THE SHAWMUT FUNDS
MONEY MARKET FUNDS
SHAWMUT CONNECTICUT MUNICIPAL MONEY MARKET FUND
SHAWMUT MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
SHAWMUT PRIME MONEY MARKET FUND
TRUST SHARES
COMBINED PROSPECTUS
The shares offered by this prospectus represent interests in Trust Shares of the
money market portfolios
(collectively, the "Money Market Funds" or individually, as appropriate in
context, the "Fund") of The Shawmut Funds (the "Trust"), an open-end management
investment company (a mutual fund). In addition to the Money Market Funds, the
Trust consists of the following separate investment portfolios, each having a
distinct investment objective and policies:
INCOME FUNDS
Shawmut Connecticut Intermediate Municipal
Income Fund
Shawmut Fixed Income Fund
Shawmut Intermediate Government Income Fund
Shawmut Limited Term Income Fund
Shawmut Massachusetts Intermediate Municipal
Income Fund
EQUITY FUNDS
Shawmut Growth and Income Equity Fund
Shawmut Growth Equity Fund
Shawmut Small Capitalization Equity Fund
This combined prospectus contains the information you should read and know
before you invest in the Money Market Funds. Keep this prospectus for future
reference. The Money Market Funds have also filed a Combined Statement of
Additional Information for Trust Shares and Investment Shares dated February 28,
1994, with the Securities and Exchange Commission. The information contained in
the Combined Statement of Additional Information is incorporated by reference
into this prospectus. You may request a copy of the Combined Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Money Market Funds by writing or calling the Trust.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
EACH OF THE MONEY MARKET FUNDS ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT EACH OF THE MONEY MARKET FUNDS
WILL BE ABLE TO DO SO.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF SHAWMUT
BANK, ARE NOT ENDORSED OR GUARANTEED BY SHAWMUT BANK, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ARE THEY INSURED OR GUARANTEED BY THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. MUTUAL FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING FLUCTUATIONS IN VALUE AND EARNINGS, AND THE POSSIBLE
LOSS OF PRINCIPAL.
Prospectus dated February 28, 1994
TABLE OF CONTENTS
SYNOPSIS 3
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SUMMARY OF MONEY MARKET FUNDS' EXPENSES--
TRUST SHARES 4
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FINANCIAL HIGHLIGHTS 5
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GENERAL INFORMATION 8
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THE SHAWMUT FUNDS 8
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OBJECTIVES AND POLICIES OF EACH FUND 8
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Connecticut Municipal Money Market Fund 8
Investment Objective 8
Investment Policies 8
Acceptable Investments 9
Massachusetts Municipal Money
Market Fund 9
Investment Objective 9
Investment Policies 9
Acceptable Investments 10
Prime Money Market Fund 10
Investment Objective 10
Investment Policies 10
Acceptable Investments 10
MONEY MARKET FUNDS INVESTMENTS
AND STRATEGIES 11
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Variable Rate Demand Notes 11
Ratings 11
Credit Enhancement 11
Demand Features 12
Restricted and Illiquid Securities 12
When-Issued and Delayed Delivery
Transactions 12
Temporary Investments 12
Investing in Securities of Other
Investment Companies 13
Municipal Leases 13
Participation Interests 13
Tender Option Bonds 13
Non-Diversification 14
Connecticut and Massachusetts Municipal
Securities 14
Standby Commitments 14
Connecticut and Massachusetts Investment
Risks 15
Repurchase Agreements 15
Bank Instruments 15
Short-term Credit Facilities 15
Investment Limitations 16
Regulatory Compliance 16
THE SHAWMUT FUNDS INFORMATION 17
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Management of The Shawmut Funds 17
Board of Trustees 17
Investment Adviser 17
Advisory Fees 17
Adviser's Background 17
Distribution of Money Market Trust Shares 18
Distribution Plan 18
Administration of the Money Market Funds 19
Administrative Services 19
Custodian 19
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services 19
Legal Counsel 19
Independent Accountants 19
Expenses of the Money Market Funds
and Trust Shares 19
NET ASSET VALUE 20
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INVESTING IN TRUST SHARES 20
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Through Shawmut Bank 20
Directly from the Distributor 20
Minimum Investment Required 21
What Shares Cost 21
Exchanging Securities for
Money Market Fund Shares 21
Subaccounting Services 21
Certificates and Confirmations 21
Dividends 22
Capital Gains 22
EXCHANGE PRIVILEGE 22
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Exchanging Shares 22
Exchanging-by-Telephone 22
REDEEMING TRUST SHARES 22
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Through Shawmut Bank 23
Directly from the Money Market Funds 23
By Mail 23
Signatures 23
Receiving Payment 24
By Check 24
By Wire 24
Accounts with Low Balances 24
Redemption in Kind 24
SHAREHOLDER INFORMATION 24
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Voting Rights 24
Massachusetts Partnership Law 25
EFFECT OF BANKING LAWS 25
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TAX INFORMATION 26
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Federal Income Tax 26
Connecticut Tax Considerations 26
Massachusetts Tax Considerations 27
Other State and Local Taxes 27
OTHER CLASSES OF SHARES 27
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PERFORMANCE INFORMATION 27
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SYNOPSIS
INVESTMENT OBJECTIVES
The Shawmut Funds offer you a convenient, affordable way to participate in
separate, professionally managed portfolios of securities. This prospectus
relates only to the Money Market Funds of the Trust.
MONEY MARKET FUNDS
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SHAWMUT CONNECTICUT MUNICIPAL MONEY MARKET FUND
("Connecticut Municipal Money Market Fund") seeks current income which is
exempt from federal income tax and Connecticut state income tax on
individuals, trusts, and estates (the "CSIT"), consistent with stability of
principal and liquidity, by investing primarily in short-term Connecticut
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of
Connecticut or its political subdivisions and financing authorities, but
which are exempt from CSIT.
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- ------------------------------------------------------
SHAWMUT MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
("Massachusetts Municipal Money Market Fund") seeks current income which is
exempt from federal income tax and income taxes imposed by the Commonwealth
of Massachusetts, consistent with stability of principal and liquidity, by
investing primarily in short-term Massachusetts municipal securities,
including
securities of states, territories, and possessions of the United States
which are not issued by or on behalf of Massachusetts
or its political subdivisions and financing
authorities, but which are exempt
from income taxes imposed by the Commonwealth of Massachusetts.
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- ------------------------------------------------------
SHAWMUT PRIME MONEY MARKET FUND
("Prime Money Market Fund") seeks current income, consistent with stability
of principal and liquidity, by investing primarily in a diversified
portfolio of money market instruments maturing in thirteen months or less.
- ------------------------------------------------------
BUYING AND REDEEMING MONEY MARKET FUND SHARES
A minimum initial investment of $2,500 may be required. Subsequent investments
must be in amounts of at least $100, as described in this prospectus in the
section entitled "Minimum Investment Required." Trust Shares are currently sold
at net asset value and are redeemed at net asset value without a sales charge.
MONEY MARKET FUND MANAGEMENT
The Money Market Funds' investment adviser is Shawmut Bank, N.A., which makes
investment decisions for the Money Market Funds.
SHAREHOLDER SERVICES
As a shareholder, you can easily obtain information about your account by
calling your Shawmut Bank trust officer.
THE SHAWMUT FUNDS
SUMMARY OF MONEY MARKET FUND EXPENSES--TRUST SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS PRIME
MUNICIPAL MUNICIPAL MONEY
MONEY MARKET MONEY MARKET MARKET
FUND FUND* FUND
-------------- -------------- --------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................... None None None
Maximum Sales Load Imposed--on Reinvested Dividends
(as a percentage of offering price)............................... None None None
Deferred Sales Load (as a percentage of original purchase price or
redemption proceeds as applicable)................................ None None None
Redemption Fee (as a percentage of amount redeemed, if
applicable)....................................................... None None None
Exchange Fee........................................................ None None None
</TABLE>
* Massachusetts Municipal Money Market Fund currently sells its shares without
class designation. Purchasers of either the Trust Shares or Investment Shares of
the other Shawmut Funds may purchase shares of Massachusetts Municipal Money
Market Fund.
<TABLE>
<S> <C> <C> <C>
ANNUAL TRUST SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1).................................... 0.45% 0.45% 0.29%
12b-1 Fees.......................................................... None None None
Total Other Expenses (after waiver and reimbursement)(2)............ 0.16% 0.16% 0.13%
Total Trust Shares Operating Expenses (after waiver and
reimbursement)(3)................................................. 0.61% 0.61% 0.42%
</TABLE>
(1) The management fee has been reduced to reflect the anticipated voluntary
waiver by the investment adviser. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
.50%.
(2) Estimated other expenses have been reduced to reflect the anticipated
voluntary waiver by the custodian and the anticipated voluntary
reimbursement of expenses by the investment adviser for the Connecticut
Municipal Money Market Fund and the Massachusetts Municipal Money Market
Fund.
(3) The Annual Trust Shares Operating Expenses for the fiscal year ended October
31, 1993 were 0.11% for the Connecticut Municipal Money Market Fund and the
Massachusetts Municipal Money Market Fund and 0.58% for the Prime Money
Market Fund. The Annual Trust Shares Operating Expenses in the table above
are based on expenses expected during the fiscal year ending October 31,
1994. Absent the anticipated voluntary waivers and reimbursement explained
in the above footnotes, total Trust Shares Operating Expenses are estimated
to be 1.11% for the Connecticut Municipal Money Market Fund, 1.32% for the
Massachusetts Municipal Money Market Fund, and 0.63% for the Prime Money
Market Fund.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF TRUST SHARES WILL BEAR, EITHER DIRECTLY
OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES,
SEE "THE SHAWMUT FUNDS INFORMATION" AND "INVESTING IN TRUST SHARES."
WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL
FEES.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period. As noted in the
table above, the Money Market Funds charge no redemption fee.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Connecticut Municipal Money Market Fund.............. $6 $20 $34 $76
Massachusetts Municipal Money Market Fund............ $6 $20 $34 $76
Prime Money Market Fund.............................. $4 $13 $24 $53
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Trust Shares of the Money Market Funds. Connecticut Municipal Money Market Fund
and Prime Money Market Fund also offer another class of shares called Investment
Shares. Trust Shares and Investment Shares are subject to certain of the same
expenses; however, Investment Shares are subject to a 12b-1 fee of up to .50 of
1%. See "Other Classes of Shares."
SHAWMUT CONNECTICUT MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table, is included in the Annual Report, which is incorporated by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained from the Fund.
Trust Shares were not being offered as of October 31, 1993. Accordingly, there
are no Financial Highlights for such Shares. The Financial Highlights presented
below are historical information for Investment Shares.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
INVESTMENT SHARES 1993*
- ------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
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INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------
Net investment income 0.001
- --------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.001)
- -------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $1.00
- -------------------------------------------------------------------------- -------
TOTAL RETURN** 0.14%
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RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------
Expenses 0.36%(a)
- --------------------------------------------------------------------------
Net investment income 2.12%(a)
- --------------------------------------------------------------------------
Expense waiver/reimbursement (b) 5.46%(a)
- --------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------
Net assets, end of period (000 omitted) $6,582
- --------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from October 4, 1993 (date of initial
public investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
SHAWMUT MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table, is included in the Annual Report, which is incorporated by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1993*
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
- --------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------
Net investment income 0.001
- --------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.001)
- -------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $1.00
- -------------------------------------------------------------------------- -------
TOTAL RETURN** 0.12%
- --------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------
Expenses 0.11%(a)
- --------------------------------------------------------------------------
Net investment income 2.75%(a)
- --------------------------------------------------------------------------
Expense waiver/reimbursement (b) 35.31%(a)
- --------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------
Net assets, end of period (000 omitted) $1,237
- --------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from October 5, 1993 (date of initial
public investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
SHAWMUT PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- ------------------------------------------------------------------------------------- ------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
- -------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------
Net investment income 0.02
- -------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02)
- ------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $1.00
- ------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 2.41%
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------
Expenses 0.58%(a)
- -------------------------------------------------------------------------------------
Net investment income 2.71%(a)
- -------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.12%(a)
- -------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $257,851
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- ------------------------------------------------------------------------------------- ------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
- -------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------
Net investment income 0.02
- -------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02)
- ------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $1.00
- ------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 1.73%
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------
Expenses 0.85%(a)
- -------------------------------------------------------------------------------------
Net investment income 2.36%(a)
- -------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.37%(a)
- -------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $28,758
- -------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993. For the period from October 21, 1992
(start of business) to December 13, 1992, net investment income aggregating
$0.004 per share ($400) was distributed to Federated Administrative
Services.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated July 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
As of the date of this prospectus, the Board of Trustees (the "Trustees") has
established two classes of shares of Connecticut Municipal Money Market Fund and
Prime Money Market Fund, known as Trust Shares and Investment Shares. This
prospectus relates only to Trust Shares of Connecticut
Municipal Money Market Fund and Prime Money Market Fund and to the Shares of
Massachusetts Municipal Money Market Fund.
A minimum initial investment of $2,500 may be required. Subsequent investments
must be in amounts of at least $100, as described in this prospectus in the
section entitled "Minimum Investment Required." Shares are sold at net asset
value and are redeemed at net asset value without a sales charge imposed by the
Money Market Funds.
THE SHAWMUT FUNDS
The shareholders of the Money Market Funds are shareholders of The Shawmut
Funds, which currently consist of Shawmut Connecticut Intermediate Municipal
Income Fund, Shawmut Connecticut Municipal Money Market Fund, Shawmut Fixed
Income Fund, Shawmut Growth and Income Equity Fund, Shawmut Growth Equity Fund,
Shawmut Intermediate Government Income Fund, Shawmut Limited Term Income Fund,
Shawmut Massachusetts Intermediate Municipal Income Fund, Shawmut Massachusetts
Municipal Money Market Fund, Shawmut Prime Money Market Fund, and Shawmut Small
Capitalization Equity Fund. Shareholders in the Money Market Funds have easy
access to the other portfolios of The Shawmut Funds through an exchange program.
The Shawmut Funds are advised by Shawmut Bank, N.A., and distributed by
Federated Securities Corp.
OBJECTIVE AND POLICIES OF EACH FUND
CONNECTICUT MUNICIPAL MONEY
MARKET FUND
INVESTMENT OBJECTIVE
The investment objective of the Connecticut Municipal Money Market Fund is to
provide current income exempt from federal regular income tax and the CSIT,
consistent with stability of principal and liquidity. The investment objective
cannot be changed without the approval of shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE CONNECTICUT MUNICIPAL MONEY MARKET FUND PURSUES ITS INVESTMENT
OBJECTIVE BY INVESTING IN A PORTFOLIO OF CONNECTICUT MUNICIPAL SECURITIES
(AS DEFINED BELOW) WITH REMAINING MATURITIES OF THIRTEEN MONTHS OR LESS AT
THE TIME OF PURCHASE BY THE FUND.
- ------------------------------------------------------
Unless indicated otherwise, the investment policies described in this prospectus
may be changed by the Trustees without the approval of share-
holders. Shareholders will be notified before any material changes in these
policies become effective. As a matter of investment policy which cannot be
changed without approval of shareholders, the Connecticut Municipal Money Market
Fund invests its assets so that at least 80% of its annual interest income is
exempt from federal regular income tax or at least 80% of the total value of its
assets are invested in obligations the interest income from which is exempt from
federal regular income tax. The average maturity of the securities in the
Connecticut Municipal Money Market Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Connecticut Municipal Money Market Fund will
invest its assets so that at least 65% of the value of its assets will be
invested in debt obligations issued by or on behalf of the State of Connecticut
and its political subdivisions and financing authorities, and obligations of
other states, territories and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the interest income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and CSIT ("Connecticut
Municipal Securities"). Examples of Connecticut Municipal Securities include,
but are not limited to:
- - municipal commercial paper and other short-term notes;
- - variable rate demand notes;
- - municipal bonds (including bonds having remaining maturities of less than
thirteen months without demand features);
- - municipal leases, including certificates of participation in leases;
- - tender option bonds; and
- - participation, trust, and partnership interests in any of the foregoing
obligations.
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
INVESTMENT OBJECTIVE
The investment objective of the Massachusetts Municipal Money Market Fund is to
provide current income exempt from federal regular income tax and the income
taxes imposed by the Commonwealth of Massachusetts, consistent with stability of
principal and liquidity. The investment objective cannot be changed without the
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE MASSACHUSETTS MUNICIPAL MONEY MARKET FUND PURSUES ITS INVESTMENT
OBJECTIVE BY INVESTING IN A PORTFOLIO OF MASSACHUSETTS MUNICIPAL SECURITIES
(AS DEFINED BELOW) WITH REMAINING MATURITIES OF THIRTEEN MONTHS OR LESS AT
THE TIME OF PURCHASE BY THE FUND.
- ------------------------------------------------------
Unless indicated otherwise, the investment policies described in this prospectus
may be changed by the Trustees without the approval of shareholders.
Shareholders will be notified before any material changes in these policies
become effective. As a matter of investment policy which cannot be changed
without approval of shareholders, the Massachusetts Municipal Money Market Fund
invests its assets so that at least 80% of its annual interest income is exempt
from federal regular income tax or at least 80% of the total value of its assets
are invested in obligations the interest income from which is exempt from
federal regular income tax. The average maturity of the securities in the
Massachusetts Municipal Money Market Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Massachusetts Municipal Money Market Fund will
invest its assets so that at least 65% of the value of its assets will be
invested in debt obligations issued by or on behalf of the Commonwealth of
Massachusetts and its political subdivisions and financing authorities, and
obligations of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the interest income from which is, in the opinion of
qualified legal counsel, exempt from federal regular income tax and income taxes
imposed by the Commonwealth of Massachusetts imposed upon non-corporate
taxpayers ("Massachusetts Municipal Securities"). Examples of Massachusetts
Municipal Securities include, but are not limited to:
- - municipal commercial paper and other short-term notes;
- - variable rate demand notes;
- - municipal bonds (including bonds having remaining maturities of less than
thirteen months without demand features);
- - municipal leases, including certificates of participation in leases;
- - tender option bonds; and
- - participation, trust, and partnership interests in any of the foregoing
obligations.
PRIME MONEY MARKET FUND
INVESTMENT OBJECTIVE
The investment objective of the Prime Money Market Fund is to provide current
income consistent with stability of principal and liquidity. The investment
objective cannot be changed without the approval of shareholders. While there is
no assurance that the Fund will achieve its investment objective, it endeavors
to do so by following the investment policies described in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE PRIME MONEY MARKET FUND PURSUES ITS INVESTMENT OBJECTIVE BY INVESTING
PRIMARILY IN A DIVERSIFIED PORTFOLIO OF MONEY MARKET INSTRUMENTS MATURING
IN THIRTEEN MONTHS OR LESS.
- ------------------------------------------------------
Unless indicated otherwise, the investment policies set forth in this prospectus
may be changed by the Board of Trustees without the approval of shareholders.
Shareholders will be notified before any material change in these investment
policies becomes effective. The average maturity of these securities, computed
on a dollar-weighted basis, will be 90 days or less.
ACCEPTABLE INVESTMENTS
The Prime Money Market Fund invests in eligible quality money market instruments
that are either rated in one of the two highest short-term rating categories by
one or more nationally recognized statistical rating organizations ("NRSROs") or
are of comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
- - domestic issues of corporate debt obligations, including notes, bonds, and
debentures;
- - commercial paper, including eurodollar commercial paper ("Europaper");
- - certificates of deposit, demand and time deposits, and bankers' acceptances of
domestic banks and other deposit institutions ("Bank Instruments");
- - short-term credit facilities, such as demand notes;
- - obligations issued or guaranteed as to payment of principal and interest by
the U.S. government or one of its agencies or instrumentalities ("Government
Securities'); and
- - repurchase agreements.
The Prime Money Market Fund invests only in instruments denominated and payable
in U.S. dollars.
MONEY MARKET FUNDS INVESTMENTS AND STRATEGIES
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term securities
(Municipal Securities for the Connecticut/Massachusetts Municipal Money Market
Funds and long-term corporate debt instruments for the Prime Money Market Fund)
that have variable or floating interest rates and provide the Money Market Funds
with the right to tender the security for repurchase at its stated principal
amount plus accrued interest. Such securities typically bear interest at a rate
that is intended to cause the securities to trade at par. The interest rate may
float or be adjusted at regular intervals (ranging from daily to annually), and
is normally based on an applicable interest index or a stated percentage of a
prime rate or another published interest rate or interest rate index. Most
variable rate demand notes allow the Money Market Funds to demand the repurchase
of the security on not more than seven days prior notice. Other notes only
permit the Money Market Funds to tender the security at the time of each
interest rate adjustment or at other fixed intervals. See "Demand Features." The
Money Market Funds treat variable rate demand notes as maturing on the later of
the date of the next interest rate adjustment or the date on which the Money
Market Funds may next tender the security for repurchase.
RATINGS. The Municipal Securities in which the Connecticut/Massachusetts
Municipal Money Market Funds invest must either be rated in one of the two
highest short-term rating categories by one or more NRSROs or be of comparable
quality to securities having such ratings. A
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1, or
SP-2 by Standard & Poor's Corporation ("S&P"), MIG-1 or MIG-2 by Moody's
Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, and FIN-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Connecticut/Massachusetts Municipal
Money Market Funds will follow applicable regulations in determining whether a
security rated by more than one NRSRO can be treated as being in one of the two
highest short-term rating categories. See "Regulatory Compliance."
If a Municipal Security has not been rated by a NRSRO, the
Connecticut/Massachusetts Municipal Money Market Funds' investment adviser will
acquire the security only if it determines that the security is of comparable
quality to securities that have received the requisite ratings. In this regard,
the adviser will generally treat Municipal Securities as eligible portfolio
securities if the issuer has received long-term bond ratings within the two
highest rating categories by a NRSRO with respect to other bonds issued. The
adviser also considers other relevant information in its evaluation of unrated
short-term securities.
For the Prime Money Market Fund's securities, a NRSRO's two highest rating
categories are also determined without regard for sub-categories and gradations.
For example, the Prime Money Market Fund's securities rated A-1+, A-1, or A-2 by
S&P, Prime-1 or Prime-2 by Moody's, or F-1 (+ or -) or F-2 (+ or -) by Fitch are
all considered rated in one of the two highest short-term rating categories. The
Prime Money Market Fund will limit its investments in securities rated in the
second highest short-term rating category, e.g., A-2 by S&P, Prime 2 by Moody's
or F-2 (+ or -) by Fitch, to not more than 5% of its total assets, with not more
than 1% invested in the securities of any one issuer. The Prime Money Market
Fund will follow applicable regulations in determining whether a security rated
by more than one NRSRO can be treated as being in the one of the two highest
short-term rating categories. See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Money Market Funds' acceptable investments
may have
been credit enhanced by a guaranty, letter of credit, or insurance. The Money
Market Funds typically evaluate the credit quality and ratings of credit
enhanced securities based upon the financial condition and ratings of the party
providing the credit enhancement (the "credit enhancer"), rather than the
issuer. Generally, the Prime Money Market Fund will not treat credit enhanced
securities as having been issued by the credit enhancer for diversification
purposes. However, the Connecticut/Massachusetts Municipal Money Market Funds
will not treat credit enhanced securities as having been issued by the credit
enhancer for diversification purposes, unless the Connecticut/Massachusetts
Municipal Money Market Funds have invested more than 10% of their respective
assets in securities issued, guaranteed, or otherwise credit enhanced by the
credit enhancer, in which case the securities will be treated as having been
issued both by the issuer and the credit enhancer. The bankruptcy, receivership,
or default of the credit enhancer may adversely affect the quality and
marketability of the underlying security.
The Connecticut/Massachusetts Municipal Money Market Funds may have more than
25% of their respective total assets invested in securities credit enhanced by
banks or insurance companies.
DEMAND FEATURES. The Money Market Funds may acquire securities that are subject
to puts and standby commitments ("demand features") to purchase the securities
at their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by a Money Market Fund. The demand
feature may be issued by the issuer of the underlying securities, a dealer in
the securities, or by another third party, and may not be transferred separately
from the underlying security. A Money Market Fund uses these arrangements to
provide liquidity and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership, or default by the issuer of
the demand feature, or a default on the underlying security or other event that
terminates the demand feature before its exercise, will adversely affect the
liquidity of the underlying security. Demand features that are exercisable even
after a payment default on the underlying security may be treated as a form of
credit enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Money Market Funds may invest in
restricted securities. Restricted securities are any securities in which a Money
Market Fund may invest pursuant to its investment objective and policies but
which are subject to restrictions on resale under federal securities laws.
Pursuant to criteria established by the Trustees, certain restricted securities
are considered liquid. To the extent restricted securities are deemed to be
illiquid, the Money Market Funds will limit their purchase, together with other
securities not considered to be liquid, to 10% of their individual net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Money Market Funds may
purchase securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which a Money Market Fund purchases securities
with payment and delivery scheduled for a future time. In when-issued and
delayed delivery transactions, a Money Market Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause a Money Market Fund to miss a price or yield considered to be
advantageous.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its investment
adviser, prevailing market conditions warrant, the Prime Money Market Fund may,
for temporary defensive purposes, invest in repurchase agreements and other
mutual funds.
From time to time on a temporary basis, when the investment adviser determines
that market conditions call for a temporary defensive posture, the
Connecticut/Massachusetts Municipal Money Market Funds may invest in short-term
non-Connecticut/Massachusetts (respectively) municipal tax-exempt obligations or
other taxable, temporary investments. All temporary in-
vestments will satisfy the same credit quality standards as the
Connecticut/Massachusetts Municipal Money Market Funds' acceptable investments.
See "Ratings" above. Temporary investments include: investments in other mutual
funds; notes issued by or on behalf of municipal or corporate issuers;
marketable obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements (arrangements in
which the organization sells the Fund a temporary investment and agrees at the
time of sale to repurchase it at a mutually agreed upon time and price).
Although the Connecticut/Massachusetts Municipal Money Market Funds are
permitted to make taxable, temporary investments, there is no current intention
of generating income subject to federal regular income tax or CSIT or income
taxes imposed by the Commonwealth of Massachusetts, respectively.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Money Market Funds
may invest in the securities of other investment companies that have similar
policies and objectives, but they will not individually own more than 3% of the
total outstanding voting stock of any investment company, invest more than 5% of
their respective total assets in any one investment company, or invest more than
10% of their respective total assets in investment companies in general. The
Money Market Funds will invest in other investment companies primarily for the
purpose of investing short-term cash which has not yet been invested in other
portfolio instruments. However, from time to time on a temporary basis, the
Money Market Funds may invest exclusively in a single other similarly managed
investment company. Shareholders should realize that when these funds invest in
other investment companies, certain fund expenses, such as custodian fees and
administrative fees, may be duplicated. The adviser will waive its investment
advisory fee on assets invested in securities of other investment companies.
The following investments and strategies apply only to the
CONNECTICUT/MASSACHUSETTS MUNICIPAL MONEY MARKET FUNDS:
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract, or a
participation certificate in any of the above.
PARTICIPATION INTERESTS. The Connecticut/Massachusetts Municipal Money Market
Funds may purchase interests in Municipal Securities from financial institutions
such as commercial and investment banks, savings and loan associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests, or any other form of
indirect ownership that allows the respective Fund to treat the income from the
investment as exempt from federal income tax. The Connecticut/Massachusetts
Municipal Money Market Funds invest in these participation interests in order to
obtain credit enhancement or demand features that would not be available through
direct ownership of the underlying Municipal Securities.
TENDER OPTION BONDS. The Connecticut/Massachusetts Municipal Money Market
Funds may purchase tender option bonds and similar securities. A tender
option bond generally has a long maturity and bears interest at a fixed rate
substantially higher than prevailing short-term tax-exempt rates, and is
coupled with an agreement by a third party, such as a bank, broker-dealer, or
other financial institution, pursuant to which such institution grants the
security holders the option, usually upon not more than seven days notice or
at periodic intervals, to tender their securities to the institution and
receive the face value of the security. In providing the option, the
financial institution receives a fee that reduces the fixed rate of the
underlying bond and results in the Connecticut/Massachusetts Municipal Money
Market Funds effectively
receiving a demand obligation that bears interest at the prevailing short-term
tax exempt rate. The Connecticut/Massachusetts Municipal Money Market Funds'
adviser will monitor, on an ongoing basis, the creditworthiness of the issuer of
the tender option bond, the financial institution providing the option, and any
custodian holding the underlying long-term bond. The bankruptcy, receivership,
or default of any of the parties to the tender option bond will adversely affect
the quality and marketability of the security.
NON-DIVERSIFICATION. The Connecticut/Massachusetts Municipal Money Market
Funds are non-diversified investment portfolios. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Connecticut/Massachusetts Municipal Money Market Fund,
therefore, will entail greater risk than would exist in a diversified
investment portfolio because the higher percentage of investments among fewer
issuers may result in greater fluctuation in the total market value of the
Connecticut/Massachusetts Municipal Money Market Funds' portfolios. Any
economic, political, or regulatory developments affecting the value of the
securities in the Connecticut/Massachusetts Municipal Money Market Funds'
portfolios will have a greater impact on the total value of the portfolios
than would be the case if the portfolios were diversified among more issuers.
The Connecticut/Massachusetts Municipal Money Market Funds intend to comply with
Subchapter M of the Internal Revenue Code. This undertaking requires that at the
end of each quarter of the taxable year, with regard to at least 50% of a Fund's
total assets, no more than 5% of its total assets are invested in the securities
of a single issuer; beyond that, no more than 25% of its total assets are
invested in the securities of a single issuer.
CONNECTICUT AND MASSACHUSETTS MUNICIPAL SECURITIES. Connecticut and
Massachusetts Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control, and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses, and to make loans to other public
institutions and facilities.
Connecticut and Massachusetts Municipal Securities include industrial
development bonds issued by or on behalf of public authorities to provide
financing aid to acquire sites or construct and equip facilities for privately
or publicly owned corporations. The availability of this financing encourages
these corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS. Some securities dealers are willing to sell Connecticut
and Massachusetts Municipal Securities to the Connecticut/Massachusetts
Municipal Money Market Funds accompanied by their commitments to repurchase
the Municipal Securities prior to maturity, at the Connecticut/Massachusetts
Municipal Money Market Funds' option, for the amortized cost of the Municipal
Securities at the time of repurchase. These arrangements are not used to
protect against changes in the market value of Municipal Securities. They
permit the Connecticut/Massachusetts Municipal Money Market Funds, however,
to remain fully invested and still provide liquidity to satisfy redemptions.
The cost of Connecticut or Massachusetts Municipal Securities accompanied by
these
standby commitments could be greater than the cost of Municipal Securities
without such commitments. Standby commitments are not marketable or otherwise
assignable and have value only to the Connecticut/Massachusetts Municipal Money
Market Funds. The default or bankruptcy of a securities dealer giving such a
commitment would not affect the quality of the Connecticut or Massachusetts
Municipal Securities purchased. However, without a standby commitment, these
securities could be more difficult to sell. The Connecticut/Massachusetts
Municipal Money Market Funds enters into standby commitments only with those
dealers whose credit the investment adviser believes to be of high quality.
CONNECTICUT AND MASSACHUSETTS INVESTMENT RISKS. Yields on Connecticut and
Massachusetts Municipal Securities depend on a variety of factors, including:
the general conditions of the short-term municipal note market and of the
municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the State of Connecticut and the
Commonwealth of Massachusetts or their respective municipalities could impact
the Connecticut/Massachusetts Municipal Money Market Funds' portfolios. The
ability of the Connecticut/Massachusetts Municipal Money Market Funds to achieve
their investment objectives also depends on the continuing ability of the
issuers of Connecticut and Massachusetts Municipal Securities and demand
features, or the credit enhancers of either, to meet their obligations for the
payment of interest and principal when due.
Investing in Connecticut and Massachusetts Municipal Securities which meet the
Connecticut/Massachusetts Municipal Money Market Funds' quality standards may
not be possible if the State of Connecticut and the Commonwealth of
Massachusetts or their respective municipalities do not maintain their current
credit ratings. An expanded discussion of the current economic risks associated
with the purchase of Connecticut or Massachusetts Municipal Securities is
contained in the Combined Statement of Additional Information.
The following investments and strategies apply only to the PRIME MONEY MARKET
FUND:
REPURCHASE AGREEMENTS. The U.S. government securities and other securities in
which the Prime Money Market Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Prime Money Market Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and price. To the
extent that the original seller does not repurchase the securities from the
Prime Money Market Fund, the Prime Money Market Fund could receive less than the
repurchase price on any sale of such securities.
BANK INSTRUMENTS. The Prime Money Market Fund only invests in Bank Instruments
either issued by an institution having capital, surplus and undivided profits
over $100 million or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs")
and Eurodollar Time Deposits ("ETDs"). The Prime Money Market Fund will treat
securities credit enhanced with a bank's letter of credit as Bank Instruments.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing arrangements
between a corporation and an institutional lender (such as the Prime Money
Market Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Prime Money Market Fund may also enter into, or acquire
participations in, short-term revolving credit facilities with corporate
borrowers. Demand notes and other short-term credit arrangements usually provide
for floating or variable rates of interest.
INVESTMENT LIMITATIONS
- ------------------------------------------------------
THE MONEY MARKET FUNDS FOLLOW A NUMBER OF GUIDELINES IN MANAGING THEIR
PORTFOLIOS IN ORDER TO LIMIT INVESTMENT RISKS.
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The following investment limitations apply only to CONNECTICUT/MASSACHUSETTS
MUNICIPAL MONEY MARKET FUNDS:
The Connecticut/Massachusetts Municipal Money Market Funds will not borrow money
directly or pledge securities except, under certain circumstances, a Fund may
borrow up to one-third of the value of its total assets and pledge up to 10% of
the value of total assets to secure such borrowings.
The above investment limitation cannot be changed without the respective
shareholder approval. The following limitation, however, can be changed by the
Trustees without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective.
The Connecticut/Massachusetts Municipal Money Market Funds will not invest more
than 5% of their respective total assets in industrial development bonds or
other Municipal Securities when the payment of principal and interest is the
responsibility of companies (or guarantors, where applicable) with less than
three years of continuous operations, including the operation of any
predecessor.
The following limitation, which may be changed by the Trustees without
shareholder approval, applies only to the PRIME MONEY MARKET FUND:
The Prime Money Market Fund will not invest more than 5% of the value of its
total assets in securities of issuers which have records of less than three
years of continuous operations, including the operation of any predecessor.
REGULATORY COMPLIANCE
The Money Market Funds may follow non-fundamental operational policies that are
more restrictive than their respective fundamental investment limitations, as
set forth in this prospectus and its Combined 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, as
amended. In particular, the Money Market Funds will comply with the various
requirements of Rule 2a-7 which regulates money market mutual funds. The Money
Market Funds will determine the effective maturity of their respective
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Money
Market Funds may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
THE SHAWMUT FUNDS INFORMATION
MANAGEMENT OF
THE SHAWMUT FUNDS
BOARD OF TRUSTEES
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THE SHAWMUT FUNDS ARE MANAGED BY A BOARD OF TRUSTEES.
- ------------------------------------------------------
The Trustees are responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
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PURSUANT TO AN INVESTMENT ADVISORY CONTRACT WITH THE TRUST, INVESTMENT
DECISIONS FOR THE MONEY MARKET FUNDS ARE MADE BY SHAWMUT BANK, (THE
"ADVISER"), SUBJECT TO DIRECTION BY THE TRUSTEES.
- ------------------------------------------------------
The Adviser continually conducts investment research and supervision for the
Money Market Funds and is responsible for the purchase and sale of portfolio
instruments, for which it receives an annual fee from the respective assets of
the Money Market Funds.
ADVISORY FEES
- ------------------------------------------------------
THE ADVISER MAY VOLUNTARILY WAIVE PART OF ITS ADVISORY FEES.
- ------------------------------------------------------
The Adviser receives an annual investment advisory fee equal to .50 of 1% of
each of the Money Market Fund's average daily net assets. The Adviser has
undertaken to waive a portion of its advisory fee, up to the amount of the
advisory fee, to reimburse any of the Money Market Funds for operating expenses
in excess of limitations established by certain states. The Adviser may further
voluntarily waive a portion of its fee or reimburse the Money Market Funds for
certain operating expenses. The Adviser can terminate such voluntary waiver or
reimbursement policy with any of the Money Market Funds at any time at its sole
discretion.
ADVISER'S BACKGROUND
- ------------------------------------------------------
SHAWMUT BANK, N.A., A NATIONAL BANKING ASSOCIATION, AND ITS AFFILIATES HAVE
MANAGED COMMINGLED FUNDS FOR OVER FIFTY YEARS. AS OF DECEMBER 31, 1993,
SHAWMUT NATIONAL CORPORATION, THROUGH ITS SUBSIDIARIES INCLUDING SHAWMUT
BANK, MANAGED MORE THAN $15 BILLION IN DISCRETIONARY TRUST ASSETS. SHAWMUT
BANK HAS SERVED AS AN ADVISER TO MUTUAL FUNDS SINCE THE INCEPTION OF THE
SHAWMUT FUNDS ON DECEMBER 1, 1992.
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Shawmut Bank, N.A., a national banking association, along with Shawmut Bank
Connecticut, National Association, are the principal subsidiaries of Shawmut
National Corporation, a super-regional bank holding company formed on February
29, 1988, and based in southern New England. Shawmut National Corporation serves
consumers through its network of banking offices with a full range of deposit
and lending products, as well as investment services. Shawmut Bank's borrowers
may be issuers of certain securities in which The Shawmut Funds may invest. The
principal executive offices of the investment adviser are located at One Federal
Street, Boston, Massachusetts 02211.
DISTRIBUTION OF MONEY
MARKET FUNDS' TRUST SHARES
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FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR TRUST SHARES.
- ------------------------------------------------------
Federated Securities Corp., Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under the distribution plan adopted in accordance with
Investment Company Act Rule 12b-1 (the "Plan"), the Massachusetts Municipal
Money Market Fund will pay to the distributor an amount computed at an annual
rate of up to .50 of 1% of the average daily net asset value of the Fund to
finance any activity which is principally intended to result in the sale of
shares subject to the Plan.
The distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide distribution and/or administrative services as agents for their
clients or customers. Administrative services may include, but are not limited
to, the following functions: providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other personnel as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries;
assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as may reasonably be requested.
The distributor will pay financial institutions a fee based upon the Shares
subject to the Plan and owned by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid will be determined
from time to time by the distributor.
The Massachusetts Municipal Money Market Fund Plan is a compensation type plan.
As such, the Massachusetts Municipal Money Market Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Massachusetts Municipal
Money Market Fund, including interest, carrying or other financing charges in
connection with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by the Massachusetts Municipal Money Market
Fund under the Plan.
As of the date of this prospectus, the Massachusetts Municipal Money Market Fund
is not paying or accruing 12b-1 fees. The Massachusetts Municipal Money Market
Fund does not intend to accrue or pay 12b-1 fees until either a separate class
of shares has been created for certain fiduciary investors or a determination is
made that such investors will be subject to 12b-1 fees. The Massachusetts
Municipal Money Market Fund can pay up to .50% of average daily net assets as
12b-1 fees to the distributor.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or
distributors of securities may differ from interpretations given to the
Glass-Steagall Act and, therefore, banks and financial institutions may be
required to register as dealers pursuant to state law.
ADMINISTRATION OF THE
MONEY MARKET FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), a subsidiary
of Federated Investors, provides the Money Market Funds with certain
administrative personnel and services necessary to operate the Money Market
Funds, such as legal and accounting services. FAS provides these at an annual
rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATED DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<S> <C>
.150 of 1% First $250 million
.125 of 1% Next $250 million
.100 of 1% Next $250 million
.075 of 1% Over $750 million
</TABLE>
The administrative fee received by FAS during any fiscal year shall be at least
$50,000 for each of the Money Market Funds individually. FAS may voluntarily
choose to waive a portion of its fee.
CUSTODIAN. Shawmut Bank, N.A., One Federal Street, Boston, Massachusetts 02211,
is custodian for the securities and cash of the Money Market Funds. Under the
Custodian Agreement, Shawmut Bank, N.A., holds the Money Market Funds' portfolio
securities in safekeeping and keeps all necessary records and documents relating
to its duties.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, is transfer agent and dividend disbursing agent for the Money Market
Funds. It also provides certain accounting and recordkeeping services with
respect to each of the Money Market Funds' portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, DC 20037.
INDEPENDENT ACCOUNTANTS. The independent accountants for the Money Market Funds
are Price Waterhouse, 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES OF THE MONEY MARKET FUNDS AND TRUST SHARES. Holders of Trust Shares pay
their allocable portion of the Money Market Funds and Trust's expenses. The
Trust expenses for which holders of Trust Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The respective Money Market Fund expenses for which holders of Trust Shares pay
their allocable portion include, but are not limited to: registering the Money
Market Funds and shares of the Money Market Funds; investment advisory services;
taxes and commissions; custodian fees; insurance premiums; auditors' fees; and
such non-recurring and extraordinary items as may arise.
At present, no expenses are allocated exclusively to the Trust Shares as a
class. However, the Board of Trustees reserves the right to allocate certain
other expenses to holders of Trust Shares as they deem appropriate ("Class
Expenses"). In any case, Class Expenses would be limited to: transfer agent fees
as identified by the transfer agent as attributable to holders of Trust Shares;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and
registration fees paid to state securities commissions;
expenses related to administrative personnel and services as required to support
holders of Trust Shares; legal fees relating solely to Trust Shares; and
Trustees' fees incurred as a result of issues relating solely to Trust Shares.
NET ASSET VALUE
- ------------------------------------------------------
THE TERM "NET ASSET VALUE" REFERS TO THE VALUE OF ONE MONEY MARKET FUND
SHARE.
- ------------------------------------------------------
The Money Market Funds attempt to stabilize the net asset value of their
respective shares at $1.00. The net asset value per share is determined by
dividing the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding. The Money Market Funds cannot
guarantee that the net asset value of their respective shares will always remain
at $1.00 per share.
INVESTING IN TRUST SHARES
- ------------------------------------------------------
YOU CAN BUY MONEY MARKET FUNDS TRUST SHARES BY FEDERAL RESERVE WIRE, MAIL,
OR TRANSFER, AS EXPLAINED BELOW.
- ------------------------------------------------------
Shares of the Money Market Funds are sold by the distributor on days on which
the New York Stock Exchange and Federal Reserve Wire System are open for
business. Shares of the Money Market Funds may also be purchased through Shawmut
Bank, N.A., Shawmut Bank Connecticut, National Association, or their affiliates
(collectively, "Shawmut Bank") on days on which both Shawmut Bank and the New
York Stock Exchange and Federal Wire Reserve System are open for business. Texas
residents must purchase, exchange, and redeem Shares through Federated
Securities Corp. at 1-800-358-2801. The Money Market Funds reserve the right to
reject any purchase request.
THROUGH SHAWMUT BANK. An investor may call their Shawmut Bank trust officer to
receive information and to place an order to purchase Trust Shares. Shawmut Bank
will purchase Trust Shares on behalf of investors and maintain all records
relating to the Trust Shares. Through its trust accounting systems, Shawmut Bank
provides shareholders of Trust Shares with detailed periodic statements that
integrate information regarding investments in the Money Market Funds with other
Shawmut Bank investment services.
Orders placed through Shawmut Bank are considered received when payment is
converted to federal funds and the applicable Money Market Fund is notified of
the purchase order. The completion of the purchase transaction will generally
occur within one business day after Shawmut Bank receives a purchase order.
Purchase orders must be received by Shawmut Bank before 11:00 a.m. (Eastern
time) and must be transmitted by Shawmut Bank to the applicable Money Market
Fund before 12:00 noon (Eastern time) in order for Trust Shares to be purchased
at that day's public offering price.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase Shares
directly from the distributor. To do so: complete and sign the new account form
available from the Money Market Funds; complete an application for the
establishment of a trust or agency account with Shawmut Bank; enclose a check
made payable to the full name of your desired portfolio (see the cover of the
prospectus) --Trust Shares; and mail both to the Money Market Funds, Attention:
Vice President, Securities Operations, OF0501, One Federal Street, Boston,
Massachusetts 02211. The order is considered received after a trust or agency
account is established and the check is converted by Shawmut Bank into federal
funds. This is generally the next business day after Shawmut Bank receives the
check.
To purchase Trust Shares by wire, call 1-800-SHAWMUT. All information needed
will be taken over the telephone, and the order is considered received when
Shawmut Bank receives payment by wire. To request additional information
concerning purchases by wire, please contact Federated Securities Corp., the
Money Market Funds' distributor, at 1-800-618-8573.
Shares cannot be purchased by wire on any day on which both Shawmut Bank and the
New York Stock Exchange and Federal Reserve Wire System are not open for
business.
MINIMUM INVESTMENT REQUIRED
- ------------------------------------------------------
THE MINIMUM INITIAL INVESTMENT IS $2,500.
- ------------------------------------------------------
The minimum initial investment in Shares by an investor is $2,500. Subsequent
investments must be in amounts of at least $100. The Money Market Funds may
waive the initial minimum investment for employees of Shawmut Bank and its
affiliates from time to time.
WHAT SHARES COST
- ------------------------------------------------------
SHARES ARE SOLD AT THEIR NET ASSET VALUE NEXT DETERMINED AFTER AN ORDER IS
RECEIVED.
- ------------------------------------------------------
The net asset value is determined at 12:00 noon and 4:00 p.m. (Eastern time),
Monday through Friday, except on: (i) days on which there are not sufficient
changes in the value of a Money Market Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; or (iii)
on the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Money Market Fund Trust Shares are sold at their net asset value next determined
after an order is received without a sales charge.
EXCHANGING SECURITIES FOR MONEY MARKET FUND SHARES
Investors may exchange certain Connecticut Municipal Securities or Massachusetts
Municipal Securities, or a combination of securities and cash, for shares of
Connecticut Municipal Money Market Fund and Massachusetts Municipal Money Market
Fund, respectively. The securities and any cash must have a market value of at
least $2,500. Each of these Funds reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by either Fund
are valued in the same manner as the Fund values its assets. Investors wishing
to exchange securities should first contact Federated Securities Corp.
When shares are purchased by exchange of Connecticut Municipal Securities, or
Massachusetts Municipal Securities, the proceeds from the redemption of those
shares are not available until the transfer agent is reasonably certain that the
transfer has settled, which can take up to five business days.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Certain institutions
holding Trust 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
provided which may be related to the ownership of Trust Shares. This prospectus
should, therefore, be read together with any agreement between the customer and
the institution with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Money Market Funds, Federated Services Company
maintains a share account for each shareholder of record. Share certificates are
not issued unless requested by contacting Shawmut Bank in writing.
Detailed confirmations of each purchase or redemption are sent to Shawmut Bank
or other shareholders of record. Monthly statements are
sent by Shawmut Bank to its trust customers to report account activity during
the previous month, including dividends paid during the period.
DIVIDENDS
Dividends are declared daily and paid monthly to all shareholders invested in
each Money Market Fund on the record date. Trust Shares purchased by wire before
11:00 a.m. (Eastern time) begin earning dividends that day. Trust Shares
purchased by check begin earning dividends on the next business day after the
check is converted by Shawmut Bank into federal funds.
CAPITAL GAINS
Capital gains realized by a Money Market Fund, if any, will be distributed to
that Fund's shareholders at least once every 12 months.
EXCHANGE PRIVILEGE
EXCHANGING SHARES. Shareholders may exchange Shares, with a minimum net asset
value of $1,000, for shares of the same designated class of other funds advised
by Shawmut Bank.
Exchanges are subject to the minimum initial purchase requirements of such fund
being acquired. Prior to any exchange, the shareholder must receive a copy of
the current prospectus of the class of the fund into which an exchange is to be
effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, Trust Shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee. Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short-or long-term capital gain or loss may be realized.
The exchange privilege may be modified or terminated at any time. Shareholders
will be notified of the modification or termination of the exchange privilege. A
shareholder may obtain further information on the exchange privilege by calling
their trust officer at Shawmut Bank.
EXCHANGE-BY-TELEPHONE. Instructions for exchanges between participating funds
which are part of the Trust may be given by telephone to their trust officer at
Shawmut Bank. To utilize the exchange-by-telephone service, an investor must
complete an authorization form permitting Shawmut Bank to instruct the Money
Market Funds to honor telephone instructions. The authorization is included in
Shawmut Bank's trust account documentation. Shares may be exchanged by telephone
only between trust accounts having identical registrations. Exchange
instructions given by telephone may be electronically recorded.
Any Shares held in certificate form cannot be exchanged by telephone, but must
be forwarded to the transfer agent and deposited to the shareholder's mutual
fund account before being exchanged.
Telephone exchange instructions must be received before 11:00 a.m. (Eastern
time) for Shares to be exchanged the same day. The telephone exchange privilege
may be modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through Shawmut Bank during times of drastic economic or
market changes. If a shareholder cannot contact Shawmut Bank by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail to Shawmut Bank, Attention: Vice President, Securities Operation, OF0501,
One Federal Street, Boston, Massachusetts 02211.
REDEEMING TRUST SHARES
- ------------------------------------------------------
YOU CAN REDEEM TRUST SHARES OF THE MONEY MARKET FUNDS BY MAIL OR TELEPHONE.
TO ENSURE YOUR SHARES ARE REDEEMED EXPEDITIOUSLY, PLEASE FOLLOW THE
PROCEDURES EXPLAINED BELOW.
- ------------------------------------------------------
The Money Market Funds redeems Trust Shares at their net asset value next
determined after Federated Services Company receives the redemption request.
Redemptions will be made on days on which the Money Market Funds compute their
net asset value. Requests for redemptions can be made by telephone or in writing
by contacting a Shawmut Bank trust officer. Redemption requests received prior
to 11:00 a.m. (Eastern time) will be effected on the same business day.
THROUGH SHAWMUT BANK
Shareholders may redeem Trust Shares by calling their Shawmut Bank trust officer
to request the redemption. Trust Shares will be redeemed at the net asset value
next determined after Federated Services Company receives the redemption
request. Shawmut Bank is responsible for promptly submitting redemption requests
and for maintaining proper written records of redemption instructions received
from the Money Market Funds' shareholders. In order to effect a redemption on
the same business day as a request, Shawmut Bank is responsible for the timely
transmission of the redemption request to the appropriate Money Market Fund.
Before Shawmut Bank may request redemption by telephone on behalf of a
shareholder, an authorization form permitting the Money Market Funds to accept
redemption requests by telephone must first be completed. This authorization is
included in Shawmut Bank's trust account documentation. In the event of drastic
economic or market changes, a shareholder may experience difficulty in redeeming
by telephone. If such a case should occur, it is recommended that a redemption
request be made in writing and sent by overnight mail to Shawmut Bank,
Attention: Vice President, Securities Operation, OF0501, One Federal Street,
Boston, Massachusetts 02211.
DIRECTLY FROM THE MONEY MARKET FUNDS
BY MAIL. A shareholder may redeem Trust Shares by sending a written request to
Federated Services Company. If Trust Shares are purchased by Shawmut Bank on
behalf of a trust customer, only Shawmut Bank, as the shareholder of record, can
request a redemption from Federated Services Company. The written request should
include the shareholder's name, the Money Market Fund's name and class of
shares, name, the account number, and the share or dollar amount requested. If
share certificates have been issued, they must be properly endorsed and should
be sent by registered or certified mail with the written request. Shareholders
should call the Money Market Funds for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Money Market Funds, or a redemption payable other than to the shareholder of
record must have signatures on written redemption requests guaranteed by:
- - a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- - a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- - a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
- - any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Money Market Funds do not accept signatures guaranteed by a notary public.
The Money Market Funds, and their transfer agent have adopted standards for
accepting signature guarantees from the above institutions. The Money Market
Funds may elect in the future to limit eligible signature guarantors to
institutions that are members of a signature guarantee program. The Money Market
Funds and their transfer agent reserve the right to amend these standards at any
time without notice.
RECEIVING PAYMENT
Redemption payments will generally be made directly to the shareholder's trust
account maintained with Shawmut Bank. This deposit is normally made within one
business day, but in no event more than seven days, of the redemption request,
provided the transfer agent has received payment. The net asset value of Trust
Shares redeemed is determined, and dividends, if any, are paid up to and
including, the day prior to the day that a redemption request is processed.
Pursuant to instructions from Shawmut Bank redemption proceeds may be
transferred from a shareholder account by check or by wire.
BY CHECK. Normally, a check for the proceeds is mailed within one business day,
but in no event more than seven days, after receipt of a proper redemption
request provided the transfer agent has received payment for Trust Shares from
the shareholder.
BY WIRE. Requests to wire proceeds from redemptions received before 11:00 a.m.
(Eastern time) will be honored the following business day after Shawmut Bank
receives proper instructions.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Money Market
Funds may redeem shares in any account and pay the proceeds to the shareholder
if the account balance falls below a required minimum of $2,500. This
requirement does not apply, however, if the balance falls below $2,500 because
of changes in a Money Market Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
REDEMPTION IN KIND
The Money Market Funds are obligated to redeem Shares solely in cash up to
$250,000 or 1% of the net asset value of Shares of each individual Income Fund,
whichever is less, for any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Money Market Funds will pay all or a
portion of the remainder of the redemption in portfolio instruments, valued in
the same way as a 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.
SHAREHOLDER INFORMATION
VOTING RIGHTS
- ------------------------------------------------------
EACH TRUST SHARE OF A MONEY MARKET FUND GIVES THE SHAREHOLDER ONE VOTE IN
TRUSTEE ELECTIONS AND OTHER MATTERS SUBMITTED TO SHAREHOLDERS OF THE TRUST
FOR VOTE.
- ------------------------------------------------------
All shares of each portfolio in the Trust have equal voting rights except that,
in matters affecting only a particular fund or class, only shareholders of that
fund or class are entitled to vote. As a Massachusetts business trust, the Trust
is not required to hold annual shareholder meetings. Shareholder approval will
be sought only for certain changes in the Trust or a Money Market Fund's
operation and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding shares of
the Trust. As of February 10, 1994, Shawmut Bank or its affiliates, acting as
fiduciary of various accounts, was the owner of record of the following Money
Market Funds; approxi-
mately 12,239,914 (100%) of the Trust Shares of Connecticut Municipal Money
Market Fund; approximately 9,601,158 (44.87%) of the shares of the Massachusetts
Municipal Money Market Fund; and approximately 292,519,479 (54.02%) of the Trust
Shares of Prime Money Market Fund. Additionally, as of February 10, 1994,
Shawmut Bank or its affiliates, acting as a nominee or agent of accounts of its
customers, was the owner of record of approximately 248,512,447 (45.89%) of the
Trust Shares of Prime Money Market Fund.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on behalf
of the Money Market Funds. To protect shareholders of the Money Market Funds,
the Trust has filed legal documents with Massachusetts that expressly disclaim
the liability of shareholders of a Money Market Fund for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign on behalf of a Money Market Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations on behalf of a Money Market Fund, the Trust is required to use the
property of that Money Market Fund to protect or compensate the shareholder. On
request, the Trust will defend any claim made and pay any judgment against a
shareholder of the Money Market Funds for any act or obligation of the Trust on
behalf of the Money Market Funds. Therefore, financial loss resulting from
liability as a shareholder of the Money Market Funds will occur only if the
Trust cannot meet its obligations to indemnify shareholders and pay judgments
against them from the assets of the Money Market Funds.
EFFECT OF BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent, or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of such a customer. Shawmut Bank is subject to such
banking laws and regulations.
- ------------------------------------------------------
THE GLASS-STEAGALL ACT IS A FEDERAL BANKING LAW THAT GENERALLY PROHIBITS
BANKS FROM PUBLICLY UNDERWRITING OR DISTRIBUTING CERTAIN SECURITIES.
- ------------------------------------------------------
Shawmut Bank believes, based upon the advice of its counsel, that it may perform
the services for the Money Market Funds contemplated by its advisory agreement
with the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Shawmut Bank from continuing to perform all or a part of the above
services for its customers and/or the Money Market Funds. If it were prohibited
from engaging in these customer-related activities, the Trustees would consider
alternative advisers and means of continuing available investment services. In
such event, changes in the operation of the Money Market Funds may occur,
including possible termination of any automatic or other Money Market Funds
share investment and redemption services then being provided by Shawmut Bank. It
is not expected that existing shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to
Shawmut Bank is found) as a result of any of these occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
TAX INFORMATION
FEDERAL INCOME TAX
The Money Market Funds will pay no federal income tax because each Fund expects
to meet requirements of the Internal Revenue Code, as amended, applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies.
Money Market Fund will be treated as a single, separate entity for federal
income tax purposes so that income (including capital gains) and losses realized
by The Shawmut Funds' other portfolios will not be combined for tax purposes
with those realized by each Money Market Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional Shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
CONNECTICUT TAX CONSIDERATIONS
As applied to Connecticut resident individuals, estates and trust owning shares
in the Connecticut Municipal Money Market Fund, the CSIT taxes items of income
derived from such shares in a variety of ways.
Distributions which are tax-exempt interest dividends under the federal income
tax are not subject to the CSIT to the extent that such distributions are
derived from interest on obligations issued by or on behalf of the State of
Connecticut or its instrumentalities or by State municipalities ("Connecticut
obligations"), or to the extent that such dividends are derived from interest on
obligations, the income from which federal law forbids the states to tax. All
other tax-exempt interest dividends distributed by the Connecticut Municipal
Money Market Fund are subject to the CSIT.
Regarding proper treatment of distributions from the Fund which are capital
gains dividends for federal income tax purposes and which are derived from the
sale or exchange of Connecticut obligations, shareholders should consult their
local tax advisor.
All other distributions from the Connecticut Municipal Money Market Fund are
subject to the CSIT.
For purposes of the CSIT, a shareholder's Connecticut tax basis in the shares of
the Connecticut Municipal Money Market Fund will be the federal adjusted tax
basis of such shareholder, and any gain realized for federal income tax purposes
on the disposition of shares in the Connecticut Municipal Money Market Fund will
constitute taxable gain for purposes of the CSIT.
The Connecticut corporation business tax ("CCBT") is imposed on corporations and
certain other entities. Distributions from the Connecticut Municipal Money
Market Fund to a shareholder subject to the CCBT are not eligible for the
dividends received deduction under the CCBT and therefore are included in the
taxable income of a taxpayer to the extent such distributions are treated as
either exempt-interest dividends or capital gains dividends for federal income
tax purposes. The Connecticut Department of Revenue Services has issued a letter
ruling which has the effect of treating all other distributions from the Fund as
ineligible for the CCBT dividends received deduction. Any gain realized for
federal income tax purposes on the disposition of shares in the Connecticut
Municipal Money Market Fund is includable in the gross income of a shareholder
subject to the CCBT.
MASSACHUSETTS TAX CONSIDERATIONS
Under the laws of the Commonwealth of Massachusetts, dividends paid by the
Massachusetts Municipal Money Market Fund representing interest payments on
municipal obligations issued by the Commonwealth of Massachusetts or a political
subdivision thereof (or interest on obligations of United States territories or
possessions to the extent exempt from taxation by the states pursuant to federal
law) will be exempt from Massachusetts individual income tax. Accordingly,
shareholders of the Massachusetts Municipal Money Market Fund who are residents
of the Commonwealth of Massachusetts will not be subject to Massachusetts
individual income tax on dividends paid by the Fund to the extent such dividends
are derived from interest on municipal obligations which would be tax-exempt if
directly received by such shareholder, whether such dividends are taken in cash
or reinvested in additional shares of the Massachusetts Municipal Money Market
Fund.
Massachusetts corporations must include all dividends paid by the Fund in their
net income, and the value of their shares of stock in the Fund in their net
worth, when computing the Massachusetts excise taxes on corporations.
OTHER STATE AND LOCAL TAXES
Income from the Connecticut/Massachusetts Municipal Money Market Funds is not
necessarily free from regular state income taxes in states other than
Connecticut/Massachusetts, as appropriate, or from personal property taxes.
State laws differ on this issue and shareholders are urged to consult their own
tax advisers regarding the status of their accounts under state and local tax
laws.
OTHER CLASSES OF SHARES
Connecticut Municipal Money Market Fund and Prime Money Market Fund offer a
separate classes of shares known as Investment Shares. Investment Shares are
sold primarily to financial institutions that rely upon the distribution
services provided by the distributor in the marketing of Investment Shares, as
well as to retail customers of such institutions. Investment Shares are sold at
net asset value. Investments in Investment Shares are subject to a minimum
initial investment of $2,500.
Investment Shares are distributed pursuant to 12b-1 Plans adopted by the Trust
whereby the distributor is paid a fee of up to .50 of 1% of the Investment
Shares' average daily net assets.
The amount of dividends payable to Trust Shares will exceed that of Investment
Shares by the difference between class expenses and distribution expenses borne
by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
PERFORMANCE INFORMATION
- ------------------------------------------------------
FROM TIME TO TIME THE MONEY MARKET FUNDS ADVERTISE THEIR TOTAL RETURN AND
YIELD FOR TRUST SHARES.
- ------------------------------------------------------
Total return represents the change, over a specified period of time, in the
value of an investment in Trust Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yields of Trust Shares of the Money Market Funds are calculated each day by
dividing the net investment income per share (as defined by the Securities and
Exchange Commission) earned by the Money Market Funds over a thirty-day period
by the net asset value per Share on the last day of the period. This number is
then annualized using semi-annual compounding. The yield does not necessarily
reflect income actually earned by Trust Shares and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.
Total return and yield will be calculated separately for Trust Shares and
Investment Shares. Because Investment Shares are subject to a 12b-1 fee, the
total return and yield for Trust Shares,
for the same period, will exceed that of Investment Shares.
Trust Shares are sold without any sales charge or other similar non-recurring
charges.
From time to time, the Money Market Funds may advertise their performance using
certain reporting services and/or compare its performance to certain indices.
Further information about the performance of the Money Market Funds is contained
in the Trust's Annual Report dated October 31, 1993, which can be obtained free
of charge.
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3120921A-I (2/94)
THE SHAWMUT FUNDS
MONEY MARKET FUNDS
SHAWMUT CONNECTICUT MUNICIPAL MONEY MARKET FUND
SHAWMUT MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
SHAWMUT PRIME MONEY MARKET FUND
INVESTMENT SHARES
COMBINED PROSPECTUS
The Investment Shares ("Shares") offered by this prospectus represent interests
in Investment Shares of the money market portfolios (collectively, the "Money
Market Funds" or, individually as appropriate in context, the "Fund") of The
Shawmut Funds (the "Trust"), an open-end management investment company (a mutual
fund). In addition to the Money Market Funds, the Trust consists of the
following separate investment portfolios, each having a distinct investment
objective and policies:
INCOME FUNDS
Shawmut Connecticut Intermediate Municipal
Income Fund
Shawmut Fixed Income Fund
Shawmut Intermediate Government Income Fund
Shawmut Limited Term Income Fund
Shawmut Massachusetts Intermediate Municipal
Income Fund
EQUITY FUNDS
Shawmut Growth and Income Equity Fund
Shawmut Growth Equity Fund
Shawmut Small Capitalization Equity Fund
This combined prospectus contains the information you should read and know
before you invest in the Money Market Funds. Keep this prospectus for future
reference. The Money Market Funds have also filed a Combined Statement of
Additional Information for Trust Shares and Investment Shares dated February 28,
1994, with the Securities and Exchange Commission. The information contained in
the Combined Statement of Additional Information is incorporated by reference
into this prospectus. You may request a copy of the Combined Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Money Market Funds by writing or calling the Trust.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
EACH OF THE MONEY MARKET FUNDS ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT EACH OF THE MONEY MARKET FUNDS
WILL BE ABLE TO DO SO.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF SHAWMUT
BANK, ARE NOT ENDORSED OR GUARANTEED BY SHAWMUT BANK, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ARE THEY INSURED OR GUARANTEED BY THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. MUTUAL FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING FLUCTUATIONS IN VALUE AND EARNINGS, AND THE POSSIBLE
LOSS OF PRINCIPAL.
