven days, if immediately after
and as a result, the value of such securities would exceed, in the aggregate,
15% of the Fund's net assets.
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.
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 association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
In applying the concentration restriction: (1) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (2) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (3) asset-backed securities will be
classified according to the underlying assets securing such securities
Portfolio Turnover. The Fund actively trades its portfolio securities in an
attempt to achieve its investment objective. Active trading will cause the Fund
to have an increased portfolio turnover rate, which is likely to generate
shorter-term gains (losses) for its shareholders, which are taxed at a higher
rate than longer-term gains (losses). Actively trading portfolio securities
increases the Fund's trading costs and may have an adverse impact on the Fund's
performance.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o for fixed income securities, at the last sale price on a national securities
exchange, if available, otherwise, 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, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Trustees; and
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 consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Trustees may determine in good faith that another method of
valuing such investments is necessary to appraise their fair market value.
Trading in Foreign Securities. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its net asset value (NAV), 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 NYSE. Certain foreign currency exchange rates may also be
determined at the latest rate prior to the closing of the NYSE. 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
NYSE. 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
Fund's Board, although the actual calculation may be done by others.
WHAT DO SHARES COST?
The Fund's NAV per share fluctuates and is based on the market value of all
securities and other assets of the Fund.
Reducing or Eliminating the Front-End Sales Charge. You can reduce or eliminate
the applicable front-end sales charge, as follows.
Quantity Discounts. Larger purchases reduce the sales charge you pay. You can
combine purchases of shares made on the same day by you, your spouse, and your
children under age 21. In addition, purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account can be
combined.
Accumulated Purchases. If you make an additional purchase of shares, you can
count previous share purchases still invested in the Fund in calculating the
applicable sales charge on the additional purchase.
Letter of Intent. You can sign a Letter of Intent committing to purchase at
least $100,000 of shares within a 13-month period in order to combine such
purchases in calculating the sales charge. The Fund's custodian will hold shares
in escrow equal to the maximum applicable sales charge. If you complete the
Letter of Intent, the custodian will release the shares in escrow. If you do not
fulfill the Letter of Intent, the custodian will redeem the appropriate amount
from the shares held in escrow to pay the sales charges that were not applied to
your purchases.
Reinvestment Privilege. You may reinvest, within 60 days, your share redemption
proceeds at the next determined NAV, without any sales charge.
Purchases at Net Asset Value. Shareholders who are trust customers of FirstMerit
Bank and its subsidiaries are exempt from the sales charge. The following
persons may also purchase shares of the Fund at net asset value, without a sales
charge: private banking clients of FirstMerit Bank and affiliates of FirstMerit
Corp., employees and retired employees of FirstMerit Bank, FirstMerit Corp.,
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. Additionally, no sales charge is imposed for shares purchased
through "wrap accounts" or similar programs, under which clients pay a fee for
services.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to a financial intermediary.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company , a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets. The Fund may compensate the Distributor more or less
than its actual marketing expenses. In no event will the Fund pay for any
expenses of the Distributor that exceed the maximum Rule 12b-1 Plan fee.
The Fund has no present intention of paying or accruing 12b-1 fees or
shareholder services fees during the fiscal year ending November 2000
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the financial intermediary.
HOW TO BUY SHARES
SUBACCOUNTING SERVICES
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding shares 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 that may be related to the ownership of shares.
This information should, therefore, be read together with any agreement between
the customer and the financial intermediary about to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder 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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of the Trust have
equal voting rights, except that in matters affecting only a particular fund or
class, only shares of that fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of January 4, 2000, the following shareholder owned of record, beneficially,
or both, 5% or more of outstanding shares: SEI Trust Company, Oaks,
Pennsylvania, owned approximately 3,073,325.84 (96.93%) shares.
Shareholders owning 25% or more of outstanding shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
<PAGE>
TAX INFORMATION
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolio will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income 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. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from the Fund may be based on estimates of book income for the
year. Book income generally consists solely of the coupon income generated by
the portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
<PAGE>
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date , present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, and the total compensation received as a Trustee from the Trust
for its most recent fiscal year. The Trust is comprised of two Funds.
As of January 4, 2000, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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Name
Birth Date Aggregate
Address Principal Occupations Compensation
Position With Trust for Past Five Years From Trust
John F. Donahue*+ Chief Executive Officer and Director or Trustee of $0
Birth Date: July 28, 1924 the Federated Fund Complex; Chairman and Director,
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee,
1001 Liberty Avenue Federated Investment Management Company; Chairman
Pittsburgh, PA and Director, Federated Investment Counseling and
CHAIRMAN AND TRUSTEE Federated Global Research Corp.; Chairman, Passport
Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $1,153.90
Birth Date: February 3, 1934 Director, Member of Executive Committee, Children's
15 Old Timber Trail Hospital of Pittsburgh; Director, Robroy
Pittsburgh, PA Industries, Inc. (coated steel conduits/computer
TRUSTEE storage equipment);formerly: Senior Partner, Ernst
& Young LLP; Director, MED 3000 Group, Inc.
(physician practice management); Director, Member
of Executive Committee, University of Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $1,269.48
Birth Date: June 23, 1937 President, Investment Properties Corporation;
Grubb & Ellis/Investment Properties Senior Vice President, John R. Wood and Associates,
Corporation Inc., Realtors; Partner or Trustee in private real
3201 Tamiami Trial North estate ventures in Southwest Florida; formerly:
Naples, FL President, Naples Property Management, Inc. and
TRUSTEE Northgate Village Development Corporation.
John F. Cunningham Director or Trustee of some of the Federated Fund $1,153.90
Birth Date: March 5, 1943 Complex; Chairman, President and Chief Executive
353 El Brillo Way Officer, Cunningham & Co., Inc. (strategic business
Palm Beach, FL consulting);; Trustee Associate, Boston College;
TRUSTEE Director, Iperia Corp. (communications/software);
formerly: Director, Redgate Communications and EMC
Corporation (computer storage systems).
Previous Positions: Chairman of the Board and Chief
Executive Officer, Computer Consoles, Inc.;
President and Chief Operating Officer, Wang
Laboratories; Director, First National Bank of
Boston; Director, Apollo Computer, Inc.
Nicholas P Constantakis Director or Trustee of the Federated Fund Complex; $0
Birth Date: September 3, 1939 Director, Michael Baker Corporation (engineering,
175 Woodshire Drive construction, operations and technical services);
Pittsburgh, PA formerly: Partner, Andersen Worldwide SC.
TRUSTEE
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $1,153.90
Birth Date: October 11, 1932 Professor of Medicine, University of Pittsburgh;
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical
Suite 1111 Center - Downtown; Hematologist, Oncologist, and
Pittsburgh, PA Internist, University of Pittsburgh Medical
TRUSTEE Center; Member, National Board of Trustees,
Leukemia Society of America.
Peter E. Madden Director or Trustee of the Federated Fund Complex; $1,084.45
Birth Date: March 16, 1942 formerly: Representative, Commonwealth of
One Royal Palm Way Massachusetts General Court; President, State
100 Royal Palm Way Street Bank and Trust Company and State Street
Palm Beach, FL Corporation.
TRUSTEE
Previous Positions: Director, VISA USA and VISA
International; Chairman and Director, Massachusetts
Bankers Association; Director, Depository Trust
Corporation; Director, The Boston Stock Exchange..
Charles F. Mansfield, Jr. Director or Trustee of some of the Federated Fund $1,213.68
Birth Date: April 10, 1945 Complex; Executive Vice President, Legal and
80 South Road External Affairs, Dugan Valva Contess, Inc.
Westhampton Beach, NY (marketing, communications, technology and
TRUSTEE consulting).; formerly Management Consultant.
Previous Positions: Chief
Executive Officer, PBTC
International Bank; Partner,
Arthur Young & Company (now Ernst
& Young LLP); Chief Financial
Officer of Retail Banking Sector,
Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank;
Vice President, Citibank;
Assistant Professor of Banking
and Finance, Frank G. Zarb School
of Business, Hofstra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund Complex; $1,269.48
Birth Date: December 20, 1932 President, Law Professor, Duquesne University;
President, Duquesne University Consulting Partner, Mollica & Murray; Director,
Pittsburgh, PA Michael Baker Corp. (engineering, construction,
TRUSTEE operations and technical services).
Previous Positions: Dean and Professor of Law,
University of Pittsburgh School of Law; Dean and
Professor of Law, Villanova University School of
Law.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $1,153.90
Birth Date: June 21, 1935 Public Relations/Marketing/Conference Planning.
4905 Bayard Street
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum
TRUSTEE Company of America; television producer; business
owner.
John S. Walsh Director or Trustee of some of the Federated Fund $1,153.90
Birth Date: November 28, 1957 Complex; President and Director, Heat Wagon, Inc.
2007 Sherwood Drive (manufacturer of construction temporary heaters);
Valparaiso, IN President and Director, Manufacturers Products,
TRUSTEE Inc. (distributor of portable construction
heaters); President, Portable Heater Parts, a
division of Manufacturers Products, Inc.; Director,
Walsh & Kelly, Inc. (heavy highway contractor);
formerly: Vice President, Walsh & Kelly, Inc.
J. Christopher Donahue+* President or Executive Vice President of the $0
Birth Date: April 11, 1949 Federated Fund Complex; Director or Trustee of some
Federated Investors Tower of the Funds in the Federated Fund Complex;
1001 Liberty Avenue President, Chief Executive Officer and Director,
Pittsburgh, PA Federated Investors, Inc.; President and Trustee,
EXECUTIVE VICE PRESIDENT AND TRUSTEE Federated Investment Management Company; President
and Trustee, Federated Investment
Counseling; President and
Director, Federated Global
Investment Management Corp.;
President, Passport Research,
Ltd.; Trustee, Federated
Shareholder Services Company;
Director, Federated Services
Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the $0
Birth Date: October 22, 1930 Federated Fund Complex; President, Executive Vice
Federated Investors Tower President and Treasurer of some of the Funds in the
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated
Pittsburgh, PA Investors, Inc.; Vice President, Federated
PRESIDENT AND TREASURER Investment Management Company and Federated
Investment Counseling, Federated Global Investment
Management Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder
Services Company.
John W. McGonigle Executive Vice President and Secretary of the $0
Birth date: October 26, 1938 Federated Fund Complex; Executive Vice President,
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.;
1001 Liberty Avenue Trustee, Federated Investment Management Company
Pittsburgh, PA and Federated Investment Counseling; Director,
EXECUTIVE VICE PRESIDENT AND SECRETARY Federated Global Investment Management Corp.,
Federated Services Company; and Federated
Securities Corp.
$0
Richard B. Fisher* President or Vice President of some of the Funds in Birth
Date: May 17, 1923 the Federated Fund Complex; Director or Trustee of Federated
Investors Tower some of the Funds in the Federated Fund Complex; 1001 Liberty
Avenue Executive Vice President, Federated Investors, Pittsburgh, PA Inc.;
Chairman and Director, Federated Securities VICE PRESIDENT Corp. * An asterisk
denotes a Trustee/Director who is deemed to be an interested person as defined
in the Investment Company Act of 1940. # A pound sign denotes a Member of the
Board's Executive Committee, which handles the Board's responsibilities between
its meetings. + Mr. Donahue is the father of J. Christopher Donahue, Executive
Vice President and Trustee of the Trust.
</TABLE>
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
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. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). 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
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services. Research services 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 may be used by the Adviser or by affiliates of
Federated Investors in advising other accounts. To the extent that receipt of
these services may replace 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 those
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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all FirstMerit Funds as specified below:
Maximum Administrative Fee
Average Aggregate Daily Net Assets
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $50,000
with respect to FirtMerit Government Money Market Fund and $100,000 for all
other portfolios of the Funds. . Federated Services Company may voluntarily
waive a portion of its fee and may reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Years ended November 30
11/30/99 11/30/98 11/30/97
Advisory Fee Earned 508,453 $401,923 $345,408
Advisory Fee Reduction 33,896 $401,923 $60,082
Brokerage Commissions 37,086 $29,032 $44,778
Administrative Fee 103,045 $100,000 $100,000
12b-1 Fee N/A N/A N/A
Shareholder Services Fee N/A
N/A N/A
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise performance by using the SEC standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
Unless otherwise stated, any quoted performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The Fund's performance depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's expenses; and various other factors.