INVESTMENT SHARES OF THE SHAWMUT FUNDS ARE AVAILABLE THROUGH LICENSED
REPRESENTATIVES OF SHAWMUT BROKERAGE, INC., MEMBER NASD/SIPC, AND AN AFFILIATE
OF SHAWMUT BANK.
Prospectus dated February 28, 1994
TABLE OF CONTENTS
SYNOPSIS 3
- ------------------------------------------------------
SUMMARY OF MONEY MARKET FUNDS' EXPENSES--
INVESTMENT SHARES 4
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
GENERAL INFORMATION 9
- ------------------------------------------------------
THE SHAWMUT FUNDS 9
- ------------------------------------------------------
OBJECTIVE AND POLICIES OF EACH FUND 10
- ------------------------------------------------------
Connecticut Municipal Money Market Fund 10
Investment Objective 10
Investment Policies 10
Acceptable Investments 10
Massachusetts Municipal Money Market Fund 11
Investment Objective 11
Investment Policies 11
Acceptable Investments 11
Prime Money Market Fund 11
Investment Objective 11
Investment Policies 12
Acceptable Investments 12
MONEY MARKET FUNDS INVESTMENTS
AND STRATEGIES 13
- ------------------------------------------------------
Variable Rate Demand Notes 13
Ratings 13
Credit Enhancement 13
Demand Features 14
Restricted and Illiquid Securities 14
When-Issued and Delayed Delivery
Transactions 14
Temporary Investments 14
Investments in the Securities of Other
Investment Companies 15
Municipal Leases 15
Participation Interests 15
Tender Option Bonds 15
Non-Diversification 16
Connecticut and Massachusetts
Municipal Securities 16
Standby Commitments 16
Connecticut and Massachusetts
Investment Risks 17
Repurchase Agreements 17
Bank Instruments 17
Short-term Credit Facilities 18
Investment Limitations 18
Regulatory Compliance 18
THE SHAWMUT FUNDS INFORMATION 19
- ------------------------------------------------------
Management of The Shawmut Funds 19
Board of Trustees 19
Investment Adviser 19
Advisory Fees 19
Adviser's Background 19
Distribution of Money Market
Investment Shares 20
Distribution Plan 20
Administration of the Money Market Funds 21
Administrative Services 21
Custodian 21
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services 21
Legal Counsel 21
Independent Accountants 21
Expenses of the Money Market Funds
and Investment Shares 21
NET ASSET VALUE 22
- ------------------------------------------------------
INVESTING IN INVESTMENT SHARES 22
- ------------------------------------------------------
Through Shawmut Bank 22
Directly from the Distributor 22
Minimum Investment Required 23
What Shares Cost 23
Exchanging Securities for
Money Market Fund Shares 23
Systematic Investment Program 23
Subaccounting Services 23
Certificates and Confirmations 24
Dividends 24
Capital Gains 24
EXCHANGE PRIVILEGE 24
- ------------------------------------------------------
Exchanging Shares 24
Exchanging-by-Telephone 24
REDEEMING INVESTMENT SHARES 25
- ------------------------------------------------------
Through Shawmut Bank 25
Directly from the Money Market Funds 25
By Mail 25
Signatures 26
Receiving Payment 26
By Check 26
By Wire 26
Checkwriting 26
Accounts with Low Balances 26
Systematic Withdrawal Program 26
Redemption in Kind 27
SHAREHOLDER INFORMATION 27
- ------------------------------------------------------
Voting Rights 27
Massachusetts Partnership Law 28
EFFECT OF BANKING LAWS 28
- ------------------------------------------------------
TAX INFORMATION 29
- ------------------------------------------------------
Federal Income Tax 29
Connecticut Tax Considerations 29
Massachusetts Tax Considerations 29
Other State and Local Taxes 30
OTHER CLASSES OF SHARES 30
- ------------------------------------------------------
PERFORMANCE INFORMATION 30
- ------------------------------------------------------
SYNOPSIS
INVESTMENT OBJECTIVES
The Shawmut Funds offer you a convenient, affordable way to participate in
separate, professionally managed portfolios of securities. This prospectus
relates only to the Money Market Funds of the Trust.
MONEY MARKET FUNDS
- ------------------------------------------------------
SHAWMUT CONNECTICUT MUNICIPAL
MONEY MARKET FUND
("Connecticut Municipal Money Market Fund") seeks current income which is
exempt from federal income tax and Connecticut state income tax on
individuals, trusts, and estates (the "CSIT"), consistent with stability of
principal and liquidity, by investing primarily in short-term Connecticut
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of
Connecticut or its political subdivisions and financing authorities, but
which are exempt from CSIT.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT MASSACHUSETTS MUNICIPAL
MONEY MARKET FUND
("Massachusetts Municipal Money Market Fund") seeks current income which is
exempt from federal income tax and income taxes imposed by the Commonwealth
of Massachusetts, consistent with stability of principal and liquidity, by
investing primarily in short-term Massachusetts municipal securities,
including
securities of states, territories, and possessions of the United States
which are not issued by or on behalf of Massachusetts or its political
subdivisions and financing authorities, but which are exempt from income
taxes imposed by the Common-
wealth of Massachusetts.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT PRIME MONEY MARKET FUND
("Prime Money Market Fund") seeks current income, consistent with stability
of principal and liquidity, by investing primarily in a diversified
portfolio of money market instruments maturing in thirteen months or less.
- ------------------------------------------------------
BUYING AND REDEEMING MONEY MARKET FUND SHARES
A minimum initial investment of $2,500 may be required. Subsequent investments
must be in amounts of at least $100, as described in this prospectus in the
section entitled "Minimum Investment Required."
MONEY MARKET FUND MANAGEMENT
The Money Market Funds' investment adviser is Shawmut Bank, N.A., which makes
investment decisions for the Money Market Funds.
SHAREHOLDER SERVICES
As a shareholder, you can easily obtain information about your account by
calling 1-800-SHAWMUT.
THE SHAWMUT FUNDS
SUMMARY OF MONEY MARKET FUND EXPENSES
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS
MUNICIPAL MUNICIPAL PRIME
MONEY MONEY MONEY
MARKET FUND MARKET FUND* MARKET FUND
-------------- --------------- -------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..................... None None None
Maximum Sales Load Imposed--on Reinvested Dividends
(as a percentage of offering price)..................... None None None
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds as applicable)............. None None None
Redemption Fee (as a percentage of amount redeemed, if
applicable)............................................. None None None
Exchange Fee.............................................. None None None
</TABLE>
* Massachusetts Municipal Money Market Fund currently sells its shares without
class designation. Purchasers of either the Trust Shares or Investment Shares of
the other Shawmut Funds may purchase shares of Massachusetts Municipal Money
Market Fund.
<TABLE>
<S> <C> <C> <C>
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1).......................... 0.45% 0.45% 0.29%
12b-1 Fees(2)............................................. 0.25% 0.00% 0.25%
Total Other Expenses (after waiver and
reimbursement)(3)....................................... 0.16% 0.16% 0.13%
Total Investment Shares Operating Expenses (after waivers
and reimbursement)(4)................................... 0.86% 0.61% 0.67%
</TABLE>
(1) The management fee has been reduced to reflect the anticipated voluntary
waiver by the investment adviser. The Adviser can terminate this anticipated
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.50%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver by the
distributor. Both the Connecticut Municipal Money Market Fund and Prime
Money Market Fund can pay up to 0.50% of the average daily net assets of
Investment Shares as a 12b-1 fee to the distributor. As of date of this
prospectus, the Massachusetts Municipal Money Market Fund is not paying or
accruing 12b-1 fees. The Massachusetts Municipal Money Market Fund does not
intend to accrue or pay 12b-1 fees until either a separate class of shares
has been created for certain fiduciary investors or a determination is made
that such investors will be subject to the 12b-1 fees. The Massachusetts
Municipal Money Market Fund can pay up to 0.50% of the average daily net
assets as a 12b-1 fee to the distributor.
(3) Estimated other expenses have been reduced to reflect the voluntary waiver
by the custodian and the voluntary reimbursement of expenses by the
investment adviser for the Connecticut Municipal Money Market Fund and the
Massachusetts Municipal Money Market Fund.
(4) The Annual Investment Shares Operating Expenses for the fiscal year ended
October 31, 1993 were 0.36% for the Connecticut Municipal Money Market Fund,
0.11% for the Massachusetts Municipal Money Market Fund, and 0.85% for the
Prime Money Market Fund. The Annual Investment Shares Operating Expenses in
the table above are based on expenses expected during the fiscal year ending
October 31, 1994. Absent the voluntary waivers and reimbursement explained
in the above footnotes, the Total Investment Shares Operating Expenses are
estimated to be 1.61% for the Connecticut Municipal Money Market Fund; 1.32%
for the Massachusetts Municipal Money Market Fund; and 1.13% for the Prime
Money Market Fund.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT SHARES WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "THE SHAWMUT FUNDS INFORMATION" AND
"INVESTING IN INVESTMENT SHARES." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN
$5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period. As noted in
the table above, the Money Market Funds charge no redemption fee.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Connecticut Municipal Money Market Fund.......... $9 $27 $48 $106
Massachusetts Municipal Money Market Fund........ $6 $20 $34 $ 76
Prime Money Market Fund.......................... $7 $21 $37 $ 83
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Investment Shares of the Money Market Funds. Connecticut Municipal Money Market
Fund and Prime Money Market Fund also offer another class of shares called Trust
Shares. Trust Shares and Investment Shares are subject to certain of the same
expenses; however, Investment Shares are subject to a 12b-1 fee of up to .50 of
1%. See "Other Classes of Shares."
SHAWMUT CONNECTICUT MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table, is included in the Annual Report, which is incorporated by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
INVESTMENT SHARES 1993*
- ------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
- --------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------
Net investment income 0.001
- --------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.001)
- -------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $1.00
- -------------------------------------------------------------------------- -------
TOTAL RETURN** 0.14%
- --------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------
Expenses 0.36%(a)
- --------------------------------------------------------------------------
Net investment income 2.12%(a)
- --------------------------------------------------------------------------
Expense waiver/reimbursement (b) 5.46%(a)
- --------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------
Net assets, end of period (000 omitted) $6,582
- --------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from October 4, 1993 (date of initial
public investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
SHAWMUT MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table, is included in the Annual Report, which is incorporated by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1993*
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
- --------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------
Net investment income 0.001
- --------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.001)
- -------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $1.00
- -------------------------------------------------------------------------- -------
TOTAL RETURN** 0.12%
- --------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------
Expenses 0.11%(a)
- --------------------------------------------------------------------------
Net investment income 2.75%(a)
- --------------------------------------------------------------------------
Expense waiver/reimbursement (b) 35.31%(a)
- --------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------
Net assets, end of period (000 omitted) $1,237
- --------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from October 5, 1993 (date of initial
public investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
SHAWMUT PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- -------------------------------------------------------------------------------------- ----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
- --------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------
Net investment income 0.02
- --------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02)
- -------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $1.00
- -------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 2.41%
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------
Expenses 0.58%(a)
- --------------------------------------------------------------------------------------
Net investment income 2.71%(a)
- --------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.12%(a)
- --------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $257,851
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- -------------------------------------------------------------------------------------- ----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
- --------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------
Net investment income 0.02
- --------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02)
- -------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $1.00
- -------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 1.73%
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------
Expenses 0.85%(a)
- --------------------------------------------------------------------------------------
Net investment income 2.36%(a)
- --------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.37%(a)
- --------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $28,758
- --------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993. For the period from October 21, 1992
(start of business) to December 13, 1992, net investment income aggregating
$0.004 per share ($400) was distributed to Federated Administrative
Services.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated July 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
As of the date of this prospectus, the Board of Trustees (the "Trustees") has
established two classes of shares of Connecticut Municipal Money Market Fund and
Prime Money Market Fund, known as Trust Shares and Investment Shares. This
prospectus relates only to Investment Shares of Connecticut Municipal Money
Market Fund and Prime Money Market Fund, and to the Shares of Massachusetts
Municipal Money Market Fund.
A minimum initial investment of $2,500 may be required. Subsequent investments
must be in amounts of at least $100, as described in this prospectus in the
section entitled "Minimum Investment Required." Shares are sold at net asset
value and are redeemed at net asset value without a sales charge imposed by the
Money Market Funds.
THE SHAWMUT FUNDS
The shareholders of the Money Market Funds are shareholders of The Shawmut
Funds, which consist of Shawmut Connecticut Intermediate Municipal Income Fund,
Shawmut Connecticut Municipal Money Market Fund, Shawmut Fixed Income Fund,
Shawmut Growth and Income Equity Fund, Shawmut Growth Equity Fund, Shawmut
Intermediate Government Income Fund, Shawmut Limited Term Income Fund, Shawmut
Massachusetts Intermediate Municipal Income Fund, Shawmut Massachusetts
Municipal Money Market Fund, Shawmut Prime Money Market Fund, and Shawmut Small
Capitalization Equity Fund. Shareholders in the Money Market Funds have easy
access to the other portfolios of The Shawmut Funds through an exchange program.
The Shawmut Funds are advised by Shawmut Bank, N.A., and distributed by
Federated Securities Corp.
OBJECTIVE AND POLICIES OF EACH FUND
CONNECTICUT MUNICIPAL MONEY
MARKET FUND
INVESTMENT OBJECTIVE
The investment objective of the Connecticut Municipal Money Market Fund is to
provide current income exempt from federal regular income tax and the CSIT,
consistent with stability of principal and liquidity. The investment objective
cannot be changed without the approval of shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE CONNECTICUT MUNICIPAL MONEY MARKET FUND PURSUES ITS INVESTMENT
OBJECTIVE BY INVESTING IN A PORTFOLIO OF CONNECTICUT MUNICIPAL SECURITIES
(AS DEFINED BELOW) WITH REMAINING MATURITIES OF THIRTEEN MONTHS OR LESS AT
THE TIME OF PURCHASE BY THE FUND.
- ------------------------------------------------------
Unless indicated otherwise, the investment policies described in this prospectus
may be changed by the Trustees without the approval of shareholders.
Shareholders will be notified before any material changes in these policies
become effective. As a matter of investment policy which cannot be changed
without approval of shareholders, the Connecticut Municipal Money Market Fund
invests its assets so that at least 80% of its annual interest income is exempt
from federal regular income tax or at least 80% of the total value of its assets
are invested in obligations the interest income from which is exempt from
federal regular income tax. The average maturity of the securities in the
Connecticut Municipal Money Market Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Connecticut Municipal Money Market Fund will
invest its assets so that at least 65% of the value of its assets will be
invested in debt obligations issued by or on behalf of the State of Connecticut
and its political subdivisions and financing authorities, and obligations of
other states, territories and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the interest income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and CSIT ("Connecticut
Municipal Securities"). Examples of Connecticut Municipal Securities include,
but are not limited to:
- - municipal commercial paper and other short-term notes;
- - variable rate demand notes;
- - municipal bonds (including bonds having remaining maturities of less than
thirteen months without demand features);
- - municipal leases, including certificates of participation in leases;
- - tender option bonds; and
- - participation, trust, and partnership interests in any of the foregoing
obligations.
MASSACHUSETTS MUNICIPAL
MONEY MARKET FUND
INVESTMENT OBJECTIVE
The investment objective of the Massachusetts Municipal Money Market Fund is to
provide current income exempt from federal regular income tax and the income
taxes imposed by the Commonwealth of Massachusetts, consistent with stability of
principal and liquidity. The investment objective cannot be changed without the
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE MASSACHUSETTS MUNICIPAL MONEY MARKET FUND PURSUES ITS INVESTMENT
OBJECTIVE BY INVESTING IN A PORTFOLIO OF MASSACHUSETTS MUNICIPAL SECURITIES
(AS DEFINED BELOW) WITH REMAINING MATURITIES OF THIRTEEN MONTHS OR LESS AT
THE TIME OF PURCHASE BY THE FUND.
- ------------------------------------------------------
Unless indicated otherwise, the investment policies described in this prospectus
may be changed by the Trustees without the approval of shareholders.
Shareholders will be notified before any material changes in these policies
become effective. As a matter of investment policy which cannot be changed
without approval of shareholders, the Massachusetts Municipal Money Market Fund
invests its assets so that at least 80% of its annual interest income is exempt
from federal regular income tax or at least 80% of the total value of its assets
are invested in obligations the interest income from which is exempt from
federal regular income tax. The average maturity of the securities in the
Massachusetts Municipal Money Market Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Massachusetts Municipal Money Market Fund will
invest its assets so that at least 65% of the value of its assets will be
invested in debt obligations issued by or on behalf of the Commonwealth of
Massachusetts and its political subdivisions and financing authorities, and
obligations of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the interest income from which is, in the opinion of
qualified legal counsel, exempt from federal regular income tax and income taxes
imposed by the Commonwealth of Massachusetts imposed upon non-corporate
taxpayers ("Massachusetts Municipal Securities"). Examples of Massachusetts
Municipal Securities include, but are not limited to:
- - municipal commercial paper and other short-term notes;
- - variable rate demand notes;
- - municipal bonds (including bonds having remaining maturities of less than
thirteen months without demand features);
- - municipal leases, including certificates of participation in leases;
- - tender option bonds; and
- - participation, trust, and partnership interest in any of the foregoing
obligations.
PRIME MONEY MARKET FUND
INVESTMENT OBJECTIVE
The investment objective of the Prime Money Market Fund is to provide current
income consistent with stability of principal and liquidity. The investment
objective cannot be changed without the approval of shareholders. While there is
no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE PRIME MONEY MARKET FUND PURSUES ITS INVESTMENT OBJECTIVE BY INVESTING
PRIMARILY IN A DIVERSIFIED PORTFOLIO OF MONEY MARKET INSTRUMENTS MATURING
IN THIRTEEN MONTHS OR LESS.
- ------------------------------------------------------
Unless indicated otherwise, the investment policies set forth in this prospectus
may be changed by the Trustees without the approval of shareholders.
Shareholders will be notified before any material change in these investment
policies becomes effective. The average maturity of these securities, computed
on a dollar-weighted basis, will be 90 days or less.
ACCEPTABLE INVESTMENTS
The Prime Money Market Fund invests in eligible quality money market instruments
that are either rated in one of the two highest short-term rating categories by
one or more nationally recognized statistical rating organizations ("NRSROs") or
are of comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
- - domestic issues of corporate debt obligations, including notes, bonds, and
debentures;
- - commercial paper, including eurodollar commercial paper ("Europaper");
- - certificates of deposit, demand and time deposits, and bankers' acceptances of
domestic banks and other deposit institutions ("Bank Instruments");
- - short-term credit facilities, such as demand notes;
- - obligations issued or guaranteed as to payment of principal and interest by
the U.S. government or one of its agencies or instrumentalities ("Government
Securities'); and
- - repurchase agreements.
The Prime Money Market Fund invests only in instruments denominated and payable
in U.S. dollars.
MONEY MARKET FUNDS INVESTMENTS AND STRATEGIES
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term securities
(Municipal Securities for the Connecticut/Massachusetts Municipal Money Market
Funds and long-term corporate debt instruments for the Prime Money Market Fund)
that have variable or floating interest rates and provide the Money Market Funds
with the right to tender the security for repurchase at its stated principal
amount plus accrued interest. Such securities typically bear interest at a rate
that is intended to cause the securities to trade at par. The interest rate may
float or be adjusted at regular intervals (ranging from daily to annually), and
is normally based on an applicable interest index or a stated percentage of a
prime rate or another published interest rate or interest rate index. Most
variable rate demand notes allow the Money Market Funds to demand the repurchase
of the security on not more than seven days prior notice. Other notes only
permit the Money Market Funds to tender the security at the time of each
interest rate adjustment or at other fixed intervals. See "Demand Features." The
Money Market Funds treat variable rate demand notes as maturing on the later of
the date of the next interest rate adjustment or the date on which the Money
Market Funds may next tender the security for repurchase.
RATINGS. The Municipal Securities in which the Connecticut/Massachusetts
Municipal Money Market Funds invest must either be rated in one of the two
highest short-term rating categories by one or more NRSROs or be of comparable
quality to securities having such ratings. A NRSRO's two highest rating
categories are determined without regard for sub-categories and gradations. For
example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Corporation
("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or
FIN-1+, FIN-1, and FIN-2 by Fitch Investors Service, Inc. ("Fitch") are all
considered rated in one of the two highest short-term rating categories. The
Connecticut/Massachusetts Municipal Money Market Funds will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories. See
"Regulatory Compliance."
If a Municipal Security has not been rated by a NRSRO, the
Connecticut/Massachusetts Municipal Money Market Funds' investment adviser will
acquire the security only if it determines that the security is of comparable
quality to securities that have received the requisite ratings. In this regard,
the adviser will generally treat Municipal Securities as eligible portfolio
securities if the issuer has received long-term bond ratings within the two
highest rating categories by a NRSRO with respect to other bonds issued. The
adviser also considers other relevant information in its evaluation of unrated
short-term securities.
For the Prime Money Market Fund's securities, a NRSRO's two highest rating
categories are also determined without regard for sub-categories and gradations.
For example, the Prime Money Market Fund's securities rated A-1+, A-1, or A-2 by
S&P, Prime-1 or Prime-2 by Moody's, or F-1 (+ or -) or F-2 (+ or -) by Fitch are
all considered rated in one of the two highest short-term rating categories. The
Prime Money Market Fund will limit its investments in securities rated in the
second highest short-term rating category, e.g., A-2 by S&P, Prime 2 by Moody's
or F-2 (+ or -) by Fitch, to not more than 5% of its total assets, with not more
than 1% invested in the securities of any one issuer. The Prime Money Market
Fund will follow applicable regulations in determining whether a security rated
by more than one NRSRO can be treated as being in the one of the two highest
short-term rating categories. See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Money Market Funds' acceptable investments
may have
been credit enhanced by a guaranty, letter of credit, or insurance. The Money
Market Funds typically evaluate the credit quality and ratings of credit
enhanced securities based upon the financial condition and ratings of the party
providing the credit enhancement (the "credit enhancer"), rather than the
issuer. Generally, the Prime Money Market Fund will not treat credit enhanced
securities as having been issued by the credit enhancer for diversification
purposes. However, the Connecticut/Massachusetts Municipal Money Market Funds
will not treat credit enhanced securities as having been issued by the credit
enhancer for diversification purposes, unless the Connecticut/Massachusetts
Municipal Money Market Funds have invested more than 10% of their respective
assets in securities issued, guaranteed, or otherwise credit enhanced by the
credit enhancer, in which case the securities will be treated as having been
issued both by the issuer and the credit enhancer. The bankruptcy, receivership,
or default of the credit enhancer may adversely affect the quality and
marketability of the underlying security.
The Connecticut/Massachusetts Municipal Money Market Funds may have more than
25% of their respective total assets invested in securities credit enhanced by
banks or insurance companies.
DEMAND FEATURES. The Money Market Funds may acquire securities that are subject
to puts and standby commitments ("demand features") to purchase the securities
at their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by a Money Market Fund. The demand
feature may be issued by the issuer of the underlying securities, a dealer in
the securities, or by another third party, and may not be transferred separately
from the underlying security. A Money Market Fund uses these arrangements to
provide liquidity and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership, or default by the issuer of
the demand feature, or a default on the underlying security or other event that
terminates the demand feature before its exercise, will adversely affect the
liquidity of the underlying security. Demand features that are exercisable even
after a payment default on the underlying security may be treated as a form of
credit enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Money Market Funds may invest in
restricted securities. Restricted securities are any securities in which a Money
Market Fund may invest pursuant to its investment objective and policies but
which are subject to restrictions on resale under federal securities laws.
Pursuant to criteria established by the Trustees, certain restricted securities
are considered liquid. To the extent restricted securities are deemed to be
illiquid, the Money Market Funds will limit their purchase, together with other
securities not considered to be liquid, to 10% of their individual net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Money Market Funds may
purchase securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which a Money Market Fund purchases securities
with payment and delivery scheduled for a future time. In when-issued and
delayed delivery transactions, a Money Market Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause a Money Market Fund to miss a price or yield considered to be
advantageous.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its investment
adviser, prevailing market conditions warrant, the Prime Money Market Fund may,
for temporary defensive purposes, invest in repurchase agreements and other
mutual funds.
From time to time on a temporary basis, when the investment adviser determines
that market conditions call for a temporary defensive posture, the
Connecticut/Massachusetts Municipal Money Market Funds may invest in short-term
non-Connecticut/Massachusetts (respectively) municipal tax-exempt obligations or
other taxa-
ble, temporary investments. All temporary investments will satisfy the same
credit quality standards as the Connecticut/Massachusetts Municipal Money Market
Funds' acceptable investments. See "Ratings" above. Temporary investments
include: investments in other mutual funds; notes issued by or on behalf of
municipal or corporate issuers; marketable obligations issued or guaranteed by
the U.S. government, its agencies, or instrumentalities; other debt securities;
commercial paper; certificates of deposit of banks; and repurchase agreements
(arrangements in which the organization sells a Money Market Fund a temporary
investment and agrees at the time of sale to repurchase it at a mutually agreed
upon time and price).
Although the Connecticut/Massachusetts Municipal Money Market Funds are
permitted to make taxable, temporary investments, there is no current intention
of generating income
subject to federal regular income tax, CSIT, or income taxes imposed by the
Commonwealth of Massachusetts, respectively.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Money Market Funds
may invest in the securities of other investment companies that have similar
policies and objectives, but they will not individually own more than 3% of the
total outstanding voting stock of any investment company, invest more than 5% of
their respective total assets in any one investment company, or invest more than
10% of their respective total assets in investment companies in general. The
Money Market Funds will invest in other investment companies primarily for the
purpose of investing short-term cash which has not yet been invested in other
portfolio instruments. However, from time to time on a temporary basis, a Money
Market Fund may invest exclusively in a single other similarly managed
investment company. Shareholders should realize that when a Fund invests in
other investment companies, certain fund expenses, such as custodian fees and
administrative fees, may be duplicated. The adviser will waive its investment
advisory fee on assets invested in securities of other investment companies.
The following investments and strategies apply only to the
CONNECTICUT/MASSACHUSETTS MUNICIPAL MONEY MARKET FUNDS:
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract, or a
participation certificate in any of the above.
PARTICIPATION INTERESTS. The Connecticut/ Massachusetts Municipal Money Market
Funds may purchase interests in Municipal Securities from financial institutions
such as commercial and investment banks, savings and loan associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests, or any other form of
indirect ownership that allows the respective Fund to treat the income from the
investment as exempt from federal income tax. The Connecticut/Massachusetts
Municipal Money Market Funds invest in these participation interests in order to
obtain credit enhancement or demand features that would not be available through
direct ownership of the underlying Municipal Securities.
TENDER OPTION BONDS. The Connecticut/Massachusetts Municipal Money Market
Funds may purchase tender option bonds and similar securities. A tender
option bond generally has a long maturity and bears interest at a fixed rate
substantially higher than prevailing short-term tax-exempt rates, and is
coupled with an agreement by a third party, such as a bank, broker-dealer, or
other financial institution, pursuant to which such institution grants the
security holders the option, usually upon not more than seven days notice or
at periodic intervals, to tender their securities to the institution and
receive the face value of the security. In providing the option, the financial
institution receives a fee
that reduces the fixed rate of the underlying bond and results in the
Connecticut/Massachusetts Municipal Money Market Funds effectively receiving a
demand obligation that bears interest at the prevailing short-term tax exempt
rate. The Connecticut/Massachusetts Municipal Money Market Funds' adviser will
monitor, on an ongoing basis, the creditworthiness of the issuer of the tender
option bond, the financial institution providing the option, and any custodian
holding the underlying long-term bond. The bankruptcy, receivership, or default
of any of the parties to the tender option bond will adversely affect the
quality and marketability of the security.
NON-DIVERSIFICATION. The Connecticut/Massachusetts Municipal Money Market
Funds are non-diversified investment portfolios. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Connecticut/Massachusetts Municipal Money Market Fund,
therefore, will entail greater risk than would exist in a diversified
investment portfolio because the higher percentage of investments among fewer
issuers may result in greater fluctuation in the total market value of the
Connecticut/Massachusetts Municipal Money Market Funds' portfolios. Any
economic, political, or regulatory developments affecting the value of the
securities in the Connecticut/Massachusetts Municipal Money Market Funds'
portfolios will have a greater impact on the total value of the portfolios
than would be the case if the portfolios were diversified among more issuers.
The Connecticut/Massachusetts Municipal Money Market Funds intend to comply with
Subchapter M of the Internal Revenue Code. This undertaking requires that at the
end of each quarter of the taxable year, with regard to at least 50% of a Fund's
total assets, no more than 5% of its total assets are invested in the securities
of a single issuer; beyond that, no more than 25% of its total assets are
invested in the securities of a single issuer.
CONNECTICUT AND MASSACHUSETTS MUNICIPAL SECURITIES. Connecticut and
Massachusetts Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control, and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses, and to make loans to other public
institutions and facilities.
Connecticut and Massachusetts Municipal Securities include industrial
development bonds issued by or on behalf of public authorities to provide
financing aid to acquire sites or construct and equip facilities for privately
or publicly owned corporations. The availability of this financing encourages
these corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS. Some securities dealers are willing to sell Connecticut
and Massachusetts Municipal Securities to the Connecticut/Massachusetts
Municipal Money Market Funds accompanied by their commitments to repurchase
the Municipal Securities prior to maturity, at the Connecticut/Massachusetts
Municipal Money Market Funds' option, for the amortized cost of the Municipal
Securities at the time of repurchase. These arrangements are not used to
protect against changes in the market value of Municipal Securities. They
permit the Connecticut/Massachusetts Municipal Money Market Funds, however,
to remain fully invested
and still provide liquidity to satisfy redemptions. The cost of Connecticut or
Massachusetts Municipal Securities accompanied by these 'standby' commitments
could be greater than the cost of Municipal Securities without such commitments.
Standby commitments are not marketable or otherwise assignable and have value
only to the Connecticut/Massachusetts Municipal Money Market Funds. The default
or bankruptcy of a securities dealer giving such a commitment would not affect
the quality of the Connecticut or Massachusetts Municipal Securities purchased.
However, without a standby commitment, these securities could be more difficult
to sell. The Connecticut/Massachusetts Municipal Money Market Funds enter into
standby commitments only with those dealers whose credit the investment adviser
believes to be of high quality.
CONNECTICUT AND MASSACHUSETTS INVESTMENT RISKS. Yields on Connecticut and
Massachusetts Municipal Securities depend on a variety of factors, including:
the general conditions of the short-term municipal note market and of the
municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the State of Connecticut and the
Commonwealth of Massachusetts or their respective municipalities could impact
the Connecticut/Massachusetts Municipal Money Market Funds' portfolios. The
ability of the Connecticut/Massachusetts Municipal Money Market Funds to achieve
their investment objectives also depends on the continuing ability of the
issuers of Connecticut and Massachusetts Municipal Securities and demand
features, or the credit enhancers of either, to meet their obligations for the
payment of interest and principal when due.
Investing in Connecticut and Massachusetts Municipal Securities which meet the
Connecticut/Massachusetts Municipal Money Market Funds' quality standards may
not be possible if the State of Connecticut and the Commonwealth of
Massachusetts or their respective municipalities do not maintain their current
credit ratings. An expanded discussion of the current economic risks associated
with the purchase of Connecticut or Massachusetts Municipal Securities is
contained in the Combined Statement of Additional Information.
The following investments and strategies apply only to the PRIME MONEY MARKET
FUND:
REPURCHASE AGREEMENTS. The U.S. government securities and other securities in
which the Prime Money Market Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Prime Money Market Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and price. To the
extent that the original seller does not repurchase the securities from the
Prime Money Market Fund, the Prime Money Market Fund could receive less than the
repurchase price on any sale of such securities.
BANK INSTRUMENTS. The Prime Money Market Fund only invests in Bank Instruments
either issued by an institution having capital, surplus and undivided profits
over $100 million, or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs")
and Eurodollar Time Deposits ("ETDs"). The Prime Money Market Fund will treat
securities credit enhanced with a bank's letter of credit as Bank Instruments.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing arrangements
between a corporation and an institutional lender (such as the Prime Money
Market Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Prime Money Market Fund may also enter into, or acquire
participations in, short-term revolving credit facilities with corporate
borrowers. Demand notes and other short-term credit arrangements usually provide
for floating or variable rates of interest.
INVESTMENT LIMITATIONS
- ------------------------------------------------------
THE MONEY MARKET FUNDS FOLLOW A NUMBER OF GUIDELINES IN MANAGING THEIR
PORTFOLIOS IN ORDER TO LIMIT INVESTMENT RISKS.
- ------------------------------------------------------
The following investment limitations apply only to CONNECTICUT/MASSACHUSETTS
MUNICIPAL MONEY MARKET FUNDS:
The Connecticut/Massachusetts Municipal Money Market Funds will not borrow money
directly or pledge securities except, under certain circumstances, a Fund may
borrow up to one-third of the value of its total assets and pledge up to 10% of
the value of total assets to secure such borrowings.
The above investment limitation cannot be changed without the respective
shareholder approval. The following limitation, however, can be changed by the
Trustees without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective.
The Connecticut/Massachusetts Municipal Money Market Funds will not invest more
than 5% of their respective total assets in industrial development bonds or
other Municipal Securities when the payment of principal and interest is the
responsibility of companies (or guarantors, where applicable) with less than
three years of continuous operations, including the operation of any
predecessor.
The following limitation, which may be changed by the Trustees without
shareholder approval, applies only to the PRIME MONEY MARKET FUND:
The Prime Money Market Fund will not invest more than 5% of the value of its
total assets in securities of issuers which have records of less than three
years of continuous operations, including the operation of any predecessor.
REGULATORY COMPLIANCE
The Money Market Funds may follow non-fundamental operational policies that are
more restrictive than their respective fundamental investment limitations, as
set forth in this prospectus and its Combined 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, as
amended. In particular, the Money Market Funds will comply with the various
requirements of Rule 2a-7 which regulates money market mutual funds. Each of the
Money Market Funds will determine the effective maturity of its respective
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Money
Market Funds may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
THE SHAWMUT FUNDS INFORMATION
MANAGEMENT OF THE
SHAWMUT FUNDS
BOARD OF TRUSTEES
- ------------------------------------------------------
THE SHAWMUT FUNDS ARE MANAGED BY A BOARD OF TRUSTEES.
- ------------------------------------------------------
The Trustees are responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
- ------------------------------------------------------
PURSUANT TO AN INVESTMENT ADVISORY CONTRACT WITH THE TRUST, INVESTMENT
DECISIONS FOR THE MONEY MARKET FUNDS ARE MADE BY SHAWMUT BANK, (THE
"ADVISER"), SUBJECT TO DIRECTION BY THE TRUSTEES.
- ------------------------------------------------------
The Adviser continually conducts investment research and supervision for the
Money Market Funds and is responsible for the purchase and sale of portfolio
instruments, for which it receives an annual fee from the respective assets of
the Money Market Funds.
ADVISORY FEES
- ------------------------------------------------------
THE ADVISER MAY VOLUNTARILY WAIVE PART OF ITS ADVISORY FEES.
- ------------------------------------------------------
The Adviser receives an annual investment advisory fee equal to .50 of 1% of
each of the Money Market Fund's average daily net assets. The Adviser has
undertaken to waive a portion of its advisory fee, up to the amount of the
advisory fee, to reimburse each of the Money Market Funds for operating expenses
in excess of limitations established by certain states. The Adviser may further
voluntarily waive a portion of its fee or reimburse any of the Money Market
Funds for certain operating expenses. The Adviser can terminate such voluntary
waiver or reimbursement policy with any of the Money Market Funds at any time at
its sole discretion.
ADVISER'S BACKGROUND
- ------------------------------------------------------
SHAWMUT BANK, N.A., A NATIONAL BANKING ASSOCIATION, AND ITS AFFILIATES HAVE
MANAGED COMMINGLED FUNDS FOR OVER FIFTY YEARS. AS OF DECEMBER 31, 1993,
SHAWMUT NATIONAL CORPORATION, THROUGH ITS SUBSIDIARIES INCLUDING SHAWMUT
BANK, MANAGED MORE THAN $15 BILLION IN DISCRETIONARY TRUST ASSETS. SHAWMUT
BANK HAS SERVED AS AN ADVISER TO MUTUAL FUNDS SINCE THE INCEPTION OF THE
SHAWMUT FUNDS ON DECEMBER 1, 1992.
- ------------------------------------------------------
Shawmut Bank, N.A., a national banking association, along with Shawmut Bank
Connecticut, National Association, are the principal subsidiaries of Shawmut
National Corporation, a super-regional bank holding company formed on February
29, 1988, and based in southern New England. Shawmut National Corporation serves
consumers through its network of banking offices with a full range of deposit
and lending products, as well as investment services. Shawmut Bank's borrowers
may be issuers of certain securities, in which The Shawmut Funds may invest. The
principal executive offices of the investment adviser are located at One Federal
Street, Boston, Massachusetts 02211.
DISTRIBUTION OF MONEY MARKET
FUNDS' INVESTMENT SHARES
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FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR INVESTMENT
SHARES.
- ------------------------------------------------------
Federated Securities Corp., Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under the distribution plan adopted in accordance with
Investment Company Act Rule 12b-1 (the "Plan"), each of the Money Market Funds
Investment Shares will pay to the distributor an amount computed at an annual
rate of up to .50 of 1% of the average daily net asset value of each of the
Money Market Funds to finance any activity which is principally intended to
result in the sale of Investment Shares subject to the Plan.
The distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide distribution and/or administrative services as agents for their
clients or customers who own Investment Shares of the Money Market Funds.
Administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; assisting clients in changing
dividend options, account designations, and addresses; and providing such other
services as may reasonably be requested.
The distributor will pay financial institutions a fee based upon the Investment
Shares subject to the Plan and owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the distributor.
The Money Market Funds' Plan is a compensation type plan. As such, the Money
Market Funds make no payments to the distributor except as described above.
Therefore, the Money Market Funds do not pay for unreimbursed expenses of the
distributor, including amounts expended by the distributor in excess of amounts
received by it from each of the Money Market Funds including interest, carrying
or other financing charges in connection with excess amounts expended, or the
distributor's overhead expenses. However, the distributor may be able to recover
such amounts or may earn a profit from future payments made by the Money Market
Funds under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE MONEY
MARKET FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), a subsidiary
of Federated Investors, provides the Money Market Funds with certain
administrative personnel and services necessary to operate the Money Market
Funds, such as legal and accounting services. FAS provides these at an annual
rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATED DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<S> <C>
.150 of 1% First $250 million
.125 of 1% Next $250 million
.100 of 1% Next $250 million
.075 of 1% Over $750 million
</TABLE>
The administrative fee received by FAS during any fiscal year shall be at least
$50,000 for each of the Money Market Funds individually. FAS may voluntarily
choose to waive a portion of its fee.
CUSTODIAN. Shawmut Bank, N.A., One Federal Street, Boston, Massachusetts 02211,
is custodian for the securities and cash of the Money Market Funds. Under the
Custodian Agreement, Shawmut Bank, N.A., holds the Money Market Funds' portfolio
securities in safekeeping and keeps all necessary records and documents relating
to its duties.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, is transfer agent and dividend disbursing agent for the Money Market
Funds. It also provides certain accounting and recordkeeping services with
respect to each of the Money Market Funds' portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W.,Washington, DC 20037.
INDEPENDENT ACCOUNTANTS. The independent accountants for the Money Market Funds
are Price Waterhouse, 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES OF THE MONEY MARKET FUNDS AND INVESTMENT SHARES
Holders of Investment Shares pay their allocable portion of the Money Market
Funds' and Trust's expenses. The Trust expenses for which holders of Investment
Shares pay their allocable portion include, but are not limited to: the cost of
organizing the Trust and continuing its existence; registering the Trust with
federal and state securities authorities; Trustees' fees; auditors' fees; the
cost of meetings of Trustees; legal fees of the Trust; association membership
dues; and such non-recurring and extraordinary items as may arise.
The respective Money Market Fund expenses for which holders of Investment Shares
pay their allocable portion include, but are not limited to: registering the
Money Market Funds and shares of the Money Market Funds; investment advisory
services; taxes and commissions; custodian fees; insurance premiums; auditors'
fees; and such non-recurring and extraordinary items as may arise.
At present, no expenses, other than distribution expenses, are allocated
exclusively to the Investment Shares as a class. However, the Board of Trustees
reserves the right to allocate certain other expenses to holders of Investment
Shares as they deem appropriate ("Class Expenses"). In any case, Class Expenses
would be limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Shares; printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders; registration fees
paid to the Securities and Exchange Commission and registration fees paid to
state securities commissions; expenses related to administrative personnel and
services as required to support holders of Investment Shares; legal fees
relating solely to Invest-
ment Shares; and Trustees' fees incurred as a result of issues relating solely
to Investment Shares.
NET ASSET VALUE
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THE TERM "NET ASSET VALUE" REFERS TO THE VALUE OF ONE MONEY MARKET FUND
SHARE.
- ------------------------------------------------------
The Money Market Funds attempt to stabilize the net asset value of their
respective shares at $1.00. The net asset value per share is determined by
dividing the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding. The Money Market Funds cannot
guarantee that the net asset value of their respective shares will always remain
at $1.00 per share.
INVESTING IN INVESTMENT SHARES
- ------------------------------------------------------
YOU CAN BUY INVESTMENT SHARES OF THE MONEY MARKET FUNDS BY FEDERAL RESERVE
WIRE, MAIL, OR TRANSFER, AS EXPLAINED BELOW.
- ------------------------------------------------------
Shares of the Money Market Funds are sold by the distributor on days on which
the New York Stock Exchange and Federal Reserve Wire System are open for
business. Shares of the Money Market Funds may also be purchased through Shawmut
Bank, N.A., Shawmut Bank Connecticut, National Association, or their affiliates
(collectively, "Shawmut Bank") on days on which both Shawmut Bank and the New
York Stock Exchange and Federal Wire Reserve System are open for business. Texas
residents must purchase, exchange, and redeem Shares through Federated
Securities Corp. at 1-800-618-8573. The Money Market Funds reserve the right to
reject any purchase request.
THROUGH SHAWMUT BANK
An investor may call Shawmut Bank (call toll-free 1-800-SHAWMUT) to receive
information and to place an order to purchase Investment Shares. Orders placed
through Shawmut Bank are considered received when payment is converted to
federal funds and the appropriate Money Market Fund is notified of the purchase
order. The completion of the purchase transaction will generally occur within
one business day after Shawmut Bank receives a purchase order. Purchase orders
must be received by Shawmut Bank before 11:00 a.m. (Eastern time) and must be
transmitted by Shawmut Bank to the applicable Money Market Fund before 12:00
noon (Eastern time) in order for Shares to be purchased at that day's public
offering price.
Payments must be made by either check or federal funds deposited into a
shareholder account established with Shawmut Bank. Payment is normally made
through a debit to the shareholder account no later than the business day
following the conversion of a check into federal funds.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Investment Shares directly from the distributor. To do so: complete and sign the
new account form available from the Money Market Funds; enclose a check made
payable to Shawmut Connecticut Municipal Money Market Fund, Shawmut
Massachusetts Municipal Money Market Fund, and Prime Money Market Fund (as
appropriate)--Investment Shares; and mail both to Shawmut Money Market Funds,
3 Copley Place, OF9919, Boston, Massachusetts 02116. The order is considered
received after the check is converted by Shawmut Bank into federal funds and
Shawmut Bank establishes a shareholder account for the investor. This is
generally the next business day after Shawmut Bank receives the check.
To purchase Investment Shares of the Money Market Funds by wire, call
1-800-SHAWMUT. All information needed will be taken over the telephone, and the
order is considered received when Shawmut Bank receives payment by wire and has
established a shareholder account for the investor. To request additional
information concerning purchases by wire, please contact Federated Securities
Corp., the Money Market
Funds' distributor, at 1-800-618-8573. Investment Shares cannot be purchased by
wire on any day on which both Shawmut Bank and the New
York Stock Exchange and Federal Reserve Wire System are not open for business.
MINIMUM INVESTMENT REQUIRED
- ------------------------------------------------------
THE MINIMUM INITIAL INVESTMENT IS $2,500, OR $500 IN THE CASE OF RETIREMENT
PLAN ACCOUNTS.
- ------------------------------------------------------
The minimum initial investment in Investment Shares by an investor is $2,500, or
$500 in the case of retirement plan accounts. Subsequent investments by
participants in the Systematic Investment Program, as described in this
prospectus, or by retirement plan accounts, must be in amounts of at least $50.
Subsequent investments by all other investors must be in amounts of at least
$100. The Money Market Funds may waive the initial minimum investment for
employees of Shawmut Bank and its affiliates from time to time.
WHAT SHARES COST
- ------------------------------------------------------
SHARES ARE SOLD AT THEIR NET ASSET VALUE NEXT DETERMINED AFTER AN ORDER IS
RECEIVED.
- ------------------------------------------------------
The net asset value is determined at 12:00 noon and 4:00 p.m. (Eastern time),
Monday through Friday, except on: (i) days on which there are not sufficient
changes in the value of a Money Market Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; or (iii)
on the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Shares of the Money Market Funds are sold at their net asset value next
determined after an order is received without a sales charge.
EXCHANGING SECURITIES FOR MONEY MARKET FUND SHARES
Investors may exchange certain Connecticut Municipal Securities or Massachusetts
Municipal Securities, or a combination of securities and cash, for Shares of
Connecticut Municipal Money Market Fund and Massachusetts Municipal Money Market
Fund, respectively. The securities and any cash must have a market value of at
least $2,500. Each of these Funds reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by either Fund
are valued in the same manner as the Fund values its assets. Investors wishing
to exchange securities should first contact Federated Securities Corp.
When shares are purchased by exchange of Connecticut Municipal Securities or
Massachusetts Municipal Securities, the proceeds from the redemption of those
shares are not available until the transfer agent is reasonably certain that the
transfer has settled, which can take up to five business days.
SYSTEMATIC INVESTMENT PROGRAM
Once a Money Market Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $50. Under this program,
funds may be automatically withdrawn periodically from the shareholder's
checking account and invested in shares at the net asset value next determined
after an order is received by a Money Market Fund. A shareholder may apply for
participation in this program through his account officer at Shawmut Bank.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Certain institutions
holding Investment 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 provided which may be related to the ownership of
Investment Shares. This prospectus should, therefore, be read together with any
agreement between the customer and the institution with regard to the services
provided, the fees charged for those services, and any restrictions and
limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Money Market Funds, Federated Services Company
maintains a Share account for each shareholder of record. Share certificates are
not issued unless requested by contacting Shawmut Bank in writing.
Detailed confirmations of each purchase or redemption are sent to Shawmut Bank
or other shareholders of record. Monthly statements are sent by Shawmut Bank to
report account activity during the previous month, including dividends paid
during the period.
DIVIDENDS
Dividends are declared daily and paid monthly to all shareholders invested in
each Money Market Fund on the record date. Investment Shares purchased by wire
before 11:00 a.m. (Eastern time) begin earning dividends that day. Investment
Shares purchased by check begin earning dividends on the next business day after
the check is converted by Shawmut Bank into federal funds.
CAPITAL GAINS
Capital gains realized by a Money Market Fund, if any, will be distributed to
that Fund's shareholders at least once every 12 months.
EXCHANGE PRIVILEGE
EXCHANGING SHARES. Shareholders may exchange Investment Shares, with a minimum
net asset value of $1,000, for shares of other funds advised by Shawmut Bank.
Shares of funds with a sales charge may be exchanged at net asset value for
shares of other funds with an equal sales charge or no sales charge. Shares of
funds with no sales charge, or a lower sales charge, acquired by direct purchase
or reinvestment of dividends on such shares may be exchanged for shares of funds
with a sales charge, or a higher sales charge, at net asset value, plus the
applicable sales charge or additional incremental sales charge, as the case may
be, imposed by the fund shares being purchased.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales charge would be a net asset
value.
Exchanges are subject to the minimum initial purchase requirements of such fund
being acquired. Prior to any exchange, the shareholder must receive a copy of
the current prospectus of the fund or class thereof into which an exchange is to
be effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, Shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee. Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short-or long-term capital gain or loss may be realized.
The exchange privilege may be modified or terminated at any time. Shareholders
will be notified of the modification or termination of the exchange privilege. A
shareholder may obtain further information on the exchange privilege by calling
Shawmut Bank.
EXCHANGE-BY-TELEPHONE. Instructions for exchanges between participating funds
which are part of the Trust may be given by calling
Shawmut Bank at 1-800-SHAWMUT. To utilize the exchange-by-telephone service, a
shareholder must complete an authorization form permitting a Shawmut Fund to
honor telephone instructions. The authorization is included in the shareholder
account application. Shares may be exchanged by telephone only between fund
accounts having identical shareholder registrations. Telephone exchange
instructions may be electronically recorded.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent and deposited to the shareholder's mutual fund
account before being exchanged.
Telephone exchange instructions must be received before 11:00 a.m. (Eastern
time) for Shares to be exchanged the same day. The telephone exchange privilege
may be modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through Shawmut Bank during times of drastic economic or
market changes. If a shareholder cannot contact Shawmut Bank by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail to Shawmut Bank, 3 Copley Place, OF9919, Boston, Massachusetts 02116.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
REDEEMING INVESTMENT SHARES
- ------------------------------------------------------
YOU CAN REDEEM INVESTMENT SHARES OF THE MONEY MARKET FUNDS BY MAIL OR
TELEPHONE. TO ENSURE YOUR SHARES ARE
REDEEMED EXPEDITIOUSLY, PLEASE FOLLOW
THE PROCEDURES EXPLAINED BELOW.
- ------------------------------------------------------
The Money Market Funds redeem Investment Shares at their net asset value next
determined after Federated Services Company receives the redemption request.
Redemptions will be made on days on which the Money Market Funds compute their
net asset value. Requests for redemptions can be made by telephone or in writing
by contacting a Shawmut Bank account officer or directly from the Money Market
Funds. Redemption requests received prior to 11:00 a.m. (Eastern time) will be
effected on the same business day.
THROUGH SHAWMUT BANK
Shareholders may redeem Investment Shares by calling their Shawmut Bank account
officer to request the redemption. Investment Shares will be redeemed at the net
asset value next determined after Federated Services Company receives the
redemption request. Shawmut Bank is responsible for promptly submitting
redemption requests and for maintaining proper written records of redemption
instructions received from the Money Market Funds' shareholders. In order to
effect a redemption on the same business day as a request, Shawmut Bank is
responsible for the timely transmission of the redemption request to the
appropriate Money Market Fund.
Before Shawmut Bank may request redemption by telephone on behalf of a
shareholder, an authorization form permitting the Money Market Funds to accept
redemption requests by
telephone must first be completed. This authorization is included in
shareholder's account application. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
such a case should occur, it is recommended that a redemption request be made in
writing and sent by overnight mail to Shawmut Bank, 3 Copley Place, OF9919,
Boston Massachusetts 02116.
DIRECTLY FROM THE MONEY MARKET FUNDS
BY MAIL. A shareholder may redeem Investment Shares by sending a written request
to Federated Services Company. The written request should include the
shareholder's name, the Money Market Fund's name and class of shares, name, the
account number, and the share or dollar amount requested. If share certificates
have been issued, they must be properly en-
dorsed and should be sent by registered or certified mail with the written
request. Shareholders should call the Money Market Funds for assistance in
redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Money Market Funds, or a redemption payable other than to the shareholder of
record must have signatures on written redemption requests guaranteed by:
- - a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund , which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- - a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- - a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
- - any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Money Market Funds do not accept signatures guaranteed by a notary public.
The Money Market Funds and their transfer agent have adopted standards for
accepting signature guarantees from the above institutions. The Money Market
Funds may elect in the future to limit eligible signature guarantors to
institutions that are members of a signature guarantee program. The Money Market
Funds and their transfer agent reserve the right to amend these standards at any
time without notice.
RECEIVING PAYMENT
Redemption payments will generally be made directly to the shareholder's account
maintained with Shawmut Bank. This deposit is normally made within one business
day, but in no event more than seven days, of the redemption request, provided
the transfer agent has received payment. The net asset value of Investment
Shares redeemed is determined, and dividends, if any, are paid up to and
including, the day prior to the day that a redemption request is processed.
Pursuant to instructions from Shawmut Bank, redemption proceeds may be
transferred from a shareholder account by check or by wire.
BY CHECK. Normally, a check for the proceeds is mailed within one business day,
but in no event more than seven days, after receipt of a proper redemption
request provided the transfer agent has received payment for Investment Shares
from the Shareholder.
BY WIRE. Requests to wire proceeds from redemptions received before 11:00 a.m.
(Eastern time) will be honored the following business day after Shawmut Bank
receives proper instructions.
CHECKWRITING
At the shareholder's request, Shawmut Bank will establish a checking account for
redeeming Investment Shares. With a Money Market Fund checking account, Shares
may be redeemed simply by writing a check. The redemption will be made at the
net asset value on the date that the check is presented to the appropriate Money
Market Fund. A check may not be written to close an account. For further
information, contact the appropriate Fund.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Money Market
Funds may redeem shares in any account and pay the proceeds to the shareholder
if the account balance falls below a required minimum of $2,500, or $500 in the
case of retirement plan accounts. This requirement does not apply, however, if
the balance falls below $2,500 or $500, respectively, because of changes in a
Money Market Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Investment
Shares are redeemed to provide for periodic withdrawal payments in an amount
directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Investment Shares, redemptions may reduce, and eventually deplete,
the shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the appropriate Money Market Fund. To be eligible to participate
in this program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through Shawmut Bank.
REDEMPTION IN KIND
The Money Market Funds are obligated to redeem Investment Shares solely in cash
up to $250,000 or 1% of the net asset value of each individual Money Market
Fund, whichever is less, for any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material
adverse effect on remaining shareholders. In such a case, the Money Market Funds
will pay all or a portion of the remainder of the redemption in portfolio
instruments, valued in the same way as a 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.
SHAREHOLDER INFORMATION
VOTING RIGHTS
- ------------------------------------------------------
EACH INVESTMENT SHARE OF A MONEY MARKET FUND GIVES THE SHAREHOLDER ONE VOTE
IN TRUSTEE ELECTIONS AND OTHER MATTERS SUBMITTED TO SHAREHOLDERS OF THE
TRUST FOR VOTE.
- ------------------------------------------------------
All shares of each portfolio in the Trust have equal voting rights except that,
in matters affecting only a particular fund or class, only shareholders of that
fund or class are entitled to vote. As a Massachusetts business trust, the Trust
is not required to hold annual shareholder meetings. Shareholder approval will
be sought only for certain changes in the Trust or a Money Market Fund's
operation and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding shares of
the Trust. As of February 10, 1994, Shawmut Bank or its affiliates, acting as
fiduciary of various accounts, owned approximately 9,601,158 (44.87%) of the
shares of the Massachusetts Municipal Money Market Fund.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on behalf
of a Money Market Fund. To protect shareholders of the Money Market Funds, the
Trust has filed legal documents with Massachusetts that expressly disclaim the
liability of shareholders of the Money Market Funds for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign on behalf of a Money Market Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations on behalf of a Money Market Fund, the Trust is required to use the
property of that Money Market Funds to protect or compensate the shareholder. On
request, the Trust will defend any claim made and pay any judgment against a
shareholder of the Money Market Funds for any act or obligation of the Trust on
behalf of the Money Market Funds. Therefore, financial loss resulting from
liability as a shareholder of the Money Market Funds will occur only if the
Trust cannot meet its obligations to indemnify shareholders and pay judgments
against them from the assets of the Money Market Funds.
EFFECT OF BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent, or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of such a customer. Shawmut Bank is subject to such
banking laws and regulations.
- ------------------------------------------------------
THE GLASS-STEAGALL ACT IS A FEDERAL BANKING LAW THAT GENERALLY PROHIBITS
BANKS FROM PUBLICLY UNDERWRITING OR DISTRIBUTING CERTAIN SECURITIES.
- ------------------------------------------------------
Shawmut Bank believes, based upon the advice of its counsel, that it may perform
the services for the Money Market Funds contemplated by its advisory agreement
with the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Shawmut Bank from continuing to perform all or a part of the above
services for its customers and/or the Money Market Funds.
If it were prohibited from engaging in these customer-related activities, the
Trustees would consider alternative advisers and means of continuing available
investment services. In such event, changes in the operation of the Money Market
Funds may occur, including possible termination of any automatic or other Money
Market Funds share investment and redemption services then being provided by
Shawmut Bank. It is not expected that existing shareholders would suffer any
adverse financial consequences (if another adviser with equivalent abilities to
Shawmut Bank is found) as a result of any of these occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
TAX INFORMATION
FEDERAL INCOME TAX
The Money Market Funds will pay no federal income tax because each Fund expects
to meet requirements of the Internal Revenue Code, as amended, applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies.
The Money Market Funds will be treated as a single, separate entity for federal
income tax purposes so that income (including capital gains) and losses realized
by The Shawmut Funds' other portfolios will not be combined for tax purposes
with those realized by each Money
Market Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional Investment Shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
CONNECTICUT TAX CONSIDERATIONS
As applied to Connecticut resident individuals, estates and trusts owning shares
in the Connecticut Municipal Money Market Fund, the CSIT taxes items of income
derived from such shares in a variety of ways.
Distributions which are tax-exempt interest dividends under the federal income
tax are not subject to the CSIT to the extent that such distributions are
derived from interest on obligations issued by or on behalf of the State of
Connecticut or its instrumentalities or by State municipalities ("Connecticut
obligations"), or to the extent that such dividends are derived from interest on
obligations, the income from which federal law forbids the states to tax. All
other tax-exempt interest dividends distributed by the Connecticut Municipal
Money Market Fund are subject to the CSIT.
Regarding proper treatment of distributions from the Fund which are capital
gains dividends for federal income tax purposes and which are derived from the
sale or exchange of Connecticut obligations, shareholders should consult their
local tax advisor.
All other distributions from the Connecticut Municipal Money Market Fund are
subject to the CSIT.
For purposes of the CSIT, a shareholder's Connecticut tax basis in the shares of
the Connecticut Municipal Money Market Fund will be the federal adjusted tax
basis of such shareholder, and any gain realized for federal income tax purposes
on the disposition of shares in the Connecticut Municipal Money Market Fund will
constitute taxable gain for purposes of the CSIT.
The Connecticut corporation business tax ("CCBT") is imposed on corporations and
certain other entities. Distributions from the Connecticut Municipal Money
Market Fund to a shareholder subject to the CCBT are not eligible for the
dividends received deduction under the CCBT and therefore are included in the
taxable income of a taxpayer to the extent such distributions are treated as
either exempt-interest dividends or capital gains dividends for federal income
tax purposes. The Connecticut Department of Revenue Services has issued a letter
ruling which has the effect of treating all other distributions from the Fund as
ineligible for the CCBT dividends received deduction. Any gain realized for
federal income tax purposes on the disposition of shares in the Connecticut
Municipal Money Market Fund is includable in the gross income of a shareholder
subject to the CCBT.
MASSACHUSETTS TAX CONSIDERATIONS
Under the laws of the Commonwealth of Massachusetts, dividends paid by the
Massachusetts Municipal Money Market Fund representing interest payments on
municipal obligations issued by the Commonwealth of Massachusetts or a political
subdivision thereof (or interest on obligations of United States territories or
possessions
to the extent exempt from taxation by the states pursuant to federal law) will
be exempt from Massachusetts individual income tax. Accordingly, shareholders of
the Massachusetts Municipal Money Market Fund who are residents of the
Commonwealth of Massachusetts will not be subject to Massachusetts individual
income tax on dividends paid by the Fund to the extent such dividends are
derived from interest on municipal obligations which would be tax-exempt if
directly received by such shareholder, whether such dividends are taken in cash
or reinvested in additional shares of the Massachusetts Municipal Money Market
Fund.
Massachusetts corporations must include all dividends paid by the Fund in their
net income, and the value of their shares of stock in the Fund in their net
worth, when computing the Massachusetts excise taxes on corporations.
OTHER STATE AND LOCAL TAXES
Income from the Connecticut/Massachusetts Municipal Money Market Fund is not
necessarily free from regular state income taxes in states other than
Connecticut/Massachusetts, as appropriate, or from personal property taxes.
State laws differ on this issue and shareholders are urged to consult their own
tax advisers regarding the status of their accounts under state and local tax
laws.
OTHER CLASSES OF SHARES
Connecticut Municipal Money Market Fund and Prime Money Market Fund offer a
separate classes of shares known as Trust Shares. Trust Shares are sold
primarily to accounts for which Shawmut Bank, N.A., or its affiliates, act in a
fiduciary or agency capacity. Trust Shares are sold at net asset value, without
a sales charge, and without a Rule 12b-1 Plan. Investments in Trust Shares are
subject to a minimum initial investment of $2,500.
The amount of dividends payable to Trust Shares will exceed that of Investment
Shares by the difference between class expenses and distribution expenses borne
by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
PERFORMANCE INFORMATION
- ------------------------------------------------------
FROM TIME TO TIME THE MONEY MARKET FUNDS ADVERTISE THEIR TOTAL RETURN AND
YIELD FOR INVESTMENT SHARES.
- ------------------------------------------------------
Total return represents the change, over a specified period of time, in the
value of an investment in Investment Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yields of Investment Shares of the Money Market Funds are calculated by
dividing the net investment income per share (as defined by the Securities and
Exchange Commission) earned by the Money Market Funds over a thirty-day period
by the net asset value per Share on the last day of the period. This number is
then annualized using semi-annual compounding. The yield does not necessarily
reflect income actually earned by Investment Shares and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
Total return and yield will be calculated separately for Investment Shares and
Trust Shares. Because Investment Shares are subject to a 12b-1 fee, the total
return and yield for Trust Shares, for the same period, will exceed that of
Investment Shares for funds with separate classes of shares.
Investment Shares are sold without any sales charge or other similar
non-recurring charges.
From time to time, the Money Market Funds may advertise their performance using
certain reporting services and/or compare its performance to certain indices.
Further information about the performance of the Money Market Funds is contained
in the Trust's Annual Report dated October 31, 1993, which can be obtained free
of charge.
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3120921A-R (2/94)
THE SHAWMUT MONEY MARKET FUNDS
(PORTFOLIOS OF THE SHAWMUT FUNDS)
SHAWMUT CONNECTICUT MUNICIPAL MONEY MARKET FUND
TRUST SHARES
INVESTMENT SHARES
SHAWMUT MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
SHAWMUT PRIME MONEY MARKET FUND
TRUST SHARES
INVESTMENT SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
Shawmut Connecticut Municipal Money Market Fund ("Connecticut Municipal Money
Market Fund"), Shawmut Massachusetts Municipal Money Market Fund ("Massachusetts
Municipal Money Market Fund"), and Shawmut Prime Money Market Fund ("Prime Money
Market Fund") (collectively, referred to as the "Money Market Funds") represent
interests in investment portfolios of The Shawmut Funds (the "Trust"). This
combined Statement of Additional Information should be read with the respective
prospectuses for the Money Market Funds, Trust Shares and Investment Shares,
dated February 28, 1994. This Statement is not a prospectus itself. To receive a
copy of either prospectus, write or call the Money Market Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OFFERED BY THE PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF SHAWMUT
BANK, ARE NOT ENDORSED OR GUARANTEED BY SHAWMUT BANK, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ARE THEY INSURED OR GUARANTEED BY THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. MUTUAL FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING FLUCTUATIONS IN VALUE AND EARNINGS, AND THE POSSIBLE
LOSS OF PRINCIPAL.
INVESTMENT SHARES OF THE SHAWMUT FUNDS ARE AVAILABLE THROUGH LICENSED
REPRESENTATIVES OF SHAWMUT BROKERAGE, INC., MEMBER NASD/SIPC, AND AN AFFILIATE
OF SHAWMUT BANK.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated February 28, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE MONEY
MARKET FUNDS 1
- ----------------------------------------------------------------
Investment Objective and Policies
of the Money Market Funds 1
Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 1
Investment Limitations 4
Massachusetts Investment Risks 7
Connecticut Investment Risks 8
THE SHAWMUT FUNDS MANAGEMENT 9
- ----------------------------------------------------------------
Officers and Trustees Funds 9
Funds 10
Money Market Funds Ownership 11
Trustee Liability 11
INVESTMENT ADVISORY SERVICES 11
- ----------------------------------------------------------------
Adviser to the Money Market Funds 11
Advisory Fees 11
ADMINISTRATIVE SERVICES 12
- ----------------------------------------------------------------
BROKERAGE TRANSACTIONS 12
- ----------------------------------------------------------------
PURCHASING SHARES 12
- ----------------------------------------------------------------
Distribution Plan 12
Conversion to Federal Funds 13
DETERMINING NET ASSET VALUE 13
- ----------------------------------------------------------------
Use of the Amortized Cost Method 13
EXCHANGING SECURITIES FOR MONEY
MARKET FUNDS SHARES 14
- ----------------------------------------------------------------
Tax Consequences 14
REDEEMING SHARES 14
- ----------------------------------------------------------------
Redemption in Kind 14
EXCHANGE PRIVILEGE 15
- ----------------------------------------------------------------
Requirements for Exchange 15
Making An Exchange 15
TAX STATUS 15
- ----------------------------------------------------------------
The Money Market Funds' Tax Status 15
Federal Income Tax 15
Massachusetts State Income Tax 15
Other State and Local Taxes 16
Shareholders' Tax Status 16
YIELD 16
- ----------------------------------------------------------------
EFFECTIVE YIELD 16
- ----------------------------------------------------------------
TAX-EQUIVALENT YIELD 16
- ----------------------------------------------------------------
Tax-Equivalency Table 17
PERFORMANCE COMPARISONS 19
- ----------------------------------------------------------------
FINANCIAL STATEMENTS 19
- ----------------------------------------------------------------
APPENDIX 20
- ----------------------------------------------------------------
GENERAL INFORMATION ABOUT THE MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
The Money Market Funds are portfolios of The Shawmut Funds, which was
established as a Massachusetts business trust under a Declaration of Trust dated
July 16, 1992.
Shares of the Connecticut Municipal Money Market Fund and the Prime Money Market
Fund are offered in two classes, known as Trust Shares and Investment Shares.
This combined statement of additional information relates to Trust Shares and
Investment Shares of the Connecticut Municipal Money Market Fund and the Prime
Money Market Fund, as well as Massachusetts Municipal Money Market Fund
(individually and collectively referred to as "Shares").
INVESTMENT OBJECTIVE AND POLICIES OF THE MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
Connecticut Municipal Money Market Fund's investment objective is to provide
current income which is exempt from federal regular income tax and Connecticut
state income tax, consistent with stability of principal and liquidity. The
investment objective cannot be changed without the approval of shareholders. The
policies described below may be changed by the Board of Trustees (the
"Trustees") without shareholder approval. Shareholders will be notified before
any material change in these policies becomes effective.
Massachusetts Municipal Money Market Fund's investment objective is to provide
current income which is exempt from federal regular income tax and income taxes
imposed by the Commonwealth of Massachusetts, consistent with stability of
principal and liquidity. The investment objective cannot be changed without the
approval of shareholders. The policies described below may be changed by the
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
Prime Money Market Fund's investment objective is to provide current income
consistent with stability of principal and liquidity. The investment objective
cannot be changed without the approval of shareholders. The policies described
below may be changed by the Trustees without shareholder approval. Shareholders
will be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
Connecticut Municipal Money Market Fund invests primarily in debt obligations
issued by or on behalf of Connecticut and of other states, territories and
possessions of the United States, including the District of Columbia, and any
political subdivision or financing authority of any of these, the income from
which is, in the opinion of qualified legal counsel, exempt from both federal
regular income tax and Connecticut state income tax imposed upon non-corporate
taxpayers ("Connecticut Municipal Securities").
Massachusetts Municipal Money Market Fund invests primarily in debt obligations
issued by or on behalf of the Commonwealth of Massachusetts and of other states,
territories and possessions of the United States, including the District of
Columbia, and any political subdivision or financing authority of any of these,
the income from which is, in the opinion of qualified legal counsel, exempt from
both federal regular income tax and income taxes imposed by the Commonwealth of
Massachusetts imposed upon non-corporate taxpayers ("Massachusetts Municipal
Securities").
Prime Money Market Fund invests in money market instruments which mature in
thirteen months or less and which include, but are not limited to, commercial
paper and demand master notes, bank instruments, U.S. government obligations,
and repurchase agreements.
The instruments of banks and savings and loans that are insured by the Bank
Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF") such
as certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances, are not necessarily guaranteed by those organizations.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price and yield for the Money Market Funds. 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.
These transactions are arrangements in which the Money Market Funds
purchases securities with payment and delivery scheduled for a future
time. The Money Market Funds engage in when-issued and delayed delivery
transactions only for the purpose of acquiring portfolio securities
consistent with their respective investment objectives and policies and
not for investment leverage.
No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the appropriate Money Market Fund
sufficient to make payment for the securities to be purchased are
segregated on the Money Market Funds' records at the trade date. These
securities are marked to market daily and maintained until the
transaction is settled. The Money Market Funds may engage in these
transactions to an extent that would cause the segregation of an amount
up to 20% of the total value of a Fund's assets.
- --------------------------------------------------------------------------------
The following acceptable investments and strategies apply only to the
CONNECTICUT MUNICIPAL MONEY MARKET FUND and MASSACHUSETTS MUNICIPAL MONEY MARKET
FUND (collectively referred to as "Connecticut/Massachusetts Municipal Money
Market Funds"):
CHARACTERISTICS
The Municipal Securities in which the Connecticut/Massachusetts Municipal
Money Market Funds invest have the characteristics set forth in the
prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Municipal Securities are:
- municipal notes and commercial paper;
- general obligation serial bonds sold with differing maturity dates;
- refunded municipal bonds; and
- all revenue bonds, including industrial development bonds.
MUNIPREFERRED SECURITIES
The Connecticut/Massachusetts Municipal Money Market Funds may purchase
interests in Municipal Securities that are offered in the form of a
security representing a diversified portfolio of investment grade bonds.
These securities provide investors, such as the Connecticut/Massachusetts
Municipal Money Market Funds, with liquidity and income exempt from
federal income tax and some state income taxes.
PARTICIPATION INTERESTS
The financial institutions from which the Connecticut/Massachusetts
Municipal Money Market Funds purchase participation interests frequently
provide or secure from another financial institution irrevocable letters
of credit or guarantees and give the Connecticut/Massachusetts Municipal
Money Market Funds the right to demand payment of the principal amounts
of the participation interests plus accrued interest on short notice
(usually within seven days).
VARIABLE RATE DEMAND NOTES
Variable interest rates generally reduce changes in the market value of
Municipal Securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable rate Municipal
Securities than for fixed income obligations.
The terms of these variable rate demand instruments require payment of
principal and accrued interest from the issuer of the municipal
obligations, the issuer of the participation interests, or a guarantor of
either issuer.
MUNICIPAL LEASES
The Connecticut/Massachusetts Municipal Money Market Funds may purchase
Municipal Securities in the form of participation interests which
represent undivided proportional interests in lease payments by a
governmental or nonprofit entity. The lease payments and other rights
under the lease provide for and secure the payments on the certificates.
Lease obligations may be limited by municipal charter or the nature of
the appropriation for the lease. In particular, lease obligations may be
subject to periodic appropriation. If the entity does not appropriate
funds for future lease payments, the entity cannot be compelled to make
such payments. Furthermore, a lease may provide that the participants
cannot accelerate lease obligations upon default. The participants would
only be able to enforce lease payments as they become due. In the event
of a default or failure of appropriation, unless the participation
interests are credit enhanced, it is unlikely that the participants would
be able to obtain an acceptable substitute source of payment.
When determining whether municipal leases purchased by the
Connecticut/Massachusetts Municipal Money Market Funds will be classified
as a liquid or illiquid security, the Board of Trustees has directed the
adviser to consider certain factors such as: the frequency of trades and
quotes for the security; the volatility of quotations and trade prices
for the security; the number of dealers willing to purchase or sell the
security and the number of potential purchasers; dealer undertaking to
make a market in the security; the nature of the security and the nature
of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of
transfer); the rating of the security and the financial condition and
prospects of the issuer of the security; whether the lease can be
terminated by the lessee; the potential recovery, if any, from a sale of
the leased property upon termination of the lease; the lessee's general
credit strength (e.g., its debt, administrative, economic and financial
characteristics and prospects); the likelihood that the lessee will
discontinue appropriating funding for the lease property because the
property is no longer deemed essential to its operations (e.g., the
potential for an 'event of nonappropriation'); any credit enhancement or
legal recourse
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provided upon an event of nonappropriation or other termination of the
lease; and such other factors as may be relevant to the
Connecticut/Massachusetts Municipal Money Market Funds ' ability to
dispose of the security.
TEMPORARY INVESTMENTS
The Connecticut/Massachusetts Municipal Money Market Funds may also
invest in high quality temporary investments during times of unusual
market conditions for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the
Connecticut/Massachusetts Municipal Money Market Funds and agree at
the time of sale to repurchase them at a mutually agreed upon time
and price within one year from the date of acquisition. The
Connecticut/Massachusetts Municipal Money Market Funds or their
custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market
daily. To the extent that the original seller does not repurchase
the securities from the Connecticut/Massachusetts Municipal Money
Market Funds, the Connecticut/Massachusetts Municipal Money Market
Funds could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities
by a Fund might be delayed pending court action. The
Connecticut/Massachusetts Municipal Money Market Funds believes that
under the regular procedures normally in effect for custody of the
Connecticut/Massachusetts Municipal Money Market Funds' portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Connecticut/Massachusetts
Municipal Money Market Funds and allow retention or disposition of
such securities. The Connecticut/Massachusetts Municipal Money
Market Funds will only enter into repurchase agreements with banks
and other recognized financial institutions, such as broker/dealers,
which are deemed by the Connecticut/Massachusetts Municipal Money
Market Funds' investment adviser to be creditworthy, pursuant to
guidelines established by the Trustees.
From time to time, such as when suitable Municipal Securities are
not available, the Connecticut/ Massachusetts Municipal Money Market
Funds may maintain a portion of their respective assets in cash. Any
portion of the Connecticut/Massachusetts Municipal Money Market
Funds' assets maintained in cash will reduce the amount of assets in
Municipal Securities and thereby reduce the Connecticut/
Massachusetts Municipal Money Market Funds' yield.
The following acceptable investments and strategies apply only to the PRIME
MONEY MARKET FUND:
BANK INSTRUMENTS
In addition to domestic bank obligations such as certificates of deposit,
demand and time deposits, savings shares, and bankers' acceptances, the
Prime Money Market Fund may invest in:
- Eurodollar Certificates of Deposit issued by foreign branches of U.S.
or foreign banks;
- Eurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks; and
- Yankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and
held in the United States.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Prime Money Market
Fund may invest generally include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes, and bonds) and obligations issued or
guaranteed by U.S. government agencies or instrumentalities. These
securities are backed by:
- the full faith and credit of the U.S. Treasury;
- the issuer's right to borrow from the U.S. Treasury;
- the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
- the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
- Federal Farm Credit Banks;
- Federal Home Loan Banks;
- Federal National Mortgage Association;
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- Student Loan Marketing Association; and
- Federal Home Loan Mortgage Corporation.
REPURCHASE AGREEMENTS
The Prime Money Market Fund requires a custodian to take possession of
the securities subject to repurchase agreements, and these securities are
marked to market daily. To the extent that the original seller does not
repurchase the securities from the Prime Money Market Fund, the Prime
Money Market Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Prime Money Market Fund might be delayed pending court action. The Prime
Money Market Fund believes that under the regular procedures normally in
effect for custody of the Prime Money Market Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would
rule in favor of the Prime Money Market Fund and allow retention or
disposition of such securities. The Prime Money Market Fund will only
enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the
Prime Money Market Fund's adviser to be creditworthy pursuant to
guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Prime Money Market Fund may also enter into reverse repurchase
agreements. This transaction is similar to borrowing cash. In a reverse
repurchase agreement the Prime Money Market Fund transfers possession of
a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date
in the future the Prime Money Market Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the
Prime Money Market Fund to avoid selling portfolio instruments at a time
when a sale may be deemed to be disadvantageous, but the ability to enter
into reverse repurchase agreements does not ensure that the Prime Money
Market Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Prime
Money Market Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date. These
assets are marked to market daily and are maintained until the
transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The Prime Money Market Fund may invest in commercial paper issued in
reliance on the exemption from registration afforded by Section 4(2) of
the Securities Act of 1933. Section 4(2) commercial paper is restricted
as to disposition under federal securities law and is generally sold to
institutional investors, such as the Prime Money Market Fund, who agree
that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) commercial paper is normally resold to
other institutional investors like the Prime Money Market Fund through or
with the assistance of the issuer or investment dealers who make a market
in Section 4(2) commercial paper, thus providing liquidity. The Prime
Money Market Fund believes that Section 4(2) commercial paper and
possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Prime Money
Market Fund intends, therefore, to treat the restricted securities which
meet the criteria for liquidity established by the Trustees, including
Section 4(2) commercial paper, as determined by the Prime Money Market
Fund's adviser, as liquid and not subject to the investment limitation
applicable to illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the Prime Money Market Fund intends to not
subject such paper to the limitation applicable to restricted securities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Money Market Funds will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as are
necessary for the clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Money Market Funds will not issue senior securities except that the
Money Market Funds may borrow money in amounts up to one-third of the
value of their respective total assets, including the amounts borrowed.
The Money Market Funds will not borrow money for investment leverage, but
rather as a temporary, extraordinary, or emergency measure or to
facilitate management portfolio by enabling the Money Market Funds to
meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. The Money Market Funds will
not purchase any securities while borrowings in excess of 5% of
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their respective total assets are outstanding. In the past year ending
October 31, 1993, borrowings were not at any time in excess of 5% of the
Money Market Funds' respective total assets.
The Money Market Funds do not consider the issuance of separate classes
of shares to involve the issuance of "senior securities" within the
meaning of the investment limitation set forth above.
PLEDGING ASSETS
The Connecticut/Massachusetts Municipal Money Market Funds will not
mortgage, pledge, or hypothecate any assets except to secure permitted
borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the
value of total assets at the time of the pledge.
INVESTING IN REAL ESTATE
The Money Market Funds will not purchase or sell real estate or real
estate limited partnerships, although they may invest in securities of
issuers whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Money Market Funds will not purchase or sell commodities, commodity
contracts, or commodity futures contracts.
UNDERWRITING
The Money Market Funds will not underwrite any issue of securities,
except as each may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities in accordance with
its respective investment objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Money Market Funds will not lend any of their respective assets
except that each may acquire certain money market instruments or publicly
or nonpublicly issued Municipal Securities as appropriate or temporary
investments or enter into repurchase agreements, in accordance with their
respective investment objective, policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
Connecticut/Massachusetts Municipal Money Market Funds: With regard to at
least 50% of their respective total assets, no more than 5% of their
respective total assets are to be invested in the securities of a single
issuer, and no more than 25% of their respective total assets are to be
invested in the securities of a single issuer at the close of each
quarter of each fiscal year.
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States, or their political
subdivisions, agencies, authorities, instrumentalities, or similar
entities, will be considered a separate issuer if its assets and revenues
are separate from those of the governmental body creating it and the
security is backed only by its own assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental user are considered to be issued solely by that user. If,
in the case of an industrial development bond or government-issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the
guarantor, as well as the other issuer, subject to limited exclusions
allowed by the Investment Company Act of 1940.
Prime Money Market Fund: With respect to securities comprising 75% of the
value of its total assets, the Prime Money Market Fund will not purchase
securities issued by any one issuer (other than cash, cash items, or
securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements
collateralized by such securities) if as a result more than 5% of the
value of its total assets would be invested in the securities of that
issuer or if it would own more than 10% of the outstanding voting
securities of such issuer.
CONCENTRATION OF INVESTMENTS
CONNECTICUT/MASSACHUSETTS MUNICIPAL MONEY MARKET FUNDS: The Funds will
not purchase securities if, as a result of such purchase, 25% or more of
the value of their respective total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Funds may invest as temporary investments more than 25% of
the value of their respective assets in cash or cash items, securities
issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, or instruments secured by these money market
instruments, and repurchase agreements.
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PRIME MONEY MARKET FUND: The Fund will not invest 25% or more of the
value of its total assets in any one industry, including Eurodollar
commercial paper. However, investing in domestic bank instruments (e.g.,
time and demand deposits and certificates of deposit, but not bank
commercial paper), U.S. government obligations or repurchase agreements
secured by U.S. government obligations, shall not be considered
investments in any one industry.
RESTRICTED SECURITIES
The Connecticut/Massachusetts Municipal Money Market Funds will not
invest more than 10% of their respective net assets in securities subject
to restrictions on resale under the Securities Act of 1933.
The above limitations may not be changed without shareholder approval of the
appropriate Money Market Fund's shareholders. The following limitations,
however, may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material change in these limitations
becomes effective.
PLEDGING ASSETS
The Prime Money Market Fund will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. In those cases, it may
pledge assets having a market value not exceeding the lesser of the
dollar amounts borrowed or 10% of the value of total assets at the time
of the pledge.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Money Market Funds will limit their respective investments in other
investment companies to not more than 3% of the total outstanding voting
stock of any investment company, will invest no more than 5% of their
respective total assets in any one investment company, and will invest no
more than 10% of their respective total assets in investment companies in
general. However, these limitations are not applicable if the securities
are acquired in a merger, consolidation, reorganization, or acquisition
of assets. The Adviser will waive its investment advisory fee on assets
invested in open-end investment companies.
The Money Market Funds will limit their respective investments in the
securities of other investment companies to those of money market funds
which are of comparable or better portfolio quality and have investment
objectives and policies similar to their own.
Rule 2a-7 under the Investment Company Act of 1940 (the 'Rule') requires
that the Money Market Funds limit their investments to instruments that,
in the opinion of the Trustees, present minimal credit risk and that, if
rated, meet minimum rating standards set forth in the Rule. If the
instruments are not rated, the Trustees must determine that they are of
comparable quality. Shares of investment companies purchased by the Money
Market Funds will meet these same criteria and will have investment
policies consistent with Rule 2a-7.
INVESTING IN NEW ISSUERS
The Connecticut/Massachusetts Municipal Money Market Funds will not
invest more than 5% of the value of their respective total assets in
industrial development bonds where the principal and interest are the
responsibility of companies (or guarantors, where applicable) with less
than three years of continuous operations, including the operation of any
predecessor.The Prime Money Market Fund will not invest more than 5% of
the value of its total assets in securities of issuers which have records
of less than three years of continuous operations, including the
operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Money Market Funds will not purchase or retain the securities of any
issuer if the officers and Trustees of the Trust or its investment
adviser, owning individually more than 1/2 of 1% of the issuer's
securities, together own more than 5% of the issuer's securities.
DEALING IN PUTS AND CALLS
The Connecticut/Massachusetts Municipal Money Market Funds will not
purchase or sell puts, calls, straddles, spreads, or any combination of
them, except that the Connecticut/Massachusetts Municipal Money Market
Funds may purchase Municipal Securities accompanied by agreements of
sellers to repurchase them at the appropriate Fund's option.
INVESTING IN MINERALS
The Money Market Funds will not purchase or sell oil, gas, or other
mineral exploration or development programs, or leases.
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INVESTING IN RESTRICTED SECURITIES
The Prime Money Market Fund will not invest more than 10% of its total
assets in securities subject to restrictions on resale under the
Securities Act of 1933, except for commercial paper issued under Section
4(2) of the Securities Act of 1933 and certain other restricted
securities which meet the criteria for liquidity as established by the
Board of Trustees.
INVESTING IN ILLIQUID SECURITIES
The Money Market Funds will not invest more than 10% of the value of
their respective net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven days after notice,
non-negotiable fixed time deposits with maturities over seven days, and
restricted securities not determined by the Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Money Market Funds did not borrow money or pledge securities in excess of 5%
of net assets during the past fiscal year, and did not intend to borrow money or
pledge securities in excess of 5% of the value of their respective net assets
during the coming fiscal year.
For purposes of its policies and limitations, the Money Market Funds consider
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings and loan having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
MASSACHUSETTS INVESTMENT RISKS (MASSACHUSETTS MUNICIPAL MONEY MARKET FUND)
The Commonwealth of Massachusetts stabilized its fiscal position in 1992.
Through conservative revenue estimates and significant expenditure reductions
the Commonwealth was able to generate a surplus ($283 million) for the 1992
fiscal year end. Tax revenues exceeded the administration's estimates by
approximately $1.2 billion or 7%. The Commonwealth greatly reduced its reliance
upon short-term debt in fiscal 1992. Approximately $635 million of commercial
paper was issued in 1992 to fund current operations compared with $1.2 billion
issued in both 1991 and 1990. The Commonwealth projects commercial paper
borrowing to be only $400 million in fiscal 1993. Expenditure reductions also
contributed to a large degree to the stabilization of the Commonwealth's
financial position in 1992. Local aid payments were reduced from $2.7 billion in
1991 to $2.47 billion. Higher education spending was reduced by $70 million
(11.5%) and the Commonwealth's work force was reduced by 8,250 employees.
Medicaid expenditures were only 1.9% higher compared with increases which were
averaging 19.25% during the period 1988 to 1991.
The fiscal 1993 budget has allowed for increased spending while instituting
additional expenditure controls. The budget forecasts total revenue of $14,485
million (a 4.9% increase) and tax revenue is estimated at $9,685 million (a 2.2%
increase). Fund balances are expected to be drawn down by $364 million.
Nonrecurring revenues included in the budget total $229 million, compared with
$830 million included in the 1992 budget. Projected spending of $14,849.5
million is an 8.7% increase over fiscal 1992. The largest spending increase
(13.8% or $349 million) is for direct local aid. This represents the first
increase in three years. Medicaid expenditures are budgeted to increase 7.9%
even after program reforms which are to save $100 million in 1993. This reflects
the difficulty for state governments to control Medicaid costs.
Debt levels for the Commonwealth are among the highest of the states. The debt
situation has been exacerbated by the issuance of $250 million of fiscal
recovery bonds at the end of fiscal 1992. In fiscal 1991, dedicated income tax
bonds were issued to finance the combined deficits in the general and local aid
funds. The issuance was part of the Fiscal Recovery Loan Act of 1990. $1.4
billion of bonds were issued and are secured by the pledge of dedicated tax
revenues. These bonds amortize through 1997. Debt service requirements for
general obligation and special obligation debt alone are 8.2% of estimated
fiscal 1993 spending requirements. The increased debt levels which are the
result of capital borrowing and deficit bonds have doubled scheduled debt
service requirements between 1987 and 1992. As a result, debt service will
remain high through 1997.
The regional economy may have reached the trough of the current economic cycle.
The largest cause for concern in the Massachusetts economy is the significant
job loss which has occurred between 1989 and present. From calendar year 1989 to
1991, 309,200 non-farm jobs were lost. This represents a 10.1% decline with the
largest decline of 5.4% occurring in 1991. Much of the loss has occurred in the
construction and high tech industries. The defense related industries, which
provide 3% of private sector employment, have suffered some employment losses.
However, more significant declines are expected in this industry in the future,
especially with the election of the new administration. There is some sign of
moderation on the employment front. The unemployment rate has declined to 8.3%
as of July 1992 from an average of 9% in 1991. The service sector in
Massachusetts has fared rather well and has been expanding. The presence of a
large number of higher education and health care institutions, a well educated
work force, and a large investment
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community has helped to provide a solid economic base. The presence of several
large public works programs (MWRA, Bay Tunnel), improvements in the banking
community and lower real estate values should put the Commonwealth in a stronger
position as the national economy recovers.
During the past few years, the current administration in cooperation with the
legislature have made steady progress in resolving the fiscal ills facing the
Commonwealth which included budget tightening, reducing local state aid, and
employing new methods of financing projects. Because of the significant
progress, the major rating agencies upgraded the Commonwealth to A rated status
this past fall.
CONNECTICUT INVESTMENT RISKS (CONNECTICUT MUNICIPAL MONEY MARKET FUND)
The Connecticut Municipal Money Market Fund invests in obligations of
Connecticut issuers which results in the Connecticut Municipal Money Market
Fund's performance being subject to risks associated with the overall conditions
present within the state. The following information is a brief summary of the
recent prevailing economic conditions and a general summary of the state's
financial status. This information is based on official statements relating to
securities that have been offered by Connecticut issuers and from other sources
believed to be reliable but should not be relied upon as a complete description
of all relevant information.
The State of Connecticut has experienced fiscal problems in three of the last
four years. Following a contentious budget enactment for fiscal year 1992, the
State enacted an individual income tax while slightly reducing the sales tax.
The State has also suffered from the recent national recession that impacted the
State especially hard and continues to force changing economic conditions in the
State.
The Connecticut economy is largely composed of manufacturing (especially defense
related) and service industries (such as insurance) that were robust and growing
for much of the past two decades. Beginning in the late 1980's, the regional
economy slowed down and entered a recession that has affected several areas of
the State's economy. Specifically, the cutbacks in the defense and insurance
industries and general corporate restructurings due to declining profits have
caused large numbers of job losses and increased the fiscal strain on the State
and local governments.
The two major revenue sources available to cities and towns in Connecticut are
local property taxes and aid from the state. State aid is mostly related to
educational grants and human service funds for lower income individuals.
Property values and the resulting taxes which grew significantly during the
1980's have stabilized and even fallen slightly in some areas. Especially hard
hit are those local governments with large job losses due to cutbacks or
shutdowns due to the impact to the tax base.
The Connecticut Municipal Money Market Fund concentration in securities issued
by the State and its political subdivisions provides a greater level of risk
than a fund which is diversified across numerous states and municipal entities.
The ability of the State or its municipalities to meet their obligations will
depend on the availability of tax and other revenues; economic, political, and
demographic conditions within the State; and the underlying fiscal condition of
the State, and its municipalities.
THE SHAWMUT FUNDS MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Shawmut Bank, N.A.,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John F. Donahue+* Chairman Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors and Trustee Advisers, Federated Management, and Federated Research; Director, AEtna Life
Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire
Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice
President of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, John R.
Wood/IPC Wood and Associates, Inc., Realtors; and Northgate Village Development
Commercial Department Corporation; General Partner or Trustee in private real estate ventures in
John R. Wood and Southwest Florida; Director, Trustee, or Managing General Partner of the
Associates, Inc., Realtors Funds; formerly, President, Naples Property Management, Inc.
3255 Tamiami Trail North
Naples, FL
- --------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-23rd floor Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Pittsburgh, PA Chairman and Director, PNC Bank, N.A., and PNC Bank Corp and Director, Ryan
Homes, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA Cross of Massachusetts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director,
225 Franklin Street Trustee, or Managing General Partner of the Funds; formerly President, State
Boston, MA Street Bank & Trust Company and State Street Boston Corporation; and
Trustee, Lahey Clinic Foundation, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurant, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial,
F.A.
- --------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Professor Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace and RAND Corporation; Online Computer
Learning Library Center, Inc. and U.S. Space Foundation; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy & Technology;
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue* Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; President and Director,
Tower Federated Administrative Services; Trustee, Federated Services Company;
Pittsburgh, PA President or Vice President of the Funds; Director, Trustee or Managing
General Partner of some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales President, Vice President, Treasurer and Trustee, Federated Investors; Vice President
Federated Investors Treasurer, and Treasurer, Federated Advisers, Federated Management, and Federated
Tower and Trustee Research; Executive Vice President, Treasurer, and Director, Federated
Pittsburgh, PA Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer,
and Director, Federated Administrative Services; Trustee or Director of some
of the Funds; Vice President and Treasurer of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Trustee, Federated Services
Pittsburgh, PA Company; Executive Vice President, Secretary, and Trustee, Federated
Administrative Services; Director and Executive Vice President, Federated
Securities Corp.; Vice President and Secretary of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President,
Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Vice President of the Funds;
Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance Company and President
of its Federated Research Division.
- --------------------------------------------------------------------------------------------------------------------------------
Jeffrey W. Sterling Vice President Vice President, Federated Administrative Services; Director of Private Label
Federated Investors and Assistant Management, Federated Investors; Vice President and Assistant Treasurer of
Tower Treasurer some of the Funds.
Pittsburgh, PA
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</TABLE>
* This Trustee is deemed to be an 'interested person' of the Trust as defined in
the Investment Company Act of 1940.
+ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
FUNDS
'The Funds' and 'Funds' mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series, Inc.; Cash Trust
Series II; 111 Corcoran Funds; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; FT Series, Inc.; Federated ARMs Fund; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth
Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Intermediate Government Trust;
Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government
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Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government
Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.;
High Yield Cash Trust; Insurance Management Series; Intermediate Municipal
Trust; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government
Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain
Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust;
The Planters Funds; Portage Funds; RIMCO Monument Funds; Short-Term Municipal
Trust; Signet Select Series; The Shawmut Funds; Star Funds; The Starburst Funds;
The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; and Trust for U.S. Treasury Obligations.
MONEY MARKET FUNDS OWNERSHIP
Officers and Trustees own less than 1% of the Money Market Funds' outstanding
shares.
As of February 10, 1994, the following shareholders of record owned 5% or more
of the outstanding shares of the Money Market Funds: Henry L. Snow and Sandra L.
Snow, New Haven, Connecticut, owned approximately 1,117,312 (6.91%) Investment
Shares of the Connecticut Municipal Money Market Fund; Clement McIver, Jr., c/o
Methods Machine Tool, Sudbury, Massachusetts, owned approximately 2,000,091
(9.35%) shares of the Massachusetts Municipal Money Market Fund; Vectron
Laboratories, Inc., Profit Sharing Plan Trust, Norwalk, Connecticut, owned
approximately 2,557,466 (5.31%) Investment Shares of the Prime Money Market
Fund; and Wornat Leasing, Hartford, Connecticut, owned approximately 3,803,675
(7.89%) Investment Shares of the Prime Money Market Fund.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
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ADVISER TO THE MONEY MARKET FUNDS
The Money Market Funds' investment adviser is Shawmut Bank, N.A. (the
"Adviser"). The Adviser shall not be liable to the Trust, the Money Market
Funds, or any 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.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the combined prospectus. During the fiscal year ended
October 31, 1993, the Funds' adviser earned the following advisory fees:
Connecticut Municipal Money Market Fund, $1,104, all of which was voluntarily
waived; Massachusetts Municipal Money Market Fund, $134, all of which was
voluntarily waived; and Prime Money Market Fund, $1,128,024, of which $270,978
was voluntarily waived. In addition, the Fund's adviser reimbursed other
operating expenses for the following Funds: Connecticut Municipal Money Market
Fund, $10,084 and Massachusetts Municipal Money Market Fund, $9,261.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If a Money Market Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2 1/2% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets, and
1 1/2% per year of the remaining average net assets, the Adviser will
reimburse that Money Market Fund for its expenses over the limitation. If
Money Market Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Money Market Funds for the fee set
forth in the combined prospectus. For the fiscal year ended October 31, 1993,
Federated Administrative Services earned the following administrative fees from
the Funds: Connecticut Municipal Money Market Fund, $265, all of which was
voluntarily waived; Massachusetts Municipal Money Market Fund, $32, all of which
was voluntarily waived; and Prime Money Market Fund, $283,923.
Shawmut Bank, N.A., serves as custodian to the Money Market Funds. As
compensation for its services, the custodian receives a fee based upon a sliding
scale ranging from a minimum of .011% to a maximum of .02% as a percentage of
net Fund assets, plus certain costs. For the fiscal year ended October 31, 1993,
the Funds' custodian earned the following fees: Connecticut Municipal Money
Market Fund, $44, all of which was voluntarily waived; Massachusetts Municipal
Money Market Fund, $5, all of which was voluntarily waived; and Prime Money
Market Fund, $15,717.
BROKERAGE TRANSACTIONS
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It is the Money Market Funds' policy with respect to the selection of brokers
and dealers in the purchase and sale of securities to obtain the "best net
realized price" on each transaction. The Money Market Funds conduct business
only with financially sound brokers or dealers on that basis. Brokerage
commission is, however, only one element in determining "best net realized
price." The Adviser may also select brokers and dealers who offer research and
other services. These services may be furnished directly to the Money Market
Funds or to the Adviser and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser for other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
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Shares are sold at their net asset value on days the New York Stock Exchange and
Federal Reserve Wire System are open for business. The procedure for purchasing
shares of the Money Market Funds is explained in the prospectus under "Investing
in the Money Market Funds."
DISTRIBUTION PLAN (INVESTMENT SHARES)
With respect to the Investment Shares classes of the Connecticut Municipal Money
Market Fund and Prime Money Market Fund, the Trust has adopted a Plan pursuant
to Rule 12b-1 which was promulgated by the Securities and Exchange Commission
pursuant to the Investment Company Act of 1940. The Plan permits the payment of
fees to administrators (including broker/dealers and depository institutions
such as commercial banks and savings and loan associations) for distribution and
administrative services. The Plan is designed to stimulate administrators to
provide distribution and administrative support services to the Connecticut
Municipal Money Market Fund and Prime Money Market Fund and their shareholders.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to: communicating account openings; communicating account closings;
entering purchase transactions; entering redemption transactions; providing or
arranging to provide accounting support for all transactions, wiring funds and
receiving funds for Share purchases and redemptions, confirming and reconciling
all transactions, reviewing the activity in Connecticut Municipal Money Market
Fund and Prime Money Market Fund accounts, and providing training and
supervision of broker personnel; posting and reinvesting dividends to
Connecticut Municipal Money Market Fund and Prime Money Market Fund accounts or
arranging for this service to be performed by the Connecticut Municipal Money
Market Fund and Prime Money Market Fund transfer agent; and maintaining and
distributing current copies of prospectuses and shareholder reports to the
beneficial owners of Shares and prospective shareholders.
By adopting the Plan, the Board of Trustees expects that the Connecticut
Municipal Money Market Fund and Prime Money Market Fund will be able to achieve
a more predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its
- --------------------------------------------------------------------------------
investment objectives. By identifying potential investors whose needs are served
by the Connecticut Municipal Money Market Fund and Prime Money Market Fund'
objectives, and properly servicing these accounts, the Connecticut Municipal
Money Market Fund and Prime Money Market Fund may be able to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits which the Connecticut Municipal Money Market Fund and Prime Money
Market Fund hope to achieve through the Plan include, but are not limited to,
the following: (1) an efficient and effective administrative system; (2) a more
efficient use of shareholder assets by having them rapidly invested in the
Connecticut Municipal Money Market Fund and Prime Money Market Fund, through an
automatic transfer of funds from a demand deposit account to an investment
account, with a minimum of delay and administrative detail; and (3) an efficient
and reliable shareholder records system and prompt responses to shareholder
requests and inquiries concerning their accounts.
For the fiscal year ended October 31, 1993, brokers earned the following fees
from the Funds pursuant to the Plan: Connecticut Municipal Money Market Fund,
$1,104, of which $552 was voluntarily waived; Massachusetts Municipal Money
Market Fund, --0--; Prime Money Market Fund, $20,984, of which $10,492 was
voluntarily waived.
CONVERSION TO FEDERAL FUNDS
It is the Money Market Funds' 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. Shawmut Bank, N.A. acts
as the shareholder's agent in depositing checks and converting them to federal
funds.
DETERMINING NET ASSET VALUE
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The Money Market Funds attempt to stabilize the value of a share at $1.00. The
days on which the net asset value is calculated by the Money Market Funds are
described in the combined prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have determined 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. The
Money Market Funds' use of the amortized cost method of valuing portfolio
instruments depends on their compliance with the provisions of Rule 2a-7
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Money Market Funds 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 Money Market Funds' respective
investment objectives.
Under the Rule, the Money Market Funds are permitted to purchase instruments
which are subject to demand features or standby commitments. As defined by the
Rule, as amended, a demand feature entitles the Money Market Funds to receive
the principal amount of the instrument from the issuer or a third party on (1)
no more than 30 days' notice or (2) at specified intervals not exceeding one
year on no more than 30 days' notice. A standby commitment entitles the Money
Market Funds to achieve same day settlement and to receive an exercise price
equal to the amortized cost of the underlying instrument plus accrued interest
at the time of exercise.
Although demand features and standby commitments are defined as "puts" under the
Rule, the Money Market Funds do not consider them to be "puts" as that term is
used in the Money Market Funds' respective investment limitations. Demand
features and standby commitments are features which enhance an instrument's
liquidity, and the investment limitations which proscribe puts are designed to
prohibit the purchase and sale of put and call options and are not designed to
prohibit the Money Market Funds from using techniques which enhance the
liquidity of portfolio instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share of each
Money Market Fund 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 for any Money
Market Fund. 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.
INVESTMENT RESTRICTIONS
The Rule requires that the Money Market Funds limit their investments to
instruments that, in the opinion of the Trustees, present minimal credit
risks and have received the requisite rating from one or more nationally
recognized statistical rating organizations. If the instruments are not
rated, the Trustees must determine that
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they are of comparable quality. The Rule also requires the Money Market
Funds to maintain a dollar-weighted average portfolio maturity (not more
than 90 days) appropriate to the objective of maintaining a stable net
asset value of $1.00 per share. In addition, no instrument with a
remaining maturity of more than 397 days can be purchased by a Money
Market Fund.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity or more than 90 days, Money
Market Fund will invest its available cash to reduce the average maturity
to 90 days or less as soon as possible.
The Money Market Funds may attempt to increase yield by trading portfolio
securities to take advantage of short-term market variations. This policy may,
from time to time, result in high portfolio turnover. Under the amortized cost
method of valuation, neither the amount of daily income nor the net asset value
is affected by any unrealized appreciation or depreciation of a portfolio.
In periods of declining interest rates, the indicated daily yield on shares of a
Money Market Fund, computed based upon amortized cost valuation, 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 indicated daily yield on shares of a
Money Market Fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market prices and
estimates.
EXCHANGING SECURITIES FOR MONEY MARKET FUND SHARES
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Investors may exchange Connecticut/Massachusetts Municipal Securities they
already own for shares of the Connecticut/Massachusetts Municipal Money Market
Funds (respectively), or they may exchange a combination of securities and cash
for shares. An investor should forward the securities in negotiable form with an
authorized letter of transmittal to Federated Securities Corp. The
Connecticut/Massachusetts Municipal Money Market Fund, as appropriate will
notify the investor of its acceptance and valuation of the securities within
five business days of their receipt by State Street Bank.
The Connecticut/Massachusetts Municipal Money Market Funds value securities in
the same manner as they value their assets. The basis of the exchange will
depend upon the net asset value of shares of the Connecticut/Massachusetts
Municipal Money Market Funds, as appropriate on the day the securities are
valued. One Share will be issued for each equivalent amount of securities
accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, or other
rights attached to the securities become the property of the
Connecticut/Massachusetts Municipal Money Market Funds, as appropriate along
with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for Shares,
a gain or loss may be realized by the investor.
REDEEMING SHARES
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The Money Market Funds redeem their respective Shares at the next computed net
asset value after redemption requests are received. Redemption procedures are
explained in the combined prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Money Market Funds' respective portfolios.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
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 a Money Market
Fund's net asset value during any 90-day period.
EXCHANGE PRIVILEGE
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REQUIREMENTS FOR EXCHANGE
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
Further information on the exchange privilege and prospectuses may be obtained
by calling Shawmut Bank.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing or by telephone. Written
instructions may require a signature guarantee.
TAX STATUS
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THE MONEY MARKET FUNDS' TAX STATUS
The Money Market Funds will pay no federal income tax because they expect to
meet the requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Money
Market Funds must, among other requirements: derive at least 90% of their
respective gross income from dividends, interest, and gains from the sale of
securities; derive less than 30% of their respective gross income from the sale
of securities held less than three months; invest in securities within certain
statutory limits; and distribute to their respective shareholders at least 90%
of their respective net income earned during the year.
FEDERAL INCOME TAX
The Money Market Funds will pay no federal income tax because they expects to
meet requirements of the Internal Revenue Code applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies.
Each of the Money Market Funds will be treated as a single, separate entity for
federal income tax purposes so that income (including capital gains) and losses
realized by the Trust's other portfolios will not be combined for tax purposes
with those realized by a Money Market Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from a Money Market Fund that represent net interest on
tax-exempt municipal bonds.
In the case of a corporate shareholder, dividends of a Money Market Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax. The corporate alternative minimum tax treats 75% of the
excess of a taxpayer's pre-tax 'adjusted current earnings' over the taxpayer's
alternative minimum taxable income as a tax preference item. Since 'earnings and
profits' generally includes the full amount of any of a Money Market Fund's
dividend, and alternative minimum taxable income does not include the portion of
a Money Market Fund's dividend attributable to municipal bonds which are not
private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of any of the Money Market Funds representing net interest income
earned on some temporary investments and any realized net short-term gains are
taxed as ordinary income. Long-term capital gains distributions are taxed as
long-term capital gains, regardless of the length of time the Money Market Fund
shares have been held by the shareholder. These tax consequences apply whether
dividends are received in cash or as additional shares. Information on the tax
status of dividends and distributions is provided annually.
MASSACHUSETTS STATE INCOME TAX
Individual shareholders of the Massachusetts Municipal Money Market Fund who are
subject to Massachusetts income taxation will not be required to pay
Massachusetts income tax on that portion of their dividends which is
attributable to interest earned on Massachusetts tax-free municipal obligations,
gain from the sale of certain of such obligations, interest earned on
obligations of the United States, and interest earned on obligations of United
States territories or possessions to the extent interest on such obligations is
exempt from taxation by the state pursuant to federal law. All remaining
dividends will be subject to Massachusetts income tax.
If a shareholder of the Massachusetts Municipal Money Market Fund is a
Massachusetts business corporation or any foreign business corporation which
exercises its charter, qualifies to do business, actually does business or owns
or uses any part of its capital, plant or other property in Massachusetts, then
it will be subject to Massachusetts excise taxation either as a tangible
property corporation or as an intangible property corporation. If the corporate
shareholder is a tangible property corporation, it will be taxed upon its net
income allocated to Massachusetts and the value of certain tangible property. If
it is an intangible property corporation, it will be taxed upon its net income
and net worth allocated to Massachusetts. Net income is gross income less
allowable deductions for federal income tax purposes, subject to specified
modifications. Dividends received from the Massachusetts Municipal Money Market
Fund are includable in gross income and generally may not be deducted by a
corporate shareholder in computing its net income. The
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corporation's shares in the Massachusetts Municipal Money Market Fund are not
includable in the computation of the tangible property base of a tangible
property corporation, but are includable in the computation of the net worth
base of an intangible property corporation.
Shares of Massachusetts Municipal Money Market Fund will be exempt from local
property taxes in Massachusetts.
OTHER STATE AND LOCAL TAXES
Income from the Massachusetts Municipal Money Market Fund is not
necessarily free from state income taxes or from local property taxes in
states other than Massachusetts. State laws differ on this issue, and
shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
SHAREHOLDERS' TAX STATUS
Unless otherwise exempt, shareholders are subject to federal income tax on
dividends received as cash or additional shares. No portion of any income
dividend paid by a Money Market Fund is eligible for the dividends received
deduction available to corporations. These dividends, and any short-term capital
gains, are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by each of the Money Market Funds could result
in an increase in dividends. Capital losses could result in a decrease in
dividends. If for some extraordinary reason a Money Market Fund realizes
net long-term capital gains, it will distribute them at least once every
12 months.
YIELD
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The Money Market Funds calculate the yield for their shares daily, based upon
the seven days ending on the day of the calculation, called the "base period."
This yield is computed by:
- - determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased
- - with dividends earned from the original one share and all dividends declared
on the original and any purchased shares;
- - dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- - multiplying the base period return by 365/7.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Money
Market Funds shares, the performance will be reduced for those shareholders
paying those fees.
EFFECTIVE YIELD
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The Money Market Funds' effective yield is computed 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.
TAX-EQUIVALENT YIELD
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The tax-equivalent yield is calculated similarly to the yield, but reflects the
taxable yield that Shares would have had to earn to equal its actual yield,
assuming a 15%, 28%, 31%, 36% or 39.60% federal tax rate and the regular
personal income tax rates imposed by Connecticut and Massachusetts for
individual taxpayers and assuming that income earned by the Fund is 100%
tax-exempt on a regular federal, state, and local basis.
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TAX-EQUIVALENCY TABLE--CONNECTICUT MUNICIPAL MONEY MARKET FUND
The Connecticut Municipal Money Market Fund may use a tax-equivalency table in
advertising and sales literature. The interest earned by the municipal bonds in
the Fund's portfolio generally remains free from federal regular income tax, and
from the regular personal income tax imposed by Connecticut.* As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between "tax-free" and taxable yields.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1993
STATE OF CONNECTICUT
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FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE:
19.50% 32.50% 35.50% 40.50% 44.10%
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JOINT RETURN: $1-36,900 $36,901-89,150 $89,151-140,000 $140,001-250,000 OVER $250,000
SINGLE RETURN: $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 OVER $250,000
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TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- -----------------------------------------------------------------------------------------------------------
1.50% 1.86% 2.22% 2.33% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.58%
2.50% 3.11% 3.70% 3.88% 4.20% 4.47%
3.00% 3.73% 4.44% 4.65% 5.04% 5.37%
3.50% 4.35% 5.19% 5.43% 5.88% 6.26%
4.00% 4.97% 5.93% 6.20% 6.72% 7.16%
4.50% 5.59% 6.67% 6.98% 7.56% 8.05%
5.00% 6.21% 7.41% 7.75% 8.40% 8.94%
5.50% 6.83% 8.15% 8.53% 9.24% 9.84%
6.00% 7.45% 8.89% 9.30% 10.08% 10.73%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The above chart is for illustrative purposes only and uses tax brackets that
went into effect beginning January 1, 1993. It is not an indicator of past or
future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
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TAX-EQUIVALENCY TABLE--MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
The Massachusetts Municipal Money Market Fund may use a tax-equivalency table in
advertising and sales literature. The interest earned by the municipal bonds in
the Fund's portfolio generally remains free from federal regular income tax, and
from the regular personal income tax imposed by Massachusetts.* As the table
below indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between "tax-free" and taxable yields.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1993
COMMONWEALTH OF MASSACHUSETTS
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FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE:
27.00% 40.00% 43.00% 48.00% 51.60%
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JOINT RETURN: $1-36,900 $36,901-89,150 $89,151-140,000 $140,001-250,000 OVER $250,000
SINGLE RETURN: $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 OVER $250,000
- -----------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- -----------------------------------------------------------------------------------------------------------
1.50% 2.05% 2.50% 2.63% 2.88% 3.10%
2.00% 2.74% 3.33% 3.51% 3.85% 4.13%
2.50% 3.42% 4.17% 4.39% 4.81% 5.17%
3.00% 4.11% 5.00% 5.26% 5.77% 6.20%
3.50% 4.79% 5.83% 6.14% 6.73% 7.23%
4.00% 5.48% 6.67% 7.02% 7.69% 8.26%
4.50% 6.16% 7.50% 7.89% 8.65% 9.30%
5.00% 6.85% 8.33% 8.77% 9.62% 10.33%
5.50% 7.53% 9.17% 9.65% 10.58% 11.36%
6.00% 8.22% 10.00% 10.53% 11.54% 12.40%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The above chart is for illustrative purposes only and uses tax brackets that
went into effect beginning January 1, 1993. It is not an indicator of past or
future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of a Money Market Fund depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in a Money Market Fund's expenses; and
- - the relative amount of a Money Market Fund's cash flow.
From time to time a Money Market Fund's may advertise its performance compared
to similar funds or portfolios using certain indices, reporting services, and
financial publications. These may include the following:
For the Connecticut/Massachusetts Municipal Money Market Funds:
- - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote their Lipper rankings in the 'money
market instrument funds' category in advertising and sales literature.
- - MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
For the Prime Money Market Fund:
- - DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of money
market funds on a weekly basis and through its Money Market Insight
publication reports monthly and 12-months-to-date investment results for the
same money funds.
- - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the 'money market
instrument funds' category in advertising and sales literature.
- - BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading bank and
thrift institution money market deposit accounts. The rates published in the
index are an average of the personal account rates offered on the Wednesday
prior to the date of publication by ten of the largest banks and thrifts in
each of the five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution and compounding methods
vary. If more than one rate is offered, the lowest rate is used. Rates are
subject to change at any time specified by the institution.
A Money Market Fund may also advertise the performance of such indices and the
types of securities in which it invests as compared to the rate of inflation.
Investors may use such indices or reporting services in addition to the Money
Market Funds' combined prospectus to obtain a more complete view of a Money
Market Fund's performance before investing. Of course, when comparing any Money
Market Fund's performance to any index, factors such as composition of the index
and prevailing market conditions should be considered in assessing the
significance of such comparisons.
When comparing funds using reporting services, or total return and yield or
effective yield, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price.
Advertisements and other sales literature for a Money Market Fund may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in the
Money Market Funds based on monthly reinvestment of dividends over a specified
period of time.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for the fiscal year ended October 31, 1993 are
incorporated herein by reference to the Annual Report of the Trust dated October
31, 1993. A copy of the Annual Report may be obtained without charge by
contacting the Trust at the address located on the back cover of the prospectus.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S CORPORATION SHORT-TERM MUNICIPAL OBLIGATION RATING
DEFINITIONS
SP1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATING
DEFINITIONS
MIG1/VMIG1--Notes which are rated MIG1/VMIG1 are of the best quality. There is
present strong protection by established cash flows, superior liquidity support,
or demonstrated broad-based access to the market for refinancing.
MIG2/VMIG2--Notes which are rated MIG2/VMIG2 are of high quality. Margins of
protection are ample although not so large as in MIG1/VMIG1 ratings.
FITCH INVESTORS SERVICE, INC. TAX-EXEMPT INVESTMENT NOTE RATING DEFINITIONS
FIN-1--Notes regarded as having the strongest degree of assurance for timely
payment.
FIN-2--Notes reflecting a degree of assurance for timely payment only slightly
less in degree than the highest category.
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
'A-1.'
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior
ability for repayment of senior short-term debt obligations. P-1 repayment
ability will often be evidenced by many of the following characteristics:
Conservative capitalization structure with moderate reliance debt and ample
asset protection.
Broad margins in earnings coverage of fixed financial charges and high internal
cash generation.
Well-established access to a range of financial markets and assured sources of
alternate liquidity.
P-2--Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
ability for repayment of senior short-term obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC. SHORT-TERM RATING DEFINITIONS
F-1+--(Exceptionally Strong Credit Quality). Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--(Very Strong Credit Quality). Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
'F-1+.'
F-2--(Good Credit Quality). Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the 'F-1+' and 'F-1' categories.
3120921B (2/94)
THE SHAWMUT FUNDS
INCOME FUNDS
SHAWMUT CONNECTICUT INTERMEDIATE MUNICIPAL INCOME FUND
SHAWMUT FIXED INCOME FUND
SHAWMUT INTERMEDIATE GOVERNMENT INCOME FUND
SHAWMUT LIMITED TERM INCOME FUND
SHAWMUT MASSACHUSETTS INTERMEDIATE MUNICIPAL INCOME FUND
TRUST SHARES
COMBINED PROSPECTUS
The shares offered by this prospectus represent interests in Trust Shares of the
income portfolios (collectively, the "Income Funds" or individually, as
appropriate in context, the "Fund") of The Shawmut Funds (the "Trust"), an
open-end management investment company (a mutual fund). In addition to the
Income Funds, the Trust consists of the following separate investment
portfolios, each having distinct investment objectives and policies:
EQUITY FUNDS
Shawmut Growth and Income Equity Fund
Shawmut Growth Equity Fund
Shawmut Small Capitalization Equity Fund
MONEY MARKET FUNDS
Shawmut Connecticut Municipal Money
Market Fund
Shawmut Massachusetts Municipal Money
Market Fund
Shawmut Prime Money Market Fund
This combined prospectus contains the information you should read and know
before you invest in the Income Funds. Keep this prospectus for future
reference. The Income Funds have also filed a Combined Statement of Additional
Information for Trust Shares and Investment Shares dated February 28, 1994, with
the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge, obtain other information, or make inquiries about
the Income Funds by writing or calling the Trust.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
ALTHOUGH INCOME FUNDS MAY PAY HIGHER RATES THAN BANK DEPOSITS, THEIR NET ASSET
VALUES ARE SENSITIVE TO INTEREST RATE MOVEMENT AND A RISE IN INTEREST RATES CAN
RESULT IN A DECLINE IN THE VALUE OF YOUR INVESTMENT.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF SHAWMUT
BANK, ARE NOT ENDORSED OR GUARANTEED BY SHAWMUT BANK, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ARE THEY INSURED OR GUARANTEED BY THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. MUTUAL FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING FLUCTUATIONS IN VALUE AND EARNINGS, AND THE POSSIBLE
LOSS OF PRINCIPAL.
Prospectus dated February 28, 1994
TABLE OF CONTENTS
SYNOPSIS 3
- ------------------------------------------------------
SUMMARY OF INCOME FUNDS' EXPENSES--
TRUST SHARES 4
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 5
- ------------------------------------------------------
GENERAL INFORMATION 10
- ------------------------------------------------------
THE SHAWMUT FUNDS 10
- ------------------------------------------------------
OBJECTIVE AND POLICIES OF EACH FUND 10
- ------------------------------------------------------
Connecticut Intermediate Municipal Income Fund 10
Investment Objective 10
Investment Policies 10
Acceptable Investments 11
Fixed Income Fund 11
Investment Objective 11
Investment Policies 11
Acceptable Investments 11
Intermediate Government Income Fund 12
Investment Objective 12
Investment Policies 12
Acceptable Investments 12
Limited Term Income Fund 13
Investment Objective 13
Investment Policies 13
Acceptable Investments 13
Massachusetts Intermediate Municipal
Income Fund 14
Investment Objective 14
Investment Policies 14
Acceptable Investments 14
INCOME FUNDS INVESTMENTS AND STRATEGIES 15
- ------------------------------------------------------
U.S. Government Securities 15
Corporate Debt Obligations 15
Floating Rate Corporate Debt Obligations 15
Fixed Rate Corporate Debt Obligations 15
Asset-Backed Securities 16
Temporary Investments 17
Lending of Portfolio Securities 17
Derivative Securities 17
Repurchase Agreements 18
Restricted and Illiquid Securities 18
When-Issued and Delayed Delivery
Transactions 18
Investing in Securities of Other
Investment Companies 18
Participation Interests 19
Municipal Leases 19
Variable Rate Demand Notes 19
Tender Option Bonds and Zero
Coupon Securities 19
Synthetic Bond Derivatives 20
Temporary Investments 20
Connecticut and Massachusetts
Municipal Securities 21
Municipal Bond Insurance 21
Connecticut and Massachusetts Investment Risks 22
Non-Diversification 22
Investment Limitations 23
THE SHAWMUT FUNDS INFORMATION 24
- ------------------------------------------------------
Management of The Shawmut Funds 24
Board of Trustees 24
Investment Adviser 24
Advisory Fees 24
Adviser's Background 24
Distribution of Income Funds' Shares 25
Distribution Plan 25
Administration of the Income Funds 26
Administrative Services 26
Custodian 26
Transfer Agent, Dividend Disbursing Agent, and
Portfolio Accounting Services 26
Legal Counsel 26
Independent Accountants 26
Expenses of the Income Funds and
Trust Shares 26
NET ASSET VALUE 27
- ------------------------------------------------------
INVESTING IN TRUST SHARES 27
- ------------------------------------------------------
Through Shawmut Bank 27
Directly from the Distributor 28
Minimum Investment Required 28
What Shares Cost 28
Subaccounting Services 28
Certificates and Confirmations 29
Dividends 29
Capital Gains 29
EXCHANGE PRIVILEGE 29
- ------------------------------------------------------
Exchanging Shares 29
Exchanging-by-Telephone 29
REDEEMING TRUST SHARES 30
- ------------------------------------------------------
Through Shawmut Bank 30
Directly from the Income Funds 30
By Mail 30
Signatures 30
Receiving Payment 31
By Check 31
By Wire 31
Accounts with Low Balances 31
Redemption in Kind 31
SHAREHOLDER INFORMATION 31
- ------------------------------------------------------
Voting Rights 31
Massachusetts Partnership Law 32
EFFECT OF BANKING LAWS 32
- ------------------------------------------------------
TAX INFORMATION 33
- ------------------------------------------------------
Federal Income Tax 33
OTHER CLASSES OF SHARES 33
- ------------------------------------------------------
PERFORMANCE INFORMATION 33
- ------------------------------------------------------
SYNOPSIS
INVESTMENT OBJECTIVES
The Shawmut Funds offer you a convenient, affordable way to participate in
separate, professionally managed portfolios of securities. This prospectus
relates only to the Income Funds of the Trust.
INCOME FUNDS
- ------------------------------------------------------
SHAWMUT CONNECTICUT INTERMEDIATE MUNICIPAL INCOME FUND
("Connecticut Intermediate Municipal Income Fund") seeks current income
which is exempt from federal income tax and Connecticut state income tax by
investing primarily in Connecticut municipal securities, including
securities of states, territories, and possessions of the United States
which are not issued by or on behalf of Connecticut or its political
subdivisions and financing authorities, but which are exempt from
Connecticut state income tax.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT FIXED INCOME FUND
("Fixed Income Fund") seeks current
income consistent with total return by investing in income producing
securities consisting primarily of investment grade notes and bonds and
U.S. government securities.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT INTERMEDIATE GOVERNMENT INCOME FUND
("Intermediate Government Income Fund") seeks current income consistent
with total return by investing in a portfolio consisting primarily of U.S.
government securities with a dollar-weighted average maturity of
between three and ten years.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT LIMITED TERM INCOME FUND
("Limited Term Income Fund") seeks current income consistent with low
principal volatility and total return by investing in a portfolio of income
producing securities with a term limited to a dollar-weighted average
maturity of three years or less.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT MASSACHUSETTS INTERMEDIATE MUNICIPAL INCOME FUND
("Massachusetts Intermediate Municipal Income Fund") seeks current income
which is exempt from federal income tax and income taxes imposed by the
Commonwealth of Massachusetts by investing primarily in Massachusetts
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of
Massachusetts or its political subdivisions and financing authorities, but
which are exempt from Massachusetts state income tax.
- ------------------------------------------------------
BUYING AND REDEEMING INCOME
FUND SHARES
A minimum initial investment of $1,000 may be required. Subsequent investments
must be in amounts of at least $100, as described in this prospectus in the
section entitled "Minimum Investment Required." Trust Shares are currently sold
at net asset value and are redeemed at net asset value without a sales charge.
INCOME FUND MANAGEMENT
The Income Funds' investment adviser is Shawmut Bank, N.A., which makes
investment decisions for the Income Funds.
SHAREHOLDER SERVICES
When you become a shareholder, you can easily obtain information about your
account by calling your Shawmut Bank trust officer.
THE SHAWMUT INCOME FUNDS
SUMMARY OF INCOME FUND EXPENSES--TRUST SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CONNECTICUT MASSACHUSETTS
INTERMEDIATE INTERMEDIATE LIMITED INTERMEDIATE
MUNICIPAL FIXED GOVERNMENT TERM MUNICIPAL
INCOME INCOME INCOME INCOME INCOME
FUND** FUND FUND FUND FUND**
------------ ------- ------------- ------- --------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)................................................... None* None None None None*
Maximum Sales Load Imposed--on Reinvested Dividends
(as a percentage of offering price)............................... None None None None None
Deferred Sales Load (as a percentage of original purchase price or
redemption proceeds as applicable)................................ None None None None None
Redemption Fee (as a percentage of amount redeemed, if
applicable)....................................................... None None None None None
Exchange Fee....................................................... None None None None None
</TABLE>
* Shares of these funds purchased by or for accounts in which the trust
department of Shawmut Bank, N.A., or its affiliates, serve in a fiduciary or
agency capacity are sold without a sales load. Other purchasers pay a sales load
of up to 2.00% of the public offering price, as described in the Income
Funds--Investment Shares prospectus.
** Connecticut Intermediate Municipal Income Fund and Massachusetts Intermediate
Municipal Income Fund sell their shares without class designation. Purchasers of
either the Trust Shares or Investment Shares of the other Shawmut Funds may
purchase shares of Connecticut Intermediate Municipal Income Fund and
Massachusetts Intermediate Municipal Income Fund.
<TABLE>
<S> <C> <C> <C> <C> <C>
ANNUAL TRUST SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)................................... 0.00% 0.60% 0.60% 0.60% 0.00%
12b-1 Fees......................................................... None None None None None
Total Other Expenses (after waivers and reimbursement)(2).......... 0.50% 0.31% 0.34% 0.38% 0.50%
Total Trust Shares Operating Expenses (after waivers and
reimbursement)(3)................................................. 0.50% 0.91% 0.94% 0.98% 0.50%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 0.70% for the
Connecticut Intermediate Municipal Income Fund and Massachusetts
Intermediate Municipal Income Fund; 0.80% for Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Fund.
(2) Estimated other expenses have been reduced to reflect the voluntary waiver
by the custodian and the voluntary reimbursement of expenses by the
investment adviser for the Connecticut Intermediate Municipal Income Fund
and the Massachusetts Intermediate Municipal Income Fund.