Fund performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per share are factors in
the computation of yield and total return.
<PAGE>
Average Annual Total Returns and Yield
Total returns given for the one-year, five-year and since inception periods
ended November 30, 1999, after sales charges.
Yield given for the 30-day period ended November 30, 1999 Since Inception on
1 Year 5 Year September 13, 1994
Total Return 30.34% 24.52 22.97 %
Yield N/A N/A
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for shares 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 NAV 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 charge, adjusted over the
period by any additional shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of shares is calculated by dividing: (i) the net investment income per
share earned by the shares over a thirty-day period; by (ii) the maximum
offering price per share on the last day of the period. This number 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 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by shares 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 investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares,
the share performance is lower for shareholders paying those fees.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
Lipper Analytical Services, Inc. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
Morningstar, Inc. An independent rating service, is the publisher of the
bi-weekly Mutual Fund Values, which 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.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500).
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 S&P
500 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 the S&P figures.
<PAGE>
ADDRESSES
FirstMerit Equity Fund
<TABLE>
<CAPTION>
<S> <C>
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
Administrator
Federated Administrative Services Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
FirstMerit Bank, N.A. 121 South Main Street
Akron, Ohio 44208-1440
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
</TABLE>
PROSPECTUS
FirstMerit Equity Fund
(formerly, Newpoint Equity Fund)
A Portfolio of FirstMerit Funds
(formerly, Newpoint Funds)
Mutual fund shares are not bank deposits, federally insured, or guaranteed, and
may lose value.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
Contents
Fund Goals, Strategies, and Risks 1
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in which the
Fund Invests? 4
What are the Risks of Investing in the Fund? 5
What do Shares Cost? 5
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem Shares 7
Purchases and Redemptions Through Exchanges 9
Account and Share Information 10
Who Manages the Fund? 10
Shareholder Meeting Results 11
Financial Information 13
Report of Independent Public Accountants 23
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
JANUARY 31, 2000
Fund Goals, Strategies, and Risks
WHAT IS THE FUND'S GOAL?
The Fund's goal (objective) is to achieve capital appreciation.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The domestic equity securities of the Fund will consist primarily of growth-
oriented common and preferred stocks of medium to large capitalization companies
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 Fund's
investment adviser, FirstMerit Bank, N.A. (Adviser) based on traditional
research 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.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
As with all mutual funds, the Fund's investments are subject to risks that could
cause their value to go down.
The value of the stocks in the Fund's portfolio will go up and down, and
therefore the value of your Fund shares will also change. These fluctuations
could be a sustained trend or a drastic movement. The Fund's portfolio will
reflect changes in the prices of individual portfolio stocks or general changes
in stock valuations. Consequently, the Fund's share price could decline and you
could lose money.
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Risk/Return Summary
Risk/Return Bar Chart and Table
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of FirstMerit Equity Fund as of the calendar year-end for
each of five years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 8% up to 40%.
The `x' axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended November 30,1999. The light gray shaded chart features five distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1995
through 1999. The percentages noted are: 31.76% ,16.66%, 25.10%, 27.86% and
39.48%.
The bar chart shows the variability of the Fund's total returns on a calendar
year-end basis.
The total returns displayed for the Fund do not reflect payment of any sales
charge or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
Within the period shown in the Chart, the Fund's highest quarterly return was
27.90% (quarter ended 12/31/99). Its lowest quarterly return was (10.46%)
(quarter ended 9/30/98).
Average Annual Total Return
The following table represents the Fund Average Annual Total Returns for the
calendar periods ended December 31, 1999. The table shows the Fund total returns
averaged over a period of years relative to the Standard & Poor's 500 Index (S&P
500), a broad based market index and Lipper Growth & Income Fund Average
(LGIFA), an average of funds with similar investment objectives. Total returns
for the indexes shown do not reflect sales charges, expenses or other fees that
the SEC requires to be reflected in the Fund's performance. Indexes are
unmanaged, and it is not possible to invest directly in an index.
<TABLE>
<CAPTION>
Calendar Period Fund S&P 500 LGIFA
<S> <C> <C> <C>
1 Year 39.48% 21.05% 13.77%
5 Year 27.95% 28.56% 21.34%
Start of Performance/1/ 26.10% 24.17% 19.08%
</TABLE>
/1/ The Fund's start of performance date was September 13, 1994.
Past performance is no guarantee of future results. This information
provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
The table shows the Fund's total returns averaged over a period of years
relative to the S&P 500, a broad-based market index. The performance of the
S&P 500 has not been adjusted to reflect sales charges, expenses, or other
fees the SEC requires to be reflected in the Fund's performance.
Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the category indicated. These figures do not take sales
charges into account.
What are the Fund's Fees and Expenses?
FIRSTMERIT EQUITY FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
Shareholder Fees
Fees Paid Directly From Your Investment
<S>
<C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) 4.50%
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price
or redemption proceeds, as applicable) None Maximum Sales Charge (Load) Imposed
on Reinvested Dividends (and other Distributions) (as a percentage of offering
None
price).
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange
Fee
None
Annual Fund Operating Expenses (Before Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management
Fee/2/
0.75%
Distribution (12b-1)
Fee/3/ 0.25%
Shareholder Services
Fee/4/ 0.25%
Other
Expenses/5/
0.35%
Total Annual Fund Operating
Expenses 1.60%
</TABLE>
/1/ Although not contractually obligated to do so, the distributor and
shareholder services provider expect to waive certain amounts during the
fiscal year ending November 30, 2000. These are shown below along with the
net expenses the Fund expects to actually pay for the fiscal year ending
November 30, 2000. Total Waiver of Fund Expenses 0.50% Total Actual Annual
Fund Operating Expenses (after waivers) 1.15%
/2/ The Adviser does not expect to waive a portion of the management fee during
the fiscal year ending November 30, 2000. The management fee paid by the
Fund (after voluntary waiver) was .70% for the fiscal year ending November
30, 1999.
/3/ The distributor does not expect to accrue or charge its distribution fee of
0.25% during the fiscal year ending November 30, 2000. The distributor can
accrue its fee, and thereby terminate this anticipated voluntary waiver of
the distribution fee, at any time, at its sole discretion. The distribution
fee paid (after the anticipated voluntary waiver) by the Fund is expected to
be 0.00% for the fiscal year ending November 30, 2000.
/4/ The shareholder services provider does not expect to accrue or charge its
shareholder services fee of 0.25% during the fiscal year ending November 30,
2000. The shareholder services provider can accrue its fee, and thereby
terminate this anticipated voluntary waiver of the shareholder services fee,
at any time, at its sole discretion. The shareholder services fee paid
(after the anticipated voluntary waiver) by the Fund is expected to be 0.00%
for the fiscal year ending November 30, 2000.
/5/ The Total Annual Fund Operating Expenses and Total Actual Annual Fund
Operating Expenses (after waivers) for the year ended November 30, 1999 were
1.60% and 1.05% respectively.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your Shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are before waivers as shown below and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be: <TABLE> <CAPTION> Calendar Period Fund <S> <C> 1 Year $ 605
3 Years $ 932 5 Years $ 1,282 10 Years $ 2,265 </TABLE>
What are the Fund's Investment Strategies?
The Fund's Adviser selects companies 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); credit
research; review of issuers' dividend growth records; and consideration of
market trends.
The Adviser looks for companies that have the following characteristics: a
stable industry structure; an industry position of low cost provider or
differentiation by product or service; proprietary products with high switching
costs; high returns on capital; and management that has an incentive to increase
returns on capital.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in U.S. and foreign short-term money market instruments. It
may do this to minimize potential losses and maintain liquidity to meet
shareholder redemptions during adverse market conditions. This may cause the
Fund to forego greater investment returns for the safety of principal.
What are the Principal Securities in Which the Fund Invests?
Under normal circumstances, the Fund pursues its goal by investing at least 65%
of the value of its total assets in equity securities of U.S. companies.
EQUITY SECURITIES
Equity securities represent a share of the issuer's earnings and assets, after
the issuer pays its liabilities. Generally, issuers have discretion as to the
payment of any dividends or distributions. As a result, investors cannot predict
the income they will receive from equity securities. However, equity securities
offer greater potential for appreciation than many other types of securities
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. They are the
fundamental unit of ownership of a company. Common stockholders receive the
residual value of the issuer's earnings and assets after the issuer pays its
creditors and any preferred stockholders. As a result, changes in an issuer's
earnings directly influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or distributions
before the payment of dividends or distributions on common stock. Some preferred
stocks also participate in dividends and distributions paid on common stock.
Preferred stocks may provide for the issuer to redeem the stock on a specified
date.
What are the Risks of Investing in the Fund?
Stock Market Risks
. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stocks valuations. Consequently, the Fund's
share price may decline.
. The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will
not protect the Fund against widespread or prolonged declines in the stock
market.
Sector Risks
. Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. As the
Adviser allocates more of the Fund's portfolio holdings to a particular
sector, the Fund's performance will be more susceptible to any economic,
business or other developments which generally affect that sector.
Risks Related to Investing for Growth
. Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, on an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks.
This means they depend more on price changes for returns and may be more
adversely affected in a down market compared to value stocks that pay higher
dividends.
Risks Related to Investing for Value
. Due to their relatively low valuations, value stocks are typically less
volatile than growth stocks. For instance, the price of a value stock may
experience a smaller increase on a forecast of higher earnings, a positive
fundamental development, or positive market development. Further, value
stocks tend to have higher dividends than growth stocks. This means they
depends less on price changes for returns and may lag behind growth stocks
in an up market.
Risks Related to Company Size
. Generally, the smaller market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stocks and the more
volatile its price. Market capitalization is determined by multiplying the
number of a company's outstanding shares by the current market price per
share.
. Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than larger, well capitalized companies.
What do Shares Cost?
You can purchase, redeem, or exchange shares any day the New York Stock Exchange
(NYSE) and Federal Reserve wire system are open. When the Fund receives your
transaction request in proper form, it is processed at the next calculated net
asset value (NAV) plus any applicable sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE and Federal Reserve wire system are open.
The Fund generally values equity securities according to the last sale price
in the market in which they are primarily traded.
Fund shares are sold at NAV plus a sales charge, as follows:
<TABLE>
<CAPTION>
Sales Charge as a
Percentage of
Public Offering Sales Charge as a
Purchase Amount Price Percentage of NAV
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than 3.75% 3.90%
$250,000
$250,000 but less than 2.50% 2.56%
$500,000
$500,000 but less than 2.00% 2.04%
$750,000
$750,000 but less than 1.00% 1.01%
$1 million
$1 million or greater 0.00% 0.00%
</TABLE>
The minimum initial investment in the Fund is $1,000. Subsequent investments
must be in amounts of at least $100.
Keep in mind that financial intermediaries may charge you fees for their
services in connection with your share transactions.
The sales charge at purchase may be reduced or eliminated by:
. quantity purchases of shares;
. combining concurrent purchases of shares by you, your spouse, and your
children under age 21;
. accumulating purchases (in calculating the sales charge on an additional
purchase, you may count the current value of previous share purchases still
invested in the Fund);
. signing a letter of intent to purchase at least $100,000 of Fund shares
within 13 months (call the Fund for an application and more information); or
. reinvesting redemption proceeds within 60 days.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify FirstMerit Securities, Inc. or
the Fund's Distributor at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on your previous purchases. More information on
reducing or eliminating the sales charge is in the Fund's Statement of
Additional Information.
How is the Fund Sold?
The Fund's Distributor, Federated Securities Corp., markets the shares described
in this prospectus to institutions and individuals, directly or through
investment professionals. When the Distributor receives sales charges and
marketing fees, it may pay some or all of them to investment professionals. The
Distributor and its affiliates may pay out of their assets other amounts
(including items of material value) to investment professionals for marketing
and servicing shares. The Distributor is a subsidiary of Federated Investors,
Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and financial intermediaries for the sale, distribution and
customer servicing of the Fund's shares. The Fund is not presently paying or
accruing 12b-1 fees.
<PAGE>
How to Purchase Shares
THROUGH FIRSTMERIT BANK
Trust customers of FirstMerit Bank placing an order to purchase shares of the
Fund may open an account by calling FirstMerit Bank at 330-384-7300. Information
needed to establish the account will be taken over the telephone by the
FirstMerit trust representative.
Fund shares may also be purchased by telephone by certain trust customers
through procedures established with FirstMerit Bank and its affiliates. Such
procedures may include arrangements under which certain accounts are swept
periodically and amounts exceeding an agreed-upon minimum are invested
automatically in the Fund.
Purchase orders by trust customers of FirstMerit Bank must be received by 3:30
p.m. (Eastern time) in order to receive Fund shares at that day's public
offering price.
THROUGH FIRSTMERIT SECURITIES, INC.
Individual investors and customers of FirstMerit Securities, Inc. may purchase
shares by calling FirstMerit Securities, Inc. at 1-800-627-1289 by 3:00 p.m.
(Eastern time) in order to receive Fund shares at that day's public offering
price. An account application may be opened by completing a new account
application form available from FirstMerit Securities. You may also receive an
application by writing to FirstMerit Securities at: P.O. Box 8612, Boston,
Massachusetts 02266-8612. Texas residents should purchase shares of the Fund
through Federated Securities Corp. at 1-800-356-2805. Payment may be made by a
transfer from an Automated Clearing House (ACH) member institution, federal
funds, or by sending a check.
By Automated Clearing House (ACH)
Once you have opened an account, you may purchase additional shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the account application.
By Mail
You may also purchase Fund shares by mailing a check and completed account
application to FirstMerit Securities at P.O. Box 8612, Boston, Massachusetts
02266-8612. Purchases by check are considered received after the payment by
check is converted into federal funds and is received by the Fund. You will
receive Fund shares and dividends on the day the federal funds are received.
Through an Exchange
You may purchase shares through an exchange from FirstMerit Government Money
Market Fund. See "Purchases and Redemptions Through Exchanges" below for more
information.
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 your checking
account or by transfer via ACH and invested in Fund shares. You may apply for
participation in this program through FirstMerit Securities.
How to Redeem Shares
THROUGH FIRSTMERIT BANK
Trust customers of FirstMerit Bank may redeem Fund shares by telephoning
FirstMerit Bank at 330-384-7300. You must call by 3:30 p.m. (Eastern time) in
order to receive the
redemption amount based on that day's NAV.
<PAGE>
THROUGH FIRSTMERIT SECURITIES, INC.
By Phone
Individual investors and customers of FirstMerit Securities may redeem shares by
calling FirstMerit Securities at 1-800-627-1289. You may redeem shares by
telephone once you have completed the appropriate authorization form for
telephone transactions. You must call by 3:00 p.m. (Eastern time) in order to
receive the redemption amount based on that day's NAV.
By Mail
You may redeem shares by sending a written request to FirstMerit Securities.
Call FirstMerit Securities for specific instructions before redeeming by mail.
You will be asked to provide in the request your name, the Fund's name, your
account number, and the share or dollar amount requested. Your redemption
request will be processed on the day your request is received by the Fund in
proper form.
PAYMENT OPTIONS
Your redemption proceeds will typically be mailed by check to your address of
record. However, the following payment options are available if you complete the
appropriate authorization form. These payment options require a signature
guarantee if they were not established when the account was opened:
. an electronic transfer to your depository account at an ACH member
institution; or
. wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
SYSTEMATIC WITHDRAWAL/
EXCHANGE PROGRAM
You may automatically redeem or exchange shares in a minimum amount of $100 on a
regular basis. To participate in this program, you must complete the appropriate
form available from FirstMerit Securities. Your account value must have a value
of at least $10,000 at the time the program is established. This program may
reduce, and eventually deplete, your account, and the payments should not be
considered to be yield or income.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. However, payment may be delayed up to seven
days:
. to allow your purchase payment to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
. your redemption is to be sent to an address other than the address of
record;
. your redemption is to be sent to an address of record that was changed
within the last thirty days; or
. a redemption is payable to someone other than the shareholder(s) of
record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or credit union) or a broker/dealer that is a domestic stock
exchange member, but not by a notary public.
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.
Purchases and Redemptions Through Exchanges
You may purchase or redeem Fund shares through an exchange with FirstMerit
Government Money Market Fund. Trust customers should call FirstMerit Bank and
all other investors should call or write to FirstMerit Securities. You must meet
the minimum initial investment requirement for purchasing shares and both
accounts must have a common owner. Your exchange request must be received by
3:30 p.m. (Eastern time) in order for shares to be exchanged based on that day's
NAV.
In addition, shares of the Fund may also be exchanged for certain other mutual
funds distributed by Federated Securities Corp. that are not advised by
FirstMerit Bank ("Federated Funds"). For further information on the availability
of Federated Funds for exchange or further information about the exchanges
privilege, call FirstMerit Securities, Inc. at 1-800-627-1289. Both accounts
must have a common owner.
To do this, you must:
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and subsequent purchase, and is a taxable
transaction. You may also be subject to a sales charge by the fund into which
you are exchanging. Signatures must be guaranteed if you request an exchange
into another fund with a different shareholder registration.
The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or Adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading which is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other funds.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will notify you if it changes
telephone transaction privileges.
Share Certificates
The Fund does not issue share certificates.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends quarterly to shareholders. Dividends
are paid to all shareholders invested in the Fund on the record date.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
shares without a sales charge, unless you elect cash payments.
If you purchase shares just before the Fund declares a dividend or capital
gain distribution, you will pay the full price for the shares and then receive a
portion of the price back in the form of a distribution, whether or not you
reinvest the distribution in shares. Therefore, you should consider the tax
implications of purchasing shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Non-retirement accounts may be closed if redemptions or exchanges cause the
account balance to fall below the minimum initial investment amount. Before an
account is closed, you will be notified and allowed 30 days to purchase
additional shares to meet the minimum.
TAX INFORMATION
The Fund sends you an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.
Please consult your tax adviser regarding your federal, state, and local tax
liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, FirstMerit Bank, N.A. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is 121 South Main
Street, Akron, Ohio 44308-1440.
ADVISER FEES
The Adviser receives an annual investment advisory fee equal to a maximum of
0.75% of the Fund's average daily net assets. 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.
ADVISER'S BACKGROUND
FirstMerit Bank, 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, 1999, the Trust Division of FirstMerit Bank had
approximately $5 billion in assets under administration, of which it had
investment discretion over $3 billion. FirstMerit Bank has served as the Fund's
investment adviser since the Fund's inception.
As part of its regular banking operations, FirstMerit Bank 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
FirstMerit Bank. 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 FirstMerit Bank. Mr. Meinerding manages corporate and
personal trust portfolios at FirstMerit Bank. Prior to joining the Adviser 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.
Shareholder Meeting Results
A Special Meeting of Shareholders of Newpoint Equity Fund was held on December
17, 1999. On October 27, 1999, the record date for shareholders voting at the
meeting, there were 3,004,394 total outstanding shares. The following items were
considered by shareholders and the results of their voting were as follows:
AGENDA ITEM 1
Election of Trustees:/1/
<TABLE>
<CAPTION>
Withheld
Authority
Name For to Vote
<S> <C> <C>
Thomas G. Bigley 2,957,274 0
Nicholas P. Constantakis 2,957,274 0
John F. Cunningham 2,957,274 0
J. Christopher Donahue 2,957,274 0
Charles F. Mansfield, Jr. 2,957,274 0
John E. Murray, Jr., S.J.D. 2,957,274 0
John S. Walsh 2,957,274 0
</TABLE>
/1/ The following Trustees continued their terms as Trustees: John F. Donahue,
John T. Conroy, Jr., William J. Copeland, Lawrence D. Ellis, M.D, Edward C.
Gonzales, Peter E. Madden and Marjorie P. Smuts.
AGENDA ITEM 2
To make changes to the fund's fundamental investment policies:
(a) To amend the fund's fundamental investment policy regarding
diversification:
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,907,051 0 50,223
</TABLE>
(b) To amend the fund's fundamental investment policy regarding borrowing money
and issuing senior securities:
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,907,009 0 50,265
</TABLE>
(c) To amend the fund's fundamental investment policy regarding investments in
real estate:
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,907,051 0 50,223
</TABLE>
(d) To amend the fund's fundamental investment policy regarding investments in
commodities:
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,906,192 859 50,223
</TABLE>
(e) To amend the fund's fundamental investment policy regarding underwriting
securities:
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,907,051 0 50,223
</TABLE>
(f) To amend the fund's fundamental investment policy regarding lending assets:
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,906,956 0 50,318
</TABLE>
(g) To amend the fund's fundamental investment policy regarding concentration of
the fund's investments in the securities of companies in the same industry:
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,907,051 0 50,223
</TABLE>
(h) To amend, and to make non-fundamental, the fund's fundamental investment
policy regarding buying securities on margin:
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,905,838 859 50,577
</TABLE>
(i) To amend, and to make non-fundamental, the fund's fundamental investment
policy regarding pledging assets:
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,907,051 0 50,223
</TABLE>
AGENDA ITEM 3
To eliminate the fund's fundamental investment policy on selling securities
short:
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,906,192 859 50,223
</TABLE>
AGENDA ITEM 4
To amend the fund's fundamental investment objective to read "The investment
objective of the Fund is to achieve capital appreciation:"
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,906,192 859 50,223
</TABLE>
AGENDA ITEM 5
To approve amendments and restatements to the Trust's Declaration of Trust:
(a) To require the approval of a majority of the outstanding voting securities
of the Trust in the event of the sale and conveyance of the assets of the Trust
to another trust or corporation:
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,907,051 0 50,223
</TABLE>
(b) To permit the Board of Trustees to liquidate assets of the Trust, or of its
series or classes, and distribute the proceeds of such assets to the holders of
such shares representing such interests, without seeking shareholder approval.
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
2,907,051 0 50,223
</TABLE>
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights are intended to help you understand the
Fund's financial performance for its past five fiscal years. Some of the
information is presented on a per share basis. Total returns represent the rate
you would have earned (or lost) on an investment in the Fund, assuming
reinvestment of all dividends and distributions.
This information has been audited by Arthur Andersen LLP, whose report, along
with the Fund's financial statements, is contained in this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1999 1998 1997
1996 1995
<S> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Period $ 19.71 $ 17.69 $ 15.14 $
12.69 $ 9.78
Income from Investment
Operations:
Net investment income (loss) (0.06) 0.01 0.04
0.07 0.10
Net realized and unrealized gain 7.08 2.97 3.19
2.61 2.91
on
investments
TOTAL FROM INVESTMENT OPERATIONS 7.02 2.98 3.23
2.68 3.01
Less
Distributions:
Distributions from net investment income 0.00/1/ (0.01) (0.04)
(0.07) (0.10)
Distributions from net realized gain (0.65) (0.95) (0.64)
(0.16)
oninvestments
TOTAL DISTRIBUTIONS (0.65) (0.96) (0.68)
(0.23) (0.10)
Net Asset Value, End of Period $ 26.08 $ 19.71 $ 17.69 $
15.14 $ 12.69
Total Return/2/ 36.49% 18.09% 22.34%
21.38% 30.97%
Ratios to Average Net
Assets:
Expenses 1.05% 1.03% 1.11%
1.13% 1.48%
Net investment income (0.26)% 0.08% 0.24%
0.51% 0.88%
Expense waiver/reimbursement/3/ 0.05% 0.15% 0.15%
0.37% 0.52%
Supplemental
Data:
Net assets, end of period (000 omitted) $78,638 $58,321 $48,889
$42,858 $25,803
Portfolio turnover 28% 30% 44%
49% 35%
</TABLE>
/1/ Amount represents less than $0.01 per share.