(3) The Annual Trust Shares Operating Expenses for the fiscal year ended October
31, 1993 were 0.50% for the Connecticut Intermediate Municipal Income Fund
and Massachusetts Intermediate Municipal Income Fund; 0.85% for the Fixed
Income Fund; 0.88% for the Intermediate Government Income Fund; and 0.88%
for the Limited Term Income Fund. The Annual Trust Operating Expenses in the
above table are based on expenses expected during fiscal year ending October
31, 1994. Absent the anticipated voluntary waivers and reimbursement
explained in the above footnotes, the Trust Shares Operating Expenses are
estimated to be 1.83% for the Connecticut Intermediate Municipal Income
Fund; 2.81% for the Massachusetts Intermediate Municipal Income Fund; 1.11%
for the Fixed Income Fund; 1.14% for the Intermediate Government Income
Fund; and 1.18% for the Limited Term Income Fund.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF TRUST SHARES WILL BEAR, EITHER DIRECTLY
OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES,
SEE "THE SHAWMUT FUNDS INFORMATION" AND "INVESTING IN TRUST SHARES."
WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL
FEES.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period. As noted in the
table above, the Income Funds charges no redemption fee.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Connecticut Intermediate Municipal Income Fund........................ $ 5 $16 $28 $ 63
Fixed Income Fund..................................................... $ 9 $29 $50 $112
Intermediate Government Income Fund................................... $10 $30 $52 $115
Limited Term Income Fund.............................................. $10 $31 $54 $120
Massachusetts Intermediate Municipal Income Fund...................... $ 5 $16 $28 $ 63
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Trust Shares of the Income Funds. Fixed Income Fund, Intermediate Government
Income Fund, and Limited Term Income Fund also offer another class of shares
called Investment Shares. Trust Shares and Investment Shares are subject to
certain of the same expenses; however, Investment Shares are subject to a 12b-1
fee of up to .50 of 1%. See "Other Classes of Shares."
SHAWMUT CONNECTICUT
INTERMEDIATE MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table, is included in the Annual Report, which is incorporated by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1993*
-----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------
Net investment income 0.13
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.24
- ------------------------------------------------------------------------------ -----------
Total from investment operations 0.37
- ------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.13)
- ------------------------------------------------------------------------------ -----------
NET ASSET VALUE, END OF PERIOD $ 10.24
- ------------------------------------------------------------------------------ -----------
TOTAL RETURN** 3.75%
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------
Expenses 0.50%(a)
- ------------------------------------------------------------------------------
Net investment income 3.80%(a)
- ------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 2.33%(a)
- ------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $7,288
- ------------------------------------------------------------------------------
Portfolio turnover rate 8%
- ------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from June 17, 1993 (date of initial public
investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
SHAWMUT FIXED INCOME FUND--FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- ----------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.55
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.55
- --------------------------------------------------------------------------------------------- ------
Total from investment operations 1.10
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.55)
- --------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.55
- --------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 11.26%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 0.85%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 6.06%(a)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.22%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $92,485
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 33%
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- ----------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.23
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.40
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.31
- --------------------------------------------------------------------------------------------- ------
Total from investment operations 0.71
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.39)
- --------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.55
- --------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 7.02%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 1.12%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 5.61%(a)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.48%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $9,550
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 33%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
(c) Represents portfolio turnover rate for the entire Fund.
SHAWMUT INTERMEDIATE GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- ------------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income 0.52
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.26
- ---------------------------------------------------------------------------------------------- ------
Total from investment operations 0.78
- ----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.52)
- ---------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.26
- ---------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 7.97%
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 0.88%(a)
- ----------------------------------------------------------------------------------------------
Net investment income 5.83%(a)
- ----------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.26%(a)
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $62,399
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 30%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- ------------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.18
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income 0.37
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.08
- ---------------------------------------------------------------------------------------------- ------
Total from investment operations 0.45
- ----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.37)
- ---------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.26
- ---------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 4.45%
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 1.15%(a)
- ----------------------------------------------------------------------------------------------
Net investment income 5.41%(a)
- ----------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.50%(a)
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $13,812
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 30%
- ----------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
(c) Represents portfolio turnover rate for the entire Fund.
SHAWMUT LIMITED TERM INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- ------------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income 0.49
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.00
- ---------------------------------------------------------------------------------------------- ------
Total from investment operations 0.49
- ----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.49)
- ---------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.00
- ---------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 5.02%
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 0.88%(a)
- ----------------------------------------------------------------------------------------------
Net investment income 5.54%(a)
- ----------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.23%(a)
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $66,998
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 53%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- ------------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.09
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income 0.34
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.09)
- ---------------------------------------------------------------------------------------------- ------
Total from investment operations 0.25
- ----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.34)
- ---------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.00
- ---------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 2.57%
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 1.13%(a)
- ----------------------------------------------------------------------------------------------
Net investment income 5.07%(a)
- ----------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.48%(a)
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $3,859
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 53%
- ----------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
(c) Represents portfolio turnover rate for the entire Fund.
SHAWMUT MASSACHUSETTS
INTERMEDIATE MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table, is included in the Annual Report, which is incorporated by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1993*
------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.14
- ------------------------------------------------------------------------
Net unrealized gain (loss) on investments 0.29
-----
- ------------------------------------------------------------------------
Total from investment operations 0.43
- ------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.13)
-----
- ------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.30
-----
- ------------------------------------------------------------------------
TOTAL RETURN** 4.35%
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.50%(a)
- ------------------------------------------------------------------------
Net investment income 4.07%(a)
- ------------------------------------------------------------------------
Expense waiver/reimbursement (b) 3.57%(a)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $4,009
- ------------------------------------------------------------------------
Portfolio turnover rate 0%
- ------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from June 17, 1993 (date of initial public
investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated July 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
As of the date of this prospectus, the Board of Trustees (the "Trustees") has
established two classes of shares of several of the Income Funds, known as Trust
Shares and Investment Shares. This prospectus relates only to Trust Shares of
the Income Funds that offer separate classes of shares.
A minimum initial investment of $1,000 may be required. Subsequent investments
must be in amounts of at least $100, as described in this prospectus in the
section entitled "Minimum Investment Required." Shares are currently sold at net
asset value and are redeemed at net asset value without a sales charge imposed
by the Income Funds.
THE SHAWMUT FUNDS
The shareholders of the Income Funds are shareholders of The Shawmut Funds,
which currently consists of Shawmut Connecticut Intermediate Municipal Income
Fund, Shawmut Connecticut Municipal Money Market Fund, Shawmut Fixed Income
Fund, Shawmut Growth and Income Equity Fund, Shawmut Growth Equity Fund, Shawmut
Intermediate Government Income Fund, Shawmut Limited Term Income Fund, Shawmut
Massachusetts Intermediate Municipal Income Fund, Shawmut Massachusetts
Municipal Money Market Fund, Shawmut Prime Money Market Fund, and Shawmut
Small Capitalization Equity Fund. Shareholders in the Income Funds have easy
access to the other portfolios of The Shawmut Funds through an exchange
program. The Shawmut Funds are advised by Shawmut Bank, N.A., and distributed
by Federated Securities Corp.
OBJECTIVE AND POLICIES OF EACH FUND
CONNECTICUT INTERMEDIATE
MUNICIPAL INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Connecticut Intermediate Municipal Income Fund
is current income which is exempt from federal income tax and Connecticut state
income tax. The investment objective cannot be changed without approval of
shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE CONNECTICUT INTERMEDIATE MUNICIPAL INCOME FUND PURSUES ITS INVESTMENT
OBJECTIVE BY INVESTING PRIMARILY IN A PORTFOLIO OF CONNECTICUT MUNICIPAL
SECURITIES.
- ------------------------------------------------------
The investment policies may be changed by the Trustees without the approval of
shareholders. Shareholders will be notified before any material change in these
investment policies becomes effective. As a matter of investment policy, which
may not be changed without shareholder approval, the Connecticut Intermediate
Municipal Income Fund will invest its assets so that,
under normal circumstances, at least 80% of its annual interest income is exempt
from federal income tax or that at least 80% of the total value of its assets
are invested in obligations the interest income from which is exempt from
federal income tax.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Connecticut Intermediate Municipal Income Fund
will invest its assets so that at least 65% of the value of its total assets
will be invested in debt obligations issued by or on behalf of the State of
Connecticut and its political subdivisions and financing authorities, and
obligations of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal income tax and Connecticut state income tax
imposed upon non-corporate taxpayers ("Connecticut Municipal Securities"). The
Connecticut Intermediate Municipal Income Fund will maintain a dollar-weighted
average maturity of between three to ten years. The Connecticut Municipal
Securities in which the Connecticut Intermediate Municipal Income Fund invests
are subject to the following quality standards:
- - rated Baa or above by Moody's Investor Service, Inc. ("Moody's") or BBB or
above by Standard & Poor's Corporation ("Standard & Poor's") or Fitch
Investors Service, Inc. ("Fitch"). A description of the rating categories is
contained in the Appendix to the Statement of Additional Information; or
- - insured by a municipal bond insurance company which is rated Aaa by Moody's or
AAA by Standard & Poor's or Fitch; or
- - guaranteed at the time of purchase by the U.S. government as to the payment of
principal and interest; or
- - fully collateralized by an escrow of U.S. government securities; or
- - unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Fund's investment adviser; or.
- - are appropriately rated derivative securities.
The description of the rating categories applicable to the Fund's acceptable
investments are fully described in the Appendix to the statement of additional
information.
FIXED INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Fixed Income Fund is current income consistent
with total return. The investment objective cannot be changed without approval
of shareholders. While there is no assurance that the Fixed Income Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE FIXED INCOME FUND PURSUES ITS INVESTMENT OBJECTIVE BY INVESTING
PRIMARILY IN A PORTFOLIO OF INVESTMENT GRADE NOTES AND BONDS AND U.S.
GOVERNMENT SECURITIES.
- ------------------------------------------------------
The investment policies described above may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Fixed Income Fund will invest at least 65% of
the total value of its assets in fixed income securities. The securities in
which the Fixed Income Fund invests include, but are not limited to:
- - direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes,
and bonds;
- - obligations of U.S. government agencies or instrumentalities such as Federal
Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Federal Farm Credit Land Banks,
Student Loan Marketing Association, or Federal Home Loan Mortgage Corporation;
- - domestic issues of corporate debt obligations having floating or fixed rates
of interest and rated in one of the five highest categories by a nationally
recognized statistical rating organization [rated Aaa, Aa, A, Baa, or Ba by
Moody's or AAA, AA, A, BBB, or BB by Standard & Poor's or Fitch], or which are
of comparable quality in the judgment of the adviser;
- - commercial paper rated Prime-1 or Prime-2 by Moody's, A-1 or A-2 by Standard &
Poor's, or F-1 or F-2 by Fitch;
- - asset-backed securities rated BBB or higher by a nationally recognized
statistical rating organization, which may include, but are not limited to,
interests in pools of receivables such as motor vehicle installment purchase
obligations and credit card receivables, and mortgage-related asset-backed
securities;
- - repurchase agreements collateralized by eligible investments; and
- - certain derivative securities.
INTERMEDIATE GOVERNMENT
INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Intermediate Government Income Fund is current
income consistent with total return. The investment objective cannot be changed
without approval of shareholders. While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE INTERMEDIATE GOVERNMENT INCOME FUND PURSUES ITS INVESTMENT OBJECTIVE BY
INVESTING IN A PORTFOLIO OF INVESTMENT GRADE BONDS AND NOTES AND U.S.
GOVERNMENT SECURITIES.
- ------------------------------------------------------
The Intermediate Government Income Fund will maintain a dollar-weighted average
maturity of between three to ten years. For purposes of computing average
maturity, the Intermediate Government Income Fund considers the market accepted
average life of the assets of the Fund. Market accepted average life considers
the anticipated prepayment or call of underlying securities that might influence
stated maturity. The investment policies described above may be changed by the
Trustees without the approval of shareholders. Shareholders will be notified
before any material change in these investment policies becomes effective.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Intermediate Government Income Fund will invest
at least 65% of the total value of its assets in U.S. government securities. The
securities in which the Intermediate Government Income Fund invests include, but
are not limited to:
- - direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes,
and bonds;
- - obligations of U.S. government agencies or instrumentalities such as Federal
Home Loan Banks, Federal National Mortgage Association, Government National
Mortgage Association, Federal Farm Credit Banks, Student Loan Marketing
Association, or Federal Home Loan Mortgage Corporation;
- - domestic issues of corporate debt obligations having floating or fixed rates
of interest and rated in one of the five highest categories by a nationally
recognized statistical rating organization [rated Aaa, Aa, A, Baa, or Ba by
Moody's or AAA, AA, A, BBB, or BB by Standard & Poor's or Fitch], or which
are of
comparable quality in the judgment of the adviser;
- - asset-backed securities rated BBB or higher by a nationally recognized
statistical rating organization, which may include, but are not limited to,
interests in pools of receivables such as motor vehicle installment purchase
obligations and credit card receivables, and mortgage-related asset-backed
securities;
- - repurchase agreements collateralized by eligible investments; and
- - certain derivative securities.
LIMITED TERM INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Limited Term Income Fund is current income
consistent with low principal volatility and total return. The investment
objective cannot be changed without approval of shareholders. While there is no
assurance that the Limited Term Income Fund will achieve its investment
objective, it endeavors to do so by following the investment policies described
in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE LIMITED TERM INCOME FUND PURSUES ITS INVESTMENT OBJECTIVE BY INVESTING
PRIMARILY IN A PORTFOLIO OF INVESTMENT GRADE BONDS AND NOTES AND U.S.
GOVERNMENT SECURITIES.
- ------------------------------------------------------
The Limited Term Income Fund will maintain a dollar-weighted average maturity of
three years or less. For purposes of computing average maturity, the Limited
Term Income Fund considers the market accepted average life of the assets of the
Fund. Market accepted average life considers the anticipated prepayment or call
of underlying securities that might influence stated maturity. The investment
policies described above may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
investment policies becomes effective.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Limited Term Income Fund will invest at least
65% of the total value of its assets in income producing securities. The
securities in which the Limited Term Income Fund invests include, but are not
limited to:
- - direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes,
and bonds;
- - obligations of U.S. government agencies or instrumentalities such as Federal
Home Loan Banks, Federal National Mortgage Association, Government National
Mortgage Association, Federal Farm Credit Banks, Student Loan Marketing
Association, or Federal Home Loan Mortgage Corporation;
- - domestic issues of corporate debt obligations having floating or fixed rates
of interest and rated in one of the five highest categories by a nationally
recognized statistical rating organization [rated Aaa, Aa, A, Baa, or Ba by
Moody's or AAA, AA, A, BBB, or BB by Standard & Poor's or Fitch], or which are
of comparable quality in the judgment of the adviser;
- - commercial paper rated Prime-1 or Prime-2 by Moody's, A-1 or A-2 by Standard &
Poor's, or F-1 or F-2 by Fitch;
- - asset-backed securities rated BBB or higher by a nationally recognized
statistical rating organization, which may include, but are not limited to,
interests in pools of receivables such as motor vehicle installment purchase
obligations and credit card receivables, and mortgage-related asset-backed
securities;
- - repurchase agreements collateralized by eligible investments; and
- - certain derivative securities.
MASSACHUSETTS INTERMEDIATE MUNICIPAL INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Massachusetts Intermediate Municipal Income Fund
is current income which is exempt from federal income tax and income taxes
imposed by the Commonwealth of Massachusetts. The investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Massachusetts Intermediate Municipal Income Fund will achieve its investment
objective, it endeavors to do so by following the investment policies described
in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE MASSACHUSETTS INTERMEDIATE MUNICIPAL INCOME FUND PURSUES ITS INVESTMENT
OBJECTIVE BY INVESTING PRIMARILY IN A PORTFOLIO OF MASSACHUSETTS MUNICIPAL
SECURITIES.
- ------------------------------------------------------
The investment policies described above may be changed by the Trustees without
the approval of shareholders. Shareholders will be notified before any material
change in these investment policies becomes effective. As a matter of investment
policy, which may not be changed without shareholder approval, the Massachusetts
Intermediate Municipal Income Fund will invest its assets so that, under normal
circumstances, at least 80% of its annual interest income is exempt from federal
income tax or that at least 80% of the total value of its assets are invested in
obligations the interest income from which is exempt from federal income tax.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Massachusetts Intermediate Municipal Income Fund
will invest its assets so that at least 65% of the value of its total assets
will be invested in debt obligations issued by or on behalf of the Commonwealth
of Massachusetts and its political subdivisions and financing authorities, and
obligations of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal income tax and Massachusetts state income tax
imposed upon non-corporate taxpayers ("Massachusetts Municipal Securities"). The
Massachusetts Intermediate Municipal Income Fund will maintain a dollar-weighted
average maturity of between three to ten years. The Massachusetts Municipal
Securities in which the Fund invests are subject to the following quality
standards:
- - rated Baa or above by Moody's or BBB or above by Standard & Poor's or Fitch. A
description of the rating categories is contained in the Appendix to the
Statement of Additional Information; or
- - insured by a municipal bond insurance company which is rated Aaa by Moody's or
AAA by Standard & Poor's or Fitch; or
- - guaranteed at the time of purchase by the U.S. government as to the payment of
principal and interest; or
- - fully collateralized by an escrow of U.S. government securities; or
- - unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Fund's investment adviser; or
- - are appropriately rated derivative securities.
INCOME FUNDS INVESTMENTS AND STRATEGIES
U.S. GOVERNMENT SECURITIES. Some obligations issued or guaranteed by agencies or
instrumentalities of the U.S. government, such as Government National Mortgage
Association participation certificates, are backed by the full faith and credit
of the U.S. Treasury. No assurances can be given that the U.S. government will
provide financial support to other agencies or instrumentalities, since it is
not obligated to do so. These instrumentalities are supported by:
- - the issuer's right to borrow an amount limited to a specific line of credit
from the U.S. Treasury;
- - discretionary authority of the U.S. government to purchase certain obligations
of an agency or instrumentality; or
- - the credit of the agency or instrumentality.
CORPORATE DEBT OBLIGATIONS. The Fixed Income Fund, Intermediate Government
Income Fund, and Limited Term Income Fund may invest in corporate debt
obligations, including corporate bonds, notes, and debentures, which may have
floating or fixed rates of interest. Fixed Income Fund, Intermediate Government
Income Fund, and Limited Term Income Fund will not invest in corporate debt
obligations that are rated lower than Baa by Moody's or BBB by Standard & Poor's
or Fitch, except that each of these Funds may invest up to 10% of the value of
their respective total assets in corporate debt obligations rated "Ba" or "BB"
so long as not more than 1% of each respective Fund's total assets is invested
in the Ba-rated or BB-rated obligations of a single issuer. Bonds rated Baa by
Moody's or BBB by Standard & Poor's or Fitch are considered medium grade
obligations and are regarded as having an adequate capacity to pay interest and
repay principal. They are neither highly protected nor poorly secured, but lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Debt rated Ba by Moody's or BB by Standard & Poor's or
Fitch are judged to have speculative elements, their future cannot be considered
as well assured. They face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The rating may also be
used for debt subordinated to senior debt that is assigned an actual or implied
"Baa" or "BBB"-rating, and may include obligations convertible into equity
investment. If a security loses its rating or has its rating reduced after the
Fund has purchased it, the Fund is not required to sell or otherwise dispose of
the security, but may consider doing so. If ratings made by Moody's or Standard
& Poor's change because of changes in those organizations or in their ratings
systems, the Fund will attempt to obtain comparable ratings as substitute
standards in accordance with the investment policies of the Fund.
FLOATING RATE CORPORATE DEBT OBLIGATIONS. Fixed Income Fund, Intermediate
Government Income Fund, and Limited Term Income Fund expect to invest in
floating rate corporate debt obligations. Floating rate securities are
generally offered at an initial interest rate which is at or above prevailing
market rates. The interest rate paid on these securities is then reset
periodically (commonly every 90 days) to an increment over some predetermined
interest rate index. Commonly utilized indices include the three-month
Treasury bill rate, the 180-day Treasury bill rate, the one-month or
three-month London Interbank Offered Rate (LIBOR), the prime rate
of a bank, the commercial paper rates, or the longer-term rates on U.S.
Treasury securities.
FIXED RATE CORPORATE DEBT OBLIGATIONS. Fixed Income Fund, Intermediate
Government Income Fund, and Limited Term Income Fund may also invest in fixed
rate securities, including fixed rate securities with short-term
characteristics. Fixed rate securities with short-term characteristics are
long-term debt obligations, but are treated in the market as
having short maturities because call features of the securities may make them
callable within a short period of time. A fixed rate security with short-term
characteristics would include a fixed income security priced close to call or
redemption price or a fixed income security approaching maturity, where the
expectation of call or redemption is high.
ASSET-BACKED SECURITIES. Asset-backed securities are created by the grouping of
certain governmental, government-related, and private loans, receivables and
other lender assets, including vehicle installment purchase obligations and
credit card receivables, into pools. Interests in these pools are sold as
individual securities and are not backed or guaranteed by the U.S. government.
These securities differ from other forms of debt securities, which normally
provide for periodic payment of interest in fixed amounts with principal paid
at maturity or specified call dates. Asset-backed securities, however, provide
periodic payments which generally consist of both interest and principal
payments. The estimated average life of an asset-backed security and the average
maturity of a portfolio including such assets varies with the prepayment
experience with respect to the underlying debt instruments. The credit
characteristics of asset-backed securities also differ in a number of respects
from those of traditional debt securities.
The credit quality of most asset-backed securities depends primarily upon the
credit quality of the assets underlying such securities, how well the entity
issuing the securities is insulated from the credit risk of the originator or
any other affiliated entities, and the amount and quality of any credit support
provided to such securities. Fixed Income Fund, Intermediate Government Income
Fund, and Limited Term Income Fund will not invest in asset-backed securities
that are rated lower than Baa by Moody's or BBB by Standard & Poor's or Fitch.
Fixed Income Fund, Intermediate Government Income Fund, and Limited Term Income
Fund may also invest in mortgage-related asset-backed securities which are
issued by private entities such as investment banking firms and companies
related to the construction industry. The mortgage-related securities in which
Fixed Income Fund, Intermediate Government Income Fund, and Limited Term Income
Fund may invest may be: (i) privately issued securities which are collateralized
by pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S. government;
(ii) privately issued securities which are collateralized by pools of mortgages
in which payment of principal and interest are guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; (iii) privately
issued securities in which the proceeds of the issuance are invested in
mortgage-backed securities and payment of the principal and interest is
supported by the credit of any agency or instrumentality of the U.S. government;
or (iv) other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal and
interest is guaranteed or supported by the credit of a non-governmental entity,
including corporations. The mortgage-related securities provide for a periodic
payment consisting of both interest and principal. The interest portion of these
payments will be distributed by Fixed Income Fund, Intermediate Government
Income Fund, and Limited Term Income Fund as income, and the capital portion
will be reinvested.
While mortgage-related securities generally entail less risk of a decline during
periods of rapidly rising interest rates, mortgage-related securities may also
have less potential for capital appreciation than other similar investments
(e.g., investments with comparable maturities) because as interest rates
decline, the likelihood increases that mortgages will be prepaid. Furthermore,
if mortgage-related securities are purchased at a premium, mortgage foreclosures
and unscheduled principal payments may result in some loss of a holder's
principal investment to the extent of the premium paid. Conversely, if
mortgage-related securities are purchased at a discount, both a scheduled
payment of principal
and an unscheduled prepayment of principal would increase current and total
returns and would accelerate the recognition of income, which would be taxed as
ordinary income when distributed to shareholders.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its investment
adviser, prevailing market conditions warrant, Fixed Income Fund, Intermediate
Government Income Fund, and Limited Term Income Fund may, for temporary
defensive purposes, invest in:
- - short-term money market instruments rated in one of the top two rating
categories by or nationally recognized statistical rating organization;
- - securities issued and/or guaranteed as to payment of principal and interest by
the U.S. government, its agencies, or instrumentalities; and
- - repurchase agreements.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Income Funds may lend portfolio securities, on a short-term or long-term basis
or both, up to one-third of the value of its total assets to broker/dealers,
banks, or other institutional borrowers of securities. The Income Funds will
only enter into loan arrangements with broker/dealers, banks, or other
institutions which the investment adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned.
DERIVATIVE SECURITIES. Each of the Income Funds may invest up to 20% of the
market value of the Fund's total assets in the derivative securities described
below.
OPTIONS AND FUTURES CONTRACTS. The Income Funds may buy and sell options and
futures contracts to manage their respective individual exposure to changing
interest rates, security prices, and currency exchange rates. Some options
and futures strategies, including selling futures, buying puts, and writing
calls, tend to hedge the Income Funds' respective investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the
risk and return characteristics of the overall strategy. The Income Funds may
invest in options and futures based on any type of security, index, or
currency, including options and futures traded on foreign exchanges and
options not traded on exchanges.
Options and futures can be volatile investments, and involve certain risks.
If the investment adviser applies a hedge at an inappropriate time or judges
market conditions incorrectly, options and futures may lower an Income Fund's
individual return. An Income Fund could also experience losses if the prices
of its options and futures positions were poorly correlated with its other
investments, or if it could not close out its positions because of an
illiquid secondary market.
Each of the Income Funds will not hedge more than 20% of their respective
total assets by selling futures, buying puts, and writing calls under normal
conditions. In addition, each of the Income Funds will not buy futures or
write puts whose underlying value exceeds 20% of their respective total
assets, and the Income Funds will not buy calls with a value exceeding 5% of
their respective total assets.
INDEXED SECURITIES. The Income Funds may invest in indexed securities, sold
by brokers or dealers or other financial institutions (such as commercial
banks) deemed creditworthy by the Income Fund's adviser, whose value is
linked to foreign currencies, interest rates, commodities, indices, or other
financial indicators. Most indexed securities are short to intermediate term
fixed-income securities whose values at maturity or interest rates rise or
fall according to the change in one or more specified underlying instruments.
Indexed se-
curities may be positively or negatively indexed (i.e., their value may
increase or decrease if the underlying instrument appreciates), and may have
return characteristics similar to direct investments in the underlying
instrument or to one or more options on the underlying instrument. Indexed
securities may be more volatile than the underlying instrument itself. Each
of the Income Funds intends to invest not more than 5% of the market value of
the Fund's total assets in indexed securities.
SWAP AGREEMENTS. As one way of managing its exposure to different types of
investments. Each of the Income Funds may enter into interest rate swaps,
currency swaps, and other types of swap agreements such as caps, collars, and
floors. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of the Income Fund's investments and its
share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve
a small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on an
Income Fund's performance. Swap agreements are subject to risks related to
the counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. An Income Fund may also suffer
losses if it is unable to terminate outstanding swap agreements to reduce its
exposure through offsetting transactions. When an Income Fund enters into a
swap agreement, assets of the Fund equal to the value of the swap agreement
will be segregated by the Fund. Each of the Income Funds intends to invest
not more than 5% of the market value of the Fund's total assets in swap
agreements.
REPURCHASE AGREEMENTS. The U.S. government securities and other securities in
which the Income Funds invest may be purchased pursuant to repurchase
agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Income Funds and agree at the time of sale
to repurchase them at a mutually agreed upon time and price. To the extent that
the original seller does not repurchase the securities from the Income Funds,
the Income Funds could receive less than the repurchase price on any sale of
such securities.
RESTRICTED AND ILLIQUID SECURITIES. The Income Funds intend to invest in
restricted securities. Restricted securities are any securities in which the
Income Funds may otherwise invest pursuant to its investment objective and
policies but which are subject to restriction on resale under federal securities
law. However, the Income Funds will limit investments in illiquid securities,
including certain restricted securities not determined by the Trustees to be
liquid, non-negotiable time deposits, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Income Funds may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Income Funds purchase securities with payment and
delivery scheduled for a future time. In when-issued and delayed delivery
transactions, the Income Funds rely on the seller to complete the transaction.
The seller's failure to complete the transaction may cause the Income Funds to
miss a price or yield considered to be advantageous.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Income Funds may
invest in the securities of other investment companies, but it will not own more
than 3% of the total outstanding voting stock of any investment company, invest
more than 5% of its total assets in any one investment company, or invest more
than 10% of its total assets in investment companies in general. The Income
Funds will invest in other investment companies primarily for the
purpose of investing its short-term cash which has not yet been invested in
other portfolio instruments. However, from time to time, on a temporary basis,
the Income Funds may invest exclusively in a single other similarly managed
investment company. Shareholders should realize that, when these funds invest in
other investment companies, certain fund expenses, such as custodian fees and
administrative fees, may be duplicated. The adviser will waive its investment
advisory fee on assets invested in securities of other investment companies.
The following acceptable investments apply only to the CONNECTICUT INTERMEDIATE
MUNICIPAL INCOME FUND and MASSACHUSETTS INTERMEDIATE MUNICIPAL INCOME FUND
(referred to jointly as the "Connecticut/Massachusetts Intermediate Municipal
Income Funds"):
PARTICIPATION INTERESTS. The Connecticut/Massachusetts Intermediate Municipal
Income Funds may purchase interests in Connecticut and Massachusetts Municipal
Securities, respectively, from financial institutions such as commercial and
investment banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a trust,
partnership interests or any other form of indirect ownership that allows the
Connecticut/Massachusetts Intermediate Municipal Income Funds to treat the
income from the investment as exempt from federal income tax. The Connecticut/
Massachusetts Intermediate Municipal Income Funds invest in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Municipal
Securities.
MUNICIPAL LEASES. The Connecticut/Massachusetts Intermediate Municipal Income
Funds may invest in municipal leases. Municipal leases are obligations issued by
state and local governments or authorities to finance the acquisition of
equipment and facilities and may be considered to be illiquid. They may take the
form of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate in any of the above.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term Municipal
Securities that have variable or floating interest rates and provide the
Connecticut/Massachusetts Intermediate Municipal Income Funds with the right to
tender the security for repurchase at its stated principal amount plus accrued
interest. The interest rate may float or be adjusted at regular intervals
(ranging from daily to annually) and is normally based on a municipal interest
index or a stated percentage of a prime rate or another published interest rate
or interest rate index. Most variable rate demand notes allow the
Connecticut/Massachusetts Intermediate Municipal Income Funds to demand the
repurchase of the security on not more than seven days prior notice. Other notes
only permit the Connecticut/Massachusetts Intermediate Municipal Income Funds to
tender the security at the time of each interest rate adjustment or at other
fixed intervals. The Connecticut/Massachusetts Intermediate Municipal Income
Funds treat variable rate demand notes as maturing on the later of the date of
the next interest adjustment or the date on which the Connecticut/Massachusetts
Intermediate Municipal Income Funds may next tender the security for repurchase.
TENDER OPTION BONDS AND ZERO COUPON SECURITIES. The Connecticut/Massachusetts
Intermediate Municipal Income Funds may purchase tender option bonds and similar
securities. A tender option bond generally has a long maturity and bears
interest at a fixed rate substantially higher than prevailing short-term tax-
exempt rates, and is coupled with an agreement by a third party, such as a bank,
broker-dealer, or other financial institution, pursuant to which such
institution grants the security holders the option, usually upon not more than
seven days notice or at periodic intervals, to tender their securities to the
institution and receive the face value of the security. In providing the option,
the financial institution receives a fee that reduces the fixed rate of the
underlying bond and results
in the Connecticut/Massachusetts Intermediate Municipal Income Funds effectively
receiving a demand obligation that bears interest at the prevailing short-term
tax exempt rate. The Connecticut/Massachusetts Intermediate Municipal Income
Funds' adviser will monitor, on an ongoing basis, the creditworthiness of the
issuer of the tender option bond, the financial institution providing the
option, and any custodian holding the underlying long-term bond. The bankruptcy,
receivership, or default of any of the parties to the tender option bond will
adversely affect the quality and marketability of the security.
The Connecticut/Massachusetts Intermediate Municipal Income Funds may also
invest in zero coupon securities, which are debt securities issued or sold at a
discount from their face value. These securities do not entitle the holder to
any periodic payments of interest prior to maturity. The discount from face
value of these securities depends upon various factors, including: the time
remaining until maturity or cash payment date, prevailing interest rates, the
liquidity of the security, and the perceived credit quality of the issuer. Zero
coupon securities may also take the form of debt securities that have been
stripped of their unmatured interest coupons. The market value of zero coupon
securities is generally more volatile, and is more likely to react to changes in
interest rates, than the market value of interest-bearing securities with
similar maturities and credit qualities.
SYNTHETIC BOND DERIVATIVES. The Connecticut/Massachusetts Intermediate Municipal
Income Funds may invest its assets in derivative securities that provide the
Connecticut/Massachusetts Intermediate Municipal Income Funds with tax-exempt
income. These securities are formed when an investment bank acquires all or part
of a fixed rate municipal bond and divides it into two classes of variable rate
securities. One of these classes of securities provides investors with a source
of short-term, variable rate, tax-exempt income that is determined through an
auction mechanism. The other class of security is sold as a residual rate
security, which has a long duration and also offers a source of tax-exempt
income. There is an inverse relationship between the rate of interest income
paid between the two classes of securities. This means that the holder of the
short-term security may receive interest income that is greater than, or less
than, the coupon rate of the underlying fixed rate bond, and that the holder of
the residual security would, for the same period, receive a rate of return that
is less than, or greater than, as the case may be, the bond's coupon rate.
TEMPORARY INVESTMENTS. The Connecticut/ Massachusetts Intermediate Municipal
Income Funds normally invest their assets so that at least 80% of their annual
interest income is exempt from federal income tax or that at least 80% of the
total value of their assets are invested in obligations the interest income from
which is exempt from federal income tax. At least 65% of the value of the
Connecticut Intermediate Municipal Income Fund's total assets will be invested
in Connecticut Municipal Securities. At least 65% of the value of Massachusetts
Intermediate Municipal Income Fund's total assets will be invested in
Massachusetts Municipal Securities.
However, from time to time on a temporary basis, when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Connecticut/Massachusetts Intermediate Municipal Income Funds may invest in
short-term tax-exempt or taxable temporary investments. These temporary
investments include: shares of similarly managed mutual funds; notes issued by
or on behalf of municipal or corporate issuers; obligations issued or guaranteed
by the U.S. government, its agencies, or instrumentalities; other debt
securities; commercial paper; certificates of deposit of banks; and repurchase
agreements (arrangements in which the organization selling the
Connecticut/Massachusetts Intermediate Municipal Income Funds a bond or
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those it considers to
be of good quality.
Although the Connecticut/Massachusetts Intermediate Municipal Income Funds are
permitted to make taxable, temporary investments, there is no current intention
of generating income that is not predominantly exempt from federal income tax or
state income tax.
CONNECTICUT AND MASSACHUSETTS MUNICIPAL SECURITIES. Connecticut and
Massachusetts Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control, and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses, and to make loans to other public
institutions and facilities.
Connecticut and Massachusetts Municipal Securities include industrial
development bonds issued by or on behalf of public authorities to provide
financing aid to acquire sites or construct and equip facilities for privately
or publicly owned corporations. The availability of this financing encourages
these corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
MUNICIPAL BOND INSURANCE. The Connecticut/Massachusetts Intermediate Municipal
Income Funds may purchase Connecticut and Massachusetts Municipal Securities
covered by insurance which guarantees the timely payment of principal at
maturity and interest on such securities. These insured Connecticut and
Massachusetts Municipal Securities are either (1) covered by an insurance policy
applicable to a particular security, whether obtained by the issuer of the
security or by a third party ("Issuer-Obtained Insurance") or (2) insured under
master insurance policies issued by municipal bond insurers, which may be
purchased by the Connecticut/Massachusetts Intermediate Municipal Income Funds.
The Connecticut/Massachusetts Intermediate Municipal Income Funds may require or
obtain municipal bond insurance when purchasing or holding specific Connecticut
and Massachusetts Municipal Securities when, in the opinion of the
Connecticut/Massachusetts Intermediate Municipal Income Funds' investment
adviser, such
insurance would benefit the Connecticut/Massachusetts Intermediate Municipal
Income Funds, for example, through improvement of portfolio quality or increased
liquidity of certain securities.
Issuer-Obtained Insurance policies are noncancellable and continue in force as
long as the Connecticut and Massachusetts Municipal Securities are outstanding
and their respective insurers remain in business. If a Connecticut or
Massachusetts Municipal Security is covered by Issuer-Obtained Insurance, then
such security need not be insured by the policies purchased by the
Connecticut/Massachusetts Intermediate Municipal Income Funds.
The Connecticut/Massachusetts Intermediate Municipal Income Funds may purchase
two types of policies issued by municipal bond insurers. One type of policy
covers certain Connecticut and Massachusetts Municipal Securities only during
the period in which they are in the Connecticut/Massachusetts Intermediate
Municipal Income Funds' portfolios. In the event that a
Connecticut or Massachusetts Municipal Security covered by such a policy is sold
from the Connecticut/Massachusetts Intermediate Municipal Income Funds, the
insurer of the relevant policy will be liable only for those payments of
interest and principal which are due and owing at the time of sale.
The other type of policy covers Connecticut and Massachusetts Municipal
Securities not only while they remain in the Connecticut/Massachusetts
Intermediate Municipal Income Funds' portfolios, but also until their final
maturity even if they are sold out of the Connecticut/Massachusetts Intermediate
Municipal Income Funds' portfolios, so that the coverage may benefit all
subsequent holders of those Connecticut and Massachusetts Municipal Securities.
The Connecticut/Massachusetts Intermediate Municipal Income Funds will obtain
insurance which covers Connecticut and Massachusetts Municipal Securities until
final maturity even after they are sold out of the Connecticut/Massachusetts
Intermediate Municipal Income Funds' portfolios only if, in the judgment of the
investment adviser, the Connecticut/Massachusetts Intermediate Municipal Income
Funds would receive net proceeds from the sale of those securities, after
deducting the cost of such permanent insurance and related fees, significantly
in excess of the proceeds it would receive if such Connecticut and Massachusetts
Municipal Securities were sold without insurance. Payments received from
municipal bond insurers may not be tax-exempt income to shareholders of the
Connecticut/Massachusetts Intermediate Municipal Income Funds.
The premiums for the policies are paid by the Connecticut/Massachusetts
Intermediate Municipal Income Funds and the yield on the
Connecticut/Massachusetts Intermediate Municipal Income Funds' portfolios are
reduced thereby. Premiums for the policies are paid by the
Connecticut/Massachusetts Intermediate Municipal Income Funds monthly, and are
adjusted for purchases and sales of Connecticut and Massachusetts Municipal
Securities during the month.
CONNECTICUT AND MASSACHUSETTS INVESTMENT RISKS. Yields on Connecticut and
Massachusetts Municipal Securities depend on a variety of factors, including:
the general conditions of the short-term municipal note market and of the
municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the State of Connecticut and the
Commonwealth of Massachusetts or their municipalities could impact the
Connecticut/Massachusetts Intermediate Municipal Income Funds' portfolios. The
ability of the Connecticut/Massachusetts Intermediate Municipal Income Funds to
achieve their investment objectives also depends on the continuing ability of
the issuers of Connecticut and Massachusetts Municipal Securities and demand
features, or the credit enhancers of either, to meet their obligations for the
payment of interest and principal when due.
Investing in Connecticut and Massachusetts Municipal Securities which meet the
Connecticut/ Massachusetts Intermediate Municipal Income Funds' quality
standards may not be possible if the State of Connecticut and the Commonwealth
of Massachusetts or their municipalities do not maintain their current credit
ratings. An expanded discussion of the current economic risks associated with
the purchase of Connecticut or Massachusetts Municipal Securities is contained
in the statement of additional information.
NON-DIVERSIFICATION. The Connecticut/Massachusetts Intermediate Municipal Income
Funds are non-diversified investment portfolios. As such, there is no limit on
the percentage of assets which can be invested in any single issuer. An
investment in the Connecticut/Massachusetts Intermediate Municipal Income Funds,
therefore, will entail greater risk than would exist in a diversified investment
portfolio because the higher percentage of investments among fewer issuers may
result in greater fluctuation in the total market value of the
Connecticut/Massachusetts Intermediate Municipal Income Funds' portfolios. Any
economic, political, or regulatory
developments affecting the value of the securities in the
Connecticut/Massachusetts Intermediate Municipal Income Funds' portfolios will
have a greater impact on the total value of the portfolios than would be the
case if the portfolios were diversified among more issuers.
The Connecticut/Massachusetts Intermediate Municipal Income Funds intend to
comply with Subchapter M of the Internal Revenue Code. This undertaking requires
that at the end of each quarter of the taxable year, with regard to at least 50%
of its total assets, no more than 5% of its total assets are invested in the
securities of a single issuer; beyond that, no more than 25% of its total assets
are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
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THE INCOME FUNDS FOLLOW A NUMBER OF GUIDELINES IN MANAGING THEIR PORTFOLIOS
IN ORDER TO LIMIT INVESTMENT RISKS.
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FIXED INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND, AND LIMITED TERM INCOME
FUND WILL NOT:
- - borrow money directly or through reverse repurchase agreements (arrangements
in which the Income Funds sell a portfolio instrument for a percentage of its
cash value with an arrangement to buy it back on a set date) or pledge
securities except, under certain circumstances, Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Fund may borrow
up to one-third of the value of their total individual fund assets and pledge
up to 10% of the value of their total individual fund assets to secure such
borrowings;
- - with respect to 75% of the value of their total assets, invest more than 5% in
securities of one issuer other than cash, cash items or securities issued or
guaranteed by the government of the United States, its agencies, or
instrumentalities and repurchase agreements collateralized by such securities,
or acquire more than 10% of the outstanding voting securities of any one
issuer; or
- - invest more than 10% of their total assets in securities subject to
restrictions on resale under the Securities Act of 1933 (except for commercial
paper issued under Section 4(2) of the Securities Act of 1933 and certain
other securities which meet the criteria for liquidity as established by the
Trustees).
THE CONNECTICUT/MASSACHUSETTS INTERMEDIATE MUNICIPAL INCOME FUNDS WILL NOT:
- - borrow money directly or through reverse repurchase agreements (arrangements
in which the Fund sells a portfolio instrument for a percentage of its cash
value with an arrangement to buy it back on a set date) or pledge securities
except, under certain circumstances, the Connecticut/Massachusetts
Intermediate Municipal Income Funds may borrow up to one-third of the value of
its total assets and pledge up to 10% of the value of those assets to secure
such borrowings; or
- - invest more than 5% of its total assets in industrial development bonds when
the payment of principal and interest is the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
THE SHAWMUT FUNDS INFORMATION
MANAGEMENT OF THE
SHAWMUT FUNDS
BOARD OF TRUSTEES
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THE SHAWMUT FUNDS ARE MANAGED BY A BOARD OF TRUSTEES.
- ------------------------------------------------------
The Trustees are responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
- ------------------------------------------------------
PURSUANT TO AN INVESTMENT ADVISORY CONTRACT WITH THE TRUST, INVESTMENT
DECISIONS FOR THE INCOME FUNDS ARE MADE BY SHAWMUT BANK (THE "ADVISER"),
SUBJECT TO DIRECTION BY THE TRUSTEES.
- ------------------------------------------------------
The Adviser continually conducts investment research and supervision for the
Income Funds and is responsible for the purchase and sale of portfolio
instruments, for which it receives an annual fee from the respective assets of
the Income Funds.
ADVISORY FEES
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THE ADVISER MAY VOLUNTARILY WAIVE PART OF ITS ADVISORY FEES.
- ------------------------------------------------------
The Adviser receives an annual investment advisory fee equal to .80 of 1% of
Shawmut Fixed Income Fund, Shawmut Intermediate Government Income Fund, and
Shawmut Limited Term Income Fund average daily net assets and .70 of 1% of
Shawmut Connecticut Intermediate Municipal Income Fund and Shawmut Massachusetts
Intermediate Municipal Income Fund average daily net assets. The fee paid by the
Income Funds, while higher than the advisory fee paid by other mutual funds in
general, is comparable to fees paid by mutual funds with similar objectives and
policies. The Adviser has undertaken to waive a portion of its advisory fee, up
to the amount of the advisory fee, to reimburse the Income Funds for operating
expenses in excess of limitations established by certain states. The Adviser may
further voluntarily waive a portion of its fee or reimburse any of the Income
Funds for certain operating expenses. The Adviser can terminate such voluntary
waiver or reimbursement policy at any time with any of the Income Funds at its
sole discretion.
ADVISER'S BACKGROUND
- ------------------------------------------------------
SHAWMUT BANK N.A., A NATIONAL BANKING ASSOCIATION, AND ITS AFFILIATES HAVE
MANAGED COMMINGLED FUNDS FOR OVER FIFTY YEARS. AS OF DECEMBER 31, 1993,
SHAWMUT NATIONAL CORPORATION, THROUGH ITS SUBSIDIARIES INCLUDING SHAWMUT
BANK MANAGED MORE THAN $15 BILLION IN DISCRETIONARY TRUST ASSETS. SHAWMUT
BANK HAS SERVED AS AN ADVISER TO MUTUAL FUNDS SINCE THE INCEPTION DATE OF
THE SHAWMUT FUNDS ON DECEMBER 1, 1992.
- ------------------------------------------------------
Shawmut Bank, N.A., a national banking association, along with Shawmut Bank
Connecticut, National Association, are the principal subsidiaries of Shawmut
National Corporation, a super-regional bank holding company formed on February
29, 1988, and based in southern New England. Shawmut National Corporation serves
consumers through its network of banking offices with a full range of deposit
and lending products, as well as investment services. Shawmut Bank's borrowers
may be issuers of certain securities in which The Shawmut Funds may invest. The
principal executive offices of the investment adviser are located at One Federal
Street, Boston, Massachusetts 02211.
Robert W. Gleason Jr. has been the portfolio manager of Connecticut Intermediate
Municipal Income Fund and Massachusetts Intermediate Municipal Income Fund since
their inception in June 1993. Mr. Gleason joined a predecessor to Shawmut Bank,
in July 1976 and has been a Vice President and portfolio manager since 1985. Mr.
Gleason received his B.A. degree in Business Administration from Colby College,
followed by studies at New York University and Columbia University Graduate
Schools of Business Administration. Mr. Gleason has been participating in
investment portfolio management for over 38 years.
Maximiliaan J. Brenninkmeyer has been the portfolio manager of Fixed Income Fund
since its inception in December 1992. Mr. Brenninkmeyer is a Vice President of
Shawmut Bank, the Fund's Adviser. He is a Chartered Financial Analyst and holds
a M.S. from Bentley College and a B.A. from the College of the Holy Cross.
Michael M. Spencer has been the portfolio manager of Intermediate Government
Income Fund since April 1993. Mr. Spencer joined Shawmut Bank in 1985 as an
investment officer and has been a Vice President of the Fund's Adviser since
1989. Mr. Spencer is a Chartered Financial Analyst and received his B.A. from
the University of Notre Dame.
John P. Weaver has been the portfolio manager of Limited Term Income Fund since
April 1993. Mr. Weaver has been a portfolio manager with the Fund's Adviser
since 1988, and has been a Vice President of the Fund's Adviser since 1991. He
is a Chartered Financial Analyst and received his B.A. in History from Kenyon
College.
DISTRIBUTION OF INCOME FUNDS' SHARES
- ------------------------------------------------------
FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR TRUST SHARES.
- ------------------------------------------------------
Federated Securities Corp., Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under the distribution plans adopted in accordance with
Investment Company Act Rule 12b-1 (the "Plan"), each of the
Connecticut/Massachusetts Intermediate Municipal Income Funds will pay to the
distributor an amount computed at an annual rate of up to .50 of 1% of the
average daily net asset value of each of the Income Funds to finance any
activity which is principally intended to result in the sale of shares subject
to the Plan.
The distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide distribution and/or administrative services as agents for their
clients or customers. Administrative services may include, but are not limited
to, the following functions: providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other personnel as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries;
assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as may reasonably be requested.
The distributor will pay financial institutions a fee based upon shares subject
to the Plans and owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time to
time by the distributor.
The Connecticut/Massachusetts Intermediate Municipal Income Funds' Plan is a
compensation-type plans. As such, the Connecticut/Massachusetts Intermediate
Municipal Income Funds
make no payments to the distributor except as described above. Therefore, the
Connecticut/ Massachusetts Intermediate Municipal Income Funds do not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from each of the
Connecticut/Massachusetts Intermediate Municipal Income Funds, including
interest, carrying or other financing charges in connection with excess amounts
expended, or the distributor's overhead expenses. However, the distributor may
be able to recover such amounts or may earn a profit from future payments made
by the Connecticut/Massachusetts Intermediate Municipal Income Funds under the
Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE INCOME FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), a subsidiary
of Federated Investors, provides the Income Funds with certain administrative
personnel and services necessary to operate the Income Funds, such as legal and
accounting services. FAS provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATED DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<S> <C>
.150 of 1% First $250 million
.125 of 1% Next $250 million
.100 of 1% Next $250 million
.075 of 1% Over $750 million
</TABLE>
The administrative fee received by FAS during any fiscal year shall be at least
$50,000 for each of the Income Funds individually. FAS may voluntarily choose to
waive a portion of its fee.
CUSTODIAN. Shawmut Bank, N.A., One Federal Street, Boston, Massachusetts 02211,
is custodian for the securities and cash of the Income Funds. Under the
Custodian Agreement, Shawmut Bank, N.A., holds the Income Funds' portfolio
securities in safekeeping and keeps all necessary records and documents relating
to its duties.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, is transfer agent and dividend disbursing agent for the Income
Funds. It also provides certain accounting and recordkeeping services with
respect to each of the Income Funds' portfolios investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania, 15222 and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, DC 20037.
INDEPENDENT ACCOUNTANTS. The independent accountants for the Income Funds are
Price Waterhouse, 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES OF THE INCOME FUNDS
AND TRUST SHARES
Holders of Trust Shares pay their allocable portion of the Income Funds' and
Trust's expenses. The Trust expenses for which holders of Trust Shares pay their
allocable portion include, but
are not limited to: the cost of organizing the Trust and continuing its
existence; registering the Trust with federal and state securities authorities;
Trustees' fees; auditors' fees; the cost of meetings of Trustees; legal fees of
the Trust; association membership dues; and such non-recurring and extraordinary
items as may arise.
The respective Income Fund expenses for which holders of Trust Shares pay their
allocable portion include, but are not limited to: registering the Income Funds
and shares of the Income Funds; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise.
At present, no expenses are allocated exclusively to the Trust Shares as a
class. However, the Board of Trustees reserves the right to allocate certain
other expenses to holders of Trust Shares as they deem appropriate ("Class
Expenses"). In any case, Class Expenses would be limited to: transfer agent fees
as identified by the transfer agent as attributable to holders of Trust Shares;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and
registration fees paid to state securities commissions; expenses related to
administrative personnel and services as required to support holders of Trust
Shares; legal fees relating solely to Trust Shares; and Trustees' fees incurred
as a result of issues relating solely to Shares.
NET ASSET VALUE
- ------------------------------------------------------
THE TERM "NET ASSET VALUE" REFERS TO THE VALUE OF ONE INCOME FUND SHARE.
- ------------------------------------------------------
The Income Funds' net asset value per share of each of the Income Funds
fluctuates and is determined by dividing the sum of the market value of all
securities and other assets, less liabilities, by the number of shares
outstanding.
INVESTING IN TRUST SHARES
- ------------------------------------------------------
YOU CAN BUY INCOME FUNDS TRUST SHARES BY FEDERAL RESERVE WIRE, MAIL, OR
TRANSFER, AS EXPLAINED BELOW.
- ------------------------------------------------------
Shares of the Income Funds are sold by the distributor on days on which the New
York Stock Exchange and Federal Reserve Wire System are open for business.
Shares of the Income Funds may also be purchased through Shawmut Bank, N.A.,
Shawmut Bank Connecticut, National Association, or their affiliates
(collectively, "Shawmut Bank") on days on which both Shawmut Bank and the New
York Stock Exchange and Federal Wire Reserve System are open for business. Texas
residents must purchase, exchange, and redeem Shares through Federated
Securities Corp. at 1-800-618-8573. The Income Funds reserve the right to reject
any purchase request.
THROUGH SHAWMUT BANK. An investor may call their Shawmut Bank trust officer to
receive information and to place an order to purchase Shares. Shawmut Bank will
purchase Trust Shares on behalf of investors and maintain all records relating
to the Trust Shares. Through its trust accounting systems, Shawmut Bank provides
shareholders of Trust Shares with detailed periodic statements that integrate
information regarding investments in the Income Funds with other Shawmut Bank
investment services.
Orders placed through Shawmut Bank are considered received when payment is
converted to federal funds and the applicable Income Fund is notified of the
purchase order. The completion of the purchase transaction will generally occur
within one business day after Shawmut Bank receives a purchase order. Purchase
orders must be received by Shawmut Bank before 4:00 p.m. (Eastern time) and must
be transmitted by Shawmut Bank to the applicable Income Fund before 5:00 p.m.
(Eastern time) in order for Trust Shares to be purchased at that day's public
offering price.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase Shares
directly from the distributor. To do so: complete and sign the new account form
available from the Income Funds; complete an application for the establishment
of a trust account with Shawmut Bank; enclose a check made payable to the full
name of your desired portfolio (see the cover of the prospectus)--Trust Shares;
and mail both to the Income Funds, Attention: Vice President, Securities
Operations, OF0501, One Federal Street, Boston, Massachusetts 02211. The order
is considered received after a trust account is established and the check is
converted by Shawmut Bank into federal funds. This is generally the next
business day after Shawmut Bank receives the check.
To purchase Trust Shares by wire, call 1-800-SHAWMUT. All information needed
will be taken over the telephone, and the order is considered received when
Shawmut Bank receives payment by wire. To request additional information
concerning purchases by wire, please contact Federated Securities Corp., the
Income Funds' distributor, at 1-800-618-8573. Shares cannot be purchased by wire
on any day which both Shawmut Bank and the New York Stock Exchange and Federal
Reserve Wire System are not open for business.
MINIMUM INVESTMENT REQUIRED
- ------------------------------------------------------
THE MINIMUM INITIAL INVESTMENT IS $1,000.
- ------------------------------------------------------
The minimum initial investment in Trust Shares by an investor is $1,000.
Subsequent investments must be in amounts of at least $100. The Income Funds may
waive the initial minimum investment for employees of Shawmut Bank and its
affiliates from time to time.
WHAT SHARES COST
- ------------------------------------------------------
SHARES ARE SOLD AT THEIR NET ASSET VALUE NEXT DETERMINED AFTER AN ORDER IS
RECEIVED.
- ------------------------------------------------------
The net asset value is determined at the close of the New York Stock Exchange,
normally 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on
which there are not sufficient changes in the value of an Income Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; or (iii) on the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Shares of the Connecticut/Massachusetts Intermediate Municipal Income Funds are
sold at their net asset value next determined after an order is received without
a sales charge, to or for accounts in which the trust department of Shawmut Bank
serves in a fiduciary or agency capacity. Other purchasers may pay a sales load
of up to 2.00% of the public offering price, as described in the Income
Funds--Investment Shares prospectus.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Certain institutions
holding Trust 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
provided which may be related to the ownership of Trust Shares. This prospectus
should, therefore, be read together with any agreement between the
customer and the institution with regard to the services provided, the fees
charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Income Funds, Federated Services Company maintains a
share account for each shareholder of record. Share certificates are not issued
unless requested by contacting Shawmut Bank in writing.
Detailed confirmations of each purchase or redemption are sent to Shawmut Bank
or other shareholders of record. Monthly statements are sent by Shawmut Bank to
its trust customers to report account activity during the previous month,
including dividends paid during the period.
DIVIDENDS
Dividends are declared and paid monthly to all shareholders invested in each
Income Fund on the record date.
CAPITAL GAINS
Capital gains realized by the Income Funds, if any, will be distributed to that
Fund's shareholder at least once every 12 months.
EXCHANGE PRIVILEGE
EXCHANGING SHARES. Shareholders may exchange Shares, with a minimum net asset
value of $1,000, for shares of the same designated class of other funds advised
by Shawmut Bank.
Exchanges are subject to the minimum initial purchase requirements of such fund
being acquired. Prior to any exchange, the shareholder must receive a copy of
the current prospectus of the class of the fund into which an exchange is to be
effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, Trust Shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee. Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short-or long-term capital gain or loss may be realized.
The exchange privilege may be modified or terminated at any time. Shareholders
will be notified of the modification or termination of the exchange privilege. A
shareholder may obtain further information on the exchange privilege by calling
their trust officer at Shawmut Bank.
EXCHANGE-BY-TELEPHONE. Instructions for exchanges between participating funds
which are part of the Trust may be given by telephone to their trust officer at
Shawmut Bank. To utilize the exchange-by-telephone service, an investor must
complete an authorization form permitting Shawmut Bank to instruct the Income
Funds to honor telephone instructions. The authorization is included in Shawmut
Bank's trust account documentation. Shares may be exchanged by telephone only
between trust accounts having identical registrations. Exchange instructions
given by telephone may be electronically recorded.
Any Shares held in certificate form cannot be exchanged by telephone, but must
be forwarded to the transfer agent and deposited to the shareholder's mutual
fund account before being exchanged.
Telephone exchange instructions must be received before 4:00 p.m. (Eastern time)
for Shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through Shawmut Bank during times of drastic economic or
market changes. If a shareholder cannot contact Shawmut Bank by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail to Shawmut Bank, Attention: Vice
President, Securities Operation, OF0501, One Federal Street, Boston,
Massachusetts 02211.
REDEEMING TRUST SHARES
- ------------------------------------------------------
YOU CAN REDEEM INCOME FUND TRUST SHARES BY MAIL OR TELEPHONE. TO ENSURE
YOUR SHARES ARE REDEEMED EXPEDITIOUSLY, PLEASE FOLLOW THE PROCEDURES
EXPLAINED BELOW.
- ------------------------------------------------------
The Income Funds redeems Trust Shares at their net asset value next determined
after Federated Services Company receives the redemption request. Redemptions
will be made on days on which the Income Funds compute their net asset value.
Requests for redemptions can be made by telephone or in writing by contacting a
Shawmut Bank trust officer. Redemption requests received prior to 4:00 p.m.
(Eastern time) will be effected on the same business day.
THROUGH SHAWMUT BANK
Shareholders may redeem Trust Shares by calling their Shawmut Bank trust officer
to request the redemption. Trust Shares will be redeemed at the net asset value
next determined after Federated Services Company receives the redemption
request. Shawmut Bank is responsible for promptly submitting redemption requests
and for maintaining proper written records of redemption instructions received
from the Income Funds' shareholders. In order to effect a redemption on the same
business day as a request, Shawmut Bank is responsible for the timely
transmission of the redemption request to the appropriate Income Fund.
Before Shawmut Bank may request redemption by telephone on behalf of a
shareholder, an authorization form permitting the Income Funds to accept
redemption requests by telephone must first be completed. This authorization is
included in Shawmut Bank's trust account documentation. In the event of drastic
economic or market changes, a shareholder may experience difficulty in redeeming
by telephone. If such a case should occur, it is recommended that a redemption
request be made in writing and sent by overnight mail to Shawmut Bank,
Attention: Vice President, Securities Operation, OF0501, One Federal Street,
Boston, Massachusetts 02211.
DIRECTLY FROM THE INCOME FUNDS
BY MAIL. A shareholder may redeem Trust Shares by sending a written request to
Federated Services Company. If Shares are purchased by Shawmut Bank on behalf of
a trust customer, only Shawmut Bank, as the shareholder of record, can request a
redemption from Federated Services Company. The written request should include
the shareholder's name, the portfolios of the Income Fund's name and class of
shares name, the account number, and the share or dollar amount requested. If
share certificates have been issued, they must be properly endorsed and should
be sent by registered or certified mail with the written request. Shareholders
should call the Income Funds for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Income Funds, or a redemption payable other than to the shareholder of
record must have signatures on written redemption requests guaranteed by:
- - a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- - a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- - a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
- - any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Income Funds do not accept signatures guaranteed by a notary public.
The Income Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Income Funds may elect in
the future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Income Funds and their transfer
agent reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT
Redemption payments will generally be made directly to the trust account
maintained by an investor with Shawmut Bank. This deposit is normally made
within one business day, but in no event more than seven days, of the redemption
request, provided the transfer agent has received payment from the shareholder.
The net asset value of Trust Shares redeemed is determined, and dividends, if
any, are paid up to and including, the day prior to the day that a redemption
request is processed. Pursuant to instructions from Shawmut Bank redemption
proceeds may be transferred from a shareholder account by check or by wire.
BY CHECK. Normally, a check for the proceeds is mailed within one business day,
but in no event more than seven days, after receipt of a proper redemption
request provided the transfer agent has received payment for Trust Shares from
the shareholder.
BY WIRE. Requests to wire proceeds from redemptions received before 4:00 p.m.
(Eastern time) will be honored the following business day after Shawmut Bank
receives proper instructions.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Income Funds
may redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum of $1,000. This requirement does
not apply, however, if the balance falls below $1,000 because of changes in an
Income Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
REDEMPTION IN KIND
The Income Funds are obligated to redeem Shares solely in cash up to $250,000 or
1% of the net asset value of Shares of each Income Fund, whichever is less, for
any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. 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.
SHAREHOLDER INFORMATION
VOTING RIGHTS
- ------------------------------------------------------
EACH TRUST SHARE OF AN INCOME FUND GIVES THE SHAREHOLDER ONE VOTE IN
TRUSTEE ELECTIONS AND OTHER MATTERS SUBMITTED TO SHAREHOLDERS OF THE TRUST
FOR VOTE.
- ------------------------------------------------------
All shares of each portfolio in the Trust have equal voting rights except that,
in matters affecting only a particular fund or class, only shareholders of that
fund or class are entitled to vote. As a Massachusetts business trust, the Trust
is not required to hold annual shareholder meetings. Shareholder approval will
be sought only for certain changes in the Trust or an Income
Fund's operation and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding shares of
the Trust. As of February 10, 1994, Shawmut Bank or its affiliates, acting as
fiduciary of various accounts, was the owner of record of the following Income
Funds: approximately 258,419 (28.72%) Shares of the Connecticut Intermediate
Municipal Income Fund; approximately 8,832,797 (99.04%) Trust Shares of the
Fixed Income Fund; approximately 6,593,776 (97.24%) Trust Shares of the
Intermediate Government Income Fund; approximately 6,725,661 (95.86%) Trust
Shares of the Limited Term Income Fund; and approximately 195,753 (35.39%)
Shares of the Massachusetts Intermediate Municipal Income Fund. Additionally, as
of February 10, 1994, Shawmut Bank or its affiliates, acting as a nominee or
agent of accounts of its customers owned approximately 171,502 (2.53%) Trust
Shares of the Intermediate Government Income Fund and approximately 243,484
(3.47%) Trust Shares of the Limited Term Income Fund.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on behalf
of the Income Funds. To protect shareholders of the Income Funds, the Trust has
filed legal documents with Massachusetts that expressly disclaim the liability
of shareholders of an Income Fund for acts or obligations of the Trust. These
documents require notice of this disclaimer to be given in each agreement,
obligation, or instrument the Trust or its Trustees enter into or sign on behalf
of the Income Funds.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations on behalf of the Income Funds, the Trust is required to use the
property of the Income Funds to protect or compensate the shareholder. On
request, the Trust will defend any claim made and pay any judgment against a
shareholder of the Income Funds for any act or obligation of the Trust on behalf
of the Income Funds. Therefore, financial loss resulting from liability as a
shareholder of the Income Funds will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from the
assets of the Income Funds.