/2/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/3/ 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
Portfolio of Investments
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Shares
Value
COMMON STOCKS-98.7%
Basic Industry-1.9%
<C> <S>
<C>
35,000 Monsanto Co.
$ 1,476,563
Capital
Goods-7.1%
10,000 Corning,
Inc. 936,875
26,200 General Electric
Co. 3,406,000
30,000 Tyco International
Ltd. 1,201,875
TOTAL 5,544,750
Capital Goods
Technology-44.3%
14,000 /1/America Online,
Inc. 1,017,625
10,000 /1/Applied Materials,
Inc. 974,375
70,000 /1/Cisco Systems,
Inc. 6,243,125
36,000 /1/Dell Computer
Corp. 1,548,000
24,000 /1/EMC Corp.
Mass 2,005,500
48,000 /1/Global Crossing
Ltd. 2,094,000
34,000 Intel
Corp. 2,607,375
5,000 /1/JDS Uniphase
Corp. 1,143,750
33,000 Lucent Technologies,
Inc. 2,411,063
42,000 /1/Microsoft
Corp. 3,823,969
13,250 Nokia Oyj, Class A,
ADR 1,830,984
18,400 Raytheon Co., Class
B 564,650
50,000 /1/Sun Microsystems,
Inc. 6,612,500
20,000 Texas Instruments,
Inc. 1,921,250
TOTAL
34,798,166
Consumer
Cyclical-9.4%
11,500 /1/Best Buy Co.,
Inc. 718,750
31,000 Home Depot,
Inc. 2,450,937
15,000 Nike, Inc., Class
B 690,000
10,000 Tandy
Corp. 766,250
48,000 Wal-Mart Stores,
Inc. 2,766,000
TOTAL 7,391,937
COMMON
STOCKS-continued
Consumer
Services-2.2%
20,000 McDonald's Corp.
$ 900,000
14,000 Time Warner,
Inc. 863,625
TOTAL
1,763,625
Consumer Staples-3 .6%
20,000 PepsiCo,
Inc. 691,250
20,000 Procter & Gamble Co.
2,160,000
TOTAL
2,851,250
Drugs & Health Care-16.3%
8,000 /1/Affymetrix,
Inc. 784,000
40,000 /1/Amgen, Inc.
1,822,500
20,000 /1/Forest Labratories, Inc., Class A
1,023,750
32,000 Medtronic, Inc.
1,244,000
60,000 Pfizer, Inc.
2,171,250
61,500 /1/Thermo Cardiosystems,
Inc. 426,656
60,000 Warner-Lambert Co .
5,381,250
TOTAL
12,853,406
Energy-2.8%
16,800 Exxon Mobile Corp .
1,332,450
15,000 Royal Dutch Petroleum Co.,
ADR 870,000
TOTAL
2,202,450
Financials Insurance, Banking & Other-7.3%
21,093 American International Group, Inc.
2,177,852
20,000 National Golf Properties,
Inc. 418,750
20,500 Progressive Corp. ,OH
1,651,531
40,000 Schwab (Charles) Corp.
1,517,500
TOTAL
5,765,633
Transportation-1.7
%
32,000 /1/FDX Corp.
1,350,000
Utilities-2.1%
20,000 /1/MCI Worldcom, Inc.
1,653,750
TOTAL COMMON STOCKS (IDENTIFIED COST $37,559,792)
77,651,530
MUTUAL FUNDS SHARES-1.2%
488,944 SSGA US Government Money Market Fund, Series A
$ 488,944
488,944 Seven Seas Money Market
Fund 488,944
TOTAL MUTUAL FUND SHARES (AT AMORTIZED
COST) 977,888
TOTAL INVESTMENTS (IDENTIFIED COST $38,537,680)/2/ $
78,629,418
</TABLE>
/1/ Non-income producing security.
/2/ The cost of investments for federal tax purposes amounts to $38,537,680. The
net unrealized appreciation of investments on a federal tax basis amounts to
$40,091,738 which is comprised of $41,657,644 appreciation and $1,565,906
depreciation at November 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($78,637,981) at November 30, 1999.
The following acronym is used throughout this portfolio:
ADR--American Depositary Receipt
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Assets:
<S>
<C> <C>
Total investments in securities, at value (identified and tax cost
$38,537,680) $ 78,629,418
Cash
732
Income
receivable
37,164
Receivable for shares
sold 46,972
TOTAL
ASSETS
78,714,286
Liabilities:
Payable for Adviser fees $
44,506
Payable for shares redeemed
13,601
Accrued expenses
18,198
TOTAL
LIABILITIES
76,305
Net Assets for 3,014,923 shares
outstanding $ 78,637,981
Net Assets Consist
of:
Paid in
capital $
34,623,656
Net unrealized appreciation of
investments 40,091,738
Accumulated net realized gain on
investments 3,922,587
TOTAL NET
ASSETS $
78,637,981
Net Asset Value, Offering Price and Redemption Proceeds Per
Share:
Net Asset Value Per Share ($78,637,981 / 3,014,923 shares
outstanding) $ 26.08
Offering Price Per Share (100/95.50 of
$26.08)1 $ 27.31
</TABLE>
1 See "What Do Shares Cost" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
<C>
Dividends (net of foreign taxes withheld of $1,569)
$ 481,145
Interest 56,262 Total income 537,407 Expenses:
Investment adviser fee $
508,453
Administrative personnel and services fee
103,045
Custodian fees
17,967
Transfer and dividend disbursing agent fees and expenses
23,120
Directors'/Trustees' fees
6,002
Auditing fees
12,635
Legal fees
1,954
Portfolio accounting fees
41,001
Share registration costs
21,622
Printing and postage
6,956
Insurance premiums
793
Miscellaneous
3,450
TOTAL EXPENSES
746,998
Waiver:
Waiver of investment adviser fee
(33,896)
Net
expenses
713,102
Net operating loss
(175,695)
Realized and Unrealized Gain (Loss) on
Investments:
Net realized gain on investments
3,922,588
Net change in unrealized appreciation of investments
17,352,205
Net realized and unrealized gain on investments
21,274,793
Change in net assets resulting from operations $
21,099,098
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998
<S>
<C> <C>
Increase (Decrease) in Net
Assets
Operations:
Net investment income/(operating loss) $
(175,695) $ 43,567
Net realized gain (loss) on investments ($3,922,588 and $1,916,090 respectively, as
computed for federal tax purposes)
3,922,588 1,916,090
Net change in unrealized appreciation
17,352,205 6,992,741
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
21,099,098 8,952,398
Distributions to
Shareholders:
Distributions from net investment income
(5,882) (40,878)
Distributions from net realized gains
(1,916,014) (2,622,798)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS
(1,921,896) (2,663,676)
Share
Transactions:
Proceeds from sale of shares
3,922,389 3,758,666
Net asset value of shares issued to shareholders in payment of distributions declared
1,908,528 2,625,273
Cost of shares redeemed
(4,690,795) (3,241,375)
Change in net assets resulting from share transactions
1,140,122 3,142,564
Change in net assets
20,317,324 9,431,286
Net
Assets:
Beginning of period
58,320,657 48,889,371
End of period (including undistributed net investment income of $0 and
$12,379,respectively) $
78,637,981 $ 58,320,657
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
NOVEMBER 30, 1999
ORGANIZATION
FirstMerit 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 financial statements included herein are
only those of FirstMerit 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. The investment objective of the Fund is to
achieve capital appreciation.
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
Listed equity securities are valued at the last sale price reported on a
national securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be valued
at amortized cost, which approximates fair market value. Investments in other
open-end regulated investment companies are valued at net asset value.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Non-cash dividends included in dividend income, if any are
recorded at fair value.
Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions do
not represent a return of capital for federal income tax purposes.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for net operating
losses and tax equalization accounting. The following reclassifications have
been made to the financial statements.
<TABLE>
<CAPTION>
Increase (Decrease)
Accumulated
Distributions in
Accumulated Excess of Net
Net Realized Investment
Gain/Loss Income Paid in Capital
<S> <C> <C>
$(87) $169,198 $(169,111)
</TABLE>
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 their income. Accordingly, no provision for federal taxes
is 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. Losses may occur on these transactions due to changes in market
conditions or the failure of counterparties to perform under the contract.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis.
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 November 30
1999 1998
<S>
<C> <C>
Shares sold
174,519 209,947
Shares issued to shareholders in payment of distributions declared
92,111 163,745
Shares redeemed
(211,314) (177,349)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS
55,316 196,343
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory Fee
FirstMerit Bank, the Fund's investment adviser (the "Adviser"), receives for its
services an annual investment advisory fee equal to 0.75% of the Fund's average
daily net assets. The Adviser may voluntarily choose to waive any portion of its
fee. The Adviser can modify or terminate this voluntary waiver at any time at
its sole discretion.
Administrative Fee
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services. The fee paid to FAS is based on the level
of average aggregate net assets of the Trust for the period.
Transfer and Dividend Disbursing Agent Fees and Expenses
Federated Service Company ("FServ") through its subsidiary Federated Shareholder
Service Company ("FSSC"), serves as transfer and dividend disbursing agent for
the Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
Portfolio Accounting Fees
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of- pocket expenses.
Organizational Expenses
Organizational expenses of $35,000 were borne initially by FAS. The Fund has
reimbursed FAS for these expenses. These expenses have been deferred and are
being amortized over a five-year-period following the Fund's effective date. For
the period ended November 30, 1999, the Fund expensed $7,612 in organizational
expenses.
General
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended November 30, 1999, were as follows:
<TABLE>
<S> <C>
Purchases $19,049,744
Sales $18,369,825
</TABLE>
Report of Independent Public Accountants
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
FIRSTMERIT FUNDS (FIRSTMERIT EQUITY FUND)
(formerly Newpoint Equity Fund)
We have audited the accompanying statement of assets and liabilities of
FirstMerit Equity Fund, (an investment portfolio of FirstMerit Funds, a
Massachusetts business trust), including the schedule of portfolio investments,
as of November 30, 1999, the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
periods then ended, and the financial highlights for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust'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, 1999, 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
FirstMerit Equity Fund, an investment portfolio of FirstMerit Funds, as of
November 30, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and its financial highlights for the periods presented, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 11, 2000
Notes
Notes
Notes
FirstMerit Equity Fund
(formerly, Newpoint Equity Fund)
A Portfolio of FirstMerit Funds (formerly, Newpoint Funds)
JANUARY 31, 2000
A Statement of Additional Information (SAI) dated January 31, 2000 is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's SAI and Annual and Semi-Annual
Reports to shareholders. To obtain the SAI, Annual Report, Semi-Annual Report
and other information without charge, and make inquiries, call FirstMerit
Securities, Inc. or the Fund at 1-800-627-1289.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
FirstMerit Equity Fund
5800 Corporate Drive
Pittsburgh, PA 15237-7010
1-800-341-7400
Federated Securities Corp., Distributor
Investment Company Act File No. 811-6224
Cusip 337944102
G00580-01 (1/00)
[LOGO]
RECYCLED
PAPER
PROSPECTUS
FirstMerit Government
Money Market Fund
(formerly, Newpoint Government Money Market Fund)
A Portfolio of FirstMerit Funds
(formerly, Newpoint Funds)
Mutual fund shares are not bank deposits, federally insured, or guaranteed, and
may lose value.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Fund Goals, Strategies, and Risks 1
What are the Specific Risks of Investing in the Fund? 1
Risk/Return Summary 2
What are the Fund's Fees and Expenses? 3
What do Shares Cost? 4
How is the Fund Sold? 4
How to Purchase Shares 4
How to Redeem Shares 5
Purchases and Redemptions Through Exchanges 7
Account and Share Information 8
Who Manages the Fund? 8
Year 2000 Statement 9
Shareholder Meeting Results 9
Financial Information 10
Report of Independant Public Accountants 18
</TABLE>
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| |
| NOT FDIC INSURED |
| |
| MAY LOSE VALUE |
| |
| NO BANK GUARANTEE |
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JANUARY 31, 2000
Fund Goals, Strategies,
and Risks
WHAT IS THE FUND'S GOAL?
The Fund is a money market fund which seeks to provide stability of principal
and current income consistent with stability of principal by investing in
short-term U.S. government securities.
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing in U.S. government
securities with remaining maturities of 397 days or less which are either issued
or guaranteed by the U.S. government, its agencies, or instrumentalities. In
selecting securities for the Fund, the Adviser considers general economic trends
and analyzes overall market conditions. The Adviser considers the current
short-term yield curve along with the spread between government agencies and
Treasuries.
WHAT TYPES OF U.S. GOVERNMENT SECURITIES DOES THE FUND PURCHASE?
U.S. government securities are securities issued by the U.S. government or its
agencies. Treasury securities are direct obligations of the federal government
of the United States. Investors regard Treasury securities as having the lowest
credit risks.
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity (a GSE) acting under federal authority. The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support though federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Investors regard agency
securities as having low credit risks, but not as low as Treasury securities.
What are the Specific Risks of Investing in the Fund?
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund. An investment in
the Fund is not a deposit of FirstMerit Bank and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Prices of fixed income securities rise and fall in response to interest rate
changes. Generally, when interest rates rise, prices of fixed-income securities
fall. Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize these
risks by purchasing short-term securities. However, these risks may adversely
affect the Fund's total return or yield.
Risk/Return Summary
Risk/Return Bar Chart and Table
[CHART APPEARS HERE]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on a
yearly basis.
The Fund's shares are sold without sales charge (load). The total returns
displayed above are based upon net asset value.
Within the period shown in the Chart, the Fund's highest quarterly return was
1.33% (quarter ended 6/30/95). Its lowest quarterly return was 0.60% (quarter
ended 12/31/93).
The Fund's Seven-Day Net Yield as of 12/31/99 was 4.71%.
You may call the Fund at 1-800-627-1289 for the current 7-Day Net Yield.
Average Annual Total Return
The following table represents the Average Annual Total Return through 12/31/99.
<TABLE>
<CAPTION>
Calendar Period Fund
<S> <C>
1 Year 4.55%
5 Years 4.89%
Start of Performance/1/ 4.31%
</TABLE>
1 The Fund's performance date was March 11, 1991.
Past performance is no guarantee of future results. This information provides
you with historical performance information so that you can analyze whether the
Funds' investment risks are balanced by its potential returns.
What are the Fund's Fees and Expenses?
FIRSTMERIT GOVERNMENT MONEY MARKET FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S>
<C>
Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price
or redemption proceeds, as applicable) None Maximum Sales Charge (Load) Imposed
on Reinvested Dividends (and other Distributions) (as a percentage of offering
None
price)
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange
Fee
None
Annual Fund Operating Expenses (Before Waivers)1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management
Fee/2/
0.50%
Distribution (12b-1)
Fee None
Shareholder Services
Fee None
Other
Expenses
0.27%
Total Annual Fund Operating
Expenses 0.77%
</TABLE>
1 Although not contractually obligated to do so, the adviser waived certain
amounts. These are shown below along with the net expenses the Fund actually
paid for the fiscal year ended November 30, 1999.
<TABLE>
<S>
<C>
Waiver of Fund
Expenses 0.20%
Total Actual Annual Fund Operating Expenses (after
waivers) 0.57%
</TABLE>
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.30% for the fiscal year ended
November 30, 1999.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are before waivers as shown in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
Calendar Period Fund
<S> <C>
1 Year $ 82
3 Years $ 255
5 Years $ 444
10 Years $ 990
</TABLE>
What do Shares Cost?
You can purchase, redeem, or exchange shares any day the New York Stock Exchange
(NYSE) and Federal Reserve wire system are open. When the Fund receives your
transaction request in proper form, it is processed at the next calculated
public offering price.
The Fund attempts to stabilize the net asset value (NAV) of its shares at
$1.00 per share. The public offering price is the NAV. NAV is determined at
12:00 noon (Eastern time), 3:00 p.m. (Eastern time), and at the end of regular
trading (normally 4:00 p.m. Eastern time) each day the NYSE and Federal Reserve
wire system are open. The Fund, of course, cannot guarantee its NAV will always
remain at $1.00 per share.
The minimum initial investment in the Fund is $1,000. Subsequent investments
must be in amounts of at least $100.
Keep in mind that financial intermediaries may charge you fees for their
services in connection with your share transactions.
How is the Fund Sold?
The Fund's Distributor, Federated Securities Corp., markets the shares described
in this prospectus to institutions and individuals, directly or through
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
THROUGH FIRSTMERIT BANK
Trust customers of FirstMerit Bank placing an order to purchase shares of the
Fund may open an account by calling FirstMerit Bank at 330-384-7300. Information
needed to establish the account will be taken over the telephone by a FirstMerit
trust representative. Fund shares may also be purchased by telephone by certain
trust customers through procedures established with FirstMerit and its
affiliates. Such procedures may include arrangements under which certain
accounts are swept periodically and amounts exceeding an agreed-upon minimum are
invested automatically in the Fund.
Purchase orders by trust customers must be received by 9:30 a.m. (Eastern
time) and payment received by 3:00 p.m. (Eastern time) on the same day in order
to receive Fund shares and dividends on that day.
THROUGH FIRSTMERIT SECURITIES, INC.
Individual investors and customers of FirstMerit Securities may purchase shares
by calling FirstMerit Securities, Inc. at 1-800-627-1289. An account application
may be opened by completing a new account application form available from
FirstMerit Securities. You may also receive an application by writing to
FirstMerit Securities at: P.O. Box 8612, Boston, Massachusetts 02266-8612. Texas
residents should purchase shares of the Fund through Federated Securities Corp.
at 1-800-356-2805. Payment may be made by wire, a transfer from an Automated
Clearing House (ACH) member institution, federal funds, or by sending a check.
By Wire
Purchase orders by wire must be received by 9:30 a.m. (Eastern time) and payment
received by 3:00 p.m. (Eastern time) on the same day in order to receive Fund
shares and dividends on that day.
By Automated Clearing House (ACH)
Purchase orders for which payment will be made via ACH must be received by 3:00
p.m. (Eastern time) in order to receive Fund shares and dividends on the next
business day. This purchase option can be established by completing the
appropriate sections of the account application.
By Mail
You may also purchase Fund shares by mailing a check and a completed account
application to FirstMerit Securities at P.O. Box 8612, Boston, Massachusetts
02266-8612. Purchases by check are considered received after the payment by
check is converted into federal funds and is received by the Fund. You will
receive Fund shares and dividends on the day the federal funds are received.
Through an Exchange
You may purchase shares through an exchange from the FirstMerit Equity Fund. See
"Exchange Privileges" below for more information.
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 your checking
account or by transfer via ACH and invested in Fund shares. You may apply for
this participation in this program through FirstMerit Securities.
How to Redeem Shares
THROUGH FIRSTMERIT BANK
Trust customers of FirstMerit Bank may redeem Fund shares by telephoning
FirstMerit Bank at 330-384-7300. If your redemption order is received by 9:30
a.m. (Eastern time) redemption proceeds will be sent to you on the same day. You
will not, however, receive dividends for that day.
THROUGH FIRSTMERIT SECURITIES, INC.
By Phone
Individual investors and customers of FirstMerit Securities may redeem shares by
calling FirstMerit Securities at 1-800-627-1289. You may redeem shares by
telephone once you have completed the appropriate authorization form for
telephone transactions. If you are requesting a redemption via electronic
transfer to your account with an ACH member institution, you must call by 3:00
p.m. (Eastern time) in order to receive the redemption amount based on that
day's NAV.
By Mail
You may redeem shares by sending a written request to FirstMerit Securities.
Call FirstMerit Securities for specific instructions before redeeming by mail.
You will be asked to provide in the request your name, the Fund's name your
account number, and the share or dollar amount requested. Your redemption
request will be processed on the day your request is received by the Fund in
proper form. Dividends are paid up to and including the day such request is
processed.
CHECKWRITING PRIVILEGES
At your request, the transfer agent will establish a checking account for
redeeming shares. For further information, contact FirstMerit Securities.
With a Fund checking account, shares may be redeemed simply by writing a check
for $50 or more. The redemption will be made at the NAV on the date that the
check is presented to the Fund. A check may not be written to close an account.
If you wish to redeem shares and have the proceeds available, a check may be
written and negotiated through your bank. Checks should never be sent directly
to the transfer agent or State Street Bank and Trust Company to redeem shares.
Canceled checks are sent to you each month upon request.
PAYMENT OPTIONS
Your redemption proceeds will typically be mailed by check to your address of
record. However, the following payment options are available if you complete the
appropriate authorization form. These payment options require a signature
guarantee if they were not established prior to redeeming shares:
. an electronic transfer to your depositary account at an ACH member
institution; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
SYSTEMATIC WITHDRAWAL/
EXCHANGE PROGRAM
You may automatically redeem or exchange shares in a minimum amount of $100 on a
regular basis. To participate in this program, you must complete the appropriate
form available from FirstMerit Securities. Your account value must have a value
of at least $10,000 at the time the program is established. This program may
reduce, and eventually deplete, your account, and the payments should not be
considered to be yield or income.
LIMITATIONS OF REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. However, payment may be delayed up to seven
days:
. to allow your purchase payment to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
. your redemption is to be sent to an address other than the address of record;
. your redemption is to be sent to an address of record that was changed within
the last thirty days; or
. a redemption is payable to someone other than the shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or credit union) or a broker/dealer that is a domestic stock
exchange member, but not by a notary public.
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.
Purchases and Redemptions Through Exchanges
You may purchase or redeem Fund shares through an exchange with FirstMerit
Equity Fund. Trust customers should call FirstMerit Bank and all investors
should call or write to FirstMerit Securities. You must meet the minimum initial
investment requirement for purchasing shares and both accounts must have a
common owner. Your exchange request must be received by 3:30 p.m. (Eastern time)
in order for shares to be exchanged at that day's NAV.
In addition, shares of the Fund may also be exchanged for certain other funds
distributed by Federated Securities Corp. that are not advised by FirstMerit
Bank (Federated Funds). For further information on the availability of Federated
Funds for exchanges of further information about the exchange privilege, call
FirstMerit Securities, Inc. at 1-800-627-1289. Both accounts must have a common
owner.
To do this, you must:
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction. You may also be subject to a sales charge by the fund into
which you are exchanging. Signatures must be guaranteed if you request an
exchange into another fund with a different shareholder registration.
The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or Adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading which is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other funds.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will notify you if it changes
telephone transaction privileges.
Share Certificates
The Fund does not issue share certificates.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
your payment for share purchases is received by 3:00 p.m., you will begin to
earn dividends the same day.
In addition, the Fund pays capital gains, if any, at least annually. Your
dividends and capital gains distributions will be automatically reinvested in
additional shares, unless you elect cash payments. Fund distributions are
expected to be primarily dividends.
ACCOUNTS WITH LOW BALANCES
Non-retirement accounts may be closed if redemptions or exchanges cause the
account balance to fall below the minimum initial investment amount. Before an
account is closed, you will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends you an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund.
Dividends are taxable as ordinary income, capital gains are taxable at
different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be primarily dividends. Redemptions and
exchanges are taxable sales.
Please consult your tax adviser regarding your federal, state, and local tax
liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, FirstMerit Bank, N.A. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is 121 South Main
Street, Akron, Ohio 44308-1440.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The investment advisory contract provides for
the voluntary waiver 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.