EFFECT OF BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent, or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of such a customer. Shawmut Bank is subject to such
banking laws and regulations.
- ------------------------------------------------------
THE GLASS-STEAGALL ACT IS A FEDERAL BANKING LAW THAT GENERALLY PROHIBITS
BANKS FROM PUBLICLY UNDERWRITING OR DISTRIBUTING CERTAIN SECURITIES.
- ------------------------------------------------------
Shawmut Bank believes, based upon the advice of its counsel, that it may perform
the services for the Income Funds contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations
of such or future statutes and regulations, could prevent Shawmut Bank from
continuing to perform all or a part of the above services for its customers
and/or the Income Funds. If it were prohibited from engaging in these customer-
related activities, the Trustees would consider alternative advisers and means
of continuing available investment services. In such event, changes in the
operation of the Income Funds may occur, including possible termination of any
automatic or other Income Fund share investment and redemption services then
being provided by Shawmut Bank. It is not expected that existing shareholders
would suffer any adverse financial consequences (if another adviser with
equivalent abilities to Shawmut Bank is found) as a result of any of these
occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
TAX INFORMATION
FEDERAL INCOME TAX
The Income Funds will pay no federal income tax because each Fund expects to
meet requirements of the Internal Revenue Code, as amended, applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies.
Each Income Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized by The
Shawmut Funds' other portfolios will not be combined for tax purposes with those
realized by each Income Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional Shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
OTHER CLASSES OF SHARES
Fixed Income Fund, Intermediate Government Income Fund, and Limited Term Income
Fund all offer a separate class of shares known as Investment Shares. Investment
Shares are sold primarily to financial institutions that rely upon the
distribution services provided by the distributor in the marketing of Investment
Shares, as well as to retail customers of such institutions. Investment Shares
are sold at net asset value plus a sales charge. Investments in Investment
Shares are subject to a minimum initial investment of $1,000.
Investment Shares are distributed pursuant to 12b-1 Plans adopted by the Trust
whereby the distributor is paid a fee of up to .50 of 1% of the Investment
Shares' average daily net assets.
The amount of dividends payable to Trust Shares will exceed that of Investment
Shares by the difference between class expenses and distribution expenses borne
by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
PERFORMANCE INFORMATION
- ------------------------------------------------------
FROM TIME TO TIME THE INCOME FUNDS ADVERTISE THEIR TOTAL RETURN AND YIELD
FOR TRUST SHARES.
- ------------------------------------------------------
Total return represents the change, over a specified period of time, in the
value of an investment in Trust Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yields of Shares of the Income Funds are calculated each day by dividing the
net investment income per share (as defined by the Securities and Exchange
Commission) earned by the
Income Funds over a thirty-day period by the net asset value per Share on the
last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Total return and yield will be calculated separately for Trust Shares and
Investment Shares. Because Investment Shares are subject to a sales charge and a
12b-1 fee, the total return and yield for Trust Shares, for the same period,
will exceed that of Investment Shares.
Trust Shares are sold without any sales charge or other similar non-recurring
charges.
From time to time, the Income Funds may advertise their performance using
certain reporting services and/or compare its performance to certain indices.
Further information about the performance of the Income Funds is contained in
the Trust's Annual Report dated October 31, 1993, which can be obtained Free of
charge.
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3120920A-I (2/94)
THE SHAWMUT FUNDS
INCOME FUNDS
SHAWMUT CONNECTICUT INTERMEDIATE MUNICIPAL INCOME FUND
SHAWMUT FIXED INCOME FUND
SHAWMUT INTERMEDIATE GOVERNMENT INCOME FUND
SHAWMUT LIMITED TERM INCOME FUND
SHAWMUT MASSACHUSETTS INTERMEDIATE MUNICIPAL INCOME FUND
INVESTMENT SHARES
COMBINED PROSPECTUS
The shares offered by this prospectus represent interests in Investment Shares
of the income portfolios (collectively, the "Income Funds" or individually, as
appropriate in context, the "Fund") of The Shawmut Funds (the "Trust"), an
open-end management investment company (a mutual fund). In addition to the
Income Funds, the Trust consists of the following separate investment
portfolios, each having distinct investment objectives and policies:
EQUITY FUNDS
Shawmut Growth and Income Equity Fund
Shawmut Growth Equity Fund
Shawmut Small Capitalization Equity Fund
MONEY MARKET FUNDS
Shawmut Connecticut Municipal Money
Market Fund
Shawmut Massachusetts Municipal Money
Market Fund
Shawmut Prime Money Market Fund
This combined prospectus contains the information you should read and know
before you invest in the Income Funds. Keep this prospectus for future
reference. The Income Funds have also filed a Combined Statement of Additional
Information for Trust Shares and Investment Shares dated February 28, 1994, with
the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge, obtain other information, or make inquiries about
the Income Funds by writing or calling the Trust.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
ALTHOUGH INCOME FUNDS MAY PAY HIGHER RATES THAN BANK DEPOSITS, THEIR NET ASSET
VALUES ARE SENSITIVE TO INTEREST RATE MOVEMENT AND A RISE IN INTEREST RATES CAN
RESULT IN A DECLINE IN THE VALUE OF YOUR INVESTMENT.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF SHAWMUT
BANK, ARE NOT ENDORSED OR GUARANTEED BY SHAWMUT BANK, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ARE THEY INSURED OR GUARANTEED BY THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. MUTUAL FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING FLUCTUATIONS IN VALUE AND EARNINGS, AND THE POSSIBLE
LOSS OF PRINCIPAL.
INVESTMENT SHARES OF THE SHAWMUT FUNDS ARE AVAILABLE THROUGH LICENSED
REPRESENTATIVES OF SHAWMUT BROKERAGE, INC., MEMBER NASD/SIPC, AND AN AFFILIATE
OF SHAWMUT BANK.
Prospectus dated February 28, 1994
TABLE OF CONTENTS
SYNOPSIS 3
- ------------------------------------------------------
SUMMARY OF INCOME FUNDS' EXPENSES--
INVESTMENT SHARES 4
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
GENERAL INFORMATION 11
- ------------------------------------------------------
THE SHAWMUT FUNDS 11
- ------------------------------------------------------
OBJECTIVE AND POLICIES OF EACH FUND 11
- ------------------------------------------------------
Connecticut Intermediate Municipal
Income Fund 11
Investment Objective 11
Investment Policies 11
Acceptable Investments 12
Fixed Income Fund 12
Investment Objective 12
Investment Policies 12
Acceptable Investments 12
Intermediate Government Income Fund 13
Investment Objective 13
Investment Policies 13
Acceptable Investments 13
Limited Term Income Fund 14
Investment Objective 14
Investment Policies 14
Acceptable Investments 14
Massachusetts Intermediate Municipal
Income Fund 14
Investment Objective 14
Investment Policies 15
Acceptable Investments 15
INCOME FUNDS INVESTMENTS AND STRATEGIES 15
- ------------------------------------------------------
U.S. Government Securities 15
Corporate Debt Obligations 16
Floating Rate Corporate Debt Obligations 16
Fixed Rate Corporate Debt Obligations 16
Asset-Backed Securities 16
Temporary Investments 17
Lending of Portfolio Securities 18
Derivative Securities 18
Repurchase Agreements 19
Restricted and Illiquid Securities 19
When-Issued and Delayed Delivery Transactions 19
Investing in Securities of Other Investment Companies 19
Participation Interests 20
Municipal Leases 20
Variable Rate Demand Notes 20
Tender Option Bonds and Zero
Coupon Securities 20
Synthetic Bond Derivatives 21
Temporary Investments 21
Connecticut and Massachusetts
Municipal Securities 21
Municipal Bond Insurance 22
Connecticut and Massachusetts
Investment Risks 23
Non-Diversification 23
Investment Limitations 24
THE SHAWMUT FUNDS INFORMATION 25
- ------------------------------------------------------
Management of The Shawmut Funds 25
Board of Trustees 25
Investment Adviser 25
Advisory Fees 25
Adviser's Background 25
Distribution of Income Funds' Shares 26
Distribution Plans 26
Administration of the Income Funds 27
Administrative Services 27
Custodian 27
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services 27
Legal Counsel 27
Independent Accountants 27
Expenses of the Income Funds
and Investment Shares 28
NET ASSET VALUE 28
- ------------------------------------------------------
INVESTING IN INVESTMENT SHARES 28
- ------------------------------------------------------
Through Shawmut Bank 28
Directly from the Distributor 29
Minimum Investment Required 29
What Shares Cost 29
Purchases at Net Asset Value 30
Sales Charge Reallowance 30
Reducing the Sales Charge 30
Quantity Discounts and Accumulated
Purchases 30
Letter of Intent 30
Reinvestment Privilege 31
Concurrent Purchases 31
Systematic Investment Program 31
Subaccounting Services 31
Certificates and Confirmations 31
Dividends 32
Capital Gains 32
EXCHANGE PRIVILEGE 32
- ------------------------------------------------------
Exchanging Shares 32
Exchanging-by-Telephone 32
REDEEMING INVESTMENT SHARES 33
- ------------------------------------------------------
Through Shawmut Bank 33
Directly from the Income Funds 33
By Mail 33
Signatures 33
Receiving Payment 34
By Check 34
By Wire 34
Accounts with Low Balances 34
Systematic Withdrawal Program 34
Redemption in Kind 34
SHAREHOLDER INFORMATION 35
- ------------------------------------------------------
Voting Rights 35
Massachusetts Partnership Law 35
EFFECT OF BANKING LAWS 35
- ------------------------------------------------------
TAX INFORMATION 36
- ------------------------------------------------------
Federal Income Tax 36
OTHER CLASSES OF SHARES 36
- ------------------------------------------------------
PERFORMANCE INFORMATION 37
- ------------------------------------------------------
SYNOPSIS
INVESTMENT OBJECTIVES
The Shawmut Funds offer you a convenient, affordable way to participate in
separate, professionally managed portfolios of securities. This prospectus
relates only to the Income Funds of the Trust.
INCOME FUNDS
- ------------------------------------------------------
SHAWMUT CONNECTICUT INTERMEDIATE
MUNICIPAL INCOME FUND
("Connecticut Intermediate Municipal Income Fund") seeks current income
which is exempt from federal income tax and Connecticut state income tax by
investing primarily in Connecticut municipal securities, including
securities of states, territories, and possessions of the United States
which are not issued by or on behalf of Connecticut or its political
subdivisions and financing authorities, but which are exempt from
Connecticut state income tax.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT FIXED INCOME FUND
("Fixed Income Fund") seeks current income consistent with total return by
investing in income producing securities consisting primarily of investment
grade notes and bonds and U.S. government securities.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT INTERMEDIATE GOVERNMENT
INCOME FUND
("Intermediate Government Income Fund") seeks current income consistent
with total return by investing in a portfolio consisting primarily of U.S.
government securities with a dollar-weighted average maturity of between
three and ten years.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT LIMITED TERM INCOME FUND
("Limited Term Income Fund") seeks current income consistent with low
principal volatility and total return by investing in a portfolio of income
producing securities with a term limited to a dollar-weighted average
maturity of three years or less.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT MASSACHUSETTS INTERMEDIATE
MUNICIPAL INCOME FUND
("Massachusetts Intermediate Municipal Income Fund") seeks current income
which is exempt from federal income tax and income taxes imposed by the
Commonwealth of Massachusetts by investing primarily in Massachusetts
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of
Massachusetts or its political subdivisions and financing authorities, but
which are exempt from Massachusetts state income tax.
- ------------------------------------------------------
BUYING AND REDEEMING INCOME
FUND SHARES
A minimum initial investment of $1,000 may be required. Subsequent investments
must be in amounts of at least $100, as described in this prospectus in the
section entitled "Minimum Investment Required."
INCOME FUND MANAGEMENT
The Income Funds' investment adviser is Shawmut Bank, N.A., which makes
investment decisions for the Income Funds.
SHAREHOLDER SERVICES
When you become a shareholder, you can easily obtain information about your
account by calling 1-800-SHAWMUT.
THE SHAWMUT INCOME FUNDS
SUMMARY OF INCOME FUND EXPENSES
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CONNECTICUT INTERMEDIATE LIMITED MASSACHUSETTS
INTERMEDIATE FIXED GOVERNMENT TERM INTERMEDIATE
MUNICIPAL INCOME INCOME INCOME MUNICIPAL
INCOME FUND* FUND FUND FUND INCOME FUND*
-------------- ------- ------------- -------- --------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering
price)............................... 2.00% 2.00% 2.00% 2.00% 2.00%
Maximum Sales Load Imposed--
on Reinvested Dividends (as a
percentage of offering price)........ None None None None None
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds as applicable).............. None None None None None
Redemption Fee (as a percentage of
amount redeemed, if applicable)...... None None None None None
Exchange Fee........................... None None None None None
</TABLE>
* Connecticut Intermediate Municipal Income Fund and Massachusetts Intermediate
Municipal Income Fund currently sell their shares without class designation.
Purchasers of either the Trust Shares or Investment Shares of the other Shawmut
Funds may purchase shares of Connecticut Intermediate Municipal Income Fund and
Massachusetts Intermediate Municipal Income Fund.
<TABLE>
<S> <C> <C> <C> <C> <C>
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)....... 0.00% 0.60% 0.60% 0.60% 0.00%
12b-1 Fees(2).......................... 0.00% 0.25% 0.25% 0.25% 0.00%
Total Other Expenses (after waiver and
reimbursement)(3).................... 0.50% 0.31% 0.34% 0.38% 0.50%
Total Investment Shares Operating
Expenses (after waivers and
reimbursement)(4).................... 0.50% 1.16% 1.19% 1.23% 0.50%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is .70% for
Connecticut Intermediate Municipal Income Fund and Massachusetts
Intermediate Municipal Income Fund; and 0.80% for Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Fund.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver by the
distributor. As of the date of this prospectus, neither the Connecticut
Intermediate Municipal Income Fund nor the Massachusetts Intermediate
Municipal Income Fund intend to accrue or pay 12b-1 fees until either a
separate class of shares has been created for certain fiduciary investors
for these portfolios or a determination is made that such investors will be
subject to the 12b-1 fees. The Income Funds can pay up to 0.50% as a 12b-1
fee to the distributor.
(3) Estimated other expenses have been reduced to reflect the voluntary waiver
by the custodian and the voluntary reimbursement of expenses by the
investment adviser for the Connecticut Intermediate Municipal Income Fund
and the Massachusetts Intermediate Municipal Income Fund.
(4) The Annual Investment Shares Operating Expenses for the fiscal year ended
October 31, 1993 were 0.50% for the Connecticut Intermediate Municipal
Income Fund and the Massachusetts Intermediate Municipal Income Fund; 1.12%
for the Fixed Income Fund; 1.15% for the Intermediate Government Income
Fund; and 1.13% for the Limited Term Income Fund. The Annual Investment
Share Operating Expenses in the above table are based on expenses expected
during fiscal year ending October 31, 1994. Absent the anticipated voluntary
waivers and reimbursement explained in the above footnotes, the Investment
Shares Operating Expenses are estimated to be 1.83% for the Connecticut
Intermediate Municipal Income Fund, 2.81% for the Massachusetts Intermediate
Municipal Income Fund; 1.61% for the Fixed Income Fund; 1.64% for the
Intermediate Government Income Fund; and 1.68% for the Limited Term Income
Fund.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT SHARES WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "THE SHAWMUT FUNDS INFORMATION" AND "INVESTING IN INVESTMENT
SHARES." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO
ADDITIONAL FEES.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period. As noted in the
table above, the Income Funds charges no redemption fee.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Connecticut Intermediate Municipal Income Fund.......... $25 $36 $47 $ 82
Fixed Income Fund....................................... $32 $56 $83 $158
Intermediate Government Income Fund..................... $32 $57 $84 $161
Limited Term Income Fund................................ $32 $58 $86 $166
Massachusetts Intermediate Municipal Income Fund........ $25 $36 $47 $ 82
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Investment Shares of the Income Funds. Fixed Income Fund, Intermediate
Government Income Fund, and Limited Term Income Fund also offer another class of
shares called Trust Shares. Trust Shares and Investment Shares are subject to
certain of the same expenses; however, Investment Shares are subject to a 12b-1
fee of up to .50 of 1%. See "Other Classes of Shares."
SHAWMUT CONNECTICUT
INTERMEDIATE MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table, is included in the Annual Report, which is incorporated by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1993*
-----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------
Net investment income 0.13
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.24
- ------------------------------------------------------------------------------ -----------
Total from investment operations 0.37
- ------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.13)
- ------------------------------------------------------------------------------ -----------
NET ASSET VALUE, END OF PERIOD $ 10.24
- ------------------------------------------------------------------------------ -----------
TOTAL RETURN** 3.75%
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------
Expenses 0.50%(a)
- ------------------------------------------------------------------------------
Net investment income 3.80%(a)
- ------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 2.33%(a)
- ------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $7,288
- ------------------------------------------------------------------------------
Portfolio turnover rate 8%
- ------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from June 17, 1993 (date of initial public
investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
SHAWMUT FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- ----------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.55
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.55
- --------------------------------------------------------------------------------------------- ------
Total from investment operations 1.10
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.55)
- --------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.55
- --------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 11.26%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 0.85%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 6.06%(a)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.22%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $92,485
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 33%
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- ----------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.23
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.40
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.31
- --------------------------------------------------------------------------------------------- ------
Total from investment operations 0.71
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.39)
- --------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.55
- --------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 7.02%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 1.12%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 5.61%(a)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.48%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $9,550
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 33%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
(c) Represents portfolio turnover rate for the entire Fund.
SHAWMUT INTERMEDIATE GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- ----------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.52
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.26
- --------------------------------------------------------------------------------------------- ------
Total from investment operations 0.78
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.52)
- --------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.26
- --------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 7.97%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 0.88%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 5.83%(a)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.26%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $62,399
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 30%
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- ----------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.18
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.37
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.08
- --------------------------------------------------------------------------------------------- ------
Total from investment operations 0.45
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.37)
- --------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.26
- --------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 4.45%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 1.15%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 5.41%(a)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.50%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $13,812
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 30%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
(c) Represents portfolio turnover rate for the entire Fund.
SHAWMUT LIMITED TERM INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- ----------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.49
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.00
- --------------------------------------------------------------------------------------------- ------
Total from investment operations 0.49
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.49)
- --------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.00
- --------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 5.02%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 0.88%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 5.54%(a)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.23%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $66,998
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 53%
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- ----------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.09
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.34
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.09)
- --------------------------------------------------------------------------------------------- ------
Total from investment operations 0.25
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.34)
- --------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.00
- --------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 2.57%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 1.13%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 5.07%(a)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.48%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $3,859
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 53%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
(c) Represents portfolio turnover rate for the entire Fund.
SHAWMUT MASSACHUSETTS
INTERMEDIATE MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table, is included in the Annual Report, which is incorporated by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1993*
------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.14
- ------------------------------------------------------------------------
Net unrealized gain (loss) on investments 0.29
-----
- ------------------------------------------------------------------------
Total from investment operations 0.43
- ------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.13)
-----
- ------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.30
-----
- ------------------------------------------------------------------------
TOTAL RETURN** 4.35%
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.50%(a)
- ------------------------------------------------------------------------
Net investment income 4.07%(a)
- ------------------------------------------------------------------------
Expense waiver/reimbursement (b) 3.57%(a)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $4,009
- ------------------------------------------------------------------------
Portfolio turnover rate 0%
- ------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from June 17, 1993 (date of initial public
investment) to October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated July 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
As of the date of this prospectus, the Board of Trustees (the "Trustees") has
established two classes of shares of several of the Income Funds, known as Trust
Shares and Investment Shares. This prospectus relates only to Investment Shares
of the Income Funds that offer separate classes of shares.
A minimum initial investment of $1,000 may be required. Subsequent investments
must be in amounts of at least $100, as described in this prospectus in the
section entitled "Minimum Investment Required," or $50 for participants in the
Systematic Investment Program. Shares are currently sold at net asset value with
a sales charge imposed by the Income Funds, as described in this prospectus.
THE SHAWMUT FUNDS
The shareholders of the Income Funds are shareholders of The Shawmut Funds,
which currently consist of Shawmut Connecticut Intermediate Municipal Income
Fund, Shawmut Connecticut Municipal Money Market Fund, Shawmut Fixed Income
Fund, Shawmut Growth and Income Equity Fund, Shawmut Growth Equity Fund, Shawmut
Intermediate Government Income Fund, Shawmut Limited Term Income Fund, Shawmut
Massachusetts Intermediate Municipal Income Fund, Shawmut Massachusetts
Municipal Money Market Fund, Shawmut Prime Money Market Fund, and Shawmut Small
Capitalization Equity Fund. Shareholders in the Income Funds have easy access to
the other portfolios of The Shawmut Funds through an exchange program. The
Shawmut Funds are advised by Shawmut Bank, N.A., and distributed by Federated
Securities Corp.
OBJECTIVE AND POLICIES OF EACH FUND
CONNECTICUT INTERMEDIATE
MUNICIPAL INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Connecticut Intermediate Municipal Income Fund
is current income which is exempt from federal income tax and Connecticut state
income tax. The investment objective cannot be changed without approval of
shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE CONNECTICUT INTERMEDIATE MUNICIPAL INCOME FUND PURSUES ITS INVESTMENT
OBJECTIVE BY INVESTING PRIMARILY IN A PORTFOLIO OF CONNECTICUT MUNICIPAL
SECURITIES.
- ------------------------------------------------------
The investment policies may be changed by the Trustees without the approval of
shareholders. Shareholders will be notified before any material change in these
investment policies becomes effective. As a matter of investment policy, which
may not be changed without shareholder
approval, the Connecticut Intermediate Municipal Income Fund will invest its
assets so that, under normal circumstances, at least 80% of its annual interest
income is exempt from federal income tax or that at least 80% of the total value
of its assets are invested in obligations the interest income from which is
exempt from federal income tax.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Connecticut Intermediate Municipal Income Fund
will invest its assets so that at least 65% of the value of its total assets
will be invested in debt obligations issued by or on behalf of the State of
Connecticut and its political subdivisions and financing authorities, and
obligations of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal income tax and Connecticut state income tax
imposed upon non-corporate taxpayers ("Connecticut Municipal Securities"). The
Connecticut Intermediate Municipal Income Fund will maintain a dollar-weighted
average maturity of between three to ten years. The Connecticut Municipal
Securities in which the Connecticut Intermediate Municipal Income Fund invests
are subject to the following quality standards:
- - rated Baa or above by Moody's Investor Service, Inc. ("Moody's") or BBB or
above by Standard & Poor's Corporation ("Standard & Poor's") or Fitch
Investors Service, Inc. ("Fitch"). A description of the rating categories is
contained in the Appendix to the Statement of Additional Information; or
- - insured by a municipal bond insurance company which is rated Aaa by Moody's or
AAA by Standard & Poor's or Fitch; or
- - guaranteed at the time of purchase by the U.S. government as to the payment of
principal and interest; or
- - fully collateralized by an escrow of U.S. government securities; or
- - unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Fund's investment adviser; or
- - are appropriately rated derivative securities.
The description of the rating categories applicable to the Fund's acceptable
investments are fully described in the Appendix to the statement of additional
information.
FIXED INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Fixed Income Fund is current income consistent
with total return. The investment objective cannot be changed without approval
of shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE FIXED INCOME FUND PURSUES ITS INVESTMENT OBJECTIVE BY INVESTING
PRIMARILY IN A PORTFOLIO OF INVESTMENT GRADE NOTES AND BONDS AND U.S.
GOVERNMENT SECURITIES.
- ------------------------------------------------------
The investment policies may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Fixed Income Fund will invest at least 65% of
the total value of its assets in fixed income securities. The securities in
which the Fixed Income Fund invests include, but are not limited to:
- - direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes,
and bonds;
- - obligations of U.S. government agencies or instrumentalities such as Federal
Home Loan Banks, Federal National Mortgage Association, Government National
Mortgage Association, Federal Farm Credit Land Banks, Student Loan Marketing
Association, or Federal Home Loan Mortgage Corporation;
- - domestic issues of corporate debt obligations having floating or fixed rates
of interest and rated in one of the five highest categories by a nationally
recognized statistical rating organization [rated Aaa, Aa, A, Baa, or Ba by
Moody's or AAA, AA, A, BBB, or BB by Standard & Poor's or Fitch], or which are
of comparable quality in the judgment of the adviser;
- - commercial paper rated Prime-1 or Prime-2 by Moody's, A-1 or A-2 by Standard &
Poor's, or F-1 or F-2 by Fitch;
- - asset-backed securities rated BBB or higher by a nationally recognized
statistical rating organization, which may include, but are not limited to,
interests in pools of receivables such as motor vehicle installment purchase
obligations and credit card receivables, and mortgage-related asset-backed
securities;
- - repurchase agreements collateralized by eligible investments; and
- - certain derivative securities.
INTERMEDIATE GOVERNMENT
INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Intermediate Government Income Fund is current
income consistent with total return. The investment objective cannot be changed
without approval of shareholders. While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
INVESTMENT POLICIES
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THE INTERMEDIATE GOVERNMENT INCOME FUND PURSUES ITS INVESTMENT OBJECTIVE BY
INVESTING IN A PORTFOLIO OF INVESTMENT GRADE BONDS AND NOTES AND U.S.
GOVERNMENT SECURITIES.
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The Intermediate Government Income Fund will maintain a dollar-weighted average
maturity of between three to ten years. For purposes of computing average
maturity, the Intermediate Government Income Fund considers the market accepted
average life of the assets of the Fund. Market accepted average life considers
the anticipated prepayment or call of underlying securities that might influence
stated maturity. The investment policies may be changed by the Trustees without
the approval of shareholders. Shareholders will be notified before any material
change in these investment policies becomes effective.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Intermediate Government Income Fund will invest
at least 65% of the total value of its assets in U.S. government securities. The
securities in which the Intermediate Government Income Fund invests include, but
are not limited to:
- - direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes,
and bonds;
- - obligations of U.S. government agencies or instrumentalities such as Federal
Home Loan Banks, Federal National Mortgage Association, Government National
Mortgage Association, Federal Farm Credit Banks, Student Loan Marketing
Association, or Federal Home Loan Mortgage Corporation;
- - domestic issues of corporate debt obligations having floating or fixed rates
of interest and rated in one of the five highest categories by a nationally
recognized statistical rating organization [rated Aaa, Aa, A, Baa, or Ba by
Moody's or AAA, AA, A, BBB, or BB by Stan-
dard & Poor's or Fitch], or which are of comparable quality in the judgment of
the adviser;
- - asset-backed securities rated BBB or higher by a nationally recognized
statistical rating organization, which may include, but are not limited to,
interests in pools of receivables such as motor vehicle installment purchase
obligations and credit card receivables, and mortgage-related asset-backed
securities;
- - repurchase agreements collateralized by eligible investments; and
- - certain derivative securities.
LIMITED TERM INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Limited Term Income Fund is current income
consistent with low principal volatility and total return. The investment
objective cannot be changed without approval of shareholders. While there is no
assurance that the Limited Term Income Fund will achieve its investment
objective, it endeavors to do so by following the investment policies described
in this prospectus.
INVESTMENT POLICIES
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THE LIMITED TERM INCOME FUND PURSUES ITS INVESTMENT OBJECTIVE BY INVESTING
PRIMARILY IN A PORTFOLIO OF INVESTMENT GRADE BONDS AND NOTES AND U.S.
GOVERNMENT SECURITIES.
- ------------------------------------------------------
The Limited Term Income Fund will maintain a dollar-weighted average maturity of
three years or less. For purposes of computing average maturity, the Limited
Term Income Fund considers the market accepted average life of the assets of the
Fund. Market accepted average life considers the anticipated prepayment or call
of underlying securities that might influence stated maturity. The investment
policies described above may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
investment policies becomes effective.
ACCEPTABLE INVESTMENTS
Under normal circumstances, the Limited Term Income Fund will invest at least
65% of the total value of its assets in income producing securities. The
securities in which the Limited Term Income Fund invests include, but are not
limited to:
- - direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes,
and bonds;
- - obligations of U.S. government agencies or instrumentalities such as Federal
Home Loan Banks, Federal National Mortgage Association, Government National
Mortgage Association, Federal Farm Credit Banks, Student Loan Marketing
Association, or Federal Home Loan Mortgage Corporation;
- - domestic issues of corporate debt obligations having floating or fixed rates
of interest and rated in one of the five highest categories by a nationally
recognized statistical rating organization [rated Aaa, Aa, A, Baa, or Ba by
Moody's or AAA, AA, A, BBB, or BB by Standard & Poor's or Fitch], or which are
of comparable quality in the judgment of the adviser;
- - commercial paper rated Prime-1 or Prime-2 by Moody's, A-1 or A-2 by Standard &
Poor's, or F-1 or F-2 by Fitch;
- - asset-backed securities rated BBB or higher by a nationally recognized
statistical rating organization, which may include, but are not limited to,
interests in pools of receivables such as motor vehicle installment purchase
obligations and credit card receivables, and mortgage-related asset-backed
securities;
- - repurchase agreements collateralized by eligible investments; and
- - certain derivative securities.
MASSACHUSETTS INTERMEDIATE
MUNICIPAL INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Massachusetts Intermediate Municipal Income Fund
is current
income which is exempt from federal income tax and income taxes imposed by the
Commonwealth of Massachusetts. The investment objective cannot be changed
without approval of shareholders. While there is no assurance that the
Massachusetts Intermediate Municipal Income Fund will achieve its investment
objective, it endeavors to do so by following the investment policies described
in this prospectus.
INVESTMENT POLICIES
- ------------------------------------------------------
THE MASSACHUSETTS INTERMEDIATE MUNICIPAL INCOME FUND PURSUES ITS INVESTMENT
OBJECTIVE BY INVESTING PRIMARILY IN A PORTFOLIO OF MASSACHUSETTS MUNICIPAL
SECURITIES.
- ------------------------------------------------------
The investment policies may be changed by the Trustees without the approval of
shareholders. Shareholders will be notified before any material change in these
investment policies becomes effective. As a matter of investment policy, which
may not be changed without shareholder approval, the Massachusetts Intermediate
Municipal Income Fund will invest its assets so that, under normal
circumstances, at least 80% of its annual interest income is exempt from federal
income tax or that at least 80% of the total value of its assets are invested in
obligations the interest income from which is exempt from federal income tax.
ACCEPTABLE INVESTMENTS. Under normal circumstances, the Massachusetts
Intermediate Municipal Income Fund will invest its assets so that at least 65%
of the value of its total assets will be invested in debt obligations issued by
or on behalf of the Commonwealth of Massachusetts and its political subdivisions
and financing authorities, and obligations of other states, territories and
possessions of the United States, including the District of Columbia, and any
political subdivision or financing authority of any of these, the income from
which is, in the opinion of qualified legal counsel, exempt from federal income
tax and Massachusetts state income tax imposed upon non-corporate taxpayers
("Massachusetts Municipal Securities"). The Massachusetts Intermediate Municipal
Income Fund will maintain a dollar-weighted average maturity of between three to
ten years. The Massachusetts Municipal Securities in which the Fund invests are
subject to the following quality standards:
- - rated Baa or above by Moody's or BBB or above by Standard & Poor's or Fitch. A
description of the rating categories is contained in the Appendix to the
Statement of Additional Information; or
- - insured by a municipal bond insurance company which is rated Aaa by Moody's or
AAA by Standard & Poor's or Fitch; or
- - guaranteed at the time of purchase by the U.S. government as to the payment of
principal and interest; or
- - fully collateralized by an escrow of U.S. government securities; or
- - unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Fund's investment adviser; or
- - are appropriately rated derivative securities.
INCOME FUNDS INVESTMENTS AND STRATEGIES
U.S. GOVERNMENT SECURITIES. Some obligations issued or guaranteed by agencies or
instrumentalities of the U.S. government, such as Government National Mortgage
Association participation certificates, are backed by the full faith and credit
of the U.S. Treasury. No assurances can be given that the U.S. government will
provide financial support to other agencies or instrumentalities, since it is
not obligated to do so. These instrumentalities are supported by:
- - the issuer's right to borrow an amount limited to a specific line of credit
from the U.S. Treasury;
- - discretionary authority of the U.S. government to purchase certain obligations
of an agency or instrumentality; or
- - the credit of the agency or instrumentality.
CORPORATE DEBT OBLIGATIONS. The Fixed Income Fund, Intermediate Government
Income Fund, and Limited Term Income Fund may invest in corporate debt
obligations, including corporate bonds, notes, and debentures, which may have
floating or fixed rates of interest. Fixed Income Fund, Intermediate Government
Income Fund, and Limited Term Income Fund will not invest in corporate debt
obligations that are rated lower than Baa by Moody's or BBB by Standard & Poor's
or Fitch, except that each of these Funds may invest up to 10% of the value of
their respective total assets in corporate debt obligations rated "Ba" or "BB"
so long as not more than 1% of each respective Fund's total assets is invested
in the Ba-rated or BB-rated obligations of a single issuer. Bonds rated Baa by
Moody's or BBB by Standard & Poor's or Fitch are considered medium grade
obligations and are regarded as having an adequate capacity to pay interest and
repay principal. They are neither highly protected nor poorly secured, but lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Debt rated Ba by Moody's or BB by Standard & Poor's or
Fitch are judged to have speculative elements; their future can not be
considered as well assured. They face major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The rating
may also be used for debt subordinated to senior debt that is assigned an actual
or implied "Baa" or "BBB" rating, and may include obligations convertible into
equity investments. If a security loses its rating or has its rating reduced
after the Fund has purchased it, the Fund is not required to sell or otherwise
dispose of the security, but may consider doing so. If ratings made by Moody's
or Standard & Poor's change because of changes in those organizations or in
their ratings systems, the Fund will attempt to obtain comparable ratings as
substitute standards in accordance with the investment policies of the Fund.
FLOATING RATE CORPORATE DEBT OBLIGATIONS. Fixed Income Fund, Intermediate
Government Income Fund, and Limited Term Income Fund expect to invest in
floating rate corporate debt obligations. Floating rate securities are
generally offered at an initial interest rate which is at or above prevailing
market rates. The interest rate paid on these securities is then reset
periodically (commonly every 90 days) to an increment over some predetermined
interest rate index. Commonly utilized indices include the three-month
Treasury bill rate, the 180-day Treasury bill rate, the one-month or
three-month London Interbank Offered Rate (LIBOR), the prime rate of a bank,
the commercial paper rates, or the longer-term rates on U.S. Treasury
securities.
FIXED RATE CORPORATE DEBT OBLIGATIONS. Fixed Income Fund, Intermediate
Government Income Fund, and Limited Term Income Fund may also invest in fixed
rate securities, including fixed rate securities with short-term
characteristics. Fixed rate securities with short-term characteristics are
long-term debt obligations, but are treated in the market as having short
maturities because call features of the securities may make them callable
within a short period of time. A fixed rate security with short-term
characteristics would include a fixed income security priced close to call or
redemption price or a fixed income security approaching maturity, where the
expectation of call or redemption is high.
ASSET-BACKED SECURITIES. Fixed Income Fund, Intermediate Government Income Fund,
and Limited Term Income Fund. Asset-backed securities which are created by the
grouping of certain governmental, government-related, and private loans,
receivables and other lender assets, including vehicle installment purchase
obligations and credit card receivables, into pools. Interests in these pools
are sold as individual securities and are not backed or guaranteed by the U.S.
government. These securities differ from
other forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal paid at maturity or specified call
dates. Asset-backed securities, however, provide periodic payments which
generally consist of both interest and principal payments. The estimated average
life of an asset-backed security and the average maturity of a portfolio
including such assets varies with the prepayment experience with respect to the
underlying debt instruments. The credit characteristics of asset-backed
securities also differ in a number of respects from those of traditional debt
securities.
The credit quality of most asset-backed securities depends primarily upon the
credit quality of the assets underlying such securities, how well the entity
issuing the securities is insulated from the credit risk of the originator or
any other affiliated entities, and the amount and quality of any credit support
provided to such securities. Fixed Income Fund, Intermediate Government Income
Fund, and Limited Term Income Fund will not invest in asset-backed securities
that are rated lower than Baa by Moody's or BBB by Standard & Poor's or Fitch.
Fixed Income Fund, Intermediate Government Income Fund, and Limited Term Income
Fund may also invest in mortgage-related asset-backed securities which are
issued by private entities such as investment banking firms and companies
related to the construction industry. The mortgage-related securities in which
Fixed Income Fund, Intermediate Government Income Fund, and Limited Term Income
Fund may invest may be: (i) privately issued securities which are collateralized
by pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S. government;
(ii) privately issued securities which are collateralized by pools of mortgages
in which payment of principal and interest are guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; (iii) privately
issued securities in which the proceeds of the issuance are invested in
mortgage-backed securities and payment of the principal and interest is
supported by the credit of any agency or instrumentality of the U.S. government;
or (iv) other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securi ties and payment of the principal and
interest is guaranteed or supported by the credit of a non-governmental entity,
including corporations. The mortgage-related securities provide for a periodic
payment consisting of both interest and principal. The interest portion of these
payments will be distributed by Fixed Income Fund, Intermediate Government
Income Fund, and Limited Term Income Fund as income, and the capital portion
will be reinvested.
While mortgage-related securities generally entail less risk of a decline during
periods of rapidly rising interest rates, mortgage-related securities may also
have less potential for capital appreciation than other similar investments
(e.g., investments with comparable maturities) because as interest rates
decline, the likelihood increases that mortgages will be prepaid. Furthermore,
if mortgage-related securities are purchased at a premium, mortgage foreclosures
and unscheduled principal payments may result in some loss of a holder's
principal investment to the extent of the premium paid. Conversely, if
mortgage-related securities are purchased at a discount, both a scheduled
payment of principal and an unscheduled prepayment of principal would increase
current and total returns and would accelerate the recognition of income, which
would be taxed as ordinary income when distributed to shareholders.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its investment
adviser, prevailing market conditions warrant, Fixed Income Fund, Intermediate
Government Income Fund, and Limited Term Income Fund may, for temporary
defensive purposes, invest in:
- - short-term money market instruments rated in one of the top two rating
categories by a nationally recognized statistical rating organization;
- - securities issued and/or guaranteed as to payment of principal and interest by
the U.S. government, its agencies, or instrumentalities; and
- - repurchase agreements.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Income Funds may lend portfolio securities, on a short-term or long-term basis
or both, up to one-third of the value of its total assets to broker/dealers,
banks, or other institutional borrowers of securities. The Income Funds will
only enter into loan arrangements with broker/dealers, banks, or other
institutions which the investment adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned.
DERIVATIVE SECURITIES. Each of the Income Funds may invest up to 20% of the
market value of the Fund's total assets in the derivative securities described
below.
OPTIONS AND FUTURES CONTRACTS. The Income Funds may buy and sell options and
futures contracts to manage their respective individual exposure to changing
interest rates, security prices, and currency exchange rates. Some options
and futures strategies, including selling futures, buying puts, and writing
calls, tend to hedge the Income Funds' respective investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the
risk and return characteristics of the overall strategy. The Income Funds may
invest in options and futures based on any type of security, index, or
currency, including options and futures traded on foreign exchanges and
options not traded on exchanges.
Options and futures can be volatile investments, and involve certain risks.
If the investment adviser applies a hedge at an inappropriate time or judges
market conditions incorrectly, options and futures may lower an Income Fund's
individual return. An Income Fund could also experience losses if the prices
of its options and futures positions were poorly correlated with its other
investments, or if it could not close out its positions because of an
illiquid secondary market.
Each of the Income Funds will not hedge more than 20% of their respective
total assets by selling futures, buying puts, and writing calls under normal
conditions. In addition, each of the Income Funds will not buy futures or
write puts whose underlying value exceeds 20% of their respective total
assets, and the Income Funds will not buy calls with a value exceeding 5% of
their respective total assets.
INDEXED SECURITIES. The Income Funds may invest in indexed securities, sold
by brokers or dealers or other financial institutions (such as commercial
banks) deemed creditworthy by the Income Fund's adviser, whose value is
linked to foreign currencies, interest rates, commodities, indices, or other
financial indicators. Most indexed securities are short to intermediate term
fixed-income securities whose values at maturity or interest rates rise or
fall according to the change in one or more specified underlying instruments.
Indexed securities may be positively or negatively indexed (i.e., their value
may increase or decrease if the underlying instrument appreciates), and may
have return characteristics similar to direct investments in the underlying
instrument or to one or more options on the underlying instrument. Indexed
securities may be more volatile than the underlying instrument itself. Each
of the Income Funds intends to invest not more than 5% of the market value of
the Fund's total assets in indexed securities.
SWAP AGREEMENTS. As one way of managing its exposure to different types of
investments,
each of the Income Funds may enter into interest rate swaps, currency swaps,
and other types of swap agreements such as caps, collars, and floors.
Depending on how they are used, swap agreements may increase or decrease the
overall volatility of the Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve
a small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on an
Income Fund's performance. Swap agreements are subject to risks related to
the counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. An Income Fund may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions. When an Income Fund enters into a
swap agreement, assets of the Fund equal to the value of the swap agreement
will be segregated by the Fund. Each of the Income Funds intends to invest
not more than 5% of the market value of the Fund's total assets in swap
agreements.
REPURCHASE AGREEMENTS. The U.S. government securities and other securities in
which each Income Fund invests may be purchased pursuant to repurchase
agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to an Income fund and agrees at the time of sale
to repurchase them at a mutually agreed upon time and price. To the extent that
the original seller does not repurchase the securities from an Income Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.
RESTRICTED AND ILLIQUID SECURITIES. The Income Funds intend to invest in
restricted securities. Restricted securities are any securities in which the
Income Funds may otherwise invest pursuant to its investment objective and
policies but which are subject to restriction on resale under federal securities
law. However, the Income Funds will limit investments in illiquid securities,
including certain restricted securities not determined by the Trustees to be
liquid, non-negotiable time deposits, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Income Funds may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which each Income Fund purchase securities with payment and
delivery scheduled for a future time. In when-issued and delayed delivery
transactions, the Income Funds rely on the seller to complete the transaction.
The seller's failure to complete the transaction may cause the Income Funds to
miss a price or yield considered to be advantageous.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Income Funds may
invest in the securities of other investment companies, but they will not own
more than 3% of the total outstanding voting stock of any investment company,
invest more than 5% of its total assets in any one investment company, or invest
more than 10% of its total assets in investment companies in general. The Income
Funds will invest in other investment companies primarily for the purpose of
investing its short-term cash which has not yet been invested in other portfolio
instruments. However, from time to time, on a temporary basis, the Income Funds
may invest exclusively in a single other similarly managed investment company.
Shareholders should realize that, when these funds invest in other investment
companies, certain fund expenses, such as custodian fees and administrative
fees, may be duplicated. The adviser will waive its investment advisory fee on
assets invested in securities of other investment companies.
The following acceptable investments apply only to the CONNECTICUT INTERMEDIATE
MUNICIPAL INCOME FUND and MASSACHUSETTS INTERMEDIATE MUNICIPAL INCOME FUND
(referred to
jointly as the "Connecticut/Massachusetts Intermediate Municipal Income Funds"):
PARTICIPATION INTERESTS. The Connecticut/Massachusetts Intermediate Municipal
Income Funds may purchase interests in Connecticut and Massachusetts Municipal
Securities, respectively, from financial institutions such as commercial and
investment banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a trust,
partnership interests or any other form of indirect ownership that allows the
Connecticut/Massachusetts Intermediate Municipal Income Funds to treat the
income from the investment as exempt from federal income tax.
The Connecticut/Massachusetts Intermediate Municipal Income Funds invest in
these participation interests in order to obtain credit enhancement or demand
features that would not be available through direct ownership of the underlying
Municipal Securities.
MUNICIPAL LEASES. The Connecticut/Massachusetts Intermediate Municipal Income
Funds may invest in municipal leases. Municipal leases are obligations issued by
state and local governments or authorities to finance the acquisition of
equipment and facilities and may be considered to be illiquid. They may take the
form of a lease, an installment purchase contract, a conditional sales contract,
or a participation certificate in any of the above.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term Municipal
Securities that have variable or floating interest rates and provide the
Connecticut/Massachusetts Intermediate Municipal Income Funds with the right to
tender the security for repurchase at its stated principal amount plus accrued
interest. The interest rate may float or be adjusted at regular intervals
(ranging from daily to annually) and is normally based on a municipal interest
index or a stated percentage of a prime rate or another published interest rate
or interest rate index. Most variable rate demand notes allow the
Connecticut/Massachusetts Intermediate Municipal Income Funds to demand the
repurchase of the security on not more than seven days prior notice. Other notes
only permit the Connecticut/Massachusetts Intermediate Municipal Income Funds to
tender the security at the time of each interest rate adjustment or at other
fixed intervals. The Connecticut/Massachusetts Intermediate Municipal Income
Funds treat variable rate demand notes as maturing on the later of the date of
the next interest adjustment or the date on which the Connecticut/Massachusetts
Intermediate Municipal Income Funds may next tender the security for repurchase.
TENDER OPTION BONDS AND ZERO COUPON SECURITIES. The Connecticut/Massachusetts
Intermediate Municipal Income Funds may purchase tender option bonds and similar
securities. A tender option bond generally has a long maturity and bears
interest at a fixed rate substantially higher than prevailing short-term tax-
exempt rates, and is coupled with an agreement by a third party, such as a bank,
broker-dealer, or other financial institution, pursuant to which such
institution grants the security holders the option, usually upon not more than
seven days notice or at periodic intervals, to tender their securities to the
institution and receive the face value of the security. In providing the option,
the financial institution receives a fee that reduces the fixed rate of the
underlying bond and results in the Connecticut/Massachusetts Intermediate
Municipal Income Funds effectively receiving a demand obligation that bears
interest at the prevailing short-term tax exempt rate. The
Connecticut/Massachusetts Intermediate Municipal Income Funds' adviser will
monitor, on an ongoing basis, the creditworthiness of the issuer of the tender
option bond, the financial institution providing the option, and any custodian
holding the underlying long-term bond. The bankruptcy, receivership, or default
of any of the parties to the tender option bond will adversely affect the
quality and marketability of the security.
The Connecticut/Massachusetts Intermediate Municipal Income Funds may also
invest in zero coupon securities, which are debt securities is-
sued or sold at a discount from their face value. These securities do not
entitle the holder to any periodic payments of interest prior to maturity. The
discount from face value of these securities depends upon various factors,
including: the time remaining until maturity or cash payment date, prevailing
interest rates, the liquidity of the security, and the perceived credit quality
of the issuer. Zero coupon securities may also take the form of debt securities
that have been stripped of their unmatured interest coupons. The market value of
zero coupon securities is generally more volatile, and is more likely to react
to changes in interest rates, than the market value of interest-bearing
securities with similar maturities and credit qualities.
SYNTHETIC BOND DERIVATIVES. The Connecticut/Massachusetts Intermediate Municipal
Income Funds may invest its assets in derivative securities that provide the
Connecticut/Massachusetts Intermediate Municipal Income Funds with tax-exempt
income. These securities are formed when an investment bank acquires all or part
of a fixed rate municipal bond and divides it into two classes of variable rate
securities. One of these classes of securities provides investors with a source
of short-term, variable rate, tax-exempt income that is determined through an
auction mechanism. The other class of security is sold as a residual rate
security, which has a long duration and also offers a source of tax-exempt
income. There is an inverse relationship between the rate of interest income
paid between the two classes of securities. This means that the holder of the
short-term security may receive interest income that is greater than, or less
than, the coupon rate of the underlying fixed rate bond, and that the holder of
the residual security would, for the same period, receive a rate of return that
is less than, or greater than, as the case may be, the bond's coupon rate.
TEMPORARY INVESTMENTS. The Connecticut/ Massachusetts Intermediate Municipal
Income Funds normally invest their assets so that at least 80% of their annual
interest income is exempt from federal income tax or that at least 80% of the
total value of their assets are invested in obligations the interest income from
which is exempt from federal income tax. At least 65% of the value of the
Connecticut Intermediate Municipal Income Fund's total assets will be invested
in Connecticut Municipal Securities. At least 65% of the value of Massachusetts
Intermediate Municipal Income Fund's total assets will be invested in
Massachusetts Municipal Securities.
However, from time to time on a temporary basis, when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Connecticut/Massachusetts Intermediate Municipal Income Funds may invest in
short-term tax-exempt or taxable temporary investments. These temporary
investments include: shares of similarly managed mutual funds; notes issued by
or on behalf of municipal or corporate issuers; obligations issued or guaranteed
by the U.S. government, its agencies, or instrumentalities; other debt
securities; commercial paper; certificates of deposit of banks; and repurchase
agreements (arrangements in which the organization selling the
Connecticut/Massachusetts Intermediate Municipal Income Funds a bond or
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those it considers to
be of good quality.
Although the Connecticut/Massachusetts Intermediate Municipal Income Funds are
permitted to make taxable, temporary investments, there is no current intention
of generating income that is not predominantly exempt from federal income tax or
state income tax.
CONNECTICUT AND MASSACHUSETTS MUNICIPAL SECURITIES. Connecticut and
Massachusetts Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control, and sewer works.
They are also issued to repay outstanding obligations, to raise funds for
general operating expenses, and to make loans to other public institutions and
facilities.
Connecticut and Massachusetts Municipal Securities include industrial
development bonds issued by or on behalf of public authorities to provide
financing aid to acquire sites or construct and equip facilities for privately
or publicly owned corporations. The availability of this financing encourages
these corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
MUNICIPAL BOND INSURANCE. The Connecticut/ Massachusetts Intermediate Municipal
Income Funds may purchase Connecticut and Massachusetts Municipal Securities
covered by insurance which guarantees the timely payment of principal at
maturity and interest on such securities. These insured Connecticut and
Massachusetts Municipal Securities are either (1) covered by an insurance policy
applicable to a particular security, whether obtained by the issuer of the
security or by a third party ("Issuer-Obtained Insurance") or (2) insured under
master insurance policies issued by municipal bond insurers, which may be
purchased by the Connecticut/Massachusetts Intermediate Municipal Income Funds.
The Connecticut/Massachusetts Intermediate Municipal Income Funds may require or
obtain municipal bond insurance when purchasing or holding specific Connecticut
and Massachusetts Municipal Securities when, in the opinion of the
Connecticut/Massachusetts Intermediate Municipal Income Funds' investment
adviser, such insurance would benefit the Connecticut/ Massachusetts
Intermediate Municipal Income Funds, for example, through improvement of
portfolio quality or increased liquidity of certain securities.
Issuer-Obtained Insurance policies are noncancellable and continue in force as
long as the Connecticut and Massachusetts Municipal Securities are outstanding
and their respective insurers remain in business. If a Connecticut or
Massachusetts Municipal Security is covered by Issuer-Obtained Insurance, then
such security need not be insured by the policies purchased by the
Connecticut/Massachusetts Intermediate Municipal Income Funds.
The Connecticut/Massachusetts Intermediate Municipal Income Funds may purchase
two types of policies issued by municipal bond insurers. One type of policy
covers certain Connecticut and Massachusetts Municipal Securities only during
the period in which they are in the Connecticut/Massachusetts Intermediate
Municipal Income Funds' portfolios. In the event that a Connecticut or
Massachusetts Municipal Security covered by such a policy is sold from the
Connecticut/Massachusetts Intermediate Municipal Income Funds, the insurer of
the relevant policy will be liable only for those payments of interest and
principal which are due and owing at the time of sale.
The other type of policy covers Connecticut and Massachusetts Municipal
Securities not only while they remain in the Connecticut/Massachusetts
Intermediate Municipal Income Funds' portfolios, but also until their final
maturity even if they are sold out of the Connecticut/Massachusetts Intermediate
Municipal Income Funds' portfolios, so that the coverage may benefit all
subsequent holders of those Connecticut and Massachusetts Municipal Securities.
The Connecticut/Massachusetts Intermediate Municipal Income Funds will obtain
insurance
which covers Connecticut and Massachusetts Municipal Securities until final
maturity even after they are sold out of the Connecticut/Massachusetts
Intermediate Municipal Income Funds' portfolios only if, in the judgment of the
investment adviser, the Connecticut/Massachusetts Intermediate Municipal Income
Funds would receive net proceeds from the sale of those securities, after
deducting the cost of such permanent insurance and related fees, significantly
in excess of the proceeds it would receive if such Connecticut and Massachusetts
Municipal Securities were sold without insurance. Payments received from
municipal bond insurers may not be tax-exempt income to shareholders of the
Connecticut/Massachusetts Intermediate Municipal Income Funds.
The premiums for the policies are paid by the Connecticut/Massachusetts
Intermediate Municipal Income Funds and the yield on the
Connecticut/Massachusetts Intermediate Municipal Income Funds' portfolios are
reduced thereby. Premiums for the policies are paid by the
Connecticut/Massachusetts Intermediate Municipal Income Funds monthly, and are
adjusted for purchases and sales of Connecticut and Massachusetts Municipal
Securities during the month.
CONNECTICUT AND MASSACHUSETTS INVESTMENT RISKS. Yields on Connecticut and
Massachusetts Municipal Securities depend on a variety of factors, including:
the general conditions of the short-term municipal note market and of the
municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the State of Connecticut and the
Commonwealth of Massachusetts or their municipalities could impact the
Connecticut/Massachusetts Intermediate Municipal Income Funds' portfolios. The
ability of the Connecticut/Massachusetts Intermediate Municipal Income Funds to
achieve their investment objectives also depends on the continuing ability of
the issuers of Connecticut and Massachusetts Municipal Securities and demand
features, or the credit enhancers of either, to meet their obligations for the
payment of interest and principal when due.
Investing in Connecticut and Massachusetts Municipal Securities which meet the
Connecticut/Massachusetts Intermediate Municipal Income Funds' quality standards
may not be possible if the State of Connecticut and the Commonwealth of
Massachusetts or their municipalities do not maintain their current credit
ratings. An expanded discussion of the current economic risks associated with
the purchase of Connecticut or Massachusetts Municipal Securities is contained
in the statement of additional information.
NON-DIVERSIFICATION. The Connecticut/Massachusetts Intermediate Municipal Income
Funds are non-diversified investment portfolios. As such, there is no limit on
the percentage of assets which can be invested in any single issuer. An
investment in the Connecticut/Massachusetts Intermediate Municipal Income Funds,
therefore, will entail greater risk than would exist in a diversified investment
portfolio because the higher percentage of investments among fewer issuers may
result in greater fluctuation in the total market value of the
Connecticut/Massachusetts Intermediate Municipal Income Funds' portfolios. Any
economic, political, or regulatory developments affecting the value of the
securities in the Connecticut/Massachusetts Intermediate Municipal Income Funds'
portfolios will have a greater impact on the total value of the portfolios than
would be the case if the portfolios were diversified among more issuers.
The Connecticut/Massachusetts Intermediate Municipal Income Funds intend to
comply with Subchapter M of the Internal Revenue Code. This undertaking requires
that at the end of each quarter of the taxable year, with regard to at least 50%
of its total assets, no more than 5% of its total assets are invested in the
securities of a single issuer; beyond that, no more than 25% of its total assets
are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS
- ------------------------------------------------------
THE INCOME FUNDS FOLLOW A NUMBER OF GUIDELINES IN MANAGING THEIR PORTFOLIOS
IN ORDER TO LIMIT INVESTMENT RISKS.
- ------------------------------------------------------
FIXED INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND, AND LIMITED TERM INCOME
FUND WILL NOT:
- - borrow money directly or through reverse repurchase agreements (arrangements
in which the Income Funds sell a portfolio instrument for a percentage of its
cash value with an arrangement to buy it back on a set date) or pledge
securities except, under certain circumstances, Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Fund may borrow
up to one-third of the value of their total individual fund assets and pledge
up to 10% of the value of their total individual fund assets to secure such
borrowings;
- - with respect to 75% of the value of their total assets, invest more than 5% in
securities of one issuer other than cash, cash items or securities issued or
guaranteed by the government of the United States, its agencies, or
instrumentalities and repurchase agreements collateralized by such securities,
or acquire more than 10% of the outstanding voting securities of any one
issuer; or
- - invest more than 10% of their total assets in securities subject to
restrictions on resale under the Securities Act of 1933 (except for commercial
paper issued under Section 4(2) of the Securities Act of 1933 and certain
other securities which meet the criteria for liquidity as established by the
Trustees).
THE CONNECTICUT/MASSACHUSETTS INTERMEDIATE MUNICIPAL INCOME FUNDS WILL NOT:
- - borrow money directly or through reverse repurchase agreements (arrangements
in which the Fund sells a portfolio instrument for a percentage of its cash
value with an arrangement to buy it back on a set date) or pledge securities
except, under certain circumstances, the Connecticut/Massachusetts
Intermediate Municipal Income Funds may borrow up to one-third of the value of
its total assets and pledge up to 10% of the value of those assets to secure
such borrowings; or
- - invest more than 5% of its total assets in industrial development bonds when
the payment of principal and interest is the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
THE SHAWMUT FUNDS INFORMATION
MANAGEMENT OF
THE SHAWMUT FUNDS
BOARD OF TRUSTEES
- ------------------------------------------------------
THE SHAWMUT FUNDS ARE MANAGED BY A BOARD OF TRUSTEES.
- ------------------------------------------------------
The Trustees are responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
- ------------------------------------------------------
PURSUANT TO AN INVESTMENT ADVISORY CONTRACT WITH THE TRUST, INVESTMENT
DECISIONS FOR THE INCOME FUNDS ARE MADE BY SHAWMUT BANK (THE "ADVISER"),
SUBJECT TO DIRECTION BY THE TRUSTEES.
- ------------------------------------------------------
The Adviser continually conducts investment research and supervision for the
Income Funds and is responsible for the purchase and sale of portfolio
instruments, for which it receives an annual fee from the respective assets of
the Income Funds.
ADVISORY FEES
- ------------------------------------------------------
THE ADVISER MAY VOLUNTARILY WAIVE PART OF ITS ADVISORY FEES.
- ------------------------------------------------------
The Adviser receives an annual investment advisory fee equal to .80 of 1% of
Shawmut Fixed Income Fund, Shawmut Intermediate Government Income Fund, and
Shawmut Limited Term Income Fund average daily net assets and .70 of 1% of
Shawmut Connecticut Intermediate Municipal Income Fund and Shawmut Massachusetts
Intermediate Municipal Income Fund average daily net assets. The fee paid by the
Income Funds, while higher than the advisory fee paid by other mutual funds in
general, is comparable to fees paid by mutual funds with similar objectives and
policies. The Adviser has undertaken to waive a portion of its advisory fee, up
to the amount of the advisory fee, to reimburse the Income Funds for operating
expenses in excess of limitations established by certain states. The Adviser may
further voluntarily waive a portion of its fee or reimburse any of the Income
Funds for certain operating expenses. The Adviser can terminate such voluntary
waiver or reimbursement policy at any time with any of the Income Funds at its
sole discretion.
ADVISER'S BACKGROUND
- ------------------------------------------------------
SHAWMUT BANK, N.A., A NATIONAL BANKING ASSOCIATION, AND ITS AFFILIATES HAVE
MANAGED COMMINGLED FUNDS FOR OVER FIFTY YEARS. AS OF DECEMBER 31, 1993,
SHAWMUT NATIONAL CORPORATION, THROUGH ITS SUBSIDIARIES INCLUDING SHAWMUT
BANK, MANAGED MORE THAN $15 BILLION IN DISCRETIONARY TRUST ASSETS. SHAWMUT
BANK HAS SERVED AS AN ADVISER TO MUTUAL FUNDS SINCE THE INCEPTION OF THE
SHAWMUT FUNDS ON DECEMBER 1, 1992.
- ------------------------------------------------------
Shawmut Bank, N.A., a national banking association, along with Shawmut Bank
Connecticut, National Association, are the principal subsidiaries of Shawmut
National Corporation, a super-regional bank holding company formed on February
29, 1988, and based in southern New England. Shawmut National Corporation serves
consumers through its network of banking offices with a full range of deposit
and lending products, as well as investment services. Shawmut Bank's borrowers
may be issuers of certain securities in which The Shawmut Funds may invest. The
principal executive offices of the investment adviser are located at One Federal
Street, Boston, Massachusetts 02211.
Robert W. Gleason Jr. has been the portfolio manager of Connecticut Intermediate
Municipal Income Fund and Massachusetts Intermediate Municipal Income Fund since
their inception in June 1993. Mr. Gleason joined a predecessor to Shawmut Bank,
in July 1976 and has been a Vice President and portfolio manager since 1985. Mr.
Gleason received his B.A. degree in Business Administration from Colby College,
followed by studies at New York University and Columbia University Graduate
Schools of Business Administration. Mr. Gleason has been participating in
investment portfolio management for over 38 years.
Maximiliaan J. Brenninkmeyer has been the portfolio manager of Fixed Income Fund
since its inception in December 1992. Mr. Brenninkmeyer is a Vice President of
Shawmut Bank, the Fund's Adviser. He is a Chartered Financial Analyst and holds
a M.S. from Bentley College and a B.A. from the College of the Holy Cross.
Michael M. Spencer has been the portfolio manager of Intermediate Government
Income Fund since April 1993. Mr. Spencer joined Shawmut Bank in 1985 as an
investment officer and has been a Vice President of the Fund's Adviser since
1989. Mr. Spencer is a Chartered Financial Analyst and received his B.A. from
the University of Notre Dame.
John P. Weaver has been the portfolio manager of Limited Term Income Fund since
April 1993. Mr. Weaver has been a portfolio manager with the Fund's Adviser
since 1988, and has been a Vice President of the Fund's Adviser since 1991. He
is a Chartered Financial Analyst and received his B.A. in History from Kenyon
College.
DISTRIBUTION OF INCOME FUNDS' SHARES
- ------------------------------------------------------
FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR INVESTMENT
SHARES.
- ------------------------------------------------------
Federated Securities Corp., Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under the distribution plan adopted in accordance with
Investment Company Act Rule 12b-1 (the "Plan"), each of the Income Funds
Investment Shares will pay to the distributor an amount computed at an annual
rate of up to .50 of 1% of the average daily net asset value of the Investment
Shares of each of the Income Funds, to finance any activity which is principally
intended to result in the sale of shares subject to the Plan.
The distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide distribution and/or administrative services as agents for their
clients or customers who own Investment Shares of the Income Funds.
Administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; assisting clients in changing
dividend options, account designations, and addresses; and providing such other
services as may reasonably be requested.
The distributor will pay financial institutions a fee based upon the Investment
Shares subject to the Plan and owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the distributor.
The Income Funds Investment Shares' Plan are compensation type plans. As such,
Income Funds make no payments to the distributor except as described above.