ADVISER'S BACKGROUND
FirstMerit Bank, 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, 1999, the Trust Division of FirstMerit Bank had
approximately $5 billion in assets under administration, of which it had
investment discretion over $3 billion. FirstMerit Bank has served as the Fund's
investment adviser since the Fund's inception.
As part of its regular banking operations, FirstMerit Bank 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
FirstMerit Bank. The lending relationship will not be a factor in the selection
of securities.
Shareholder Meeting Results
A Special Meeting of Shareholders of Newpoint Government Money Market Fund was
held on December 17, 1999. On October 27, 1999, the record date for shareholders
voting at the meeting, there were 189,770,103 total outstanding shares. The
following items were considered by shareholders and the results of their voting
were as follows:
Agenda Item 1
Election of Trustees*:
<TABLE>
<CAPTION>
Withheld
Authority
Names For to Vote
<S> <C> <C>
Thomas G. Bigley 130,676,066 8,557
Nicholas P. Constantakis 130,665,117 19,506
John F. Cunningham 130,676,066 8,557
J. Christopher Donahue 130,676,066 8,557
Charles F. Mansfield, Jr. 130,676,066 8,557
John E. Murray, Jr., S.J.D. 130,676,066 8,557
John S. Walsh 130,665,117 19,506
</TABLE>
* The following Trustees continued their terms as Trustees: John F. Donahue,
John T. Conroy, Jr., William J. Copeland, Lawrence D. Ellis M.D, Edward C.
Gonzales, Peter E. Madden and Majorie P. Smuts
Agenda Item 2
To make changes to the fund's fundamental investment policies:
(a) To amend the fund's fundamental investment policy regarding borrowing
money and issuing senior securities:
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
129,587,257 426,704 670,663
</TABLE>
(b) To amend the fund's fundamental investment policy regarding investments in
real estate:
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
129,387,337 589,431 707,856
</TABLE>
(c) To amend the fund's fundamental investment policy regarding investments in
commodities:
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
129,360,657 620,746 703,221
</TABLE>
(d) To amend the fund's fundamental investment policy regarding underwriting
securities:
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
129,544,275 449,345 691,004
</TABLE>
(e) To amend the fund's fundamental investment policy regarding lending assets:
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
129,505,638 462,556 716,430
</TABLE>
(f) To amend the fund's fundamental investment policy regarding concentration of
the fund's investments in the securities of companies in the same industry:
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
129,491,177 509,834 683,613
</TABLE>
(g) To amend, and to make non-fundamental, the fund's fundamental investment
policy regarding buying securities on margin:
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
129,329,072 760,418 595,134
</TABLE>
(h) To amend, and to make non-fundamental, the fund's fundamental investment
policy regarding pledging assets:
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
128,900,606 551,794 1,232,224
</TABLE>
(i) To amend, and to make non-fundamental, the fund's fundamental investment
policy regarding investing in restricted securities:
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
129,430,170 536,684 717,770
</TABLE>
Agenda Item 3
To eliminate the fund's fundamental investment policy on selling securities
short:
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
129,350,733 608,824 725,067
</TABLE>
Agenda 4
To approve amendments and restatements to the Trust's Declaration of Trust:
(a) To require the approval of a majority of the outstanding voting securities
of the Trust in the event of the sale and conveyance of the assets of the Trust
to another trust or corporation:
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
129,605,835 416,309 662,480
</TABLE>
(b) To permit the Board of Trustees to liquidate assets of the Trust, or of its
series or classes, and distribute the proceeds of such assets to the holders of
such shares representing such interests, without seeking shareholder approval:
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
128,883,055 1,125,039 676,530
</TABLE>
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights are intended to help you understand the
Fund's financial performance for its past five fiscal years. Some of the
information is presented on a per share basis. Total returns represent the rate
you would have earned (or lost) on an investment in the Fund, assuming
reinvestment of all dividends and distributions.
This information has been audited by Arthur Andersen LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1999 1998 1997
1996 1995
<S> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $
1.00 $ 1.00
Income from Investment
Operations:
Net investment income 0.04 0.05 0.05
0.05 0.05
Less
Distributions:
Distributions from net investment income (0.04) (0.05) (0.05)
(0.05) (0.05)
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $
1.00 $ 1.00
Total Return/1/ 4.51% 4.92% 4.93%
4.83% 5.24%
Ratios to Average Net
Assets:
Expenses 0.57% 0.60% 0.60%
0.63% 0.74%
Net investment income 4.44% 4.82% 4.84%
4.73% 5.12%
Expense waiver/reimbursement/2/ 0.20 0.20 0.20
0.20 0.20
Supplemental
Data:
Net assets, end of period (000 omitted) $201,428 $134,989 $123,165
$85,230 $99,674
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 This voluntary expense decrease is reflected in both the expense and net
income ratios shown above.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Principal Value
Amount
<S> <C> <C>
U.S. GOVERNMENT AGENCIES--104.9%
Federal Farm Credit Bank Discount Notes--17.2%
$ 35,000,000 /1/5.150%-5.490%, 1/10/2000-2/25/2000 $ 34,654,934
Federal Farm Credit Bank--29.8%
60,000,000 4.850%-5.625%, 12/1/1999-2/1/2000 60,000,000
Federal Home Loan Bank Notes--57.9.%
117,810,000 /1/4.950%-5.570%, 12/1/1999-5/1/2000 116,723,585
TOTAL U.S. GOVERNMENT AGENCIES 211,378,519
TOTAL INVESTMENTS (AT AMORTIZED COST)(2) $ 211,378,519
</TABLE>
1 Discount rate at time of purchase.
2 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($201,427,746) at November 30, 1999.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
NOVEMBER 30, 1999
<TABLE>
<S> <C> <C>
Assets:
Total investments in securities, at amortized cost and value
$ 211,378,519
Income
receivable
777,407
Receivable for shares
sold 85,216
TOTAL
ASSETS
212,241,142
Liabilities:
Payable for investments purchased $ 10,000,000
Payable for shares redeemed 48,248
Payable to Bank 234,955
Income distribution payable 517,200
Accrued expenses 12,993
TOTAL
LIABILITIES
10,813,396
Net Assets for 201,427,746 shares outstanding
$ 201,427,746
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
$201,427,746 / 201,427,746 shares
outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED NOVEMBER 30, 1999
<TABLE>
<S> <C> <C>
Investment Income:
Interest $
8,036,888
Expenses:
Investment advisory fee $ 801,855
Administrative personnel and services fee 240,556
Custodian fees 10,192
Transfer and dividend disbursing agent fees and expenses 64,202
Directors'/Trustees' fees 6,648
Auditing fees 12,635
Legal fees 2,069
Portfolio accounting fees 44,332
Share registration costs 30,325
Printing and postage 10,263
Insurance premiums 1,105
Miscellaneous 6,688
TOTAL EXPENSES 1,230,870
Waivers:
Waiver of investment advisory fee $ (320,657)
Net
expenses
910,213
Net investment income $
7,126,675
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 7,126,675
$ 5,778,502
Distributions to Shareholders:
Distributions from net investment income
(7,126,675) (5,778,502)
Share Transactions:
Proceeds from sale of shares
315,285,511 237,093,604
Net asset value of shares issued to shareholders in payment of distributions
2,822,819 2,832,030
declared
Cost of shares redeemed
(251,669,671) (228,101,846)
Change in net assets resulting from share transactions
66,438,659 11,823,788
Change in net assets
66,438,659 11,823,788
Net Assets:
Beginning of period
134,989,087 123,165,299
End of period $ 201,427,746
$ 134,989,087
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
NOVEMBER 30, 1999
ORGANIZATION
FirstMerit 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 financial statements included herein are
only those of FirstMerit Government Money Market Fund (the "Fund"). 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. The investment objective of the Fund is to
provide stability of principal and current income consistent with stability of
principal.
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
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date. Dividend income and distributions to shareholders are recorded on the ex-
dividend date. Non- cash dividends included in dividend income, if any are
recorded at fair value.
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. Losses may occur on these transactions due to changes in market
conditions or the failure of counterparties to perform under the contract.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
November 30, 1999, capital paid-in aggregated $201,427,746.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998
<S>
<C> <C>
Shares sold
315,285,511 237,093,604
Shares issued to shareholders in payment of distributions declared
2,822,819 2,832,030
Shares redeemed
(251,669,671) (228,101,846)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS
66,438,659 11,823,788
</TABLE>
INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
FirstMerit Bank, the Fund's investment adviser (the "Advisory"), receives for
its services an annual investment adviser fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntary choose to waive any portion
of its fee and/or reimburse certain operating expenses of the Fund. The Adviser
can modify or terminate this voluntary waiver and/or reimbursement at any time
at its sole discretion.
Administrative Fee
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services. The fee paid to FAS is based on the level
of average aggregate net assets of the Trust for the period.
Transfer and Dividend Disbursing Agent Fees and Expenses
Federated Services Company ("FServ"), through its subsidiary, Federated
Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
Portfolio Accounting Fees
Fserv maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
General
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
Report of Independent Public Accountants
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF FIRSTMERIT FUNDS (FIRSTMERIT
GOVERNMENT MONEY MARKET FUND):
We have audited the accompanying statement of assets and liabilities of
FirstMerit Government Money Market Fund, (an investment portfolio of FirstMerit
Funds, a Massachusetts business trust), including the schedule of portfolio
investments, as of November 30, 1999, the related statement of operations for
the year then ended, and the statement of changes in net assets for each of the
two years in the periods then ended, and the financial highlights for the
periods presented. These financial statements and financial highlights are the
responsibility of the Trust'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, 1999, by correspondence with the custodian and broker. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statements
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
FirstMerit Government Money Market Fund, an investment portfolio of FirstMerit
Funds, as of November 30, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 11, 2000
P R O S P E C T U S
FirstMerit
Government
Money Market
Fund
(formerly, Newpoint Government
Money Market Fund)
A Portfolio of FirstMerit Funds
(formerly, Newpoint Funds)
JANUARY 31, 2000
A Statement of Additional Information (SAI) dated January 31, 2000 is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is in the Fund's SAI and Annual and Semi- Annual Reports to
shareholders. To obtain the SAI, Annual Report, Semi-Annual Report and other
information without charge, and make inquiries, call FirstMerit Securities, Inc.
or the Fund at 1-800-627-1289.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room of the Securities and Exchange Commission in
Washington, DC. You may also access fund information from the EDGAR Database on
the SEC's Internet site at http://www.sec.gov. You can purchase copies of this
information by contacting the SEC by email at [email protected] or by writing
to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-
942-8090 for information on the Public Reference Room's operations and copying
fees.
FirstMerit Government Money Market Fund
5800 Corporate Drive
Pittsburgh, PA 15237-7010
1-800-341-7400
Federated Securities Corp., Distributor
Investment Company Act File No. 811-6224
Cusip 337944201
0121703A (1/00)
Statement of Additional Information January 31, 2000
FirstMerit Government Money Market Fund
(formerly, Newpoint Government Money Market Fund)
A Portfolio of FirstMerit Funds (formerly, Newpoint Funds)
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for FirstMerit Government
Money Market Fund dated January 31, 2000. Obtain the prospectus without
charge by calling 1-800-627-1289.
Contents
How is the Fund Organized? 1
Securities in Which the Fund Invests
1
What do Shares Cost? 5
Massachusetts Partnership Law 6
Account and Share Information 6
Tax Information 6
Who Manages and Provides Services to the Fund?
7
How Does the Fund Measure Performance? 11
Addresses
Federated Securities Corp., Distributor,
subsidiary of Federated Investors
Cusip 337944201
0121703B (1/2000)
<PAGE>
13
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of FirstMerit Funds (formerly, Newpoint
Fund) (Trust). The Trust is an open-end management investment company that was
established under the laws of the Commonwealth of Massachusetts on November 12,
1990. The Trust changed its name from "Portage Funds" to "Newpoint Funds" on
January 31, 1995. The Trust changed its name from "Newpoint Funds" to
"FirstMerit Funds" on January 31, 2000. The Trust may offer separate series of
shares representing interests in separate portfolios of securities.
SECURITIES IN WHICH THE FUND INVESTS
Following is a table that indicates which types of securities or investment
techniques are a: o P = Principal investment of the Fund; (shaded in chart) o A
= Acceptable (but not principal) investment of the Fund
- ---------------------------------------------- --------------
- ---------------------------------------------- --------------
- ----------------------------------------------- -------------
Borrowing 1 A
- -----------------------------------------------
- ----------------------------------------------- -------------
Illiquid and Restricted Securities 2 A
- -----------------------------------------------
- ----------------------------------------------- -------------
Lending of Portfolio Securities A
- -----------------------------------------------
- ----------------------------------------------- -------------
Repurchase Agreements A
- ----------------------------------------------- -------------
- ----------------------------------------------- -------------
Reverse Repurchase Agreements A
- ----------------------------------------------- -------------
- ----------------------------------------------- -------------
Securities of Other Investment Companies A
- -----------------------------------------------
- ----------------------------------------------- -------------
US Government Securities P
- ----------------------------------------------- -------------
- ----------------------------------------------- -------------
When-Issued and Delayed Delivery Transactions A
- ----------------------------------------------- -------------
1. The Fund is required to maintain continuous asset coverage to 300% of the
amount borrowed. If the coverage declines to less than 300%, the Fund must sell
sufficient portfolio securities to restore the coverage even if it must sell the
securities at a loss. 2. 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.
SECURITIES DESCRIPTIONS, TECHNIQUES AND RISKS
Borrowing. The Fund may borrow money from banks or through reverse repurchase
agreements in amounts up to one-third of total assets and pledge some assets as
collateral. The Fund will pay interest on borrowed money and may incur other
transaction costs. These expenses could exceed the income received or capital
appreciation realized by the Fund from any securities purchased with borrowed
money. With respect to borrowings, the Fund is required to maintain continuous
asset coverage to 300% of the amount borrowed. If the coverage declines to less
than 300%, the Fund must sell sufficient portfolio securities to restore the
coverage even if it must sell the securities at a loss.
Illiquid and Restricted Securities. Illiquid securities are those that cannot
readily be sold within seven days. Restricted securities are securities that
have restrictions with respect to their resale. Generally, the restrictions are
on whom or to what type of entity they can be sold. Often, issuers of securities
may not want to register them with the SEC, so they will sell them to a specific
class of investors under Rule 144A or Regulation D of the Securities Act of
1933. Purchasers of these "private placements" must be institutional investors
(mutual funds, insurance companies, etc.), and there may be minimum purchase
amounts. The reason 144A securities may be "illiquid" is that a fund that
purchases them cannot just sell them on the open market - they must find another
qualified institutional buyer to purchase the security under Rule 144A. However,
not all restricted securities are "illiquid". The SEC permits a fund's board to
make a determination that certain 144A securities or Section 4(2) paper issues
are liquid. Conversely, not all illiquid securities are restricted.
Lending of Portfolio Securities. In order to generate additional income, the
Fund may lend portfolio securities. When the Fund lends portfolio securities, it
will receive either cash or liquid securities as collateral from the borrower.
The Fund will reinvest cash collateral in short-term liquid securities that
qualify as an otherwise acceptable investment for the Fund. If the market value
of the loaned securities increases, the borrower must furnish additional
collateral to the Fund. During the time portfolio securities are on loan, the
borrower pays the Fund any dividends or interest paid on such securities. Loans
are subject to termination at the option of the Fund or the borrower. The Fund
may pay reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to a securities lending agent or broker. When the Fund
lends its portfolio securities, it may not be able to get them back from the
borrower on a timely basis. If this occurs, the Fund may lose certain investment
opportunities.
Repurchase Agreements and Reverse Repurchase Agreements. The Fund's custodian is
required to take possession of the securities subject to repurchase agreements.
These securities are marked to market daily. To the extent that the original
seller defaults and 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 files for bankruptcy or becomes
insolvent, disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that, under the procedures normally in effect
for custody of the 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.
Reverse repurchase agreement transactions are similar to borrowing cash. In a
reverse repurchase agreement, the Fund sells a portfolio security 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 at a price
equal to the original sale price plus interest. The Fund may use reverse
repurchase agreements for liquidity and may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous.
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 maintained until the transaction is settled.
Investing in Securities of Other Investment Companies. In conjunction with the
Fund's ability to invest in the securities of other investment companies, the
Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
U.S. Government Securities. Agency securities are issued or guaranteed by a
federal agency or other government sponsored entity acting under federal
authority (a "GSE"). Some GSEs are supported by the full, faith and credit of
the United States. Other GSEs receive support through federal subsidies, loans
or other benefits. A few GSEs have no explicit financial support, but are
regarded as having implied support because the federal government sponsors their
activities. Investors regard agency securities as having low credit risk, but
not as low as Treasury securities.
Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest credit
risk.
Some of the short-term U.S. government securities the Fund may purchase carry
variable interest rates. These securities have a rate of interest subject to
adjustment at least annually. This adjusted interest rate is ordinarily tied to
some objective standard, such as the 91-day U.S. Treasury bill rate.
Variable interest rates will reduce the changes in the market value of such
securities from their original purchase prices. Accordingly, the potential for
capital appreciation or capital depreciation should not be greater than the
potential for capital appreciation or capital depreciation of fixed interest
rate U.S. government securities having maturities equal to the interest rate
adjustment dates of the variable rate U.S.
government securities.
The Fund may purchase variable rate U.S. government securities upon the
determination by the Board that the interest rate as adjusted will cause the
instrument to have a current market value that approximates its par value on the
adjustment date.
When-Issued and Delayed Delivery Transactions. These transactions are made to
secure what is considered to be an advantageous price or yield. 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. Other than
normal transaction costs, no fees or expenses are incurred. However, liquid
assets of the Fund are segregated on the Fund's records at the trade date in an
amount sufficient to make payment for the securities to be purchased. These
assets are marked to market daily and are maintained until the transaction has
been settled.
INVESTMENT LIMITATIONS
Issuing Senior Securities and Borrowing Money. The Fund may borrow money,
directly or indirectly, and issue senior securities to the maximum extent
permitted under the 1940 Act.
Investing in Real Estate. The Fund may not purchase or sell real estate,
provided that this restriction does not prevent the Fund from investing in
issuers which invest, deal, or otherwise engage in transactions in real estate
or interests therein, or investing in securities that are secured by real estate
or interests therein. The Fund may exercise its rights under agreements relating
to such securities, including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement until that real estate
can be liquidated in an orderly manner.
Investing in Commodities. The Fund may not purchase or sell physical
commodities, provided that the Fund may purchase securities of companies that
deal in commodities.
Underwriting. The Fund may not underwrite the securities of other issuers,
except that the Fund may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under circumstances where it
may be considered to be an underwriter under the Securities Act of 1933.
Lending Cash or Securities. The Fund may not make loans, provided that this
restriction does not prevent the Fund from purchasing debt obligations, entering
into repurchase agreements, lending its assets to broker/dealers or
institutional investors and investing in loans, including assignments and
participation interests.
Concentration. The Fund will not make investments that will result in the
concentration of its investments in the securities of issuers primarily engaged
in the same industry. Government securities, municipal securities and bank
instruments will not be deemed to constitute an industry.
In applying the Fund's concentration restriction: (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (c) asset-backed
securities will be classified according to the underlying assets securing such
securities.
To conform to the current view of the SEC staff that only domestic bank
instruments may be excluded from industry concentration limitations, as a matter
of non-fundamental policy, the Fund will not exclude foreign bank instruments
from industry concentration limitation tests so long as the policy of the SEC
remains in effect. In addition, investments in bank instruments, and investments
in certain industrial development bonds funded by activities in a single
industry, will be deemed to constitute investment in an industry, except when
held for temporary defensive purposes. The investment of more than 25% of the
value of the Fund's total assets in any one industry will constitute
"concentration."
The above limitations cannot be changed by the Board of Trustees (Board) unless
authorized by the by the "vote of a majority of its outstanding voting
securities," as defined by the Investment Company Act. The following
limitations, however, may be changed by the Board without shareholder approval.
Shareholders will be notified before any material change in these limitations
becomes effective.
Restricted Securities. The Fund may invest in restricted securities. Restricted
securities are any securities in which the Fund may invest pursuant to its
investment objective and policies but which are subject to restrictions on
resale under federal securities law. Under criteria established by the Trustees,
certain restricted securities are determined to be liquid. To the extent that
restricted securities are not determined to be liquid, the Fund will limit their
purchase, together with other illiquid securities, to 10% of its net assets
Pledging Assets. The Fund will not mortgage, pledge, or hypothecate any of its
assets, provided that this shall not apply to the transfer of securities in
connection with any permissible borrowing or to collateral arrangements in
connection with permissible activities.
Buying on Margin. The Fund will not purchase securities on margin, provided that
the Fund may obtain short-term credits necessary for the clearance of purchases
and sales of securities.
Investing in Securities of Other Investment Companies. The Fund may invest its
assets in securities of other investment companies, including the securities of
affiliated money market funds, as an efficient means of carrying out its
investment policies and managing its uninvested cash.
Investing in Illiquid Securities. The Fund will not purchase securities for
which there is no readily available market, or enter into repurchase agreements
or purchase time deposits maturing in more than seven days, if immediately after
and as a result, the value of such securities would exceed, in the aggregate,
10% of the Fund's net assets.
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.
Regulatory Compliance
The Fund may follow non-fundamental operational policies that are more
restrictive than their fundamental investment limitations, as set forth in this
prospectus and Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, (the "ICA"). In particular, the Fund
will comply with the various requirements of SEC Rule 2a-7 under the ICA which
regulates money market mutual funds. For example, with limited exceptions, Rule
2a-7 prohibits the investment of more than 5% of a fund's total assets in the
securities of any one issuer, although the Fund's investment limitation only
requires such 5% diversification with respect to 75% of its assets. The Fund
will invest more than 5% of its assets in any one issuer only under the
circumstances permitted by Rule 2a-7. The Fund will also determine the effective
maturity of its investments, as well as its ability to consider a security as
having received the requisite short-term ratings by the rating agencies,
according to Rule 2a-7. The Fund may change these operational policies to
reflect changes in the laws and regulations without the approval of its
shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
WHAT DO SHARES COST?
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and Federal Reserve Wire System are open for business. The
procedure for purchasing shares of the Fund is explained in the prospectus under
"How to Purchase Shares."
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. FirstMerit Bank and Federated
Shareholder Services Company act as the shareholder's agent in depositing checks
and converting them to federal funds.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder 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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of the Trust have
equal voting rights, except that in matters affecting only a particular fund or
class, only shares of that fund or class are entitled to vote.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of the Trust's outstanding
shares of all series entitled to vote.
As of January 4, 2000, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding shares: SEI Trust Company, Oaks,
Pennsylvania, owned approximately 7123,427,121.44 (63.46%) shares; FirstMerit
Bank, Akron, Ohio, owned approximately 138,412,337.39 (19.75%) shares.
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolio will be separate from those realized by the Fund.
<PAGE>
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date , present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, and the total compensation received as a Trustee from the Trust
for its most recent fiscal year. The Trust is comprised of two Funds.
As of January 4, 2000, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Name
Birth Date Aggregate
Address Principal Occupations Compensation
Position With Trust for Past Five Years From Trust
John F. Donahue*+ Chief Executive Officer and Director or Trustee of the Federated $0
Birth Date: July 28, 1924 Fund Complex; Chairman and Director, Federated Investors, Inc.;
Federated Investors Tower Chairman and Trustee, Federated Investment Management Company;
1001 Liberty Avenue Chairman and Director, Federated Investment Counseling and
Pittsburgh, PA Federated Global Research Corp.; Chairman, Passport Research, Ltd.