Therefore, the Income Funds do not pay for unreimbursed expenses of the
distributor, including amounts expended by the distributor in excess of amounts
received by it from the Income Funds, including interest, carrying or other
financing charges in connection with excess amounts expended, or the
distributor's overhead expenses. However, the distributor may be able to recover
such amounts or may earn a profit from future payments made by the Income Funds
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE INCOME FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), a subsidiary
of Federated Investors, provides the Income Funds with certain administrative
personnel and services necessary to operate the Income Funds, such as legal and
accounting services. FAS provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATED DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<S> <C>
.150 of 1% First $250 million
.125 of 1% Next $250 million
.100 of 1% Next $250 million
.075 of 1% Over $750 million
</TABLE>
The administrative fee received by FAS during any fiscal year shall be at least
$50,000 for each of the Income Funds. FAS may voluntarily choose to waive a
portion of its fee.
CUSTODIAN. Shawmut Bank, N.A., One Federal Street, Boston, Massachusetts, 02211
is custodian for the securities and cash of the Income Funds. Under the
Custodian Agreement, Shawmut Bank, N.A., holds the Income Funds' portfolio
securities in safekeeping and keeps all necessary records and documents relating
to its duties.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania,
15222-3779 is transfer agent and dividend disbursing agent for the Income Funds.
It also provides certain accounting and recordkeeping services with respect to
each of the Income Funds' portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania, 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, DC 20037.
INDEPENDENT ACCOUNTANTS.The independent accountants for the Income Funds are
Price Waterhouse, 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES OF THE INCOME FUNDS AND
INVESTMENT SHARES
Holders of Investment Shares pay their allocable portion of the Income Funds'
and the Trust's expenses. The Trust expenses for which holders of Investment
Shares pay their allocable portion include, but are not limited to: the cost of
organizing the Trust and continuing its existence; registering the Trust with
federal and state securities authorities; Trustees' fees; auditors' fees; the
cost of meetings of Trustees; legal fees of the Trust; association membership
dues; and such non-recurring and extraordinary items as may arise.
The respective Income Fund expenses for which holders of Investment Shares pay
their allocable portion include, but are not limited to: registering the Income
Funds and shares of the Income Funds; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise.
At present, no expenses, other than distribution expenses, are allocated
exclusively to the Investment Shares as a class. However, the Board of Trustees
reserves the right to allocate certain other expenses to holders of Investment
Shares as they deem appropriate ("Class Expenses"). In any case, Class Expenses
would be limited to: transfer agent fees as identified by the transfer agent as
attributable to holders of Investment Shares; printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to the
Securities and Exchange Commission and registration fees paid to state
securities commissions; expenses related to administrative personnel and
services as required to support holders of Investment Shares; legal fees
relating solely to Investment Shares; and Trustees' fees incurred as a result of
issues relating solely to Investment Shares.
NET ASSET VALUE
- ------------------------------------------------------
THE TERM "NET ASSET VALUE" REFERS TO THE VALUE OF ONE INCOME FUND SHARE.
- ------------------------------------------------------
The Income Funds' net asset value per share fluctuates and is determined by
dividing the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN INVESTMENT SHARES
- ------------------------------------------------------
YOU CAN BUY INCOME FUNDS INVESTMENT SHARES BY FEDERAL RESERVE WIRE, MAIL,
OR TRANSFER, AS EXPLAINED BELOW.
- ------------------------------------------------------
Shares of the Income Funds are sold by the distributor on days on which the New
York Stock Exchange and Federal Reserve Wire System are open for business.
Shares of the Income Funds may also be purchased through Shawmut Bank, N.A.,
Shawmut Bank Connecticut, National Association, or their affiliates
(collectively, "Shawmut Bank") on days on which both Shawmut Bank and the New
York Stock Exchange and Federal Wire Reserve System are open for business. Texas
residents must purchase, exchange, and redeem Shares through Federated
Securities Corp. at 1-800-618-8573. The Income Funds reserve the right to reject
any purchase request.
THROUGH SHAWMUT BANK
An investor may call Shawmut Bank (call toll-free 1-800-SHAWMUT) to receive
information and to place an order to purchase Investment Shares. Orders placed
through Shawmut Bank are considered received when payment is converted to
federal funds and the applicable Income Fund is notified of the purchase order.
The completion of the purchase transaction will generally occur within one
business day after Shawmut Bank receives a purchase order. Purchase orders must
be received by Shawmut Bank before 4:00 p.m. (Eastern time) and must
be transmitted by Shawmut Bank to the Income Funds before 5:00 p.m. (Eastern
time) in order for Investment Shares to be purchased at that day's public
offering price.
Payment may be made by either check or federal funds deposited into a
shareholder account established by Shawmut Bank. Payment is normally made
through debit to the shareholder account no later than the business day
following the conversion of a check into federal funds.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase Shares
directly from the distributor. To do so: complete and sign the new account form
available from the Fund; enclose a check made payable to Shawmut Connecticut
Intermediate Municipal Income Fund, Shawmut Fixed Income Fund, Shawmut
Intermediate Government Income Fund, Shawmut Limited Term Income Fund, or
Shawmut Massachusetts Intermediate Municipal Income Fund Investment Shares (as
appropriate) Investment Shares; and mail both to Shawmut Income Funds, 3 Copley
Place, OF9919, Boston, Massachusetts 02116. The order is considered received
after the check is converted by Shawmut Bank into federal funds and Shawmut Bank
establishes a shareholder account for the investor. This is generally the next
business day after Shawmut Bank receives the check.
To purchase Investment Shares of the Income Funds by wire, call 1-800-SHAWMUT.
All information needed will be taken over the telephone, and the order is
considered received when Shawmut Bank receives payment by wire and has
established a shareholder account for the investor. To request additional
information concerning purchases by wire, please contact Federated Securities
Corp., the Income Funds' distributor, at 1-800-618-8573. Investment Shares
cannot be purchased by wire on any day on which both Shawmut Bank and the New
York Stock Exchange and Federal Reserve Wire System are not open for business.
MINIMUM INVESTMENT REQUIRED
- ------------------------------------------------------
THE MINIMUM INITIAL INVESTMENT IS $1,000, OR $500 IN THE CASE OF RETIREMENT
PLAN ACCOUNTS.
- ------------------------------------------------------
The minimum initial investment in Investment Shares by an investor is $1,000, or
$500 in the case of retirement plan accounts. Subsequent investments by
participants in the Systematic Investment Program, as described this prospectus,
or by retirement plan accounts, must be in amounts of at least $50. Subsequent
investments by all other investors must be in amounts of at least $100. The
Income Funds may waive the initial minimum investment for employees of Shawmut
Bank and its affiliates from time to time.
WHAT SHARES COST
- ------------------------------------------------------
INVESTMENT SHARES ARE SOLD AT THEIR NET ASSET VALUE NEXT DETERMINED AFTER
AN ORDER IS RECEIVED, PLUS A SALES CHARGE.
- ------------------------------------------------------
The net asset value is determined at the close of the New York Stock Exchange,
normally 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on
which there are not sufficient changes in the value of an Income Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; or (iii) on the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Trust Shares of the Income Funds are sold at their net asset value next
determined after an order is received without a sales charge, to or for accounts
in which the trust department of Shawmut Bank serves in a fiduciary or agency
capacity.
Investment Shares of the Income Funds are sold at their net asset value next
determined after an order is received, plus a sales charge, as follows:
<TABLE>
<CAPTION>
SALES
SALES CHARGE AS A
CHARGE AS A PERCENTAGE OF
PERCENTAGE NET AMOUNT
OF PUBLIC OF TRANSACTION
OFFERING AMOUNT
PRICE INVESTED
<S> <C> <C>
Less than $50,000.... 2.00% 2.04%
50,000 but less than
$100,000........... 1.75% 1.78%
$100,000 but less
than $250,000...... 1.50% 1.52%
$250,000 but less
than $500,000...... 1.25% 1.27%
$500,000 but less
than $1 million.... 1.00% 1.01%
$1 million but less
than $3 million.... 0.75% 0.76%
$3 million or more... 0.50% 0.50%
</TABLE>
PURCHASES AT NET ASSET VALUE. Investment Shares of the Income Funds may be
purchased at net asset value, without a sales charge, by Trustees, Directors,
and employees (and their spouses and children under age 21) of The Shawmut
Funds, Shawmut Bank, N.A., Shawmut Bank Connecticut, National Association, or
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 Income Funds.
SALES CHARGE REALLOWANCE. For sales of Investment Shares of the Income Funds,
Shawmut Bank will normally receive up to 85% of the applicable sales charge. Any
portion of the sales charge which is not paid to Shawmut Bank will be retained
by the distributor.
The sales charge for Investment Shares sold other than through Shawmut Bank will
be retained by the distributor. The distributor may pay fees to banks out of the
sales charge in exchange for sales and/or administrative services performed on
behalf of the bank's customers in connection with the initiation of customer
accounts and purchases of the Income Funds' Investment Shares.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares through:
- - quantity discounts and accumulated purchases;
- - signing a 13-month letter of intent;
- - using the reinvestment privilege; or
- - concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Income Funds will combine
purchases made on the same day by the investor, his spouse, and his children
under age 21 when it calculates the sales charge paid by an individual investor.
If an additional purchase of shares is made, the Income Fund will consider the
previous purchases still invested in any of The Shawmut Funds the purchase price
of which includes a sales charge. For example, if a shareholder already owns
shares having a current value at the public offering price of $30,000, and he
purchases $20,000 or more of an Income Fund at the current public offering
price, the sales charge on the additional purchase of an Income Fund according
to the schedule now in effect, would be 1.75% instead of 2.00%.
To receive this sales charge reduction, Shawmut Bank or the distributor must be
notified by the shareholder in writing at the time the purchase is made that
shares are already owned or that purchases are being combined. Each Income Fund
will reduce the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $50,000 of
shares in the Income Funds over the next 13 months, the sales charge may be
reduced by signing a letter of intent to that effect. This letter of intent
includes a provision for a sales charge adjustment depending on the amount
actually purchased within the 13-month period and a provision for the custodian
to hold up to 2.00% of the total amount intended to be purchased in escrow (in
Investment Shares) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of the escrowed shares
may be redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
REINVESTMENT PRIVILEGE. If shares in any of the Income Funds have been redeemed,
the shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge.
Shawmut Bank or the distributor must be notified by the shareholder in writing
of the reinvestment in order to eliminate a sales charge. If the shareholder
redeems shares, there may be tax consequences, and exercise of the reinvestment
privilege may result in additional tax considerations. Shareholders
contemplating such transactions should consult their own tax advisers.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
funds in the Trust, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invests $30,000 in one of the funds in
the Trust with a sales charge and $20,000 in any of the Income Funds, the sales
charge would be reduced as described in the respective prospectuses in the
section entitled "What Shares Cost."
To receive this sales charge reduction, the distributor must be notified by the
shareholder in writing or by Shawmut Bank at the time the concurrent purchases
are made. The sales charge will be reduced after the purchases are confirmed.
SYSTEMATIC INVESTMENT PROGRAM
Once an account in an Income Fund has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $50. Under this program,
funds may be automatically withdrawn periodically from the shareholder's
checking account and invested in shares at the net asset value next determined
after an order is received by the Income Fund, plus the applicable sales charge.
A shareholder may apply for participation in this program through his account
officer at Shawmut Bank.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Certain institutions
holding Investment 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 provided which may be related to the ownership of Investment Shares.
This prospectus should, therefore, be read together with any agreement between
the customer and the institution with regard to the services provided, the fees
charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Income Funds, Federated Services Company maintains a
share account for each shareholder of record. Share certificates are not issued
unless requested by contacting Shawmut Bank in writing.
Detailed confirmations of each purchase or redemption are sent to Shawmut Bank
or other shareholders of record. Monthly statements are
sent by Shawmut Bank to report account activity during the previous month,
including dividends paid during the period.
DIVIDENDS
Dividends are declared and paid monthly to all shareholders invested in each
Income Fund on the record date.
CAPITAL GAINS
Capital gains realized by an Income Fund, if any, will be distributed to that
Fund's shareholders at least once every 12 months.
EXCHANGE PRIVILEGE
EXCHANGING SHARES. Shareholders may exchange Investment Shares, with a minimum
net asset value of $1,000, except retirement plan accounts, which must have a
minimum net asset value of $500, for shares of the same designated class of
other funds advised by Shawmut Bank. Shares of funds with a sales charge may be
exchanged at net asset value for shares of other funds with an equal sales
charge, a lower sales charge, or no sales charge. Shares of funds with no sales
charge, or a lower sales charge, acquired by direct purchase or reinvestment of
dividends on such shares may be exchanged for shares of funds with a sales
charge, or a higher sales charge, at net asset value, plus the applicable sales
charge or additional incremental sales charge, as the case may be, imposed by
the fund shares being purchased.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales charge would be a net asset
value.
Exchanges are subject to the minimum initial purchase requirements of such fund
being acquired. Prior to any exchange, the shareholder must receive a copy of
the current prospectus of the class of the fund into which an exchange is to be
effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, Shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee. Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short-or long-term capital gain or loss may be realized.
The exchange privilege may be modified or terminated at any time. Shareholders
will be notified of the modification or termination of the exchange privilege. A
shareholder may obtain further information on the exchange privilege by calling
Shawmut Bank.
EXCHANGE-BY-TELEPHONE. Instructions for exchanges between participating funds
which are part of the Trust may be given by calling Shawmut Bank at
1-800-SHAWMUT. To utilize the exchange-by-telephone service, a shareholder must
complete an authorization form permitting a Shawmut Fund to honor telephone
instructions. The authorization is included in the shareholder account
application. Shares may be exchanged by telephone only between fund accounts
having identical shareholder registrations. Exchange instructions given by
telephone may be electronically recorded.
Any Shares held in certificate form cannot be exchanged by telephone, but must
be forwarded to the transfer agent and deposited to the shareholder's mutual
fund account before being exchanged.
Telephone exchange instructions must be received before 4:00 p.m. (Eastern time)
for Shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through Shawmut Bank during times
of drastic economic or market changes. If a shareholder cannot contact Shawmut
Bank by telephone, it is recommended that an exchange request be made in writing
and sent by overnight mail to Shawmut Bank, 3 Copley Place, OF9919, Boston,
Massachusetts 02116.
REDEEMING INVESTMENT SHARES
- ------------------------------------------------------
YOU CAN REDEEM INCOME FUND INVESTMENT SHARES BY MAIL OR TELEPHONE. TO
ENSURE YOUR SHARES ARE REDEEMED EXPEDITIOUSLY, PLEASE FOLLOW THE PROCEDURES
EXPLAINED BELOW.
- ------------------------------------------------------
The Income Funds redeem Investment Shares at their net asset value next
determined after Federated Services Company receives the redemption request.
Redemptions will be made on days on which the Income Funds compute their net
asset value. Requests for redemptions can be made by telephone or in writing by
contacting a Shawmut Bank account officer or directly from the Income Funds.
Redemption requests received prior to 4:00 p.m. (Eastern time) will be effected
on the same business day.
THROUGH SHAWMUT BANK
Shareholders may redeem Investment Shares by calling their Shawmut Bank account
officer to request the redemption. Investment Shares will be redeemed at the net
asset value next determined after Federated Services Company receives the
redemption request. Shawmut Bank is responsible for promptly submitting
redemption requests and for maintaining proper written records of redemption
instructions received from the Income Funds' shareholders. In order to effect a
redemption on the same business day as a request, Shawmut Bank is responsible
for the timely transmission of the redemption request to the appropriate Income
Fund.
Before Shawmut Bank may request redemption by telephone on behalf of a
shareholder, an authorization form permitting the Income Funds to accept
redemption requests by telephone must first be completed. This authorization is
included in shareholder account application. In the event of drastic economic or
market changes, a shareholder may experience difficulty in redeeming by
telephone. If such a case should occur, it is recommended that a redemption
request be made in writing and sent by overnight mail to Shawmut Bank, 3 Copley
Place, OF9919, Boston, Massachusetts 02116.
DIRECTLY FROM THE INCOME FUNDS
BY MAIL. A shareholder may redeem Investment Shares by sending a written request
to Federated Services Company. The written request should include the
shareholder's name, the portfolios of the Income Fund's name and class of share
name, the account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request. Shareholders should
call the Income Funds for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Income Funds, or a redemption payable other than to the shareholder of
record must have signatures on written redemption requests guaranteed by:
- - a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- - a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- - a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
- - any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Income Funds do not accept signatures guaranteed by a notary public.
The Income Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Income Funds may elect in
the future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Income Funds and their transfer
agent reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT
Redemption payments will generally be made directly to the account maintained by
an investor with Shawmut Bank. This deposit is normally made within one business
day, but in no event more than seven days, of the redemption request, provided
the transfer agent has received payment from the shareholder. The net asset
value of Investment Shares redeemed is determined, and dividends, if any, are
paid up to and including, the day prior to the day that a redemption request is
processed. Pursuant to instructions from Shawmut Bank, redemption proceeds may
be transferred from a shareholder account by check or by wire.
BY CHECK. Normally, a check for the proceeds is mailed within one business day,
but in no event more than seven days, after receipt of a proper redemption
request, provided the transfer agent has received payment for Investment Shares
from the shareholder.
BY WIRE. Requests to wire proceeds from redemptions received before 4:00 p.m.
(Eastern time) will be honored the following business day after Shawmut Bank
receives proper instructions.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Income Funds
may redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum of $1,000, or $500 in the case of
retirement plan accounts. This requirement does not apply, however, if the
balance falls below $1,000 or $500, respectively, because of changes in an
Income Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. Depending on the amount of the withdrawal payments, the amount
of dividends paid and capital gains distributions with respect to shares, and
the fluctuation of the net asset value of shares redeemed under this program,
redemptions may reduce, and eventually deplete, the shareholder's investment in
the Income Funds. For this reason, payments under this program should not be
considered as yield or income on the shareholder's investment in the Income
Funds Investment Shares. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through Shawmut Bank. Because Shares are
sold with a sales charge, it is not advisable for shareholders to be purchasing
Investment Shares of the Income Funds while participating in this program.
REDEMPTION IN KIND
The Income Funds are obligated to redeem Investment Shares solely in cash up to
$250,000 or 1% of the net asset value of Shares of each individual Income Fund,
whichever is less, for any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Income Funds will pay all or a
portion of the remainder of the redemption in portfolio instruments, valued in
the same way as an
Income 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.
SHAREHOLDER INFORMATION
VOTING RIGHTS
- ------------------------------------------------------
EACH INVESTMENT SHARE OF AN INCOME FUND GIVES THE SHAREHOLDER ONE VOTE IN
TRUSTEE ELECTIONS AND OTHER MATTERS SUBMITTED TO SHAREHOLDERS OF THE TRUST
FOR VOTE.
- ------------------------------------------------------
All shares of each portfolio in the Trust have equal voting rights except that,
in matters affecting only a particular fund or class, only shareholders of that
fund or class are entitled to vote. As a Massachusetts business trust, the Trust
is not required to hold annual shareholder meetings. Shareholder approval will
be sought only for certain changes in the Trust or an Income Fund's operation
and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding shares of
the Trust.
As of February 10, 1994, National Financial Services, New York, New York, owned
for the exclusive benefit of their customers, the following: approximately
574,206 (54.93%) of the Fixed Income Fund's Investment Shares; approximately
780,554 (50.16%) of the Intermediate Government Income Fund's Investment Shares;
and approximately 185,324 (36.12%) of the Limited Term Income Fund's Investment
Shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on behalf
of the Income Funds. To protect shareholders of the Income Funds, the Trust has
filed legal documents with Massachusetts that expressly disclaim the liability
of shareholders of an Income Fund for acts or obligations of the Trust. These
documents require notice of this disclaimer to be given in each agreement,
obligation, or instrument the Trust or its Trustees enter into or sign on behalf
of the Income Funds.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations on behalf of the Income Funds, the Trust is required to use the
property of the Income Funds to protect or compensate the shareholder. On
request, the Trust will defend any claim made and pay any judgment against a
shareholder of the Income Funds for any act or obligation of the Trust on behalf
of the Income Funds. Therefore, financial loss resulting from liability as a
shareholder of the Income Funds will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from the
assets of the Income Funds.
EFFECT OF BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent, or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of such a customer. Shawmut Bank is subject to such
banking laws and regulations.
- ------------------------------------------------------
THE GLASS-STEAGALL ACT IS A FEDERAL BANKING LAW THAT GENERALLY PROHIBITS
BANKS FROM PUBLICLY UNDERWRITING OR DISTRIBUTING CERTAIN SECURITIES.
- ------------------------------------------------------
Shawmut Bank believes, based upon the advice of its counsel, that it may perform
the services for the Income Funds contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Shawmut Bank from continuing to perform all or a part of the above
services for its customers and/or the Income Funds. If it were prohibited from
engaging in these customer-related activities, the Trustees would consider
alternative advisers and means of continuing available investment services. In
such event, changes in the operation of the Income Funds may occur, including
possible termination of any automatic or other Income Fund share investment and
redemption services then being provided by Shawmut Bank. It is not expected that
existing shareholders would suffer any adverse financial consequences (if
another adviser with equivalent abilities to Shawmut Bank is found) as a result
of any of these occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
TAX INFORMATION
FEDERAL INCOME TAX
The Income Funds will pay no federal income tax because each Fund expects to
meet requirements of the Internal Revenue Code, as amended, applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies.
Each Income Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized by The
Shawmut Funds' other portfolios will not be combined for tax purposes with those
realized by each Income Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional Investment Shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
OTHER CLASSES OF SHARES
Fixed Income Fund, Intermediate Government Income Fund, and Limited Term Income
Fund all offer a separate class of shares known as Trust Shares. Trust Shares
are sold primarily to accounts for which Shawmut Bank, N.A., or its affiliates,
act in a fiduciary or agency capacity. Trust Shares are sold at net asset value,
without a sales charge, and without a Rule 12b-1 Plan. Investments in Trust
Shares are subject to a minimum initial investment of $1,000.
The amount of dividends payable to Trust Shares will exceed that of Investment
Shares by the difference between class expenses and distribution expenses borne
by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
PERFORMANCE INFORMATION
- ------------------------------------------------------
FROM TIME TO TIME THE INCOME FUNDS ADVERTISE THEIR TOTAL RETURN AND YIELD
FOR INVESTMENT SHARES.
- ------------------------------------------------------
Total return represents the change, over a specified period of time, in the
value of an investment in Investment Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yields of Investment Shares of the Income Funds are calculated each day by
dividing the net investment income per share (as defined by the Securities and
Exchange Commission) earned by the Income Funds over a thirty-day period by the
net asset value per Share on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
income actually earned by Investment Shares and, therefore, may not correlate to
the dividends or other distributions paid to shareholders.
Total return and yield will be calculated separately for Trust Shares and
Investment Shares. Because Investment Shares are subject to a sales charge and a
12b-1 fee, the total return and yield for Trust Shares, for the same period,
will exceed that of Investment Shares.
The performance information for Investment Shares reflects the effect of the
maximum sales load which, if excluded would increase the total return and yield.
From time to time, the Income Funds may advertise their performance using
certain reporting services and/or compare its performance to certain indices.
Further information about the performance of the Income Funds is contained in
the Trust's Annual Report dated October 31, 1993, which can be obtained free of
charge.
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3120920A-R (2/94)
THE SHAWMUT INCOME FUNDS
(PORTFOLIOS OF THE SHAWMUT FUNDS)
SHAWMUT CONNECTICUT INTERMEDIATE MUNICIPAL INCOME FUND
SHAWMUT FIXED INCOME FUND
TRUST SHARES
INVESTMENT SHARES
SHAWMUT INTERMEDIATE GOVERNMENT INCOME FUND
TRUST SHARES
INVESTMENT SHARES
SHAWMUT LIMITED TERM INCOME FUND
TRUST SHARES
INVESTMENT SHARES
SHAWMUT MASSACHUSETTS INTERMEDIATE MUNICIPAL INCOME FUND
COMBINED STATEMENT OF ADDITIONAL INFORMATION
Shawmut Connecticut Intermediate Municipal Income Fund ("Connecticut
Intermediate Municipal Income Fund"), Shawmut Fixed Income Fund ("Fixed Income
Fund"), Shawmut Intermediate Government Income Fund ("Intermediate Government
Income Fund"), Shawmut Limited Term Income Fund ("Limited Term Income Fund"),
and Shawmut Massachusetts Intermediate Municipal Income Fund ("Massachusetts
Intermediate Municipal Income Fund") (collectively, referred to as the "Income
Funds") represent interests in investment portfolios of The Shawmut Funds (the
"Trust"). This Combined Statement of Additional Information should be read with
the respective prospectus for the Income Funds, Trust Shares and Investment
Shares, dated February 28, 1994. This Statement is not a prospectus itself. To
receive a copy of either prospectus write or call the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OFFERED BY THE PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF SHAWMUT
BANK, ARE NOT ENDORSED OR GUARANTEED BY SHAWMUT BANK, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ARE THEY INSURED OR GUARANTEED BY THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. MUTUAL FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING FLUCTUATIONS IN VALUE AND EARNINGS, AND THE POSSIBLE
LOSS OF PRINCIPAL.
INVESTMENT SHARES OF THE SHAWMUT FUNDS ARE AVAILABLE THROUGH LICENSED
REPRESENTATIVES OF SHAWMUT BROKERAGE, INC., MEMBER NASD/SIPC, AND AN AFFILIATE
OF SHAWMUT BANK.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated February 28, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE INCOME FUNDS 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES OF THE
INCOME FUNDS 1
- ---------------------------------------------------------------
Acceptable Investments 1
Types of Investments 1
Characteristics of Municipal Securities 1
Munipreferred Securities 2
Participation Interests 2
Variable Rate Municipal Securities 2
Municipal Leases 2
U.S. Government Obligations 3
Asset-Backed Securities 3
Put and Call Options 4
Corporate Debt Obligations 5
Variable Rate Demand Notes 5
When-Issued and Delayed
Delivery Transactions 6
Temporary Investments 6
Lending of Portfolio Securities 7
Portfolio Turnover 7
Investment Limitations 7
Connecticut Investment Risks 9
Massachusetts Investment Risks 9
THE SHAWMUT FUNDS MANAGEMENT 10
- ---------------------------------------------------------------
Officers and Trustees 10
Funds 12
Income Funds Ownership 12
Trustee Liability 12
INVESTMENT ADVISORY SERVICES 13
- ---------------------------------------------------------------
Adviser to the Income Fund 13
Advisory Fees 13
ADMINISTRATIVE SERVICES 13
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 13
- ---------------------------------------------------------------
PURCHASING SHARES 14
- ---------------------------------------------------------------
Distribution Plan (Investment Shares) 14
Conversion to Federal Funds 14
DETERMINING NET ASSET VALUE 14
- ---------------------------------------------------------------
Valuing Municipal Bonds 15
Use of Amortized Cost 15
Determining Market Value of Securities 15
REDEEMING SHARES 15
- ---------------------------------------------------------------
Redemption in Kind 15
EXCHANGE PRIVILEGE 15
- ---------------------------------------------------------------
Requirements for Exchange 15
Making an Exchange 15
TAX STATUS 16
- ---------------------------------------------------------------
The Income Funds' Tax Status 16
Federal Income Tax 16
Massachusetts State Income Tax 16
Other State and Local Taxes 16
Shareholder's Tax Status 17
TOTAL RETURN 17
- ---------------------------------------------------------------
YIELD 17
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 17
- ---------------------------------------------------------------
Tax-Equivalency Table 17
PERFORMANCE COMPARISONS 19
- ---------------------------------------------------------------
Duration 19
FINANCIAL STATEMENTS 19
- ---------------------------------------------------------------
APPENDIX 20
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE INCOME FUNDS
- --------------------------------------------------------------------------------
The Income Funds are portfolios of The Shawmut Funds, which was established as a
Massachusetts business trust under a Declaration of Trust dated July 16, 1992.
Shares of the Fixed Income Fund, the Intermediate Government Income Fund, and
the Limited Term Income Fund are offered in two classes, known as Trust Shares
and Investment Shares (individually and collectively referred to as "Shares").
This combined statement of additional information relates to the all classes of
Shares of the Income Funds.
INVESTMENT OBJECTIVE AND POLICIES OF THE INCOME FUNDS
- --------------------------------------------------------------------------------
Connecticut Intermediate Municipal Income Fund seeks current income which is
exempt from federal income tax and Connecticut state income tax by investing
primarily in Connecticut municipal securities, including securities of states,
territories, and possessions of the United States which are not issued by or on
behalf of Connecticut or its political subdivisions and financing authorities,
but which are exempt from Connecticut state income tax.
Fixed Income Fund seeks current income consistent with total return by investing
in income producing securities consisting primarily of investment grade notes
and bonds and U.S. government securities.
Intermediate Government Income Fund seeks to provide current income consistent
with total return by investing in a portfolio consisting primarily of U.S.
government securities with a dollar-weighted average maturity of between three
to ten years.
Limited Term Income Fund seeks to provide current income consistent with low
principal volatility and total return by investing in a portfolio of income
producing securities of a limited term with a dollar-weighted average maturity
of three years or less.
Massachusetts Intermediate Municipal Income Fund seeks current income which is
exempt from federal income tax and income taxes imposed by the Commonwealth of
Massachusetts by investing primarily in Massachusetts municipal securities,
including securities of states, territories, and possessions of the United
States which are not issued by or on behalf of Massachusetts or its political
subdivisions and financing authorities, but which are exempt from Massachusetts
state income tax.
ACCEPTABLE INVESTMENTS
Connecticut Intermediate Municipal Income Fund and Massachusetts Intermediate
Municipal Income Fund (referred to jointly as the "Connecticut/Massachusetts
Intermediate Municipal Income Funds") invest primarily in Connecticut and
Massachusetts (respectively) municipal securities. Fixed Income Fund invests
primarily in a portfolio of investment grade bonds. The Intermediate Government
Income Fund invests primarily in a portfolio of securities which are issued or
guaranteed as to payment of principle and interest by the U.S. government, its
agencies or instrumentalities, and maintains an average maturity between three
to ten years. Limited Term Fund invests primarily in a portfolio of investment
grade bonds and notes and government securities. The Income Funds may pursue its
objectives by investing in certain securities and engaging in certain investment
transactions as described below and in the prospectus. The
Connecticut/Massachusetts Intermediate Municipal Income Funds do not intend to
invest more than 5% of their respective total assets in "Synthetic Bond
Derivatives," as described in the prospectus.
TYPES OF INVESTMENTS
Connecticut/Massachusetts Intermediate Municipal Income Funds invest in various
municipal securities. Examples of Connecticut and Massachusetts municipal
securities are:
- - municipal notes and commercial paper;
- - general obligation serial bonds sold with differing maturity dates;
- - refunded municipal bonds; and
- - all revenue bonds, including industrial development bonds.
The Below are securities in which the Fixed Income Fund, Intermediate Government
Income Fund, and Limited Term Income Funds may invest:
- - direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes,
and bonds;
- - obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
- - domestic issues of corporate debt obligations (rated Aaa, Aa, A, Baa, or Ba by
Moody's Investors Service, Inc.; AAA, AA, A, BBB, or BB by Standard & Poor's
Corporation or Fitch Investors Service, Inc.); and
- - commercial paper whose ratings include: Prime-1 or Prime-2 by Moody's Investor
Service, Inc., A-1 or A-2 by Standard & Poor's Corporation, or F-1 or F-2 by
Fitch Investors Service, Inc.
CHARACTERISTICS OF MUNICIPAL SECURITIES
The Connecticut and Massachusetts municipal securities in which the
Connecticut/Massachusetts Intermediate Municipal Income Funds invests
(respectively) have the characteristics set forth in the prospectus.
- --------------------------------------------------------------------------------
If a rated bond loses its rating or has its rating reduced after the Fund
has purchased it, the Connecticut/Massachusetts Intermediate Municipal
Income Funds is not required to drop the bond from the portfolio, but
will consider doing so. If ratings made by Moody's, Standard & Poor's, or
Fitch's change because of changes in those organizations or in their
rating systems, the Connecticut/Massachusetts Intermediate Municipal
Income Funds will try to use comparable ratings as standards in
accordance with the investment policies described in the
Connecticut/Massachusetts Intermediate Municipal Income Funds'
prospectus.
MUNIPREFERRED SECURITIES
The Connecticut/Massachusetts Intermediate Municipal Income Funds may
purchase interests in municipal securities that are offered in the form
of a security representing a diversified portfolio of investment grade
bonds. These securities provide investors, such as the Fund, with
liquidity and income exempt from federal income tax and some state income
taxes.
PARTICIPATION INTERESTS
The financial institutions from which the Connecticut/Massachusetts
Intermediate Municipal Income Funds purchases participation interests
frequently provide or secure from another financial institution
irrevocable letters of credit or guarantees and give the Fund the right
to demand payment of the principal amounts of the participation interests
plus accrued interest on short notice (usually within seven days).
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable rate municipal
securities than for fixed income obligations.
The terms of these variable rate demand instruments require payment of
principal and accrued interest from the issuer of the municipal
obligations, the issuer of the participation interests, or a guarantor of
either issuer.
MUNICIPAL LEASES
Connecticut/Massachusetts Intermediate Municipal Income Funds may
purchase municipal securities in the form of participation interests
which represent undivided proportional interests in lease payments by a
governmental or non-profit entity. The lease payments and other rights
under the lease provide for and secure the payments on the certificates.
Lease obligations may be limited by municipal charter or the nature of
the appropriation for the lease. In particular, lease obligations may be
subject to periodic appropriation. If the entity does not appropriate
funds for future lease payments, the entity cannot be compelled to make
such payments. Furthermore, a lease may provide that the certificate
trustee cannot accelerate lease obligations upon default. The trustee
would only be able to enforce lease payments as they became due. In the
event of default or failure of appropriation, it is unlikely that the
trustee would be able to obtain an acceptable substitute source of
payment.
When determining whether municipal leases purchased by the
Connecticut/Massachusetts Intermediate Municipal Income Funds will be
classified as a liquid or illiquid security, the Board of Trustees has
directed the adviser to consider certain factors such as: the frequency
of trades and quotes for the security; the volatility of quotations and
trade prices for the security; the number of dealers willing to purchase
or sell the security and the number of potential purchasers; dealer
undertaking to make a market in the security; the nature of the security
and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the
mechanics of transfer); the rating of the security and the financial
condition and prospects of the issuer of the security; whether the lease
can be terminated by the lessee; the potential recovery, if any, from a
sale of the leased property upon termination of the lease; the lessee's
general credit strength (e.g., its debt, administrative, economic and
financial characteristics and prospects); the likelihood that the lessee
will discontinue appropriating funding for the lease property because the
property is no longer deemed essential to its operations (e.g., the
potential for an "event of nonappropriation"); any credit enhancement or
legal recourse provided upon an event of nonappropriation or other
termination of the lease; and such other factors as may be relevant to
the Connecticut/Massachusetts Intermediate Municipal Income Funds'
ability to dispose of the security.
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Funds may invest
generally include direct obligations of the U.S. Treasury (such as U.S. Treasury
bills, notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed by:
- - the full faith and credit of the U.S. Treasury;
- - the issuer's right to borrow from the U.S. Treasury;
- - the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
- - the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
- - Federal Farm Credit Banks;
- - Federal Home Loan Banks;
- - Federal National Mortgage Association;
- - Student Loan Marketing Association; and
- - Federal Home Loan Mortgage Corporation.
ASSET-BACKED SECURITIES
Fixed Income Fund, Intermediate Government Income Fund, and Limited Term Income
Funds may invest in non-mortgage related asset-backed securities and
mortgage-related asset-backed securities.
NON-MORTGAGE RELATED ASSET-BACKED SECURITIES
Fixed Income Fund, Intermediate Government Income Fund, and Limited Term
Income Funds may invest in non-mortgage related asset-backed securities
including, but not limited to, interests in pools of receivables, such as
motor vehicle installment purchase obligations and credit card
receivables. These securities may be in the form of pass-through
instruments or asset-backed bonds. The securities, all of which are
issued by nongovernmental entities and carry no direct or indirect
government guarantee, are structurally similar to collateralized mortgage
obligations and mortgage pass-through securities, which are described
below.
Non-mortgage related asset-backed securities present certain risks that
are not presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of the same security interest in the
related collateral. Credit card receivables are generally unsecured and
the debtors are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such debtors the right
to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of asset-backed securities backed by motor
vehicle installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the
servicer sells these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders
of the related asset-backed securities. Further, if a vehicle is
registered in one state and is then reregistered because the owner and
obligor moves to another state, such reregistration could defeat the
original security interest in the vehicle in certain cases. In addition,
because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders
of asset-backed securities backed by automobile receivables may not have
a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support
payments on these securities.
MORTGAGE-RELATED ASSET-BACKED SECURITIES
Fixed Income Fund, Intermediate Government Income Fund, and Limited Term
Income Funds may also invest in various mortgage-related asset-backed
securities. These types of investments may include adjustable rate
mortgage securities, collateralized mortgage obligations, real estate
mortgage investment conduits, or other securities collateralized by or
representing an interest in real estate mortgages.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
ARMS are pass-through mortgage securities with adjustable rather than
fixed interest rates. The ARMS in which the Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Funds
invests are issued by the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), and the
Federal Home Loan Mortgage Corporation ("FHLMC") and are actively traded.
The underlying mortgages which collateralize ARMS issued by GNMA are
fully guaranteed by the Federal Housing Administration ("FHA") or
Veterans Administration ("VA"), while those collateralizing ARMS issued
- --------------------------------------------------------------------------------
by FHLMC or FNMA are typically conventional residential mortgages
conforming to strict underwriting size and maturity constraints.
Unlike conventional bonds, ARMS pay back principal over the life of the
ARMS rather than at maturity. Thus, a holder of the ARMS, such as the
Fund, would receive monthly scheduled payments of principal and interest,
and may receive unscheduled principal payments representing prepayments
on the underlying mortgages. At the time that a holder of the ARMS
reinvests the payments and any unscheduled prepayments of principal that
it receives, the holder may receive a rate of interest which is actually
lower than the rate of interest paid on the existing ARMS. As a
consequence, ARMS may be a less effective means of "locking in" long-term
interest rates than other types of U.S. government securities.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g. investments with
comparable maturities) because as interest rates decline, the likelihood
increases that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and unscheduled principal
payments may result in some loss of a holder's principal investment to
the extent of the premium paid. Conversely, if ARMS are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as
ordinary income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
CMOs are bonds issued by single-purpose, stand-alone finance subsidiaries
or trusts of financial institutions, government agencies, investment
bankers, or companies related to the construction industry. CMOs
purchased by the Fixed Income Fund, Intermediate Government Income Fund,
and Limited Term Income Funds may be:
- collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government;
- collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is
collateralized by U.S. government securities;
- securities in which the proceeds of the issuance are invested in
mortgage securities and payment of the principal and interest is
supported by the credit of an agency or instrumentality of the U.S.
government; or
- securities in which the proceeds of the issuance are invested is
mortgage securities and payment of the principal and interest is
guaranteed or supported by the credit of a non-governmental entity,
including corporations.
All CMOs purchased by the Fund are investment grade, as rated by a
nationally recognized statistical rating organization.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
Privately issued mortgage-related securities generally represent an
ownership interest in federal agency mortgage pass through securities
such as those issued by Government National Mortgage Association. The
terms and characteristics of the mortgage instruments may vary among pass
through mortgage loan pools.
The market for such mortgage-related securities has expanded considerably
since its inception. The size of the primary issuance market and the
active participation in the secondary market by securities dealers and
other investors makes government-related pools highly liquid.
PUT AND CALL OPTIONS
The Fixed Income Fund, Intermediate Government Income Fund, and Limited
Term Income Funds may purchase put options on their portfolio securities.
These options will be used as a hedge to attempt to protect securities
which the Fund holds against decreases in value. The Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Funds may
also write covered call options on all or any portion of its portfolio to
generate income for the Fund. The Fixed Income Fund, Intermediate
Government Income Fund, and Limited Term Income Funds will write call
options on securities either held in its portfolio, or which it has the
right to obtain without payment of further consideration, or for which it
has segregated cash or U.S. government securities in the amount of any
additional consideration.
The Fixed Income Fund, Intermediate Government Income Fund, and Limited
Term Income Funds may purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the buyers or
writers of the options when options on the portfolio securities held by
the Fixed Income Fund, Intermediate Government Income Fund, and Limited
Term Income Funds are not traded on an exchange. The Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Funds
purchases and writes options
- --------------------------------------------------------------------------------
only with investment dealers and other financial institutions (such as
commercial banks or savings and loan associations) deemed creditworthy by
the Fixed Income Fund, Intermediate Government Income Fund, and Limited
Term Income Funds' investment adviser.
Over-the-counter options are two-party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third-party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options
may not. The Fixed Income Fund, Intermediate Government Income Fund, and
Limited Term Income Funds will not buy call options or write put options,
other than to close out open option positions, without further
notification to shareholders.
CORPORATE DEBT OBLIGATIONS
The Fixed Income Fund, Intermediate Government Income Fund, and Limited
Term Income Funds may invest in corporate debt obligations, including
corporate bonds, notes, and debentures, which may have floating or fixed
rates of interest.
FLOATING RATE CORPORATE DEBT OBLIGATIONS
The Fixed Income Fund, Intermediate Government Income Fund, and Limited
Term Income Funds expects to invest in floating rate corporate debt
obligations. Floating rate securities are generally offered at an initial
interest rate which is at or above prevailing market rates. The interest
rate paid on these securities is then reset periodically (commonly every
90 days) to an increment over some predetermined interest rate index.
Commonly utilized indices include the three-month Treasury bill rate, the
180-day Treasury bill rate, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a bank, the commercial paper
rates, or the longer-term rates on U.S. Treasury securities.
Some of the floating rate corporate debt obligations in which the Fixed
Income Fund, Intermediate Government Income Fund, and Limited Term Income
Funds may invest include floating rate corporate debt securities issued
by savings and loan associations and collateralized by adjustable rate
mortgage loans, also known as collateralized thrift notes. Many of these
collateralized thrift notes have received AAA ratings from recognized
rating agencies. Collateralized thrift notes differ from traditional
"pass through" certificates in which payments made are linked to monthly
payments made by individual borrowers net of any fees paid to the issuer
or guarantor of such securities. Collateralized thrift notes pay a
floating interest rate which is tied to a pre-determined index, such as
the 180-day Treasury bill rate. Floating rate corporate debt obligations
may also include securities issued to fund commercial real estate
construction.
FIXED RATE CORPORATE DEBT OBLIGATIONS
Fixed Income Fund, Intermediate Government Income Fund, and Limited Term
Income Funds may also invest in fixed rate securities, including fixed
rate securities with short-term characteristics. Fixed rate securities
with short-term characteristics are long-term debt obligations, but are
treated in the market as having short maturities because call features of
the securities may make them callable within a short period of time. A
fixed rate security with short-term characteristics would include a fixed
income security priced close to call or redemption price or a fixed
income security approaching maturity, where the expectation of call or
redemption is high.
Fixed rate securities tend to exhibit more price volatility during times
of rising or falling interest rates than securities with floating rates
of interest. This is because floating rate securities, as described
above, behave like short-term instruments in that the rate of interest
they pay is subject to periodic adjustments based on a designated
interest rate index. Fixed rate securities pay a fixed rate of interest
and are more sensitive to fluctuating interest rates. In periods of
rising interest rates the value of a fixed rate security is likely to
fall. Fixed rate securities with short-term characteristics are not
subject to the same price volatility as fixed rate securities without
such characteristics. Therefore, they behave more like floating rate
securities with respect to price volatility.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are longterm corporate debt instruments that
have variable or floating interest rates and provide the Fund with the
right to tender the security for repurchase at its stated principal
amount plus accrued interest. Such securities typically bear interest at
a rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals (ranging from
daily to annually), and is normally based on an interest index or a
stated percentage of a prime rate or another published rate. Many
variable rate demand notes allow the Fund to demand the repurchase of the
security on not more than seven days prior notice. Other notes only
permit the Fund to tender the security at the time of each interest rate
adjustment or at other fixed intervals.
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WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Income Funds purchase
securities with payment and delivery scheduled for a future time. Income
Funds engage in when-issued and delayed delivery transactions only for
the purpose of acquiring portfolio securities consistent with the Income
Funds' investment objective and policies, not for investment leverage.
These transactions are made to secure what is considered to be an
advantageous price and yield for the Income Funds.
No fees or expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Income Funds sufficient to make payment for
the securities to be purchased are segregated at the trade date. These
securities are marked to market daily and maintained until the
transaction is settled.
TEMPORARY INVESTMENTS
The Income Funds may also invest in temporary investments during times of
unusual market conditions for defensive purposes.
RESTRICTED AND ILLIQUID SECURITIES
The Income Funds may invest in commercial paper issued in reliance
on the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. Section 4(2) commercial paper is restricted
as to disposition under federal securities law and is generally sold
to institutional investors, such as the Fund, who agree that they
are purchasing the paper for investment purposes and not with a view
to public distribution. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) commercial paper is normally resold
to other institutional investors like the Income Funds through or
with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity.
The Income Funds believes that Section 4(2) commercial paper and
possibly certain other restricted securities which meet the criteria
for liquidity established by the Board of Trustees are quite liquid.
The Fund intends, therefore, to treat the restricted securities
which meet the criteria for liquidity established by the Trustees
including Section 4(2) commercial paper (as determined by the Fund's
adviser) as liquid and not subject to the investment limitation
applicable to illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the Fund intends to not subject such
paper to the limitation applicable to restricted securities.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell
U.S. government securities or certificates of deposit to the Income
Funds and agree at the time of sale to repurchase them at a mutually
agreed upon time and price within one year from the date of
acquisition. The Income Funds or their custodian will take
possession of the securities subject to repurchase agreements. To
the extent that the original seller does not repurchase the
securities from the Income Funds, the Income Funds could receive
less than the repurchase price on any sale of such securities. In
the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Income Funds
might be delayed pending court action. The Income Funds believe that
under the regular procedures normally in effect for custody of the
Income Funds' portfolio securities subject to repurchase agreements,
a court of competent jurisdiction would rule in favor of the Income
Funds and allow retention or disposition of such securities. The
Income Funds may only enter into repurchase agreements with banks
and other recognized financial institutions, such as broker/dealers,
which are found by the Income Funds' adviser to be creditworthy
pursuant to guidelines established by the Trustees.
From time to time, such as when suitable Connecticut/Massachusetts
municipal bonds are not available, the Connecticut/Massachusetts
Intermediate Municipal Income Funds may invest a portion of its
assets in cash.
Any portion of the Connecticut/Massachusetts Intermediate Municipal
Income Funds' assets maintained in cash will reduce the amount of
assets in Connecticut or Massachusetts municipal bonds
(respectively) and thereby reduce the yield.
REVERSE REPURCHASE AGREEMENTS
The Income Funds may also enter into reverse repurchase agreements.
This transaction is similar to borrowing cash. In a reverse
repurchase agreement the Income Funds transfer possession of a
portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated
date in the future the Income Funds will repurchase the portfolio
instrument by remitting the original consideration plus interest at
an
- --------------------------------------------------------------------------------
agreed upon rate. The use of reverse repurchase agreements may
enable the Income Funds to avoid selling portfolio instruments at a
time when a sale may be deemed to be disadvantageous, but the
ability to enter into reverse repurchase agreements does not ensure
that the Income Funds will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Income Funds, 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.
LENDING OF PORTFOLIO SECURITIES
The Fixed Income Fund, Intermediate Government Income Fund, and Limited
Term Income Funds may lend portfolio securities under certain
circumstances. The collateral received when the The Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Funds lend
portfolio securities must be valued daily and, should the market value of
the loaned securities increase, the borrower must furnish additional
collateral to the Fixed Income Fund, Intermediate Government Income Fund,
and Limited Term Income Funds. 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
Fixed Income Fund, Intermediate Government Income Fund, and Limited Term
Income Funds or the borrower. The Fixed Income Fund, Intermediate
Government Income Fund, and Limited Term Income Funds 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 the borrower or placing broker.
PORTFOLIO TURNOVER
The Income Funds may trade or dispose of portfolio securities as
considered necessary to meet its investment objective.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Income Funds will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Income Funds will not issue senior securities except that the Income
Funds may borrow money and engage in reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including the
amounts borrowed.
The Income Funds will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Income Funds to meet redemption requests when
the liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Income Funds will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding. In the
past year ending October 31, 1993, borrowings were not at any time in
excess of 5% of the Income Funds' respective total assets.
PLEDGING ASSETS
The Income Funds will not mortgage, pledge, or hypothecate its assets
except to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10% of
the value of its total assets at the time of the pledge.
UNDERWRITING
The Income Funds will not underwrite any issue of securities except as it
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Income Funds will not buy or sell real estate, including limited
partnership interests, although it may invest in municipal bonds secured
by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Income Funds will not buy or sell commodities, commodity contracts,
or commodities futures contracts.
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INVESTING IN RESTRICTED SECURITIES
The Income Funds will not invest more than 10% of the value of its assets
in securities subject to restrictions on resale under the Securities Act
of 1933.
LENDING CASH OR SECURITIES
The Income Funds will not lend any of its assets, except portfolio
securities. This shall not prevent the Income Funds from purchasing or
holding money market instruments, repurchase agreements, obligations of
the U.S. government, its agencies or instrumentalities, and certain debt
instruments as permitted by its investment objective, policies and
limitations, and Declaration of Trust.
DEALING IN PUTS AND CALLS
The Income Funds will not buy or sell puts, calls, straddles, spreads, or
any combination of these.
CONCENTRATION OF INVESTMENTS
The Connecticut/Massachusetts Intermediate Municipal Income Funds will
not purchase securities if, as a result of such purchase, 25% or more of
the value of its total assets would be invested in any one industry or in
industrial development bonds or other securities, the interest upon which
is paid from revenues of similar types of projects. However, the
Connecticut/Massachusetts Intermediate Municipal Income Funds may invest
as temporary investments more than 25% of the value of its assets in cash
or cash items (the Connecticut/ Massachusetts Intermediate Municipal
Income Funds consider cash items to be instruments issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment), securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, or instruments secured by these money
market instruments, i.e., repurchase agreements.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Connecticut/Massachusetts Intermediate Municipal Income Funds will
limit its investment in other investment companies to no more than 3% of
the total outstanding voting stock of any investment company, will invest
no more than 5% of total assets in any one investment company, and will
invest no more than 10% of its total assets in investment companies in
general. The Funds will purchase securities of closed-end investment
companies only in open market transactions involving only customary
broker's commissions. However, these limitations are not applicable if
the securities are acquired in a merger, consolidation, reorganization,
or acquisition of assets. It should be noted that investment companies
incur certain expenses such as management fees, and therefore any
investment by the Connecticut/Massachusetts Intermediate Municipal Income
Funds in shares of another investment company would be subject to such
duplicate expenses.
INVESTING IN SYNTHETIC BOND DERIVATIVES
The Connecticut/Massachusetts Intermediate Municipal Income Funds will
limit the individual investments in synthetic bond derivatives to 10% of
total assets.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE FUND
The Income Funds will not purchase or retain the securities of any issuer
if the officers and Trustees of the Income Funds or its investment
adviser owning individually more than 1/2 of 1% of the issuer's
securities together own more than 5% of the issuer's securities.
INVESTING IN ILLIQUID SECURITIES
The Income Funds will not invest more than 15% of its net assets in
illiquid obligations, including repurchase agreements providing for
settlement in more than seven days after notice, and certain restricted
securities.
INVESTING IN NEW ISSUERS
The Connecticut/Massachusetts Intermediate Municipal Income Funds will
not invest more than 5% of the value of its total assets in industrial
development bonds where the principal and interest are the responsibility
of companies (or guarantors, where applicable) with less than three years
of continuous operations, including the operation of any predecessor.
INVESTING IN MINERALS
The Income Funds will not purchase or sell, oil, gas, or other mineral
exploration or development programs, or leases.
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Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
The Income Funds did not borrow money or pledge securities in excess of
5% of net assets during the past fiscal year, and do not intend to borrow
money or pledge securities or invest in repurchase agreements in excess
of 5% of the value of its net assets during the coming fiscal year.
CONNECTICUT INVESTMENT RISKS
The Fund invests in obligations of Connecticut issuers which results in the
Fund's performance being subject to risks associated with the overall conditions
present within the state. The following information is a brief summary of the
recent prevailing economic conditions and a general summary of the state's
financial status. This information is based on official statements relating to
securities that have been offered by Connecticut issuers and from other sources
believed to be reliable but should not be relied upon as a complete description
of all relevant information.
The State of Connecticut has experienced fiscal problems in three of the last
four years. Following a contentious budget enactment for fiscal year 1992, the
State enacted an individual income tax while slightly reducing the sales tax.
The State has also suffered from the recent national recession that impacted the
State especially hard and continues to force changing economic conditions in the
State.
The Connecticut economy is largely composed of manufacturing (especially defense
related) and service industries (such as insurance) that were robust and growing
for much of the past two decades. Beginning in the late 1980's, the regional
economy slowed down and entered a recession that has affected several areas of
the State's economy. Specifically, the cutbacks in the defense and insurance
industries and general corporate restructurings due to declining profits have
caused large numbers of job losses and increased the fiscal strain on the State
and local governments.
The two major revenue sources available to cities and towns in Connecticut are
local property taxes and aid from the state. State aid is mostly related to
educational grants and human service funds for lower income individuals.
Property values and the resulting taxes which grew significantly during the
1980's have stabilized and even fallen slightly in some areas. Especially hard
hit are those local governments with large job losses due to cutbacks or
shutdowns due to the impact to the tax base.
The Fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund which is diversified
across numerous states and municipal entities. The ability of the State or its
municipalities to meet their obligations will depend on the availability of tax
and other revenues; economic, political, and demographic conditions within the
State; and the underlying fiscal condition of the State and its municipalities.
In light of the enactment of a personal income tax in the state of Connecticut
replacing the high interest and dividends tax as well as a reduction in the
sales tax, the long term fiscal outlook for the state has improved. And as a
consequence, Moody's, Standard & Poor's, and Fitch have maintained their double
AA ratings.
MASSACHUSETTS INVESTMENT RISKS
The Commonwealth of Massachusetts stabilized its fiscal position in 1992.
Through conservative revenue estimates and significant expenditure reductions
the Commonwealth was able to generate a surplus ($283 million) for the 1992
fiscal year end. Tax revenues exceeded the administration's estimates by
approximately $1.2 billion or 7%. The Commonwealth greatly reduced its reliance
upon short-term debt in fiscal 1992. Approximately $635 million of commercial
paper was issued in 1992 to fund current operations compared with $1.2 billion
issued in both 1991 and 1990. The Commonwealth projects commercial paper
borrowing to be only $400 million in fiscal 1993. Expenditure reductions also
contributed to a large degree to the stabilization of the Commonwealth's
financial position in 1992. Local aid payments were reduced from $2.7 billion in
1991 to $2.47 billion. Higher education spending was reduced by $70 million
(11.5%) and the state's work force was reduced by 8,250 employees. Medicaid
expenditures were only 1.9% higher compared with increases which were averaging
19.25% during the period 1988 to 1991.
The fiscal 1993 budget has allowed for increased spending while instituting
additional expenditure controls. The budget forecasts total revenue of $14,485
million (a 4.9% increase) and tax revenue is estimated at $9,685 million (a 2.2%
increase). Fund balances are expected to be drawn down by $364 million.
Nonrecurring revenues included in the budget total $229 million, compared with
$830 million included in the 1992 budget. Projected spending of $14,849.5
million is an 8.7% increase over fiscal 1992. The largest spending increase
(13.8% or $349 million) is for direct local aid. This represents the first
increase in three years. Medicaid expenditures are budgeted to increase 7.9%
even after program reforms which are to save $100 million in 1993. This reflects
the difficulty for state governments to control Medicaid costs.
Debt levels for the Commonwealth are among the highest of the states. The debt
situation has been exacerbated by the issuance of $250 million of fiscal
recovery bonds at the end of fiscal 1992. In fiscal 1991, dedicated income tax
bonds were issued to finance the combined deficits in the general and local aid
funds. The issuance was part of the
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Fiscal Recovery Loan Act of 1990. $1.4 billion of bonds were issued and are
secured by the pledge of dedicated tax revenues. These bonds amortize through
1997. Debt service requirements for general obligation and special obligation
debt alone are 8.2% of estimated fiscal 1993 spending requirements. The
increased debt levels which are the result of capital borrowing and deficit
bonds have doubled scheduled debt service requirements between 1987 and 1992. As
a result, debt service will remain high through 1997.
The regional economy may have reached the trough of the current economic cycle.
The largest cause for concern in the Massachusetts economy is the significant
job loss which has occurred between 1989 and present. From calendar year 1989 to
1991, 309,200 non-farm jobs were lost. This represents a 10.1% decline with the
largest decline of 5.4% occurring in 1991. Much of the loss has occurred in the
construction and high tech industries. The defense related industries, which
provide 3% of private sector employment, have suffered some employment losses.
However, more significant declines are expected in this industry in the future,
especially with the election of the new administration. There is some sign of
moderation on the employment front. The unemployment rate has declined to 8.3%
as of July 1992 from an average of 9% in 1991. The service sector in
Massachusetts has fared rather well and has been expanding. The presence of a
large number of higher education and health care institutions, a well educated
work force, and a large investment community has helped to provide a solid
economic base. The presence of several large public works programs (MWRA, Bay
Tunnel), improvements in the banking community and lower real estate values
should put the Commonwealth in a stronger position as the national economy
recovers.
During the past few years, the current administration in cooperation with the
legislature have made steady progress in resolving the fiscal ills facing the
Commonwealth which included budget tightening, reducing local state aid, and
employing new methods of financing projects. Because of the significant
progress, the major rating agencies upgraded the Commonwealth to A rated status
this past fall.
THE SHAWMUT FUNDS MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Shawmut Bank, N.A.,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
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John F. Donahue+* Chairman Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors and Trustee Advisers, Federated Management, and Federated Research; Director, AEtna Life
Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire
Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice
President of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee Senior Vice-President, John R. Wood and Associates, Inc., Realtors;
Wood/IPC Commercial President, Investment Properties Corporation, Naples Property Management,
Department Inc., and Northgate Village Development Corporation; General Partner or
John R. Wood Trustee in private real estate ventures in Southwest Florida; Director,
& Associates Trustee, or Managing General Partner of the Funds.
3255 Tamiami Trail North
Naples, FL
- --------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
Suite 2310 Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
PNB Building Chairman and Director, PNC Financial Corp and Director, Ryan Homes, Inc.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA Cross of Massachusetts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat 'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Trustee,
225 Franklin Street Lahey Clinic Foundation, Inc.; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly President, State Street Bank & Trust Company
and State Street Boston Corporation.
- --------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Pittsburgh, PA Chairman, Horizon Financial, F.A.
- --------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Management Consultant; Trustee, Carnegie Endowment for International Peace
1202 Cathedral of and RAND Corporation; Chairman, National Advisory Council for Environmental
Learning Policy & Technology; Czecho Slovak Management Center; Director, Trustee, or
University of Pittsburgh Managing General Partner of the Funds; formerly, President, University of
Pittsburgh, PA Pittsburgh.
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue* Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; President and Director,
Tower Federated Administrative Services; Trustee, Federated Services Company;
Pittsburgh, PA President or Vice President of the Funds; Director, Trustee or Managing
General Partner of some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales President, Vice President, Treasurer and Trustee, Federated Investors; Vice President
Federated Investors Treasurer, and Treasurer, Federated Advisers, Federated Management, and Federated
Tower and Trustee Research; Executive Vice President, Treasurer, and Director, Federated
Pittsburgh, PA Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer,
and Director, Federated Administrative Services; Trustee or Director of some
of the Funds; Vice President and Treasurer of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Trustee, Federated Services
Pittsburgh, PA Company; Executive Vice President, Secretary, and Trustee, Federated
Administrative Services; Director and Executive Vice President, Federated
Securities Corp.; Vice President and Secretary of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President,
Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Trustee, Federated Services
Pittsburgh, PA Company; Vice President of the Funds; Director, Trustee, or Managing General
Partner of the Funds; formerly, Vice President, The Standard Fire Insurance
Company and President of its Federated Research Division.
- --------------------------------------------------------------------------------------------------------------------------------
Jeffrey W. Sterling Vice President Vice President, Federated Administrative Services; Director of Private Label
Federated Investors and Assistant Management, Federated Investors; Vice President and Assistant Treasurer of
Tower Treasurer some of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
+ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
FUNDS
"The Funds," and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; BayFunds;
Berry Street Funds; The Boulevard Funds; California Municipal Cash Trust; Cash
Trust Series; Cash Trust Series II; Convertible Securities and Income, Inc.; 111
Corcoran Fund; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; FT Series, Inc.; Federated ARMs Fund; Federated Bond Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities Trust,
Inc.; Federated Income Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Intermediate Municipal Trust; Federated Master
Trust; Federated Municipal Income Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Short-Intermediate Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government
Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.;
High Yield Cash Trust; Insurance Management Series; Investment Series Funds,
Inc.; Investment Series Trust; Liberty High Income Bond Fund, Inc.; Liberty Term
Trust, Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility
Fund, Inc.; Liquid Cash Trust; Losantiville Funds; Mark Twain Funds; Money
Market Management; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; New York Municipal Cash Trust; The Planters Funds; The
Passageway Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Signet
Select Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund,
Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations.
INCOME FUNDS OWNERSHIP
Officers and Trustees own less than 1% of the Income Funds' outstanding shares.
As of February 10, 1994, the following shareholders of record owned 5% or more
of the outstanding shares of the Income Funds: Eleanor D. Cecarelli, Shelton,
Connecticut, owned approximately 51,363 (5.71%) shares of Connecticut
Intermediate Municipal Income Fund; and John Fanelli and Gina Fanelli,
Fitchburg, Massachusetts, owned approximately 78,647 (14.21%) shares of
Massachusetts Intermediate Municipal Income Fund.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE INCOME FUNDS
The Income Funds' investment adviser is Shawmut Bank, N.A. (the "Adviser"). The
Adviser shall not be liable to the Trust, the Income Funds or any 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.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. During the fiscal year ended October 31,
1993, the Fund's adviser earned the following advisory fees: Connecticut
Intermediate Municipal Income Fund, $11,033, all of which was voluntarily
waived; Fixed Income Fund, $605,022, of which $169,100 was voluntarily waived;
Intermediate Government Income Fund, $443,271, of which $122,880 was voluntarily
waived; Limited Term Income Fund, $411,275, of which $116,939 was voluntarily
waived; and Massachusetts Intermediate Municipal Income Fund, $6,559, all of
which was voluntarily waived. In addition, the Fund's adviser reimbursed other
operating expenses for the following Funds: Connecticut Intermediate Municipal
Income Fund, $23,435 and Massachusetts Intermediate Municipal Income Fund,
$25,582.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Income Funds' normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2 1/2% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets, and
1 1/2% per year of the remaining average net assets, the Adviser will
reimburse the Income Funds for its expenses over the limitation. If the
Income Funds' monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Income Funds for the fee set forth
in the prospectus. For the fiscal year ended October 31, 1993 Federated
Administrative Services earned the following administrative fees from the Funds:
Connecticut Intermediate Municipal Income Fund, $1,931, all of which was
voluntarily waived; Fixed Income Fund, $94,878; Intermediate Government Income
Fund, $69,486; Limited Term Income Fund, $64,554; and Massachusetts Intermediate
Municipal Income Fund, $1,149, all of which was voluntarily waived.