CHAIRMAN AND TRUSTEE
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; Director, $1,153.90
Birth Date: February 3, 1934 Member of Executive Committee, Children's Hospital of Pittsburgh;
15 Old Timber Trail Director, Robroy Industries, Inc. (coated steel conduits/computer
Pittsburgh, PA storage equipment);formerly: Senior Partner, Ernst & Young LLP;
TRUSTEE Director, MED 3000 Group, Inc. (physician practice management);
Director, Member of Executive Committee, University of Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; President, $1,269.48
Birth Date: June 23, 1937 Investment Properties Corporation; Senior Vice President,
Grubb & Ellis/Investment Properties John R. Wood and Associates, Inc., Realtors; Partner or Trustee in
Corporation private real estate ventures in Southwest Florida; formerly:
3201 Tamiami Trial North President, Naples Property Management, Inc. and Northgate Village
Naples, FL Development Corporation.
TRUSTEE
John F. Cunningham Director or Trustee of some of the Federated Fund Complex; $1,153.90
Birth Date: March 5, 1943 Chairman, President and Chief Executive Officer, Cunningham & Co.,
353 El Brillo Way Inc. (strategic business consulting); Trustee Associate, Boston
Palm Beach, FL College; Director, Iperia Corp. (communications/software);
TRUSTEE formerly: Director, Redgate Communications and EMC Corporation
(computer storage systems).
Previous Positions: Chairman of the Board and Chief Executive
Officer, Computer Consoles, Inc.;
President and Chief Operating Officer,
Wang Laboratories; Director, First
National Bank of Boston; Director,
Apollo Computer, Inc.
Nicholas P Constantakis Director or Trustee of the Federated Fund Complex; Director, $0
Birth Date: September 3, 1939 Michael Baker Corporation (engineering, construction, operations
175 Woodshire Drive and technical services); formerly: Partner, Andersen Worldwide SC.
Pittsburgh, PA
TRUSTEE
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; Professor of $1,153.90
Birth Date: October 11, 1932 Medicine, University of Pittsburgh; Medical Director, University
3471 Fifth Avenue of Pittsburgh Medical Center - Downtown; Hematologist, Oncologist,
Suite 1111 and Internist, University of Pittsburgh Medical Center; Member,
Pittsburgh, PA National Board of Trustees, Leukemia Society of America.
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex; formerly: $1,084.45
Birth Date: March 16, 1942 Representative, Commonwealth of Massachusetts General Court;
One Royal Palm Way President, State Street Bank and Trust Company and State Street
100 Royal Palm Way Corporation.
Palm Beach, FL
TRUSTEE Previous Positions: Director, VISA USA and VISA International;
Chairman and Director, Massachusetts Bankers Association;
Director, Depository Trust Corporation; Director, The Boston Stock
Exchange..
Charles F. Mansfield, Jr. Director or Trustee of some of the Federated Fund Complex; $1,213.68
Birth Date: April 10, 1945 Executive Vice President, Legal and External Affairs, Dugan Valva
80 South Road Contess, Inc. (marketing, communications, technology and
Westhampton Beach, NY consulting).; formerly Management Consultant.
TRUSTEE
Previous Positions: Chief Executive
Officer, PBTC International Bank;
Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial
Officer of Retail Banking Sector, Chase
Manhattan Bank; Senior Vice President,
Marine Midland Bank; Vice President,
Citibank; Assistant Professor of
Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund Complex; President, Law $1,269.48
Birth Date: December 20, 1932 Professor, Duquesne University; Consulting Partner, Mollica &
President, Duquesne University Murray; Director, Michael Baker Corp. (engineering, construction,
Pittsburgh, PA operations and technical services).
TRUSTEE
Previous Positions: Dean and Professor of Law, University of
Pittsburgh School of Law; Dean and Professor of Law, Villanova
University School of Law.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; Public $1,153.90
Birth Date: June 21, 1935 Relations/Marketing/Conference Planning.
4905 Bayard Street
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum Company of
TRUSTEE America; television producer; business owner.
John S. Walsh Director or Trustee of some of the Federated Fund Complex; $1,153.90
Birth Date: November 28, 1957 President and Director, Heat Wagon, Inc. (manufacturer of
2007 Sherwood Drive construction temporary heaters); President and Director,
Valparaiso, IN Manufacturers Products, Inc. (distributor of portable construction
TRUSTEE heaters); President, Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh & Kelly, Inc. (heavy
highway contractor); formerly: Vice President, Walsh & Kelly, Inc.
J. Christopher Donahue+* President or Executive Vice President of the Federated Fund $0
Birth Date: April 11, 1949 Complex; Director or Trustee of some of the Funds in the Federated
Federated Investors Tower Fund Complex; President, Chief Executive Officer and Director,
1001 Liberty Avenue Federated Investors, Inc.; President and Trustee, Federated
Pittsburgh, PA Investment Management Company; President and Trustee, Federated
EXECUTIVE VICE PRESIDENT AND TRUSTEE Investment Counseling; President and Director, Federated Global
Investment Management Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company; Director,
Federated Services Company.
Edward C. Gonzales* Trustee or Director of some of the Funds in the Federated Fund $0
Birth Date: October 22, 1930 Complex; President, Executive Vice President and Treasurer of some
Federated Investors Tower of the Funds in the Federated Fund Complex; Vice Chairman,
1001 Liberty Avenue Federated Investors, Inc.; Vice President, Federated Investment
Pittsburgh, PA Management Company and Federated Investment Counseling, Federated
PRESIDENT AND TREASURER Global Investment Management Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
John W. McGonigle Executive Vice President and Secretary of the Federated Fund $0
Birth date: October 26, 1938 Complex; Executive Vice President, Secretary, and Director,
Federated Investors Tower Federated Investors, Inc.; Trustee, Federated Investment
1001 Liberty Avenue Management Company and Federated Investment Counseling; Director,
Pittsburgh, PA Federated Global Investment Management Corp., Federated Services
EXECUTIVE VICE PRESIDENT AND Company; and Federated Securities Corp.
SECRETARY
Richard B. Fisher* President or Vice President of some of the Funds in the Federated $0
Birth Date: May 17, 1923 Fund Complex; Director or Trustee of some of the Funds in the
Federated Investors Tower Federated Fund Complex; Executive Vice President, Federated
1001 Liberty Avenue Investors, Inc.; Chairman and Director, Federated Securities Corp.
Pittsburgh, PA
VICE PRESIDENT
</TABLE>
* An asterisk denotes a Trustee/Director who is deemed to be an interested
person as defined in the Investment Company Act of 1940. # A pound sign denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities
between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Trustee of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
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. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). 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
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services. Research services 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 may be used by the Adviser or by affiliates of
Federated Investors in advising other accounts. To the extent that receipt of
these services may replace 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 those
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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all FirstMerit Funds as specified below:
Maximum Administrative Fee Average Aggregate Daily Net Assets
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least$50,000
with respect to FirtMerit Government Money Market Fund and $100,000 for all
other portfolios of the Funds . Federated Services Company may voluntarily waive
a portion of its fee and may reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Years ended November 30 11/30/99 11/30/98 11/30/97
Advisory Fee Earned $801,855 $600,375 $495,323
Advisory Fee Reduction $320,657 $240,150 $198,130
Administrative Fee $240,556 $180,112 $148,597
How does the Fund Measure Performance?
The Fund may advertise performance by using the SEC standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
Unless otherwise stated, any quoted performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The Fund's performance of depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per share are factors in
the computation of yield and total return.
Average Annual Total Returns and Yield
Total returns given for the one-year, five-year and since inception periods
ended November 30, 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Yield given for the 7-day period ended November 30, 1999.
7 -Day Period 1 Year 5 Year Since Inception on March 11, 1991
Total Return N/A 4.50% 4.89% 4.31%
Yield 4.87% N/A N/A N/A
Effective Yield 4.99% N/A N/A N/A
</TABLE>
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise performance by using the SEC standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
Unless otherwise stated, any quoted share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The Fund's performance of depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's expenses; and various other factors.
<PAGE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for shares 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 NAV 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 charge, adjusted over the
period by any additional shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of shares is calculated by dividing: (i) the net investment income per
share earned by the shares over a thirty-day period; by (ii) the maximum
offering price per share on the last day of the period. This number 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 12-month period and is reinvested every six months. The effective yield
is calculated by compounding the unannualized base-period return by: adding 1 to
the base-period return, raising the sum to the 365/7th power; and subtracting 1
from the result.
The yield and effective yield do not necessarily reflect income actually earned
by shares 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 investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares,
the share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
Lipper Analytical Services, Inc. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
Discount Corporation of New York 30-Day Federal Agencies, for example, is a
weekly quote of the average daily offering for selected federal agency issues
maturing in 30 days.
Saloman 30-Day Treasury Bill Index is a weekly quote of the most representative
yields for selected securities issued by the U.S. Treasury maturing in 30 days.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ADDRESSES
FirstMerit Government Money Market Fund
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
Administrator
Federated Administrative Services. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
FirstMerit Bank, N.A. 121 South Main Street
Akron, Ohio 44208-1440
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
</TABLE>
MANAGEMENT DISCUSSION AND ANALYIS
FirstMerit Equity Fund
Annual Report for 12 Months Ended November 30, 1999
The global deflationary environment continues to keep prices depressed for most
goods and services. Without pricing power, companies that can grow units become
the most desirable equity. During 1999 companies that grew unit volumes saw
their stocks perform positively and those without unit growth suffered severe
losses. We believe that 2000 will bring more of the same. We continue to
overweight unit growers in the technology and drug sectors and are increasing to
an overweight in the telecommunications sector.
Rising interest rates and Fed paranoia should only increase investors interest
in unit growers over price growers. We continue to believe the fund is well
positioned to benefit from the current deflationary environment.
FIRSTMERIT EQUITY FUND
Growth of $10,000 Invested in FirstMerit Equity
[GRAPH REPRESENTION OMIITED. SEE APPENDIX A.]
<TABLE>
<CAPTION>
Average Annual Total Return/4/ For The Period Ended
November 30, 1999
<S> <C>
1 Year 30.34%
5 Year 24.52%
Start of Performance (9/13/94) 22.97%
</TABLE>
The graph above illustrates the hypothetical investment of $10,000/1/ in the
FirstMerit Equity Fund (the "Fund") from September 13, 1994 (start of
performance) to November 30, 1999, compared to the Standard and Poor's 500 Index
(S&P 500)/2/ and the Lipper Growth & Income Fund Average ("LGIFA")/3/.
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 31, 1999, and, together with financial statements contained therein,
constitutes the Fund's annual report.
1 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 LGIFA have been adjusted to reflect the
reinvestment of dividends on securities in the index and average.
2 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.
3 The Lipper Growth & Income Fund Average represents the average of the total
returns reported by all of the mutual funds designated by Lipper Analytical
Services, Inc. as falling into the respective catagories, and is not adjusted
to reflect any sales load. However, these total returns are reported net of
expenses or other fees that the SEC requires to be reflected in the Fund's
performance.
4 Total return quoted reflects all applicable sales charges.
FirstMerit Equity Fund
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
Federated Securities Corp., Distributor
Investment Company Act File No. 000-0000
Cusip 337944102
G00940-01 (1-00)
The graphic presentation here displayed consists of a legend in the
upper left quadrant indicating the components of the corresponding line
graph. FirstMerit Equity Fund (the "Fund"), based on a 4.50% sales
load, is represented by a solid line. The Standard & Poor's 500 Index
(the "S&P 500") is represented by a dotted line and the Lipper Growth &
Income Fund Average (the "LGIFA") is represented by a dashed line. The
line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Fund, the S&P 500 and
the LGIFA. The "x" axis reflects computation periods from 9/13/94 to
11/30/99. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the
Fund, based on a 4.50% sales load, as compared to the S&P 500 and the
LGIFA. The ending values were $30,796, $32,346, and $24,456,
respectively.