Shawmut Bank, N.A., serves as custodian to the Income Funds. As compensation for
its services, the custodian receives a fee based upon a sliding scale ranging
from a minimum of .011% to a maximum of .02%, plus certain transaction costs.
For the fiscal year ended October 31, 1993, the Funds' custodian earned the
following fees: Connecticut Intermediate Municipal Income Fund, $315, all of
which was voluntarily waived; Fixed Income Fund, $8,011; Intermediate Government
Income Fund, $6,534; Limited Term Income Fund, $5,350; Massachusetts
Intermediate Municipal Income Fund, $187, all of which was voluntarily waived.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
It is the Income Funds' policy with respect to the selection of brokers and
dealers in the purchase and sale of securities to obtain the "best net realized
price" on each transaction. The Income Funds conduct business only with
financially sound brokers or dealers on that basis. Brokerage commission is,
however, only one element in determining "best net realized price." The Adviser
may also select brokers and dealers who offer research and other services. These
services may be furnished directly to the Income Funds or to the Adviser and may
include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
- --------------------------------------------------------------------------------
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser for other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value plus a sales charge on days on which
the New York Stock Exchange and the Federal Reserve Wire System are open for
business. The procedure for purchasing shares of the Income Funds is explained
in the prospectuses under "Investing in the Income Funds."
DISTRIBUTION PLAN (INVESTMENT SHARES)
With respect to the Investment Shares class of the Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Funds, the Trust
has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the
Securities and Exchange Commission pursuant to the Investment Company Act of
1940. The Plan permits the payment of fees to administrators (including
broker/dealers and depository institutions such as commercial banks and savings
and loan associations) for distribution and administrative services. The Plan is
designed to stimulate administrators to provide distribution and administrative
support services to these funds and their shareholders. The administrative
services are provided by a representative who has knowledge of the shareholder's
particular circumstances and goals, and include, but are not limited to:
communicating account openings; communicating account closings; entering
purchase transactions; entering redemption transactions; providing or arranging
to provide accounting support for all transactions, wiring funds and receiving
funds for Share purchases and redemptions, confirming and reconciling all
transactions, reviewing the activity in Fixed Income Fund, Intermediate
Government Income Fund, and Limited Term Income Funds accounts, and providing
training and supervision of broker personnel; posting and reinvesting dividends
to these accounts or arranging for this service to be performed by the transfer
agent; and maintaining and distributing current copies of prospectuses and
shareholder reports to the beneficial owners of shares of the Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Funds and
prospective shareholders.
By adopting the Plan, the Board of Trustees expects that the Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Funds will be able
to achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and assist
the Fixed Income Fund, Intermediate Government Income Fund, and Limited Term
Income Funds in seeking to achieve its investment objectives. By identifying
potential investors whose needs are served by the Fixed Income Fund,
Intermediate Government Income Fund, and Limited Term Income Funds' objectives,
and properly servicing these accounts, these funds may be able to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits which the Fixed Income Fund, Intermediate Government Income Fund,
and Limited Term Income Funds hope to achieve through the Plan include, but are
not limited to, the following: (1) an efficient and effective administrative
system; (2) a more efficient use of shareholder assets by having them rapidly
invested in these funds, through an automatic transfer of funds from a demand
deposit account to an investment account, with a minimum of delay and
administrative detail; and (3) an efficient and reliable shareholder records
system and prompt responses to shareholder requests and inquiries concerning
their accounts.
For the fiscal year ended October 31, 1993, brokers earned the following fees
from the Funds pursuant to the Plan: Connecticut Intermediate Municipal Income
Fund, --0--; Fixed Income Fund, $17,497, of which $8,749 was voluntarily waived;
Intermediate Government Income Fund, $24,926, of which $12,463 was voluntarily
waived; Limited Term Income Fund, $5,779, of which $2,889 was voluntarily
waived; and Massachusetts Intermediate Municipal Income Fund, --0--.
CONVERSION TO FEDERAL FUNDS
It is the Income Funds' 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. Shawmut Bank, N.A. acts
as the shareholder's agent in depositing checks and converting them to federal
funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value generally changes each day. The days on which net asset
value is calculated by the Income Funds are described in the prospectus.
- --------------------------------------------------------------------------------
VALUING MUNICIPAL BONDS
For the Connecticut/Massachusetts Intermediate Municipal Income Funds, the Board
of Trustees uses an independent pricing service to value municipal bonds. The
independent pricing service takes into consideration yield, stability, risk,
quality, coupon rate, maturity, type of issue, trading characteristics, special
circumstances of a security or trading market, and any other factors or market
data it considers relevant in determining valuations for normal institutional
size trading units of debt securities, and does not rely exclusively on quoted
prices.
USE OF AMORTIZED COST
The Board of Trustees has decided that the fair value of debt securities
authorized to be purchased by the Connecticut/ Massachusetts Intermediate
Municipal Income Funds with remaining maturities of 60 days or less shall be
their amortized cost value, unless the particular circumstances of the security
indicate otherwise. Under this method, portfolio instruments and assets are
valued at the acquisition cost as adjusted for amortization of premium or
accumulation of discount rather than at current market value. The Executive
Committee continually assesses this method of valuation and recommends changes
where necessary to assure that the Income Funds' portfolio instruments are
valued at their fair value as determined in good faith by the Trustees.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fixed Income Fund, Intermediate Government Income Fund, and
Limited Term Income Funds' portfolio securities are determined as follows:
- - according to the last sale price on a national securities exchange, if
available;
- - in the absence of recorded sales for bonds, notes, and other fixed income
securities, as determined by an independent pricing service;
- - for short-term obligations, according to the mean between bid and asked
prices, as furnished by an independent pricing service, or for short-term
obligations with maturities of less than 60 days, at amortized cost unless the
Board determines this is not fair value; or
- - for all other securities, at fair value as determined in good faith by the
Fund's Board of Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Income Funds redeems shares at the next computed net asset value after the
redemption requests are received. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Income Funds' portfolio. Redemption in kind
will be made in conformity with applicable Securities and Exchange Commission
rules, taking such securities at the same value employed in determining net
asset value and selecting the securities in a manner the Trustees determine to
be fair and equitable.
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 Income Funds'
net asset value during any 90-day period.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
REQUIREMENTS FOR EXCHANGE
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
Further information on the exchange privilege and prospectuses may be obtained
by calling Shawmut Bank.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing or by telephone. Written
instructions may require a signature guarantee.
TAX STATUS
- --------------------------------------------------------------------------------
THE INCOME FUNDS' TAX STATUS
The Income Funds will pay no federal income tax because the Income Funds expect
to meet the requirements of Subchapter M of the Internal Revenue Code applicable
to regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, each of the Income
Funds must, among other requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
FEDERAL INCOME TAX
Each of the Income Funds will be treated as a single, separate entity for
federal income tax purposes so that income (including capital gains) and losses
realized by the Trust's other portfolios will not be combined for tax purposes
with those realized by each of the Income Funds.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Connecticut/ Massachusetts Intermediate Municipal
Income Funds that represent net interest on tax-exempt municipal bonds.
In the case of a corporate shareholder, dividends of the Income Funds which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax. The corporate alternative minimum tax treats 75% of the
excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's
alternative minimum taxable income as a tax preference item. Since "earnings and
profits" generally includes the full amount of any of the Income Funds'
dividends, and alternative minimum taxable income does not include the portion
of the Income Funds' dividend attributable to municipal bonds which are not
private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Income Funds representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income. Long-term capital gains distributions are taxed as long-term
capital gains, regardless of the length of time the Income Funds shares have
been held by the shareholder.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
MASSACHUSETTS STATE INCOME TAX
Individual shareholders of the Massachusetts Intermediate Municipal Income Fund
who are subject to Massachusetts income taxation will not be required to pay
Massachusetts income tax on that portion of their dividends which is
attributable to interest earned on Massachusetts tax-free municipal obligations,
gain from the sale of certain of such obligations, interest earned on
obligations of the United States, and interest earned on obligations of United
States territories or possessions to the extent interest on such obligations is
exempt from taxation by the state pursuant to federal law. All remaining
dividends will be subject to Massachusetts income tax.
If a shareholder of the Massachusetts Intermediate Municipal Income Fund is a
Massachusetts business corporation or any foreign business corporation which
exercises its charter, qualifies to do business, actually does business or owns
or uses any part of its capital, plant or other property in Massachusetts, then
it will be subject to Massachusetts excise taxation either as a tangible
property corporation or as an intangible property corporation. If the corporate
shareholder is a tangible property corporation, it will be taxed upon its net
income allocated to Massachusetts and the value of certain tangible property. If
it is an intangible property corporation, it will be taxed upon its net income
and net worth allocated to Massachusetts. Net income is gross income less
allowable deductions for federal income tax purposes, subject to specified
modifications. Dividends received from the Fund are includable in gross income
and generally may not be deducted by a corporate shareholder in computing its
net income. The corporation's shares in the Massachusetts Intermediate Municipal
Income Fund are not includable in the computation of the tangible property base
of a tangible property corporation, but are includable in the computation of the
net worth base of an intangible property corporation.
Shares of Massachusetts Intermediate Municipal Income Fund will be exempt from
local property taxes in Massachusetts.
OTHER STATE AND LOCAL TAXES
Income from the Connecticut/Massachusetts Intermediate Municipal Income Funds
are not necessarily free from state income taxes or from local property taxes in
states other than Connecticut and Massachusetts (respectively). State laws
differ on this issue, and shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.
- --------------------------------------------------------------------------------
SHAREHOLDER'S TAX STATUS
CAPITAL GAINS
Capital gains or losses may be realized by the Connecticut/Massachusetts
Intermediate Municipal Income Funds on the sale of portfolio securities
and as a result of discounts from par value on securities held to
maturity. Sales would generally be made because of:
- the availability of higher relative yields;
- differentials in market values;
- new investment opportunities;
- changes in creditworthiness of an issuer; or
- an attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares.
Fixed Income Fund, Intermediate Government Income Fund, and Limited Term
Income Funds' Shareholders are subject to federal income tax on dividends
received as cash or additional Shares. No portion of any income dividend
paid by the Fund is eligible for the dividends received deduction
available to corporations. These dividends, and any short-term capital
gains, are taxable as ordinary income.
TOTAL RETURN
- --------------------------------------------------------------------------------
Cumulative total return reflects the Income Funds' total performance over a
specific period of time. This total return assumes and is reduced by the payment
of the maximum sales load.
YIELD
- --------------------------------------------------------------------------------
The yield for the Income Funds is determined each day by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by the Income Funds over a thirty-day period by the maximum
offering price per share of the Income Funds on the last day of the period. This
value is then annualized using semi-annual compounding. This means that the
amount of income generated during the thirty-day period is assumed to be
generated each month over a twelve-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by the
Income Funds because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial institutions
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in the Income Funds, performance will be reduced
for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The tax-equivalent yield for the Connecticut/Massachusetts Intermediate
Municipal Income Funds is calculated similarly to the yield, but is adjusted to
reflect the taxable yield that the Connecticut/Massachusetts Intermediate
Municipal Income Funds would have had to earn to equal its actual yield,
assuming a 28% tax rate and assuming that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Connecticut/Massachusetts Intermediate Municipal Income Funds may also use a
tax-equivalency table in advertising and sales literature. The interest earned
by the municipal obligations in the Connecticut/Massachusetts Intermediate
Municipal Income Funds' portfolio generally remains free from federal income tax
and is free from the income taxes imposed by the State of Massachusetts. As the
table below indicates, a "tax-free" investment is an attractive choice for
investors, particularly in times of narrow spreads between "tax-free" and
taxable yields.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1993
COMMONWEALTH OF MASSACHUSETTS
- -----------------------------------------------------------------------------------------------------------
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE:
27.00% 40.00% 43.00% 48.00% 51.60%
- -----------------------------------------------------------------------------------------------------------
JOINT RETURN: $1-36,900 $36,901-89,150 $89,151-140,000 $140,001-250,000 OVER $250,000
SINGLE RETURN: $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 OVER $250,000
- -----------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- -----------------------------------------------------------------------------------------------------------
1.50% 2.05% 2.50% 2.63% 2.88% 3.10%
2.00% 2.74% 3.33% 3.51% 3.85% 4.13%
2.50% 3.42% 4.17% 4.39% 4.81% 5.17%
3.00% 4.11% 5.00% 5.26% 5.77% 6.20%
3.50% 4.79% 5.83% 6.14% 6.73% 7.23%
4.00% 5.48% 6.67% 7.02% 7.69% 8.26%
4.50% 6.16% 7.50% 7.89% 8.65% 9.30%
5.00% 6.85% 8.33% 8.77% 9.62% 10.33%
5.50% 7.53% 9.17% 9.65% 10.58% 11.36%
6.00% 8.22% 10.00% 10.53% 11.54% 12.40%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The above chart is for illustrative purposes only and uses tax brackets that
went into effect beginning January 1, 1993. It is not an indicator of past or
future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1993
STATE OF CONNECTICUT
- -----------------------------------------------------------------------------------------------------------
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE:
19.50% 32.50% 35.50% 40.50% 44.10%
- -----------------------------------------------------------------------------------------------------------
JOINT RETURN: $1-36,900 $36,901-89,150 $89,151-140,000 $140,001-250,000 OVER $250,000
SINGLE RETURN: $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 OVER $250,000
- -----------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- -----------------------------------------------------------------------------------------------------------
1.50% 1.86% 2.22% 2.33% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.58%
2.50% 3.11% 3.70% 3.88% 4.20% 4.47%
3.00% 3.73% 4.44% 4.65% 5.04% 5.37%
3.50% 4.35% 5.19% 5.43% 5.88% 6.26%
4.00% 4.97% 5.93% 6.20% 6.72% 7.16%
4.50% 5.59% 6.67% 6.98% 7.56% 8.05%
5.00% 6.21% 7.41% 7.75% 8.40% 8.94%
5.50% 6.83% 8.15% 8.53% 9.24% 9.84%
6.00% 7.45% 8.89% 9.30% 10.08% 10.73%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The above chart is for illustrative purposes only and uses tax brackets that
went into effect beginning January 1, 1993. It is not an indicator of past or
future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local regular or alternative minimum taxes.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISONS
-------------------------------------------------------------------------------
The Income Funds' performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolio securities;
- - changes in the Income Funds' expenses; and
- - various other factors.
The Income Funds' performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.
From time to time, the Income Funds may advertise the performance of the Income
Funds compared to similar funds using various indices, including the following:
- - 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 specific period of time.
From time to time, the Income Funds will quote its Lipper ranking in the
"general municipal bond funds" category in advertising and sales literature.
- - SHEARSON LEHMAN MUNICIPAL BOND INDICES are indices comprised of state general
obligation and/or revenue debt issues with varying maturities and rating
limitations.
Investors may use such indices in addition to the Income Funds' prospectus to
obtain a more complete view of the Income Funds' performance before investing.
Of course, when comparing performance of the Income Funds to any index, factors
such as composition of the index and prevailing market conditions should be
considered in assessing the significance of such comparisons. When comparing
funds using reporting services, or total return and yield, investors should take
into consideration any relevant differences in funds such as permitted portfolio
compositions and methods used to value portfolio securities and compute offering
price.
Advertisements and other sales literature for the Income Funds may refer to
total return. Total return is the historic change in the value of an investment
in the Income Funds based on monthly reinvestment of dividends over a specific
period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
DURATION
Duration is a commonly used measure of the potential volatility in the price of
a bond, or other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in the
price of a bond relative to a given change in the market rate of interest. A
bond's price volatility depends on three primary variables: the bond's coupon
rate; maturity date; and the level of market yields of similar fixed income
securities. Generally, bonds with lower coupons or longer maturities will be
more volatile than bonds with higher coupons or shorter maturities. Duration
combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values of the
cash flows of a bond or bonds, including interest and principal payments, by the
sum of the present values of the cash flows. When the Fund invests in mortgage
pass-through securities, its duration will be calculated in a manner which
requires assumptions to be made regarding future principal prepayments. A more
complete description of this calculation is available upon request from the
Fund.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for the fiscal year ended October 31, 1993 are
incorporated herein by reference to the Annual Report of the Trust dated October
31, 1993. A copy of the Annual Report may be obtained without charge by
contacting the Trust at the address located on the back cover of the prospectus.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S CORPORATE BOND RATINGS DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakend capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB,B--Debt rated BB or B, is regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates a low degree of speculation.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in AAA securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from AA through B in its corporate or municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of very high quality. The
obligor has an exceptionally strong ability to pay interest and repay principal,
which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
- --------------------------------------------------------------------------------
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category.
STANDARD AND POOR'S MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1++ and F-1 categories.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high for issues designated A-1.
MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; well established access to a range of
financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
3120920B (2/94)
THE SHAWMUT FUNDS
EQUITY FUNDS
SHAWMUT GROWTH EQUITY FUND
SHAWMUT GROWTH AND INCOME EQUITY FUND
SHAWMUT SMALL CAPITALIZATION EQUITY FUND
TRUST SHARES
COMBINED PROSPECTUS
The shares offered by this prospectus represent interests in Trust Shares of the
equity portfolios (collectively, the "Equity Funds" or individually, as
appropriate in context, the "Fund") of The Shawmut Funds (the "Trust"), an
open-end management investment company (a mutual fund). In addition to the
Equity Funds, the Trust consists of the following separate investment
portfolios, each having distinct investment objectives and policies:
INCOME FUNDS
Shawmut Connecticut Intermediate Municipal
Income Fund
Shawmut Fixed Income Fund
Shawmut Intermediate Government Income Fund
Shawmut Limited Term Income Fund
Shawmut Massachusetts Intermediate Municipal
Income Fund
MONEY MARKET FUNDS
Shawmut Connecticut Municipal Money
Market Fund
Shawmut Massachusetts Municipal Money
Market Fund
Shawmut Prime Money Market Fund
This combined prospectus contains the information you should read and know
before you invest in the Equity Funds. Keep this prospectus for future
reference. The Equity Funds have also filed a Combined Statement of Additional
Information for Trust Shares and Investment Shares dated February 28, 1994, with
the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge, obtain other information, or make inquiries about
the Equity Funds by writing or calling the Trust.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF SHAWMUT
BANK, ARE NOT ENDORSED OR GUARANTEED BY SHAWMUT BANK, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ARE THEY INSURED OR GUARANTEED BY THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. MUTUAL FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING FLUCTUATIONS IN VALUE AND EARNINGS, AND THE POSSIBLE
LOSS OF PRINCIPAL.
Prospectus dated February 28, 1994
TABLE OF CONTENTS
SYNOPSIS 3
- ------------------------------------------------------
SUMMARY OF EQUITY FUNDS' EXPENSES--
TRUST SHARES 4
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 5
- ------------------------------------------------------
GENERAL INFORMATION 8
- ------------------------------------------------------
THE SHAWMUT FUNDS 8
- ------------------------------------------------------
OBJECTIVE AND POLICIES OF EACH FUND 8
- ------------------------------------------------------
Growth Equity Fund 8
Investment Objectives 8
Investment Policies 8
Acceptable Investments 8
Growth and Income Equity Fund 9
Investment Objective 9
Investment Policies 9
Acceptable investments 9
Small Capitalization Equity Fund 9
Investment Objective 9
Investment Policies 9
Acceptable Investments 9
EQUITY FUNDS INVESTMENTS AND STRATEGIES 10
- ------------------------------------------------------
Common Stock
Convertible Securities 10
Securities of Foreign Issuers 11
Options and Futures Contracts 11
Stock Index Futures, Swap Agreements,
Indexed Securities, and Options 11
Restricted and Illiquid Securities 12
When-Issued and Delayed Delivery
Transactions 12
Lending of Portfolio Securities 12
Temporary Investments 12
Repurchase Agreements 12
Investing in Securities of Other
Investment Companies 13
Investment Limitations 13
THE SHAWMUT FUNDS INFORMATION 14
- ------------------------------------------------------
Management of The Shawmut Funds 14
Board of Trustees 14
Investment Adviser 14
Advisory Fees 14
Adviser's Background 14
Distribution of Equity Funds' Shares 15
Administration of the Equity Funds 15
Administrative Services 15
Custodian 15
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 15
Legal Counsel 15
Independent Accountants 15
Expenses of the Equity Funds
and Trust Shares 15
NET ASSET VALUE 16
- ------------------------------------------------------
INVESTING IN TRUST SHARES 16
- ------------------------------------------------------
Through Shawmut Bank 16
Directly from the Distributor 17
Minimum Investment Required 17
What Shares Cost 17
Subaccounting Services 17
Certificates and Confirmations 18
Dividends 18
Capital Gains 18
EXCHANGE PRIVILEGE 18
- ------------------------------------------------------
Exchanging Shares 18
Exchanging-by-Telephone 18
REDEEMING TRUST SHARES 19
- ------------------------------------------------------
Through Shawmut Bank 19
Directly from the Equity Funds 19
By Mail 19
Signatures 19
Receiving Payment 20
By Check 20
By Wire 20
Accounts with Low Balances 20
Redemption in Kind 20
SHAREHOLDER INFORMATION 20
- ------------------------------------------------------
Voting Rights 20
Massachusetts Partnership Law 21
EFFECT OF BANKING LAWS 21
- ------------------------------------------------------
TAX INFORMATION 22
- ------------------------------------------------------
Federal Income Tax 22
OTHER CLASSES OF SHARES 22
- ------------------------------------------------------
PERFORMANCE INFORMATION 22
- ------------------------------------------------------
SYNOPSIS
INVESTMENT OBJECTIVE
The Shawmut Funds offer you a convenient, affordable way to participate in
separate, professionally managed portfolios of securities. This prospectus
relates only to the Equity Funds of the Trust.
EQUITY FUNDS
- ------------------------------------------------------
SHAWMUT GROWTH EQUITY FUND
("Growth Equity Fund") seeks long term capital appreciation by investing in
a diversified portfolio of growth-oriented equity securities. The Fund
defines growth-oriented equity securities as securities of companies that
are projected by the investment adviser, based upon traditional research
techniques, to show earnings growth superior to the Standard & Poor's 500
Composite Stock Index.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT GROWTH AND INCOME
EQUITY FUND
("Growth and Income Equity Fund") seeks a relatively high total return
through long-term capital appreciation and current income looking to
achieve a current dividend yield that exceeds the composite yield of
securities included in the Standard & Poor's 500 Composite Stock Index.
While there is no assurance that the Growth and Income Equity Fund will
achieve its objectives, it attempts to do so by investing in a
professionally managed, diversified portfolio consisting primarily of
common stocks that are selected by the investment adviser based upon
traditional research techniques.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT SMALL CAPITALIZATION
EQUITY FUND
("Small Capitalization Equity Fund") seeks long-term capital appreciation
by investing primarily in a portfolio of equity securities comprising the
small capitalization sector of the United States equity market (companies
which have a market value capitalization up to $1 billion).
- ------------------------------------------------------
BUYING AND REDEEMING EQUITY FUND SHARES
A minimum initial investment of $1,000 is required. Subsequent investments must
be in amounts of at least $100, as described in this prospectus in the section
entitled "Minimum Investment Required." Trust Shares are currently sold at net
asset value and are redeemed at net asset value without a sales charge.
EQUITY FUND MANAGEMENT
The Equity Funds' investment adviser is Shawmut Bank, N.A., which makes
investment decisions for the Equity Funds.
SHAREHOLDER SERVICES
When you become a shareholder, you can easily obtain information about your
account by calling your Shawmut Bank trust officer.
THE SHAWMUT EQUITY FUNDS
SUMMARY OF EQUITY FUND EXPENSES--TRUST SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
GROWTH AND SMALL
GROWTH INCOME CAPITALIZATION
EQUITY EQUITY EQUITY
FUND FUND FUND
-------- ------------ ----------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................... None None None
Maximum Sales Load Imposed--on Reinvested Dividends
(as a percentage of offering price)............................... None None None
Deferred Sales Load (as a percentage of original purchase price or
redemption proceeds as applicable)................................ None None None
Redemption Fee (as a percentage of amount redeemed, if
applicable)....................................................... None None None
Exchange Fee........................................................ None None None
</TABLE>
<TABLE>
<S> <C> <C> <C>
ANNUAL TRUST SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1).................................... 0.50% 0.80% 0.75%
12b-1 Fees.......................................................... None None None
Total Other Expenses(2)............................................. 0.68% 0.22% 0.27%
Total Trust Shares Operating Expenses (after waiver)(3)............. 1.18% 1.02% 1.02%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 1.00%.
(2) Estimated other expenses have been reduced to reflect the voluntary waiver
by the administrator for the Growth Equity Fund.
(3) The Annual Trust Shares Operating Expenses for the fiscal year ended October
31, 1993 were 1.06% for the Growth Equity Fund; 0.98% for the Growth and
Income Equity Fund; 1.01% for the Small Capitalization Equity Fund. The
Annual Trust Shares Operating Expenses in the table above are based on
expenses expected during the fiscal year ending October 31, 1994. Absent the
anticipated voluntary waivers explained in the above footnotes, the Trust
Shares Operating Expenses are estimated to be 1.87% for Growth Equity Fund;
1.22% for Growth and Income Equity Fund; and 1.27% for Small Capitalization
Equity Fund.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF TRUST SHARES WILL BEAR, EITHER DIRECTLY
OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES,
SEE "THE SHAWMUT FUNDS INFORMATION" AND "INVESTING IN TRUST SHARES." WIRE-
TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period. As noted in the
table above, the Income Funds charges no redemption fee.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Growth Equity Fund................................. $12 $37 $65 $143
Growth and Income Equity Fund...................... $10 $32 $56 $125
Small Capitalization Equity Fund................... $10 $32 $56 $125
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Trust Shares of the Equity Funds. The Equity Funds also offer another class of
shares called Investment Shares. Trust Shares and Investment Shares are subject
to certain of the same expenses; however, Investment Shares are subject to a
12b-1 fee of up to .50 of 1%. See "Other Classes of Shares."
SHAWMUT GROWTH EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- ---------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.023
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.487
- -------------------------------------------------------------------------------------------- ------
Total from investment operations 0.510
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.019)
- -------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.49
- -------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 5.09%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 1.06%(a)
- --------------------------------------------------------------------------------------------
Net investment income 0.26%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.47%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $20,787
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 71%
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- ---------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.01
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.004
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.480
- -------------------------------------------------------------------------------------------- ------
Total from investment operations 0.484
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.004)
- -------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.49
- -------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 4.84%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 1.37%(a)
- --------------------------------------------------------------------------------------------
Net investment income (0.10)%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.72%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $4,631
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 71%
- --------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
(c) Represents portfolio turnover rate for the entire Fund.
SHAWMUT GROWTH AND INCOME EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- ---------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.18
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.69
- -------------------------------------------------------------------------------------------- ------
Total from investment operations 0.87
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.18)
- -------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.69
- -------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 8.80%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 0.98%(a)
- --------------------------------------------------------------------------------------------
Net investment income 2.11%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.27%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $147,090
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 38%
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- ---------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.23
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.15
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.48
- -------------------------------------------------------------------------------------------- ------
Total from investment operations 0.63
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.17)
- -------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.69
- -------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 6.20%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 1.25%(a)
- --------------------------------------------------------------------------------------------
Net investment income 1.77%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.53%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $16,280
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 38%
- --------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expenses/income ratios due to waivers or
reimbursements of expenses (Note 5).
(c) Represents portfolio turnover rate for the entire Fund.
SHAWMUT SMALL CAPITALIZATION EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- ---------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.002
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.210
- -------------------------------------------------------------------------------------------- ------
Total from investment operations 1.212
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.002)
- -------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $11.21
- -------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 12.12%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 1.01%(a)
- --------------------------------------------------------------------------------------------
Net investment income 0.02%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.28%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $100,382
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 29%
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- ---------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.52
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment loss (0.008)
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.698
- -------------------------------------------------------------------------------------------- ------
Total from investment operations 0.690
- -------------------------------------------------------------------------------------------- ------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.000)
- --------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.21
- -------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 6.56%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 1.33%(a)
- --------------------------------------------------------------------------------------------
Net investment loss (0.19)%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.54%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $15,014
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 29%
- --------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
(c) Represents portfolio turnover rate for the entire Fund.
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated July 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
As of the date of this prospectus, the Board of Trustees (the "Trustees") has
established two classes of shares of several of the Equity Funds, known as Trust
Shares and Investment Shares. This prospectus relates only to Trust Shares of
the Equity Funds.
A minimum initial investment of $1,000 is required. Subsequent investments must
be in amounts of at least $100, as described in this prospectus in the section
entitled "Minimum Investment Required. Shares are currently sold at net asset
value and are redeemed at net asset value without a sales charge imposed by the
Equity Funds.
THE SHAWMUT FUNDS
The shareholders of the Equity Funds are shareholders of The Shawmut Funds,
which currently consist of Shawmut Connecticut Intermediate Municipal Income
Fund, Shawmut Connecticut Municipal Money Market Fund, Shawmut Fixed Income
Fund, Shawmut Growth and Income Equity Fund, Shawmut Growth Equity Fund, Shawmut
Intermediate Government Income Fund, Shawmut Limited Term Income Fund, Shawmut
Massachusetts Intermediate Municipal Income Fund, Shawmut Massachusetts
Municipal Money Market Fund, Shawmut Prime Money Market Fund, and Shawmut Small
Capitalization Equity Fund. Shareholders in the Equity Funds have easy access to
the other portfolios of The Shawmut Funds through an exchange program. The
Shawmut Funds are advised by Shawmut Bank, N.A., and distributed by Federated
Securities Corp.
OBJECTIVE AND POLICIES OF EACH FUND
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE
The investment objective of the Growth Equity Fund is to provide long-term
capital appreciation. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The investment policies may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
- ------------------------------------------------------
UNDER NORMAL MARKET CIRCUMSTANCES, THE GROWTH EQUITY FUND WILL INVEST AT
LEAST 65% OF ITS ASSETS IN GROWTH-ORIENTED
EQUITY SECURITIES.
- ------------------------------------------------------
The Growth Equity Fund defines growth-oriented equity securities as securities
that are projected by the Growth Equity Fund's investment
adviser, to show earnings growth superior to the Standard & Poor's 500 Composite
Stock Index.
The Growth Equity Fund invests primarily in equity securities of companies
selected by the Growth Equity investment adviser on the basis of traditional
research techniques, including assessment of earnings and dividend growth
prospects and of the risk and volatility of each company's business. The
fundamental changes which the investment adviser will seek to identify in
companies include, for example, restructuring of basic businesses or
reallocations of assets which present opportunities for significant share price
appreciation. At times, the Growth Equity Fund will invest in securities of
companies which are deemed by the investment adviser to be candidates for
acquisition by other entities as indicated by changes in ownership, changes in
standard price to value ratios, and an examination of other standard analytical
indices.
GROWTH AND INCOME
EQUITY FUND
INVESTMENT OBJECTIVE
The investment objective of the Growth and Income Equity Fund is to provide a
relatively high total return through long-term capital appreciation and current
income. The investment objective cannot be changed without approval of
shareholders. The Growth and Income Equity Fund generally looks to achieve a
yield that exceeds the composite dividend yield of securities included in the
Standard & Poor's 500 Composite Stock Index. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The investment policies may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
- ------------------------------------------------------
UNDER NORMAL MARKET CIRCUMSTANCES, THE GROWTH AND INCOME EQUITY FUND WILL
INVEST AT LEAST 65% OF ITS ASSETS IN GROWTH AND INCOME EQUITY SECURITIES.
- ------------------------------------------------------
In addition, the Growth and Income Equity Fund may invest as described in this
prospectus.
SMALL CAPITALIZATION
EQUITY FUND
INVESTMENT OBJECTIVE
The investment objective of the Small Capitalization Equity Fund is to provide
long-term capital appreciation. The investment objective of the Small
Capitalization Equity Fund cannot be changed without the approval of
shareholders. While there is no assurance that the Small Capitalization Equity
Fund will achieve its investment objective, it endeavors to do so by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The investment policies described below may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS
- ------------------------------------------------------
THE SMALL CAPITALIZATION EQUITY FUND WILL INVEST AT LEAST 65% OF ITS ASSETS
IN EQUITY SECURITIES OF COMPANIES THAT HAVE A MARKET VALUE CAPITALIZATION
OF UP TO $1 BILLION.
- ------------------------------------------------------
In addition, the Small Capitalization Equity Fund may invest as described in
this prospectus.
EQUITY FUNDS INVESTMENTS AND STRATEGIES
COMMON STOCK. As described above, the Equity Funds invest primarily in equity
securities. As with other mutual funds that invest primarily in equity
securities, the Equity Funds are subject to market risks. That is, the
possibility exists that common stocks will decline over short or even extended
periods of time, and the United States equity market tends to be cyclical,
experiencing both periods when stock prices generally increase and periods when
stock prices generally decrease. However, because the Equity Funds invests
primarily in growth-oriented equity securities (Growth Equity Fund, Growth and
Income Equity Fund) or in small capitalization stocks (Small Capitalization
Fund), there are some additional risk factors associated with investment in the
Equity Funds. Growth-oriented stocks may include issuers with smaller
capitalization. Small capitalization stocks have historically been more volatile
in price than larger capitalization stocks, such as those included in the
Standard & Poor's 500 Index. This is because, among other things, smaller
companies have a lower degree of liquidity in the equity market and tend to have
a greater sensitivity to changing economic conditions. Further, in addition to
exhibiting greater volatility, growth-oriented stocks may, to some degree,
fluctuate independently of the stocks of large companies. That is, the stock of
small capitalization companies may decline in price as the price of large
company stocks rises or vice verse. Therefore, investors should except that the
Equity Funds will be more volatile than, and may fluctuate independently of,
broad stock market indices such as the Standard & Poor's 500 Index.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities which
may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. The Equity
Funds invest in convertible bonds rated "BB" or higher by Standard & Poor's
Corporation, or "Ba" or higher by Moody's Investors Service, Inc. at the time of
investment. If a convertible bond is rated below "BB" or "Ba" according to the
characteristics set forth here after a Fund has purchased it, the Fund is not
required to drop the convertible bond from the portfolio, but will consider
appropriate action. The investment characteristics of each convertible security
vary widely, which allows convertible securities to be employed for different
investment objectives.
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Equity
Funds will exchange or convert the convertible securities held in their
respective portfolios into shares of the underlying common stock in instances in
which, in the investment adviser's opinion, the
investment characteristics of the underlying common shares will assist the
particular Fund in achieving its investment objectives. Otherwise, the Fund will
hold or trade the convertible securities. In selecting convertible securities
for a Fund, the Fund's adviser evaluates the investment characteristics of the
convertible security as a fixed income instrument, and the investment potential
of the underlying equity security for capital appreciation. In evaluating these
matters with respect to a particular convertible security, the Fund's adviser
considers numerous factors, including the economic and political outlook, the
value of the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management capability and
practices.
SECURITIES OF FOREIGN ISSUERS. The Equity Funds may invest in the securities of
foreign issuers which are freely traded on United States securities exchanges or
in the over-the-counter market in the form of depository receipts. Securities of
a foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Equity Funds will not invest in the
securities of a foreign issuer if any such risk appears to the investment
adviser to be substantial.
OPTIONS AND FUTURES CONTRACTS. The Equity Funds may buy and sell options and
futures contracts to manage their respective individual exposure to changing
interest rates, security prices, and currency exchange rates. Some options and
futures strategies, including selling futures, buying puts, and writing calls,
tend to hedge the Equity Funds' respective investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the risk
and return characteristics of the overall strategy. The Equity Funds may invest
in options and futures based on any type of security, index, or currency,
including options and futures traded on foreign exchanges and options not traded
on exchanges.
Options and futures can be volatile investments, and involve certain risks. If
the investment adviser applies a hedge at an inappropriate time or judges market
conditions incorrectly, options and futures may lower an Equity Fund's
individual return. An Equity Fund could also experience losses if the prices of
its options and futures positions were poorly correlated with its other
investments, or if it could not close out its positions because of an illiquid
secondary market.
Each of the Equity Funds will not hedge more than 20% of their respective total
assets by selling futures, buying puts, and writing calls under normal
conditions. In addition, each of the Equity Funds will not buy futures or write
puts whose underlying value exceeds 20% of their respective total assets, and
the Equity Funds will not buy calls with a value exceeding 5% of their
respective total assets.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES, AND OPTIONS. The
Equity Funds may utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts, subject to the
limitation that the value of these futures contracts, swap agreements, indexed
securities, and options will not exceed 20% of each of the Equity Funds' total
assets. Also, each Fund will not purchase options to the extent that more than
5% of the value of the Equity Funds' total assets would be invested in premiums
on open put option positions. In addition, each Fund does not intend to invest
more than 5% of the market value of its total assets in each of the following:
futures contracts, swap agreements, and indexed securities. When an Equity Fund
enters into a swap agreement, assets of the Fund equal to the value of the swap
agreement will be segregated by the Fund.
There are several risks accompanying the utilization of futures contracts.
First, positions in futures contracts may be closed only on an exchange or board
of trade that furnishes a
secondary market for such contracts. While the Fund plans to utilize futures
contracts only if there exists an active market for such contracts, there is no
guarantee that a liquid market will exist for the contracts at a specified time.
Furthermore, because, by definition, futures contracts look to projected price
levels in the future and not to current levels of valuation, market
circumstances may result in there being a discrepancy between the price of the
stock index future and the movement in the corresponding stock index. The
absence of a perfect price correlation between the futures contract and its
underlying stock index could stem from investors choosing to close futures
contracts by offsetting transactions, rather than satisfying additional margin
requirements. This could result in a distortion of the relationship between the
index and the futures market. In addition, because the futures market imposes
less burdensome margin requirements than the securities market, an increased
amount of participation by speculators in the futures market could result in
price fluctuations.
RESTRICTED AND ILLIQUID SECURITIES. The Equity Funds intends to invest in
restricted securities. Restricted securities are any securities in which each
Equity Fund may otherwise invest pursuant to its investment objective and
policies, but which are subject to restriction on resale under federal
securities law. However, each Equity Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Trustees to be liquid, non-negotiable time deposits, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Equity Funds may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which each Equity Fund purchases securities with payment and
delivery scheduled for a future time. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, each
Equity Fund may lend portfolio securities on a short-term or long-term basis, or
both, up to one-third of the value of its total assets to broker/dealers, banks,
or other institutional borrowers of securities. The Equity Funds will only enter
into loan arrangements with broker/dealers, banks, or other institutions which
the investment adviser has determined are creditworthy under guidelines
established by the Trustees and will receive collateral in the form of cash or
U.S. government securities equal to at least 100% of the value of the securities
loaned.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its investment
adviser, prevailing market conditions warrant, each Equity Fund may, for
temporary defensive purposes, invest in:
- - short-term money market instruments rated in one of the top two rating
categories by a nationally recognized statistical rating organization;
- - securities issued and/or guaranteed as to payment of principal and interest by
the U.S. government, its agencies, or instrumentalities; and
- - repurchase agreements.
REPURCHASE AGREEMENTS. The U.S. government securities and other securities in
which each Equity Fund invest may be purchased pursuant to repurchase
agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to an Equity Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price. To the extent that
the original seller does not repurchase the securities from an Equity Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Equity Funds may
invest in the securities of other investment companies, but they will not own
more than 3% of the total outstanding voting stock of any investment company,
invest more than 5% of its total assets in any one investment company, or invest
more than 10% of its total assets in investment companies in general. The Equity
Funds will invest in other investment companies primarily for the purpose of
investing its short-term cash which has not yet been invested in other portfolio
instruments. However, from time to time, on a temporary basis, each of the
Equity Funds may invest exclusively in a single other similarly managed
investment company. Shareholders should realize that, when one of the Equity
Funds invests in other investment companies, certain fund expenses, such as
custodian fees and administrative fees, may be duplicated. The adviser will
waive its investment advisory fee on assets invested in securities of other
investment companies.
INVESTMENT LIMITATIONS
- ------------------------------------------------------
THE EQUITY FUNDS FOLLOW A NUMBER OF GUIDELINES IN MANAGING THEIR PORTFOLIOS
IN ORDER TO LIMIT INVESTMENT RISKS.
- ------------------------------------------------------
Each Equity Fund will not:
- - borrow money directly or through reverse repurchase agreements (arrangements
in which the Equity Funds sell a portfolio instrument for a percentage of its
cash value with an arrangement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 10% of the value
of its total assets to secure such borrowings; or
- - with respect to 75% of the value of its total assets, invest more than 5% in
securities of one issuer other than cash, cash items, or securities issued or
guaranteed by the government of the U.S. or its agencies of instrumentalities
and repurchase agreements collateralized by such securities, or acquire more
than 10% of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
Each Equity Funds will not:
- - invest more than 10% of its total assets in securities subject to restrictions
on resale under the Securities Act of 1933 (except for commercial paper issued
under Section 4(2) of the Securities Act of 1933 and certain other securities
which meet the criteria for liquidity as established by the Trustees).
THE SHAWMUT FUNDS INFORMATION
MANAGEMENT OF THE
SHAWMUT FUNDS
BOARD OF TRUSTEES
- ------------------------------------------------------
THE SHAWMUT FUNDS ARE MANAGED BY A BOARD OF TRUSTEES
- ------------------------------------------------------
The Trustees are responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
- ------------------------------------------------------
PURSUANT TO AN INVESTMENT ADVISORY CONTRACT WITH THE TRUST, INVESTMENT
DECISIONS FOR THE EQUITY FUNDS ARE MADE BY SHAWMUT BANK (THE "ADVISER"),
SUBJECT TO DIRECTION BY THE TRUSTEES.
- ------------------------------------------------------
The Adviser continually conducts investment research and supervision for the
Equity Funds and is responsible for the purchase and sale of portfolio
instruments, for which it receives an annual fee from the respective assets of
the Equity Funds.
ADVISORY FEES
- ------------------------------------------------------
THE ADVISER MAY VOLUNTARILY WAIVE PART OF ITS ADVISORY FEES.
- ------------------------------------------------------
The adviser receives an annual investment advisory fee equal to 1.00% of each of
the Equity Funds' average daily net assets. The fee paid by the Equity Funds,
while higher than the advisory fee paid by other mutual funds in general, is
comparable to fees paid by mutual funds with similar objectives and policies.
The Adviser has undertaken to waive a portion of its advisory fee, up to the
amount of the advisory fee, to reimburse the Equity Funds for operating expenses
in excess of limitations established by certain states. The Adviser may further
voluntarily waive a portion of its fee or reimburse any of the Equity Funds for
certain operating expenses. The Adviser can terminate such voluntary waiver or
reimbursement policy at any time with any of the Equity Funds at its sole
discretion.
ADVISER'S BACKGROUND
- ------------------------------------------------------
SHAWMUT BANK, N.A., A NATIONAL BANKING ASSOCIATION, AND ITS AFFILIATES HAVE
MANAGED COMMINGLED FUNDS FOR OVER FIFTY YEARS. AS OF DECEMBER 31, 1993,
SHAWMUT NATIONAL CORPORATION, THROUGH ITS SUBSIDIARIES INCLUDING SHAWMUT
BANK, MANAGED MORE THAN $15 BILLION IN DISCRETIONARY TRUST ASSETS. SHAWMUT
BANK HAS SERVED AS AN ADVISER TO MUTUAL FUNDS SINCE THE INCEPTION DATE OF
THE SHAWMUT FUNDS ON DECEMBER 1, 1992.
- ------------------------------------------------------
Shawmut Bank, N.A., a national banking association, along with Shawmut Bank
Connecticut, National Association, are the principal subsidiaries of Shawmut
National Corporation, a super-regional bank holding company formed on February
29, 1988, and based in southern New England. Shawmut National Corporation serves
consumers through its network of banking offices with a full range of deposit
and lending products, as well as investment services. Shawmut Bank's borrowers
may be issuers of certain securities in which The Shawmut Funds may invest. The
principal executive offices of the investment adviser are located at One Federal
Street, Boston, Massachusetts 02211.
E. Bradley Bruce II has been responsible for managing the Growth Equity Fund
since October 1993. Mr. Bruce joined Shawmut Bank as a portfolio manager in
February 1992. Prior to this, he had been employed as a portfolio manager
with a private investment management firm since 1988. Mr. Bruce received his
B.A. degree at Middlebury College and his M.B.A. degree at Columbia University
Graduate School of Business.
Brendan J. Henebry has been the portfolio manager of the Growth & Income Equity
Fund since its inception in December 1992. Mr. Henebry has been with Shawmut
Bank, the Fund's Adviser, and its predecessor since 1965, and has been a Vice
President of the Adviser since 1978. During the past five years, Mr. Henebry has
served as Manager of the Growth & Income Equity Management Group. He is an
honors graduate of St. Anselm's College, where he concentrated in economics.
Peter C. Larson has been the portfolio manager of the Small Capitalization
Equity Fund since its inception in December 1992. Mr. Larson joined Shawmut Bank
in 1963 as an investment officer and has been a Vice President in charge of
Shawmut's Small Cap Equity Management product since inception in 1980. He holds
a B.S. degree in finance from the University of Connecticut.
DISTRIBUTION OF EQUITY FUNDS' SHARES
- ------------------------------------------------------
FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR TRUST SHARES.
- ------------------------------------------------------
Federated Securities Corp., Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE EQUITY FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), a subsidiary
of Federated Investors, provides the Equity Funds with certain administrative
personnel and services necessary to operate the Equity Funds, such as legal and
accounting services. FAS provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATED DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<S> <C>
.150 of 1% First $250 million
.125 of 1% Next $250 million
.100 of 1% Next $250 million
.075 of 1% Over $750 million
</TABLE>
The administrative fee received by FAS during any fiscal year shall be at least
$50,000 for each of the Equity Funds individually. FAS may voluntarily choose to
waive a portion of its fee.
CUSTODIAN. Shawmut Bank, N.A., One Federal Street, Boston, Massachusetts 02211,
is custodian for the securities and cash of the Equity Funds. Under the
Custodian Agreement, Shawmut Bank, N.A., holds the Equity Funds' portfolio
securities in safekeeping and keeps all necessary records and documents relating
to its duties.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania,
15222-3779, is transfer agent and dividend disbursing agent for the Equity
Funds. It also provides certain accounting and recordkeeping services with
respect to each of the Equity Funds' portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, DC 20037.
INDEPENDENT ACCOUNTANTS. The independent accountants for the Equity Funds are
Price Waterhouse, 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES OF THE EQUITY FUNDS AND TRUST SHARES
Holders of Trust Shares pay their allocable portion of the Equity Funds' and
Trust's expenses. The Trust expenses for which holders of Trust Shares pay their
allocable portion include, but
are not limited to: the cost of organizing the Trust and continuing its
existence; registering the Trust with federal and state securities authorities;
Trustees' fees; auditors' fees; the cost of meetings of Trustees; legal fees of
the Trust; association membership dues; and such non-recurring and extraordinary
items as may arise.
The respective Equity Fund expenses for which holders of Trust Shares pay their
allocable portion include, but are not limited to: registering the Equity Funds
and shares of the Equity Funds; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise.
At present, no expenses are allocated exclusively to the Trust Shares as a
class. However, the Board of Trustees reserves the right to allocate certain
other expenses to holders of Trust Shares as they deem appropriate ("Class
Expenses"). In any case, Class Expenses would be limited to: transfer agent fees
as identified by the transfer agent as attributable to holders of Trust Shares;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and
registration fees paid to state securities commissions; expenses related to
administrative personnel and services as required to support holders of Trust
Shares; legal fees relating solely to Trust Shares; and Trustees' fees incurred
as a result of issues relating solely to Trust Shares.
NET ASSET VALUE
- ------------------------------------------------------
THE TERM "NET ASSET VALUE" REFERS TO THE VALUE OF ONE EQUITY FUND SHARE.
- ------------------------------------------------------
The net asset value per share of each of the Equity Funds fluctuates and is
determined by dividing the sum of the market value of all securities and other
assets, less liabilities, by the number of shares outstanding.
INVESTING IN TRUST SHARES
- ------------------------------------------------------
YOU CAN BUY EQUITY FUND TRUST SHARES BY FEDERAL RESERVE WIRE, MAIL, OR
TRANSFER, AS EXPLAINED BELOW.
- ------------------------------------------------------
Shares of the Equity Funds are sold by the distributor on days on which the New
York Stock Exchange and Federal Reserve Wire System are open for business.
Shares of the Equity Funds may also be purchased through Shawmut Bank, N.A.,
Shawmut Bank Connecticut, National Association, or their affiliates
(collectively, "Shawmut Bank") on days on which both Shawmut Bank and the New
York Stock Exchange and Federal Wire Reserve System are open for business. Texas
residents must purchase, exchange, and redeem Shares through Federated
Securities Corp. at 1-800-618-8573. The Equity Funds reserve the right to reject
any purchase request.
THROUGH SHAWMUT BANK. An investor may call their Shawmut Bank trust officer to
receive information and to place an order to purchase Shares. Shawmut Bank will
purchase Trust Shares on behalf of investors and maintain all records relating
to the Trust Shares. Through its trust accounting systems, Shawmut Bank provides
shareholders of Trust Shares with detailed periodic statements that integrate
information regarding investments in the Equity Funds with other Shawmut Bank
investment services.
Orders placed through Shawmut Bank are considered received when payment is
converted to federal funds and the applicable Equity Fund is notified of the
purchase order. The completion of the purchase transaction will generally occur
within one business day after Shawmut Bank receives a purchase order. Purchase
orders must be received by Shawmut Bank before 4:00 p.m. (Eastern time) and must
be transmitted by Shawmut Bank to the applicable Equity Fund before 5:00 p.m.
(Eastern time) in order for Trust Shares to be purchased at that day's public
offering price.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase Shares
directly from the distributor. To do so: complete and sign the new account form
available from the Equity Funds; complete an application for the establishment
of a trust account with Shawmut Bank; enclose a check made payable to the full
name of your desired portfolio (see the cover of the prospectus)--Trust Shares;
and mail both to the Equity Funds, Attention: Vice President, Securities
Operations, OF0501, One Federal Street, Boston, Massachusetts 02211. The order
is considered received after a trust account is established and the check is
converted by Shawmut Bank into federal funds. This is generally the next
business day after Shawmut Bank receives the check.
To purchase Trust Shares by wire, call 1-800-SHAWMUT. All information needed
will be taken over the telephone, and the order is considered received when
Shawmut Bank receives payment by wire. To request additional information
concerning purchases by wire, please contact Federated Securities Corp., the
Equity Funds' distributor, at 1-800-618-8573. Shares cannot be purchased by wire
on any day which both Shawmut Bank and the New York Stock Exchange and Federal
Reserve Wire System are not open for business.
MINIMUM INVESTMENT REQUIRED
- ------------------------------------------------------
THE MINIMUM INITIAL INVESTMENT IS $1,000.
- ------------------------------------------------------
The minimum initial investment in Trust Shares by an investor is $1,000.
Subsequent investments must be in amounts of at least $100. The Equity Funds may
waive the initial minimum investment for employees of Shawmut Bank and its
affiliates from time to time.
WHAT SHARES COST
- ------------------------------------------------------
SHARES ARE SOLD AT THEIR NET ASSET VALUE NEXT DETERMINED AFTER AN ORDER IS
RECEIVED. THERE IS NO SALES CHARGE IMPOSED BY THE EQUITY FUNDS UPON THE
PURCHASE OF TRUST SHARES.
- ------------------------------------------------------
The net asset value is determined at the close of the New York Stock Exchange,
normally 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on
which there are not sufficient changes in the value of an Equity Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; or (iii) on the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Certain institutions
holding Trust 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
provided which may be related to the ownership of Trust Shares. This prospectus
should, therefore, be read together with any agreement between the customer and
the institution with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Equity Funds, Federated Services Company maintains a
share account for each shareholder of record. Share certificates are not issued
unless requested by contacting Shawmut Bank in writing.
Detailed confirmations of each purchase or redemption are sent to Shawmut Bank
or other shareholders of record. Monthly statements are sent by Shawmut Bank to
its trust customers to report account activity during the previous month,
including dividends paid during the period.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in each
Equity Fund on the record date.
CAPITAL GAINS
Capital gains realized by an Equity Fund, if any, will be distributed to that
Fund's shareholders at least once every 12 months.
EXCHANGE PRIVILEGE
EXCHANGING SHARES. Shareholders may exchange Shares, with a minimum net asset
value of $1,000, for shares of the same designated class of other funds advised
by Shawmut Bank.
Exchanges are subject to the minimum initial purchase requirements of such fund
being acquired. Prior to any exchange, the shareholder must receive a copy of
the current prospectus of the class of the fund into which an exchange is to be
effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, Trust Shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee. Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short-or long-term capital gain or loss may be realized.
The exchange privilege may be modified or terminated at any time. Shareholders
will be notified of the modification or termination of the exchange privilege. A
shareholder may obtain further information on the exchange privilege by calling
their trust officer at Shawmut Bank.
EXCHANGE-BY-TELEPHONE. Instructions for exchanges between participating funds
which are part of the Trust may be given by telephone to their trust officer at
Shawmut Bank. To utilize the exchange-by-telephone service, an investor must
complete an authorization form permitting Shawmut Bank to instruct the Equity
Funds to honor telephone instructions. The authorization is included in Shawmut
Bank's trust account documentation. Shares may be exchanged by telephone only
between trust accounts having identical registrations. Exchange instructions
given by telephone may be electronically recorded.
Any Shares held in certificate form cannot be exchanged by telephone, but must
be forwarded to the transfer agent and deposited to the shareholder's mutual
fund account before being exchanged.
Telephone exchange instructions must be received before 4:00 p.m. (Eastern time)
for Shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through Shawmut Bank during times of drastic economic or
market changes. If a shareholder cannot contact Shawmut Bank by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail to Shawmut Bank, Attention: Vice President, Securities Operation, OF0501,
One Federal Street, Boston, Massachusetts 02211.
REDEEMING TRUST SHARES
- ------------------------------------------------------
YOU CAN REDEEM EQUITY FUND TRUST SHARES BY MAIL OR TELEPHONE. TO ENSURE
YOUR SHARES ARE REDEEMED EXPEDITIOUSLY, PLEASE FOLLOW THE PROCEDURES
EXPLAINED BELOW.
- ------------------------------------------------------
The Equity Funds redeem Trust Shares at their net asset value next determined
after Federated Services Company receives the redemption request. Redemptions
will be made on days on which the Equity Funds compute their net asset value.
Requests for redemptions can be made by telephone or in writing by contacting a
Shawmut Bank trust officer. Redemption requests received prior to 4:00 p.m.
(Eastern time) will be effected on the same business day.
THROUGH SHAWMUT BANK
Shareholders may redeem Trust Shares by calling their Shawmut Bank trust officer
to request the redemption. Trust Shares will be redeemed at the net asset value
next determined after Federated Services Company receives the redemption
request. Shawmut Bank is responsible for promptly submitting redemption requests
and for maintaining proper written records of redemption instructions received
from the Equity Funds' shareholders. In order to effect a redemption on the same
business day as a request, Shawmut Bank is responsible for the timely
transmission of the redemption request to the appropriate Equity Fund.
Before Shawmut Bank may request redemption by telephone on behalf of a
shareholder, an authorization form permitting the Equity Funds to accept
redemption requests by telephone must first be completed. This authorization is
included in Shawmut Bank's trust account documentation. In the event of drastic
economic or market changes, a shareholder may experience difficulty in redeeming
by telephone. If such a case should occur, it is recommended that a redemption
request be made in writing and sent by overnight mail to Shawmut Bank,
Attention: Vice President, Securities Operation, OF0501, One Federal Street,
Boston, Massachusetts 02211.
DIRECTLY FROM THE EQUITY FUNDS
BY MAIL. A shareholder may redeem Trust Shares by sending a written request to
Federated Services Company. If Shares are purchased by Shawmut Bank on behalf of
a trust customer, only Shawmut Bank, as the shareholder of record, can request a
redemption from Federated Services Company. The written request should include
the shareholder's name, the Equity Fund's name and class of shares name, the
account number, and the share or dollar amount requested. If share certificates
have been issued, they must be properly endorsed and should be sent by
registered or certified mail with the written request. Shareholders should call
the Equity Funds for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Equity Funds, or a redemption payable other than to the shareholder of
record must have signatures on written redemption requests guaranteed by:
- - a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- - a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- - a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
- - any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Equity Funds do not accept signatures guaranteed by a notary public.
The Equity Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Equity Funds may elect in
the future to limit eligible
signature guarantors to institutions that are members of a signature guarantee
program. The Equity Funds and their transfer agent reserve the right to amend
these standards at any time without notice.
RECEIVING PAYMENT
Redemption payments will generally be made directly to the trust account
maintained by an investor with Shawmut Bank. This deposit is normally made
within one business day, but in no event more than seven days, of the redemption
request, provided the transfer agent has received payment from the shareholder.
The net asset value of Trust Shares redeemed is determined, and dividends, if
any, are paid up to and including, the day prior to the day that a redemption
request is processed. Pursuant to instructions from Shawmut Bank, redemption
proceeds may be transferred from a shareholder account by check or by wire.
BY CHECK. Normally, a check for the proceeds is mailed within one business day
after receipt of a proper redemption request.
BY WIRE. Requests to wire proceeds from redemptions received before 4:00 p.m.
(Eastern time) will be honored the following business day after Shawmut Bank
receives proper instructions.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Equity Funds
may redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum of $1,000. This requirement does
not apply, however, if the balance falls below $1,000 because of changes in an
Equity Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
REDEMPTION IN KIND
The Equity Funds are obligated to redeem Shares solely in cash up to $250,000 or
1% of the net asset value of Shares of each individual Income Fund, whichever is
less, for any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Equity Funds will pay all or a
portion of the remainder of the redemption in portfolio instruments, valued in
the same way as a 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.
SHAREHOLDER INFORMATION
VOTING RIGHTS
- ------------------------------------------------------
EACH TRUST SHARE OF AN EQUITY FUND GIVES THE SHAREHOLDER ONE VOTE IN
TRUSTEE ELECTIONS AND OTHER MATTERS SUBMITTED TO SHAREHOLDERS OF THE TRUST
FOR VOTE.
- ------------------------------------------------------
All shares of each portfolio in the Trust have equal voting rights except that,
in matters affecting only a particular fund or class, only shareholders of that
fund or class are entitled to vote. As a Massachusetts business trust, the Trust
is not required to hold annual shareholder meetings. Shareholder approval will
be sought only for certain changes in the Trust or an Equity Fund's operation
and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by
the Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust. As of February 10, 1994, Shawmut Bank or its
affiliates, acting as fiduciary of various accounts, was the owner of record of
approximately 1,816,738 (97.92%) Trust Shares of the Growth Equity Fund,
approximately 14,315,989 (99.01%) Trust Shares of the Growth and Income Equity
Fund, and approximately 8,983,544 (97.27%) Trust Shares of the Small
Capitalization Equity Fund. Additionally, as of February 10, 1994, Shawmut Bank
or its affiliates, acting as a nominee or agent of accounts of its customers,
was the owner of record of approximately 21,718 (1.17%) Trust Shares of the
Growth Equity Fund and approximately 244,565 (2.65%) Trust Shares of the Small
Capitalization Equity Fund.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on behalf
of the Equity Funds. To protect shareholders of an Equity Fund, the Trust has
filed legal documents with Massachusetts that expressly disclaim the liability
of shareholders of the Equity Funds for acts or obligations of the Trust. These
documents require notice of this disclaimer to be given in each agreement,
obligation, or instrument the Trust or its Trustees enter into or sign on behalf
of an Equity Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations on behalf of an Equity Fund, the Trust is required to use the
property of that Equity Fund to protect or compensate the shareholder. On
request, the Trust will defend any claim made and pay any judgment against a
shareholder of the Equity Funds for any act or obligation of the Trust on behalf
of the Equity Funds. Therefore, financial loss resulting from liability as a
shareholder of the Equity Funds will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from the
assets of the Equity Funds.
EFFECT OF BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent, or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of such a customer. Shawmut Bank is subject to such
banking laws and regulations.
- ------------------------------------------------------
THE GLASS-STEAGALL ACT IS A FEDERAL BANKING LAW THAT GENERALLY PROHIBITS
BANKS FROM PUBLICLY UNDERWRITING OR DISTRIBUTING CERTAIN SECURITIES.
- ------------------------------------------------------
Shawmut Bank believes, based upon the advice of its counsel, that it may perform
the services for the Equity Funds contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Shawmut Bank from continuing to perform all or a part of the above
services for its customers and/or the Equity Funds. If it were prohibited from
engaging in these customer-related activities, the Trustees would consider
alternative advisers and means of continuing available investment services. In
such event, changes in the operation of the Equity Funds may occur,
including possible termination of any automatic or other Equity Fund share
investment
and redemption services then being provided by Shawmut Bank. It is not expected
that existing shareholders would suffer any adverse financial consequences (if
another adviser with equivalent abilities to Shawmut Bank is found) as a result
of any of these occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
TAX INFORMATION
FEDERAL INCOME TAX
The Equity Funds will pay no federal income tax because each Fund expects to
meet requirements of the Internal Revenue Code, as amended, applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies.
Each Equity Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized by The
Shawmut Funds' other portfolios will not be combined for tax purposes with those
realized by each Equity Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional Shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
OTHER CLASSES OF SHARES
The Equity Funds offer a separate class of shares known as Investment Shares.
Investment Shares are sold primarily to financial institutions that rely upon
the distribution services provided by the distributor in the marketing of
Investment Shares, as well as to retail customers of such institutions.
Investment Shares are sold at net asset value plus a sales charge. Investments
in Investment Shares are subject to a minimum initial investment of $1,000.
Investment Shares are distributed pursuant to 12b-1 Plans adopted by the Trust
whereby the distributor is paid a fee of up to .50 of 1% of the Investment
Shares' average daily net assets.
The amount of dividends payable to Trust Shares will exceed that of Investment
Shares by the difference between class expenses and distribution expenses borne
by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
PERFORMANCE INFORMATION
- ------------------------------------------------------
FROM TIME TO TIME THE EQUITY FUNDS ADVERTISE THEIR TOTAL RETURN AND YIELD
FOR TRUST SHARES.
- ------------------------------------------------------
Total return represents the change, over a specified period of time, in the
value of an investment in Trust Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yields of Trust Shares of the Equity Funds are calculated each day by
dividing the net investment income per share (as defined by the Securities and
Exchange Commission) earned by the Equity Funds over a thirty-day period by the
net asset value per Share on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
income actually earned by Trust Shares and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
Total return and yield will be calculated separately for Trust Shares and
Investment Shares. Because Investment Shares are subject to a sales charge and a
12b-1 fee, the total return and yield
for Trust Shares, for the same period, will exceed that of Investment Shares.
Trust Shares are sold without any sales charge or other similar non-recurring
charges.
From time to time, the Equity Funds may advertise their performance using
certain reporting services and/or compare its performance to certain indices.
Further information about the performance of the Equity Funds is contained in
the Trust's Annual Report dated October 31, 1993, which can be obtained free of
charge.
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3120919A-I (2/94)
THE SHAWMUT FUNDS
EQUITY FUNDS
SHAWMUT GROWTH EQUITY FUND
SHAWMUT GROWTH AND INCOME EQUITY FUND
SHAWMUT SMALL CAPITALIZATION EQUITY FUND
INVESTMENT SHARES
COMBINED PROSPECTUS
The shares offered by this prospectus represent interests in Investment Shares
of the equity portfolios (collectively, the "Equity Funds" or individually, as
appropriate in context, the "Fund") of The Shawmut Funds (the "Trust"), an
open-end management investment company (a mutual fund). In addition to the
Equity Funds, the Trust consists of the following separate investment
portfolios, each having distinct investment objectives and policies:
INCOME FUNDS
Shawmut Connecticut Intermediate Municipal
Income Fund
Shawmut Fixed Income Fund
Shawmut Intermediate Government Income Fund
Shawmut Limited Term Income Fund
Shawmut Massachusetts Intermediate Municipal
Income Fund
MONEY MARKET FUNDS
Shawmut Connecticut Municipal Money
Market Fund
Shawmut Massachusetts Municipal Money
Market Fund
Shawmut Prime Money Market Fund
This combined prospectus contains the information you should read and know
before you invest in the Equity Funds. Keep this prospectus for future
reference. The Equity Funds have also filed a Combined Statement of Additional
Information for Trust Shares and Investment Shares dated February 28, 1994, with
the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge, obtain other information, or make inquiries about
the Equity Funds by writing or calling the Trust.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF SHAWMUT
BANK, ARE NOT ENDORSED OR GUARANTEED BY SHAWMUT BANK, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ARE THEY INSURED OR GUARANTEED BY THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. MUTUAL FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING FLUCTUATIONS IN VALUE AND EARNINGS, AND THE POSSIBLE
LOSS OF PRINCIPAL.
INVESTMENT SHARES OF THE SHAWMUT FUNDS ARE AVAILABLE THROUGH LICENSED
REPRESENTATIVES OF SHAWMUT BROKERAGE, INC., MEMBER NASD/SIPC, AND AN AFFILIATE
OF SHAWMUT BANK.
Prospectus dated February 28, 1994
TABLE OF CONTENTS
SYNOPSIS 3
- ------------------------------------------------------
SUMMARY OF EQUITY FUNDS' EXPENSES--
INVESTMENT SHARES 4
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 5
- ------------------------------------------------------
GENERAL INFORMATION 8
- ------------------------------------------------------
THE SHAWMUT FUNDS 8
- ------------------------------------------------------
OBJECTIVES AND POLICIES OF EACH FUND 8
- ------------------------------------------------------
Growth Equity Fund 8
Investment Objective 8
Investment Policies 8
Acceptable Investments 8
Growth and Income Equity Fund 9
Investment Objective 9
Investment Policies 9
Acceptable Investments 9
Small Capitalization Equity Fund 9
Investment Objective 9
Investment Policies 9
Acceptable Investments 9
EQUITY FUNDS INVESTMENTS AND STRATEGIES 10
- ------------------------------------------------------
Common Stock 10
Convertible Securities 10
Securities of Foreign Issuers 11
Options and Futures Contracts 11
Stock Index Futures, Swap Agreements,
Indexed Securities, and Options 11
Restricted and Illiquid Securities 12
When-Issued and Delayed
Delivery Transactions 12
Lending of Portfolio Securities 12
Temporary Investments 12
Repurchase Agreements 12
Investing in Securities of Other
Investment Companies 13
Investment Limitations 13
THE SHAWMUT FUNDS INFORMATION 14
- ------------------------------------------------------
Management of The Shawmut Funds 14
Board of Trustees 14
Investment Adviser 14
Advisory Fees 14
Adviser's Background 14
Distribution of Equity Funds' Shares 15
Distribution Plan 15
Administration of the Equity Funds 16
Administrative Services 16
Custodian 16
Transfer Agent, Dividend
Disbursing Agent, and
Portfolio Accounting Services 16
Legal Counsel 16
Independent Accountants 16
Expenses of the Equity Funds
and Investment Shares 16
NET ASSET VALUE 17
- ------------------------------------------------------
INVESTING IN INVESTMENT SHARES 17
- ------------------------------------------------------
Through Shawmut Bank 17
Directly from the Distributor 17
Minimum Investment Required 18
What Shares Cost 18
Purchases at Net Asset Value 18
Sales Charge Reallowance 18
Reducing the Sales Charge 19
Quantity Discounts and Accumulated
Purchases 19
Letter of Intent 19
Reinvestment Privilege 19
Concurrent Purchases 19
Systematic Investment Program 20
Subaccounting Services 20
Certificates and Confirmations 20
Dividends 20
Capital Gains 20
EXCHANGE PRIVILEGE 20
- ------------------------------------------------------
Exchanging Shares 20
Exchanging-by-Telephone 21
REDEEMING INVESTMENT SHARES 21
- ------------------------------------------------------
Through Shawmut Bank 21
Directly from the Equity Funds 22
By Mail 22
Signatures 22
Receiving Payment 22
By Check 22
By Wire 22
Accounts with Low Balances 23
Systematic Withdrawal Program 23
Redemption in Kind 23
SHAREHOLDER INFORMATION 23
- ------------------------------------------------------
Voting Rights 23
Massachusetts Partnership Law 24
Effect of Banking Laws 24
TAX INFORMATION 25
- ------------------------------------------------------
Federal Income Tax 25
OTHER CLASSES OF SHARES 25
- ------------------------------------------------------
PERFORMANCE INFORMATION 25
- ------------------------------------------------------
SYNOPSIS
INVESTMENT OBJECTIVES
The Shawmut Funds offer you a convenient, affordable way to participate in
separate, professionally managed portfolios of securities. This prospectus
relates only to the Equity Funds of the Trust.
EQUITY FUNDS
- ------------------------------------------------------
SHAWMUT GROWTH EQUITY FUND
("Growth Equity Fund") seeks long term capital appreciation by investing in
a diversified portfolio of growth-oriented equity securities. The Fund
defines growth-oriented equity securities as securities of companies that
are projected by the investment adviser, based upon traditional research
techniques, to show earnings growth superior to the Standard & Poor's 500
Composite Stock Index.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT GROWTH AND INCOME EQUITY FUND
("Growth and Income Equity Fund") seeks a relatively high total return
through long-term capital appreciation and current income looking to
achieve a current dividend yield that exceeds the composite yield of
securities included in the Standard & Poor's 500 Composite Stock Index.
While there is no assurance that the Growth and Income Equity Fund will
achieve its objectives, it attempts to do so by investing in a
professionally managed, diversified portfolio consisting primarily of
common stocks that are selected by the investment adviser based upon
traditional research techniques.
- ------------------------------------------------------
- ------------------------------------------------------
SHAWMUT SMALL CAPITALIZATION EQUITY FUND
("Small Capitalization Equity Fund") seeks long-term capital appreciation
by investing primarily in a portfolio of equity securities comprising the
small capitalization sector of the United States equity market (companies
which have a market value capitalization up to $1 billion).
- ------------------------------------------------------
BUYING AND REDEEMING EQUITY FUND SHARES
A minimum initial investment of $1,000 may be required. Subsequent investments
must be in amounts of at least $100, as described in this prospectus in the
section entitled "Minimum Investment Required."
EQUITY FUND MANAGEMENT
The Equity Funds' investment adviser is Shawmut Bank, N.A., which makes
investment decisions for the Equity Funds.
SHAREHOLDER SERVICES
When you become a shareholder, you can easily obtain information about your
account by calling 1-800-SHAWMUT.
THE SHAWMUT EQUITY FUNDS
SUMMARY OF EQUITY FUND EXPENSES
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
GROWTH AND
GROWTH INCOME SMALL
EQUITY EQUITY CAPITALIZATION
FUND FUND EQUITY FUND
-------- ------------ ----------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................. 4.00% 4.00% 4.00%
Maximum Sales Load Imposed--on Reinvested Dividends
(as a percentage of offering price).................................. None None None
Deferred Sales Load (as a percentage of original purchase price or
redemption proceeds as applicable)................................... None None None
Redemption Fee (as a percentage of amount redeemed, if applicable)..... None None None
Exchange Fee........................................................... None None None
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)....................................... 0.50% 0.80% 0.75%
12b-1 Fees (2)......................................................... 0.25% 0.25% 0.25%
Total Other Expenses (3)............................................... 0.68% 0.22% 0.27%
Total Investment Shares Operating Expenses (after waiver)(4)........... 1.43% 1.27% 1.27%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 1.00%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver by the
distributor. The Equity Funds can pay up to 0.50% of the average daily net
assets of Investment Shares as a 12b-1 fee to the distributor.
(3)Estimated other expenses have been reduced to reflect the voluntary waiver by
the administrator for the Growth Equity Fund.
(4) Annual Investment Shares Operating expenses for the fiscal year ended
October 31, 1993 were 1.37% for the Growth Equity Fund; 1.25% for the Growth
and Income Equity Fund; and 1.33% for the Small Capitalization Equity Fund.
The Annual Investment Shares Operating Expenses in the table above are based
on expenses expected during the fiscal year ending October 31, 1994. Absent
the anticipated voluntary waivers explained in the above footnotes, the
Investment Shares Operating Expenses are estimated to be 2.37% for Growth
Equity Fund; 1.72% for Growth and Income Equity Fund; and 1.77% for Small
Capitalization Equity Fund.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT SHARES WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "THE SHAWMUT FUNDS INFORMATION" AND
"INVESTING IN INVESTMENT SHARES." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN
$5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period. As noted in
the table above, the Equity Funds charges no redemption fee.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Growth Equity Fund.................................... $54 $83 $115 $204
Growth and Income Equity Fund......................... $52 $79 $107 $187
Small Capitalization Equity Fund...................... $52 $79 $107 $187
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Investment Shares of the Equity Funds. The Equity Funds also offer another class
of shares called Trust Shares. Trust Shares and Investment Shares are subject to
certain of the same expenses; however, Investment Shares are subject to a 12b-1
fee of up to .50 of 1%. See "Other Classes of Shares."
SHAWMUT GROWTH EQUITY FUND--FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- -------------------------------------------------------------------------------------------- ----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.023
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.487
- -------------------------------------------------------------------------------------------- ------
Total from investment operations 0.510
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.019)
- -------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.49
- -------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 5.09%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 1.06%(a)
- --------------------------------------------------------------------------------------------
Net investment income 0.26%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.47%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $20,787
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 71%
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- -------------------------------------------------------------------------------------------- ----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.01
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.004
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.480
- -------------------------------------------------------------------------------------------- ------
Total from investment operations 0.484
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.004)
- -------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.49
- -------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 4.84%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 1.37%(a)
- --------------------------------------------------------------------------------------------
Net investment income (0.10)%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.72%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $4,631
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 71%
- --------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
(c) Represents portfolio turnover rate for the entire Fund.
SHAWMUT GROWTH AND INCOME EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- ---------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.18
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.69
- -------------------------------------------------------------------------------------------- ------
Total from investment operations 0.87
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.18)
- -------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.69
- -------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 8.80%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 0.98%(a)
- --------------------------------------------------------------------------------------------
Net investment income 2.11%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.27%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $147,090
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 38%
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- ---------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.23
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.15
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.48
- -------------------------------------------------------------------------------------------- ------
Total from investment operations 0.63
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.17)
- -------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.69
- -------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 6.20%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 1.25%(a)
- --------------------------------------------------------------------------------------------
Net investment income 1.77%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.53%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $16,280
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 38%
- --------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expenses/income ratios due to waivers or
reimbursements of expenses (Note 5).
(c) Represents portfolio turnover rate for the entire Fund.
SHAWMUT SMALL CAPITALIZATION EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Price Waterhouse, the Fund's independent
public accountants. Their report dated December 17, 1993, on the Fund's
financial statements for the year ended October 31, 1993, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
TRUST SHARES OCTOBER 31, 1993*
- ---------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.002
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.210
- -------------------------------------------------------------------------------------------- ------
Total from investment operations 1.212
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.002)
- -------------------------------------------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $11.21
- -------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 12.12%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 1.01%(a)
- --------------------------------------------------------------------------------------------
Net investment income 0.02%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.28%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $100,382
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 29%
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES OCTOBER 31, 1993**
- ---------------------------------------------------------------------------------------------------- -----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.52
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment loss (0.008)
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.698
- -------------------------------------------------------------------------------------------- ------
Total from investment operations 0.690
- -------------------------------------------------------------------------------------------- ------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.000)
- --------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.21
- -------------------------------------------------------------------------------------------- ------
TOTAL RETURN*** 6.56%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 1.33%(a)
- --------------------------------------------------------------------------------------------
Net investment loss (0.19)%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement(b) 0.54%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $15,014
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 29%
- --------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 14, 1992 (date of initial
public investment) to October 31, 1993.
** Reflects operations for the period from February 12, 1993 (date of initial
public offering) to October 31, 1993.
*** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 5).
(c) Represents portfolio turnover rate for the entire Fund.
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated July 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
As of the date of this prospectus, the Board of Trustees (the "Trustees") has
established two classes of shares of several of the Equity Funds, known as Trust
Shares and Investment Shares. This prospectus relates only to Investment Shares
of the Equity Funds.
A minimum initial investment of $1,000 may be required. Subsequent investments
must be in amounts of at least $100, as described in this prospectus in the
section entitled "Minimum Investment Required," or $50 for participants in the
Systematic Investment Program. Shares are currently sold at net asset value with
a sales charge imposed by the Equity Funds, as described in this prospectus.
THE SHAWMUT FUNDS
The shareholders of the Equity Funds are shareholders of The Shawmut Funds,
which currently consist of Shawmut Connecticut Intermediate Municipal Income
Fund, Shawmut Connecticut Municipal Money Market Fund, Shawmut Fixed Income
Fund, Shawmut Growth and Income Equity Fund, Shawmut Growth Equity Fund, Shawmut
Intermediate Government Income Fund, Shawmut Limited Term Income Fund, Shawmut
Massachusetts Intermediate Municipal Income Fund, Shawmut Massachusetts
Municipal Money Market Fund, Shawmut Prime Money Market Fund, and Shawmut Small
Capitalization Equity Fund. Shareholders in the Equity Funds have easy access to
the other portfolios of The Shawmut Funds through an exchange program. The
Shawmut Funds are advised by Shawmut Bank, N.A., and distributed by Federated
Securities Corp.
OBJECTIVE AND POLICIES OF EACH FUND
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE
The investment objective of the Growth Equity Fund is to provide long-term
capital appreciation. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The investment policies may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
- ------------------------------------------------------
UNDER NORMAL MARKET CIRCUMSTANCES, THE GROWTH EQUITY FUND WILL INVEST AT
LEAST 65% OF ITS ASSETS IN GROWTH-ORIENTED EQUITY SECURITIES.
- ------------------------------------------------------
The Fund defines growth-oriented equity securities as securities that are
projected by the Fund's investment adviser to show earnings growth superior to
the Standard & Poor's 500 Composite Stock Index.
The Growth Equity Fund invests primarily in equity securities of companies
selected by the investment adviser on the basis of traditional research
techniques, including assessment of earnings and dividend growth prospects and
of the risk and volatility of each company's business. The fundamental changes
which the investment adviser will seek to identify in companies include, for
example, restructuring of basic businesses or reallocations of assets which
present opportunities for significant share price appreciation. At times, the
Growth Equity Fund will invest in securities of companies which are deemed by
the investment adviser to be candidates for acquisition by other entities as
indicated by changes in ownership, changes in standard price to value ratios,
and an examination of other standard analytical indices.
GROWTH AND INCOME
EQUITY FUND
INVESTMENT OBJECTIVE
The investment objective of the Growth and Income Equity Fund is to provide a
relatively high total return through long-term capital appreciation and current
income. The investment objective cannot be changed without approval of
shareholders. The Growth and Income Equity Fund generally looks to achieve a
yield that exceeds the composite dividend yield of securities included in the
Standard & Poor's 500 Composite Stock Index. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The investment policies may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
- ------------------------------------------------------
UNDER NORMAL MARKET CIRCUMSTANCES, THE GROWTH AND INCOME EQUITY FUND WILL
INVEST AT LEAST 65% OF ITS ASSETS IN GROWTH AND INCOME EQUITY SECURITIES.
- ------------------------------------------------------
In addition, the Growth and Income Equity Fund may invest as described in this
prospectus.
SMALL CAPITALIZATION
EQUITY FUND
INVESTMENT OBJECTIVE
The investment objective of the Small Capitalization Equity Fund is to provide
long-term capital appreciation. The investment objective of the Small
Capitalization Equity Fund cannot be changed without the approval of
shareholders. While there is no assurance that the Small Capitalization Equity
Fund will achieve its investment objective, it endeavors to do so by following
the investment policies described below.
INVESTMENT POLICIES
The investment policies may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
- ------------------------------------------------------
UNDER NORMAL CIRCUMSTANCES, THE SMALL CAPITALIZATION EQUITY FUND WILL
INVEST
AT LEAST 65% OF ITS TOTAL ASSETS IN EQUITY SECURITIES OF COMPANIES THAT
HAVE A
MARKET VALUE CAPITALIZATION OF UP TO $1 BILLION.
- ------------------------------------------------------
In addition, the Small Capitalization Equity Fund may invest as described in
this prospectus.
EQUITY FUNDS INVESTMENTS AND STRATEGIES
COMMON STOCK. As described above, the Equity Funds invest primarily in equity
securities. As with other mutual funds that invest primarily in equity
securities, the Equity Funds are subject to market risks. That is, the
possibility exists that common stocks will decline over short or even extended
periods of time, and the United States equity market tends to be cyclical,
experiencing both periods when stock prices generally increase and periods when
stock prices generally decrease. However, because the Equity Funds invest
primarily in growth-oriented equity securities (Growth Equity Fund and, Growth
and Income Equity Fund) or in small capitalization stocks Small Capitalization
Equity Fund), there are some additional risk factors associated with investments
in the Equity Funds. Growth-oriented stocks may include issuers with smaller
capitalization. Small capitalization stocks have historically been more volatile
in price than larger capitalization stocks, such as those included in the
Standard & Poor's 500 Index. This is because, among other things, smaller
companies have a lower degree of liquidity in the equity market and tend to have
a greater sensitivity to changing economic conditions. Further, in addition to
exhibiting greater volatility, these stocks may, to some degree, fluctuate
independently of the stocks of large companies. That is, the stock of small
capitalization companies may decline in price as the price of large company
stocks rises or vice verse. Therefore, investors should except that the Equity
Funds will be more volatile than, and may fluctuate independently of, broad
stock market indices such as the Standard & Poor's 500 Index.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities which
may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. The Equity
Funds invest in convertible bonds rated "BB" or higher by Standard & Poor's
Corporation, or "Ba" or higher by Moody's Investors Service, Inc. at the time of
investment. If a convertible bond is rated below "BB" or "Ba" according to the
characteristics set forth here after a Fund has purchased it, the Fund is not
required to drop the convertible bond from the portfolio, but will consider
appropriate action. The investment characteristics of each convertible security
vary widely, which allows convertible securities to be employed for different
investment objectives.
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Equity
Funds will
exchange or convert the convertible securities held in their respective
portfolios into shares of the underlying common stock in instances in which, in
the investment adviser's opinion, the investment characteristics of the
underlying common shares will assist the particular Fund in achieving its
investment objectives. Otherwise, the Fund will hold or trade the convertible
securities. In selecting convertible securities for a Fund, the Fund's adviser
evaluates the investment characteristics of the convertible security as a fixed
income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the Fund's adviser considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
SECURITIES OF FOREIGN ISSUERS. The Equity Funds may invest in the securities of
foreign issuers which are freely traded on United States securities exchanges or
in the over-the-counter market in the form of depository receipts. Securities of
a foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Equity Funds will not invest in the
securities of a foreign issuer if any such risk appears to the investment
adviser to be substantial.
OPTIONS AND FUTURES CONTRACTS. The Equity Funds may buy and sell options and
futures contracts to manage their respective individual exposure to changing
interest rates, security prices, and currency exchange rates. Some options and
futures strategies, including selling futures, buying puts, and writing calls,
tend to hedge the Equity Funds' respective investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the risk
and return characteristics of the overall strategy. The Equity Funds may invest
in options and futures based on any type of security, index, or currency,
including options and futures traded on foreign exchanges and options not traded
on exchanges.
Options and futures can be volatile investments, and involve certain risks. If
the investment adviser applies a hedge at an inappropriate time or judges market
conditions incorrectly, options and futures may lower an Equity Fund's
individual return. An Equity Fund could also experience losses if the prices of
its options and futures positions were poorly correlated with its other
investments, or if it could not close out its positions because of an illiquid
secondary market.
Each of the Equity Funds will not hedge more than 20% of their respective total
assets by selling futures, buying puts, and writing calls under normal
conditions. In addition, each of the Equity Funds will not buy futures or write
puts whose underlying value exceeds 20% of their respective total assets, and
the Equity Funds will not buy calls with a value exceeding 5% of their
respective total assets.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES, AND OPTIONS. The
Equity Funds may utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts, subject to the
limitation that the value of these futures contracts, swap agreements, indexed
securities, and options will not exceed 20% of each of the Equity Funds' total
assets. Also, each Equity Fund will not purchase options to the extent that more
than 5% of the value of the Equity Fund's total assets would be invested in
premiums on open put option positions. In addition, each Fund does not intend to
invest more than 5% of the market value of its total assets in each of the
following: futures contracts, swap agreements, and indexed securities. When an
Equity Fund enters into a swap agreement, assets of the Fund equal to the value
of the swap agreement will be segregated by the Fund.
There are several risks accompanying the utilization of futures contracts.
First, positions in futures contracts may be closed only on an exchange or board
of trade that furnishes a secondary market for such contracts. While the Equity
Funds plan to utilize futures contracts only if there exists an active market
for such contracts, there is no guarantee that a liquid market will exist for
the contracts at a specified time. Furthermore, because, by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition, because
the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
RESTRICTED AND ILLIQUID SECURITIES. The Equity Funds intend to invest in
restricted securities. Restricted securities are any securities in which each
Equity Fund may otherwise invest pursuant to its investment objective and
policies, but which are subject to restriction on resale under federal
securities law. However, each Equity Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Trustees to be liquid, non-negotiable time deposits, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Equity Funds may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which each Equity Fund purchases securities with payment and
delivery scheduled for a future time. In when-issued and delayed delivery
transactions, the Equity Funds rely on the seller to complete the transaction.
The seller's failure to complete the transaction may cause the Equity Funds to
miss a price or yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, each
Equity Fund may lend portfolio securities on a short-term or long-term basis, or
both, up to one-third of the value of its total assets to broker/dealers, banks,
or other institutional borrowers of securities. The Equity Funds will only enter
into loan arrangements with broker/dealers, banks, or other institutions which
the investment adviser has determined are creditworthy under guidelines
established by the Trustees and will receive collateral in the form of cash or
U.S. government securities equal to at least 100% of the value of the securities
loaned.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its investment
adviser, prevailing market conditions warrant, each
Equity Fund may, for temporary defensive purposes, invest in:
- - short-term money market instruments rated in one of the top two rating
categories by a nationally recognized statistical rating organization;
- - securities issued and/or guaranteed as to payment of principal and interest by
the U.S. government, its agencies, or instrumentalities; and
- - repurchase agreements.
REPURCHASE AGREEMENTS. The U.S. government securities and other securities in
which each Equity Fund invests may be purchased pursuant to repurchase
agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to an Equity Fund and agrees at the time of sale
to repurchase them at a mutually agreed upon time and price. To the extent that
the original seller does not repurchase the securities from an Equity Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Equity Funds may
invest in the securities of other investment companies, but they will not own
more than 3% of the total outstanding voting stock of any investment company,
invest more than 5% of its total assets in any one investment company, or invest
more than 10% of its total assets in investment companies in general. The Equity
Funds will invest in other investment companies primarily for the purpose of
investing its short-term cash which has not yet been invested in other portfolio
instruments. However, from time to time, on a temporary basis, each of the
Equity Funds may invest exclusively in a single other similarly managed
investment company. Shareholders should realize that, when one of the Equity
Funds invests in other investment companies, certain fund expenses, such as
custodian fees and administrative fees, may be duplicated. The adviser will
waive its investment advisory fee on assets invested in securities of other
investment companies.
INVESTMENT LIMITATIONS
- ------------------------------------------------------
THE EQUITY FUNDS FOLLOW A NUMBER OF GUIDELINES IN MANAGING THEIR PORTFOLIOS
IN ORDER TO LIMIT INVESTMENT RISKS.
- ------------------------------------------------------
Each Equity Fund will not:
- - borrow money directly or through reverse repurchase agreements (arrangements
in which the Equity Funds sell a portfolio instrument for a percentage of its
cash value with an arrangement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 10% of the value
of its total assets to secure such borrowings; or
- - with respect to 75% of the value of its total assets, invest more than 5% in
securities of one issuer other than cash, cash items, or securities issued or
guaranteed by the government of the U.S. or its agencies of instrumentalities
and repurchase agreements collateralized by such securities, or acquire more
than 10% of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
Each Equity Funds will not:
- - invest more than 10% of its total assets in securities subject to restrictions
on resale under the Securities Act of 1933 (except for commercial paper issued
under Section 4(2) of the Securities Act of 1933 and certain other securities
which meet the criteria for liquidity as established by the Trustees).
THE SHAWMUT FUNDS INFORMATION
MANAGEMENT OF THE
SHAWMUT FUNDS
BOARD OF TRUSTEES
- ------------------------------------------------------
THE SHAWMUT FUNDS ARE MANAGED BY A BOARD OF TRUSTEES.
- ------------------------------------------------------
The Trustees are responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
- ------------------------------------------------------
PURSUANT TO AN INVESTMENT ADVISORY CONTRACT WITH THE TRUST, INVESTMENT
DECISIONS FOR THE EQUITY FUNDS ARE MADE BY SHAWMUT BANK (THE "ADVISER"),
SUBJECT TO DIRECTION BY THE TRUSTEES.
- ------------------------------------------------------
The Adviser continually conducts investment research and supervision for the
Equity Funds and is responsible for the purchase and sale of portfolio
instruments, for which it receives an annual fee from the respective assets of
the Equity Funds.
ADVISORY FEES
- ------------------------------------------------------
THE ADVISER MAY VOLUNTARILY WAIVE PART OF ITS ADVISORY FEES.
- ------------------------------------------------------
The Adviser receives an annual investment advisory fee equal to 1.00% of each of
the Equity Funds' average daily net assets. The fees paid by the Equity Funds,
while higher than the advisory fees paid by other mutual funds in general, are
comparable to fees paid by mutual funds with similar objectives and policies.
The Adviser has undertaken to waive a portion of its advisory fee, up to the
amount of the advisory fee, to reimburse each of the Equity Funds for operating
expenses in excess of limitations established by certain states. The Adviser may
further voluntarily waive a portion of its fee or reimburse any of the Equity
Funds for certain operating expenses. The Adviser can terminate such voluntary
waiver or reimbursement policy at any time with any of The Equity Funds at its
sole discretion.
ADVISER'S BACKGROUND
- ------------------------------------------------------
SHAWMUT BANK, N.A., A NATIONAL BANKING ASSOCIATION, AND ITS AFFILIATES HAVE
MANAGED COMMINGLED FUNDS FOR OVER FIFTY YEARS. AS OF DECEMBER 31, 1993,
SHAWMUT NATIONAL CORPORATION, THROUGH ITS SUBSIDIARIES INCLUDING SHAWMUT
BANK MANAGED MORE THAN $15 BILLION IN DISCRETIONARY TRUST ASSETS. SHAWMUT
BANK HAS SERVED AS AN ADVISER TO MUTUAL FUNDS SINCE THE INCEPTION OF THE
SHAWMUT FUNDS ON DECEMBER 1, 1992.
- ------------------------------------------------------
Shawmut Bank, N.A., a national banking association, along with Shawmut Bank
Connecticut, National Association, are the principal subsidiaries of Shawmut
National Corporation, a super-regional bank holding company formed on February
29, 1988, and based in southern New England. Shawmut National Corporation serves
consumers through its network of banking offices with a full range of deposit
and lending products, as well as investment services. Shawmut Bank's borrowers
may be issuers of certain securities in which The Shawmut Funds may invest. The
principal executive offices of the investment adviser are located at One Federal
Street, Boston, Massachusetts 02211.
E. Bradley Bruce II has been responsible for managing the Growth Equity Fund
since October 1993. Mr. Bruce joined Shawmut Bank as a portfolio manager in
February 1992. Prior to this, he had been employed as a portfolio manager
with a private investment management firm since 1988. Mr. Bruce received his
B.A. degree at Middlebury College and his M.B.A. degree at Columbia University
Graduate School of Business.
Brendan J. Henebry has been the portfolio manager of the Growth & Income Equity
Fund since its inception in December 1992. Mr. Henebry has been with Shawmut
Bank, the Fund's Adviser, and its predecessor since 1965, and has been a Vice
President of the Adviser since 1978. During the past five years, Mr. Henebry has
served as Manager of the Growth & Income Equity Management Group. He is an
honors graduate of St. Anselm's College, where he concentrated in economics.
Peter C. Larson has been the portfolio manager of the Small Capitalization
Equity Fund since its inception in December 1992. Mr. Larson joined Shawmut Bank
in 1963 as an investment officer and has been a Vice President in charge of
Shawmut's Small Cap Equity Management product since inception in 1980. He holds
a B.S. degree in finance from the University of Connecticut.
DISTRIBUTION OF EQUITY FUNDS' SHARES
- ------------------------------------------------------
FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR INVESTMENT
SHARES.
- ------------------------------------------------------
Federated Securities Corp., Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under the distribution plan adopted in accordance with
Investment Company Act Rule 12b-1 (the "Plan"), each of the Equity Funds will
pay to the distributor an amount computed at an annual rate of up to .50 of 1%
of the average daily net asset value of the Investment Shares of each of the
Equity Funds, to finance any activity which is principally intended to result in
the sale of Investment Shares subject to the Plan.
The distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide distribution and/or administrative services as agents for their
clients or customers who own Investment Shares of the Equity Funds.
Administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; assisting clients in changing
dividend options, account designations, and addresses; and providing such other
services as may reasonably be requested.
The distributor will pay financial institutions a fee based upon the Investment
Shares subject to the Plan and owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the distributor.
The Equity Funds make no payments in connection with the sale of Investment
Shares other than the fees paid to the distributor under the Plan. Therefore,
the Equity Funds do not pay for unreimbursed expenses of the distributor,
including amounts expended by the distributor in excess of amounts received by
it from the Equity Funds, interest, carrying, or other financing charges in
connection with excess amounts expended, or the distributor's overhead expenses.
Since the Plan is a "compensation" type plan, future payments under the Plan may
permit recovery of such amounts or may result in a profit to the distributor.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE EQUITY FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), a subsidiary
of Federated Investors, provides the Equity Funds with certain administrative
personnel and services necessary to operate the Equity Funds, such as legal and
accounting services. FAS provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATED DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<S> <C>
.150 of 1% First $250 million
.125 of 1% Next $250 million
.100 of 1% Next $250 million
.075 of 1% Over $750 million
</TABLE>
The administrative fee received by FAS during any fiscal year shall be at least
$50,000 for each of the Equity Funds. FAS may voluntarily choose to waive a
portion of its fee.
CUSTODIAN. Shawmut Bank, N.A., One Federal Street, Boston, Massachusetts, 02211,
is custodian for the securities and cash of the Equity Funds. Under the
Custodian Agreement, Shawmut Bank, N.A., holds the Equity Funds' portfolio
securities in safekeeping and keeps all necessary records and documents relating
to its duties.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania,
15222-3779 is transfer agent and dividend disbursing agent for the Equity Funds.
It also provides certain accounting and recordkeeping services with respect to
each of the Equity Funds' portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania, 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, DC 02110.
INDEPENDENT ACCOUNTANTS. The independent accountants for the Equity Funds are
Price Waterhouse, 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES OF THE EQUITY FUNDS AND
INVESTMENT SHARES
Holders of Investment Shares pay their allocable portion of the Equity Funds'
and the Trust's expenses. The Trust expenses for which holders of Investment
Shares pay their allocable portion include, but are not limited to: the cost of
organizing the Trust and continuing its existence; registering the Trust with
federal and state securities authorities; Trustees' fees; auditors' fees; the
cost of meetings of Trustees; legal fees of the Trust; association membership
dues; and such non-recurring and extraordinary items as may arise.
The respective Equity Fund expenses for which holders of Investment Shares pay
their allocable portion include, but are not limited to: registering the Equity
Funds and shares of the Equity Funds; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise.
At present, no expenses, other than distribution expenses, are allocated
exclusively to the Investment Shares as a class. However, the Board of Trustees
reserves the right to allocate certain
other expenses to holders of Investment Shares as they deem appropriate ("Class
Expenses"). In any case, Class Expenses would be limited to: distribution fees;
transfer agent fees as identified by the transfer agent as attributable to
holders of Investment Shares; printing and postage expenses related to preparing
and distributing materials such as shareholder reports, prospectuses and proxies
to current shareholders; registration fees paid to the Securities and Exchange
Commission and registration fees paid to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Investment Shares; legal fees relating solely to Investment Shares; and
Trustees' fees incurred as a result of issues relating solely to Investment
Shares.
NET ASSET VALUE
- ------------------------------------------------------
THE TERM "NET ASSET VALUE" REFERS TO THE VALUE OF ONE EQUITY FUND SHARE.
- ------------------------------------------------------
The net asset value per share of each of the Equity Funds fluctuates and is
determined by dividing the sum of the market value of all securities and other
assets, less liabilities, by the number of shares outstanding.
INVESTING IN INVESTMENT SHARES
- ------------------------------------------------------
YOU CAN BUY INVESTMENT SHARES BY
FEDERAL RESERVE WIRE, MAIL, OR TRANSFER,
AS EXPLAINED BELOW.
- ------------------------------------------------------
Shares of the Equity Funds are sold by the distributor on days on which the New
York Stock Exchange and Federal Reserve Wire System are open for business.
Shares of the Equity Funds may also be purchased through Shawmut Bank, N.A.,
Shawmut Bank Connecticut, National Association, or their affiliates
(collectively, "Shawmut Bank") on days on which both Shawmut Bank and the New
York Stock Exchange and Federal Wire Reserve System are open for business. Texas
residents must purchase, exchange, and redeem Shares through Federated
Securities Corp. at 1-800-618-8573. The Equity Funds reserve the right to reject
any purchase request.
THROUGH SHAWMUT BANK. An investor may call Shawmut Bank (call toll-free 1-800-
SHAWMUT) to receive information and to place an order to purchase Investment
Shares. Orders placed through Shawmut Bank are considered received when payment
is converted to federal funds and the applicable Equity Fund is notified of the
purchase order. The completion of the purchase transaction will generally occur
within one business day after Shawmut Bank receives a purchase order. Purchase
orders must be received by Shawmut Bank before 4:00 p.m. (Eastern time) and must
be transmitted by Shawmut Bank to the applicable Equity Fund before 5:00 p.m.
(Eastern time) in order for Investment Shares to be purchased at that day's
public offering price.
Payment must be made by either check or federal funds deposited into a
shareholder account established by Shawmut Bank. Payment is normally made
through a debit to the shareholder account no later than the business day
following the conversion of a check into federal funds.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Investment Shares directly from the distributor. To do so: complete and sign the
new account form available from the Equity Funds; enclose a check made payable
to Shawmut Growth Equity Funds, Shawmut Growth and Income Equity Fund, or
Shawmut Small Capitalization Equity Fund (as appropriate)--Investment Shares;
and mail both to Shawmut Equity Funds, 3 Copley Place, OF9919, Boston,
Massachusetts 02116. The order is considered received after the check is
converted by Shawmut Bank into federal funds and Shawmut Bank establishes a
shareholder account for the investor. This is generally the next
business day after Shawmut Bank receives the check.
To purchase Investment Shares of the Equity Funds by wire, call 1-800-SHAWMUT.
All information needed will be taken over the telephone, and the order is
considered received when Shawmut Bank receives payment by wire and has
established a shareholder account for the investor. To request additional
information concerning purchases by wire, please contact Federated Securities
Corp., the Equity Funds' distributor, at 1-800-618-8573. Investment Shares
cannot be purchased by wire on any day on which both Shawmut Bank and the New
York Stock Exchange and Federal Reserve Wire System are not open for business.
MINIMUM INVESTMENT REQUIRED
- ------------------------------------------------------
THE MINIMUM INITIAL INVESTMENT IS $1,000, OR $500 IN THE CASE OF RETIREMENT
PLAN ACCOUNTS.
- ------------------------------------------------------
The minimum initial investment in Investment Shares by an investor is $1,000, or
$500 in the case of retirement plan accounts. Subsequent investments by
participants in the Systematic Investment Program, as described in this
prospectus, or by retirement plan accounts, must be in amounts of at least $50.
Subsequent investments by all other investors must be in amounts of at least
$100. The Equity Funds may waive the initial minimum investment for employees of
Shawmut Bank and its affiliates from time to time.
WHAT SHARES COST
- ------------------------------------------------------
INVESTMENT SHARES ARE SOLD AT THEIR NET ASSET VALUE NEXT DETERMINED AFTER
AN ORDER IS RECEIVED, PLUS A SALES CHARGE.
- ------------------------------------------------------
The net asset value is determined at the close of the New York Stock Exchange,
normally 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on
which there are not sufficient changes in the value of an Equity Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; or (iii) on the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Investment Shares of the Equity Funds are sold at their net asset value next
determined after an order is received, plus a sales charge, as follows:
<TABLE>
<CAPTION>
SALES
SALES CHARGE AS A
CHARGE AS A PERCENTAGE OF
PERCENTAGE NET AMOUNT
OF PUBLIC OF TRANSACTION
OFFERING AMOUNT
PRICE INVESTED
<S> <C> <C>
Less than $50,000.... 4.00% 4.17%
$50,000 but less than
$100,000........... 3.75% 3.90%
$100,000 but less
than $250,000...... 3.50% 3.63%
$250,000 but less
than $500,000...... 2.50% 2.56%
$500,000 but less
than $1 million.... 2.00% 2.04%
$1 million but less
than $3 million.... 1.00% 1.01%
$3 million or more... 0.50% 0.50%
</TABLE>
PURCHASES AT NET ASSET VALUE. Investment Shares of the Equity Funds may be
purchased at net asset value, without a sales charge, by Trustees, Directors,
and employees (and their spouses and children under age 21) of the The Shawmut
Funds, Shawmut Bank, N.A., Shawmut Bank Connecticut, National Association, or
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 Equity Funds.
SALES CHARGE REALLOWANCE. For sales of Investment Shares of the Equity Funds,
Shawmut Bank will normally receive up to 85% of the applicable sales charge. Any
portion of the sales
charge which is not paid to Shawmut Bank will be retained by the distributor.
The sales charge for Investment Shares sold other than through Shawmut Bank will
be retained by the distributor. The distributor may pay fees to banks out of the
sales charge in exchange for sales and/or administrative services performed on
behalf of the bank's customers in connection with the initiation of customer
accounts and purchases of the Equity Funds' Investment Shares.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares through:
- - quantity discounts and accumulated purchases;
- - signing a 13-month letter of intent;
- - using the reinvestment privilege; or
- - concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Equity Funds will combine
purchases made on the same day by the investor, his spouse, and his children
under age 21 when it calculates the sales charge paid by an individual investor.
If an additional purchase of shares is made, each Equity Fund will consider the
previous purchases still invested in any of the Shawmut Funds, the purchase
price of which includes a sales charge. For example, if a shareholder already
owns shares having a current value at the public offering price of $30,000, and
he purchases $20,000 or more of an Equity Fund at the current public offering
price, the sales charge on the additional purchase of an Equity Fund, according
to the schedule now in effect, would be 3.50% instead of 4.00%.
To receive this sales charge reduction, Shawmut Bank or the distributor must be
notified by the shareholder in writing at the time the purchase is made that
shares are already owned or that purchases are being combined. Each Equity Fund
will reduce the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $50,000 of
shares in the Equity Funds over the next 13 months, the sales charge may be
reduced by signing a letter of intent to that effect. This letter of intent
includes a provision for a sales charge adjustment depending on the amount
actually purchased within the 13-month period and a provision for the custodian
to hold up to 4.00% of the total amount intended to be purchased in escrow (in
Investment Shares) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the
13-month period unless the amount specified in the letter of intent is not
purchased. In this event, an appropriate number of the escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
REINVESTMENT PRIVILEGE. If shares in any of the Equity Funds have been redeemed,
the shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge.
Shawmut Bank or the distributor must be notified by the shareholder in writing
of the reinvestment in order to eliminate a sales charge. If the shareholder
redeems shares, there may be tax consequences, and exercise of the reinvestment
privilege may result in additional tax considerations. Shareholders
contemplating such transactions should consult their own tax advisers.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
funds in the Trust, the
purchase price of which includes a sales charge. For example, if a shareholder
concurrently invests $30,000 in one of the funds in the Trust with a sales
charge and $20,000 in any of the Equity Funds, the sales charge would be reduced
as described in the section entitled "What Shares Cost."
To receive this sales charge reduction, the distributor must be notified by the
shareholder in writing or by Shawmut Bank at the time the concurrent purchases
are made. The sales charge will be reduced after the purchases are confirmed.
SYSTEMATIC INVESTMENT PROGRAM
Once an account in an Equity Fund has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $50. Under this program,
funds may be automatically withdrawn periodically from the shareholder's
checking account and invested in shares at the net asset value next determined
after an order is received by the Equity Fund, plus the applicable sales charge.
A shareholder may apply for participation in this program through his account
officer at Shawmut Bank.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Certain institutions
holding Investment 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 provided which may be related to the ownership of Investment Shares.
This prospectus should, therefore, be read together with any agreement between
the customer and the institution with regard to the services provided, the fees
charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Equity Funds, Federated Services Company maintains a
share account for each shareholder of record. Share certificates are not issued
unless requested by contacting Shawmut Bank in writing.
Detailed confirmations of each purchase or redemption are sent to Shawmut Bank
or other shareholders of record. Monthly statements are sent by Shawmut Bank to
report account activity during the previous month, including dividends paid
during the period.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in each
Equity Fund on the record date.
CAPITAL GAINS
Capital gains realized by an Equity Fund, if any, will be distributed to that
Fund's shareholders at least once every 12 months.
EXCHANGE PRIVILEGE
EXCHANGING SHARES. Shareholders may exchange Investment Shares, with a minimum
net asset value of $1,000, except retirement plan accounts, which must have a
minimum net asset value of $500, for shares of the same designated class of
other funds advised by Shawmut Bank. Shares of funds with a sales charge may be
exchanged at net asset value for shares of other funds with an equal sales
charge, a lower sales charge or no sales charge. Shares of funds with no sales
charge, or a lower sales charge, acquired by direct purchase or reinvestment of
dividends on such shares may be exchanged for shares of funds with a sales
charge, or a higher sales charge, at net asset value, plus the applicable sales
charge or additional incremental sales charge, as the case may be, imposed by
the fund shares being purchased.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends
on such shares retain the character of the exchanged shares for purposes of
exercising further exchange privileges; thus, an exchange of such shares for
shares of a fund with a sales charge would be a net asset value.
Exchanges are subject to the minimum initial purchase requirements of such fund
being acquired. Prior to any exchange, the shareholder must receive a copy of
the current prospectus of the class of the fund into which an exchange is to be
effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, Shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee. Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short-or long-term capital gain or loss may be realized.
The exchange privilege may be modified or terminated at any time. Shareholders
will be notified of the modification or termination of the exchange privilege. A
shareholder may obtain further information on the exchange privilege by calling
Shawmut Bank.
EXCHANGE-BY-TELEPHONE. Instructions for exchanges between participating funds
which are part of the Trust may be given by calling Shawmut Bank at
1-800-SHAWMUT. To utilize the exchange-by-telephone service, a shareholder must
complete an authorization form permitting a Shawmut Fund to honor telephone
instructions. The authorization is included in the shareholder account
application. Shares may be exchanged by telephone only between fund accounts
having identical shareholder registrations. Exchange instructions given by
telephone may be electronically recorded.
Any Shares held in certificate form cannot be exchanged by telephone, but must
be forwarded to the transfer agent and deposited to the shareholder's mutual
fund account before being exchanged.
Telephone exchange instructions must be received before 4:00 p.m. (Eastern time)
for Shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through Shawmut Bank during times of drastic economic or
market changes. If a shareholder cannot contact Shawmut Bank by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail to Shawmut Bank, 3 Copley Place, OF9919, Boston, Massachusetts 02116.
REDEEMING INVESTMENT SHARES
- ------------------------------------------------------
YOU CAN REDEEM INVESTMENT SHARES BY MAIL OR TELEPHONE. TO ENSURE YOUR
SHARES ARE REDEEMED EXPEDITIOUSLY, PLEASE FOLLOW THE PROCEDURES EXPLAINED
BELOW.
- ------------------------------------------------------
The Equity Funds redeem Investment Shares at their net asset value next
determined after Federated Services Company receives the redemption request.
Redemptions will be made on days on which the Equity Funds compute their net
asset value. Requests for redemptions can be made by telephone or in writing by
contacting a Shawmut Bank account officer or directly from the Equity Funds.
Redemption requests received prior to 4:00 p.m. (Eastern time) will be effected
on the same business day.
THROUGH SHAWMUT BANK
Shareholders may redeem Investment Shares by calling their Shawmut Bank account
officer to request the redemption. Investment Shares will be redeemed at the net
asset value next determined after Federated Services Company receives the
redemption request. Shawmut Bank is responsible for promptly submitting
redemption requests and for maintaining proper written records of redemption
instructions received from
the Equity Funds' shareholders. In order to effect a redemption on the same
business day as a request, Shawmut Bank is responsible for the timely
transmission of the redemption request to the appropriate Equity Fund.
Before Shawmut Bank may request redemption by telephone on behalf of a
shareholder, an authorization form permitting the Equity Funds to accept
redemption requests by telephone must first be completed. This authorization is
included in shareholder account application. In the event of drastic economic or
market changes, a shareholder may experience difficulty in redeeming by
telephone. If such a case should occur, it is recommended that a redemption
request be made in writing and sent by overnight mail to Shawmut Bank, 3 Copley
Place, OF9919, Boston, Massachusetts 02116.
DIRECTLY FROM THE EQUITY FUNDS
BY MAIL. A shareholder may redeem Investment Shares by sending a written request
to Federated Services Company. The written request should include the
shareholder's name, the Equity Fund's name and class of shares name, the account
number, and the share or dollar amount requested. If share certificates have
been issued, they must be properly endorsed and should be sent by registered or
certified mail with the written request. Shareholders should call the Equity
Funds for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Equity Funds, or a redemption payable other than to the shareholder of
record must have signatures on written redemption requests guaranteed by:
- - a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- - a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- - a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
- - any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Equity Funds do not accept signatures guaranteed by a notary public.
The Equity Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Equity Funds may elect in
the future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Equity Funds and their transfer
agent reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT
Redemption payments will generally be made directly to the shareholder's account
maintained by an investor with Shawmut Bank. This deposit is normally made
within one business day, but in no event more than seven days, of the redemption
request, provided the transfer agent has received payment from the shareholder.
The net asset value of Investment Shares redeemed is determined, and dividends,
if any, are paid up to and including, the day prior to the day that a redemption
request is processed. Pursuant to instructions from Shawmut Bank, redemption
proceeds may be transferred from a shareholder account by check or by wire.
BY CHECK. Normally, a check for the proceeds is mailed within one business day,
but in no event more than seven days, after receipt of a proper redemption
request provided the transfer agent has received payment for Investment Shares
from the shareholder.
BY WIRE. Requests to wire proceeds from redemptions received before 4:00 p.m.
(Eastern time) will be honored the following business day after Shawmut Bank
receives proper instructions.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Equity Funds
may redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum of $1,000, or $500 in the case of
retirement plan accounts. This requirement does not apply, however, if the
balance falls below $1,000 or $500, respectively, because of changes in an
Equity Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. Depending on the amount of the withdrawal payments, the amount
of dividends paid and capital gains distributions with respect to shares, and
the fluctuation of the net asset value of shares redeemed under this program,
redemptions may reduce, and eventually deplete, the shareholder's investment in
the Equity Funds. For this reason, payments under this program should not be
considered as yield or income on the, shareholder's investment in the Equity
Funds Investment Shares. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through Shawmut Bank. Because Investment
Shares are sold with a sales charge, it is not advisable for shareholders to be
purchasing, Investment Shares of the Equity Funds while participating in this
program.
REDEMPTION IN KIND
The Equity Funds are obligated to redeem Investment Shares solely in cash up to
$250,000 or 1% of the net asset value of each individual Equity Fund, whichever
is less, for any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Equity Funds will pay all or a
portion of the remainder of the redemption in portfolio instruments, valued in
the same way as a 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.
SHAREHOLDER INFORMATION
VOTING RIGHTS
- ------------------------------------------------------
EACH INVESTMENT SHARE OF AN EQUITY FUND GIVES THE SHAREHOLDER ONE VOTE IN
TRUSTEE ELECTIONS AND OTHER MATTERS SUBMITTED TO SHAREHOLDERS OF THE TRUST
FOR VOTE.
- ------------------------------------------------------
All shares of each portfolio in the Trust have equal voting rights except that,
in matters affecting only a particular fund or class, only shareholders of that
fund or class are entitled to vote. As a Massachusetts business trust, the Trust
is not required to hold annual shareholder meetings. Shareholder approval will
be sought only for certain changes in the Trust or an Equity Fund's operation
and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding shares of
the Trust. As of February 10, 1994,
National Financial Services, New York, New York, owned for the exclusive benefit
of their customers, the following: approximately 358,819 (70.18%) of the Growth
Equity Fund's Investment Shares; approximately 1,211,371 (68.93%) of the Growth
and Income Equity Fund's Investment Shares; and approximately 1,167,919 (72.47%)
of the Small Capitalization Equity Fund's Investment Shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust on behalf
of an Equity Fund. To protect shareholders of the Equity Funds, the Trust has
filed legal documents with Massachusetts that expressly disclaim the liability
of shareholders of the Equity Funds for acts or obligations of the Trust. These
documents require notice of this disclaimer to be given in each agreement,
obligation, or instrument the Trust or its Trustees enter into or sign on behalf
of an Equity Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations on behalf of an Equity Fund, the Trust is required to use the
property of that Equity Fund to protect or compensate the shareholder. On
request, the Trust will defend any claim made and pay any judgment against a
shareholder of the Equity Funds for any act or obligation of the Trust on behalf
of the Equity Funds. Therefore, financial loss resulting from liability as a
shareholder of the Equity Funds will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from the
assets of the Equity Funds.
EFFECT OF BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent, or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of such a customer. Shawmut Bank is subject to such
banking laws and regulations.
- ------------------------------------------------------
THE GLASS-STEAGALL ACT IS A FEDERAL BANKING LAW THAT GENERALLY PROHIBITS
BANKS FROM PUBLICLY UNDERWRITING OR DISTRIBUTING CERTAIN SECURITIES.
- ------------------------------------------------------
Shawmut Bank believes, based upon the advice of its counsel, that it may perform
the services for the Equity Funds contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Shawmut Bank from continuing to perform all or a part of the above
services for its customers and/or the Equity Funds. If it were prohibited from
engaging in these customer-related activities, the Trustees would consider
alternative advisers and means of continuing available investment services. In
such event, changes in the operation of the Equity Funds may occur, including
possible termination of any automatic or other Equity Fund share investment and
redemption services then being provided by Shawmut Bank. It is not expected that
existing shareholders would suffer any adverse financial consequences (if
another adviser with equivalent abilities to Shawmut Bank is found) as a result
of any of these occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from inter-
pretations given to the Glass-Steagall Act and, therefore, banks and financial
institutions may be required to register as dealers pursuant to state law.
TAX INFORMATION
FEDERAL INCOME TAX
The Equity Funds will pay no federal income tax because each Fund expects to
meet requirements of the Internal Revenue Code, as amended, applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies.
Each Equity Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized by The
Shawmut Funds' other portfolios will not be combined for tax purposes with those
realized by each Equity Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional Investment Shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
OTHER CLASSES OF SHARES
Trust Shares of each of the Equity Funds are sold primarily to accounts for
which Shawmut Bank, N.A., or its affiliates, act in a fiduciary or agency
capacity. Trust Shares are sold at net asset value, without a sales charge, and
without a Rule 12b-1 Plan. Investments in Trust Shares are subject to a minimum
initial investment of $1,000.
The amount of dividends payable to Trust Shares will exceed that of Investment
Shares by the difference between class expenses and distribution expenses borne
by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
PERFORMANCE INFORMATION
- ------------------------------------------------------
FROM TIME TO TIME THE EQUITY FUNDS ADVERTISE THEIR TOTAL RETURN AND YIELD
FOR INVESTMENT SHARES.
- ------------------------------------------------------
Total return represents the change, over a specified period of time, in the
value of an investment in Investment Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yields of Investment Shares of the Equity Funds are calculated each day by
dividing the net investment income per share (as defined by the Securities and
Exchange Commission) earned by the Equity Funds over a thirty-day period by the
net asset value per Share on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
income actually earned by Investment Shares and, therefore, may not correlate to
the dividends or other distributions paid to shareholders.
Total return and yield will be calculated separately for Trust Shares and
Investment Shares. Because Investment Shares are subject to a sales charge and a
12b-1 fee, the total return and yield for Trust Shares, for the same period,
will exceed that of Investment Shares.
The performance information for Investment Shares reflects the effect of the
maximum sales load which, if excluded, would increase the total return and
yield.
From time to time, the Equity Funds may advertise their performance using
certain reporting services and/or compare its performance to certain indices.
Further information about the performance of the Equity Funds is contained in
the Trust's Annual Report dated October 31, 1993, which can be obtained free of
charge.
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3120919A-R (2/94)
THE SHAWMUT EQUITY FUNDS
(PORTFOLIOS OF THE SHAWMUT FUNDS)
SHAWMUT GROWTH EQUITY FUND
TRUST SHARES
INVESTMENT SHARES
SHAWMUT GROWTH AND INCOME EQUITY FUND
TRUST SHARES
INVESTMENT SHARES
SHAWMUT SMALL CAPITALIZATION EQUITY FUND
TRUST SHARES
INVESTMENT SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
Shawmut Growth Equity Fund ("Growth Equity Fund"), Shawmut Growth and Income
Equity Fund ("Growth and Income Equity Fund"), and Shawmut Small Capitalization
Equity Fund ("Small Capitalization Equity Fund")(collectively referred to as the
"Equity Funds") represent interests in diversified investment portfolios of The
Shawmut Funds (the "Trust"). This Combined Statement of Additional Information
should be read with the respective prospectuses for the Equity Funds, Trust
Shares and Investment Shares, dated February 28, 1994. This Statement is not a
prospectus itself. To receive a copy of either prospectus, write or call the
Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OFFERED BY THE PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF SHAWMUT
BANK, ARE NOT ENDORSED OR GUARANTEED BY SHAWMUT BANK, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ARE THEY INSURED OR GUARANTEED BY THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. MUTUAL FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING FLUCTUATIONS IN VALUE AND EARNINGS, AND THE POSSIBLE
LOSS OF PRINCIPAL.
INVESTMENT SHARES OF THE SHAWMUT FUNDS ARE AVAILABLE THROUGH LICENSED
REPRESENTATIVES OF SHAWMUT BROKERAGE, INC., MEMBER NASD/SIPC, AND AN AFFILIATE
OF SHAWMUT BANK.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated February 28, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE EQUITY FUNDS 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
U.S. Government Obligations 1
When-Issued and Delayed
Delivery Transactions 2
Restricted and Illiquid Securities 2
Repurchase Agreements 2
Lending of Portfolio Securities 2
Portfolio Turnover 3
Derivative Securities 3
Investment Limitations 4
THE SHAWMUT FUNDS MANAGEMENT 7
- ---------------------------------------------------------------
Officers and Trustees 7
Funds 9
Equity Funds Ownership 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
- ---------------------------------------------------------------
Adviser to the Equity Funds 9
Advisory Fees 9
ADMINISTRATIVE SERVICES 10
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 10
- ---------------------------------------------------------------
PURCHASING SHARES 10
- ---------------------------------------------------------------
Distribution Plan (Investment Shares) 10
Conversion to Federal Funds 11
DETERMINING NET ASSET VALUE 11
- ---------------------------------------------------------------
Determining Market Value of Securities 11
REDEEMING SHARES 11
- ---------------------------------------------------------------
Redemption in Kind 12
EXCHANGE PRIVILEGE 12
- ---------------------------------------------------------------
Requirements for Exchange 12
Making an Exchange 12
TAX STATUS 12
- ---------------------------------------------------------------
The Equity Funds' Tax Status 12
Shareholders' Tax Status 12
Capital Gains 12
TOTAL RETURN 12
- ---------------------------------------------------------------
YIELD 12
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 13
- ---------------------------------------------------------------
FINANCIAL STATEMENTS 13
- ---------------------------------------------------------------
APPENDIX 14
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Equity Funds are portfolios of The Shawmut Funds, which was established as a
Massachusetts business trust under a Declaration of Trust dated on July 16,
1992.
Shares of the Equity Funds are offered in two classes, known as Trust Shares and
Investment Shares (individually and collectively referred to as "Shares"). This
combined statement of additional information relates to the above-mentioned
Shares of the Equity Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Growth Equity Fund's and the Small Capitalization Equity Fund's investment
objectives are to provide long-term capital appreciation. The Growth and Income
Equity Fund's investment objective is to provide relatively high total return
through long-term capital appreciation and current income. The investment
objectives cannot be changed without approval of shareholders.
The policies described below may be changed by the Board of Trustees without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
TYPES OF INVESTMENTS
The Growth and Income Equity Fund and the Growth Equity Fund invest principally
in a professionally-managed and diversified portfolios of common stocks of
companies with prospects for above-average growth and dividends or of companies
where significant fundamental changes are taking place. The Growth and Income
Equity Fund and the Growth Equity Fund will seek to invest in equity securities
of companies that are projected to show earnings growth superior to the Standard
& Poor's 500 Composite Stock Index. Although the Growth and Income Equity Fund
and the Growth Equity Fund may invest in other securities and in money market
instruments, it is the Growth and Income Equity Fund's and the Growth Equity
Fund's policies under normal market conditions to invest at least 65% of its
assets in equity securities. The securities in which the Growth and Income
Equity Fund and the Growth Equity Fund may invest include foreign securities, as
described in the prospectus.
The Small Capitalization Equity Fund invests primarily in a diversified
portfolio of equity securities of companies that have a market value
capitalization of up to $1 billion to achieve long-term capital appreciation and
current income. Under normal circumstances, the Small Capitalization Equity Fund
will invest at least 65% of its total assets in growth and income equity
securities. In addition, the Small Capitalization Equity Fund may invest as
described below, as described in the prospectus.
The Equity Funds intend to limit its investment in foreign securities which are
not freely traded on United States securities exchanges or the over-the-counter
market in the form of depository receipts, to no more than 5% of its total
assets.
MONEY MARKET INSTRUMENTS
The Equity Funds may invest in the following money market instruments:
- instruments of domestic banks and savings and loans if they have
capital, surplus, and undivided profits of over $100,000,000, or if the
principal amount of the instrument is insured in full by the Federal
Deposit Insurance Corporation; and
- prime commercial paper (rated A-1 by Standard and Poor's Corporation,
Prime-1 by Moody's Investors Service, Inc., or F-1 by Fitch Investors
Service).
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Equity Funds may
invest generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued or
guaranteed by U.S. government agencies or instrumentalities. These
securities are backed by:
- the full faith and credit of the U.S. Treasury;
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
- the credit of the agency or instrumentality issuing the obligations.
- --------------------------------------------------------------------------------
Examples of agencies and instrumentalities which are permissible
investments which may not always receive financial support from the U.S.
government are:
- Federal Farm Credit Banks;
- Federal Home Loan Banks;
- Federal National Mortgage Association;
- Student Loan Marketing Association; and
- Federal Home Loan mortgage Corporation.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Equity Funds engage in when-issued and delayed delivery transactions
only for the purpose of acquiring portfolio securities consistent with
the Equity Fund's investment objective and policies, not for investment
leverage.
These transactions are made to secure what is considered to be an
advantageous price and yield for the Fund. 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.
No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Equity Funds sufficient to make
payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These securities are marked to market daily
and maintained until the transaction is settled. As a matter of policy,
the Equity Funds do not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of
more than 20% of the total value of its assets.
RESTRICTED AND ILLIQUID SECURITIES
The Equity Funds may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities
Act of 1933. Section 4(2) commercial paper is restricted as to
disposition under federal securities law and is generally sold to
institutional investors, such as the Fund, who agree that they are
purchasing the paper for investment purposes and not with a view to
public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Equity Funds through or with the
assistance of the issuer or investment dealers who make a market in
Section 4(2) commercial paper, thus providing liquidity. The Equity Funds
believe that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established
by the Board of Trustees are quite liquid. The Equity Funds intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees including Section 4(2) commercial
paper (as determined by the Fund's adviser) as liquid and not subject to
the investment limitation applicable to illiquid securities. In addition,
because Section 4(2) commercial paper is liquid, the Equity Funds intend
to not subject such paper to the limitation applicable to restricted
securities.
REPURCHASE AGREEMENTS
The Equity Funds require its custodian to take possession of the
securities subject to repurchase agreements and these securities are
marked to market daily. To the extent that the original seller does not
repurchase the securities from the Fund, the Equity Funds could receive
less than the repurchase price on any sale of such securities. In the
event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Equity Funds might be
delayed pending court action. The Equity Funds believe that, under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Equity Funds and allow retention
or disposition of such securities. The Equity Funds will only enter into
repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Equity
Funds' adviser to be creditworthy pursuant to guidelines established by
the Trustees.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Equity Funds lends portfolio securities
must be valued daily and, should the market value of the loaned
securities increase, the borrower must furnish additional collateral to
the Fund. During the time portfolio securities are on loan, the borrower
pays the Equity Funds any dividends or interest paid on such securities.
Loans are subject to termination at the option of the Equity Funds or the
borrower. The Equity Funds 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 the
borrower or placing broker.
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER
Although the Equity Funds do not intend to invest for the purpose of
seeking short-term profits, securities in the portfolio will be sold
whenever the investment adviser believes it is appropriate to do so in
light of the Equity Funds' investment objectives without regard to the
length of time a particular security may have been held.
DERIVATIVE SECURITIES
PUT AND CALL OPTIONS
The Equity Funds may purchase and sell put options on its portfolio
securities as described in the prospectus.
STOCK INDEX FUTURES AND OPTIONS
The Equity Funds may utilize stock index futures contracts and
options on stocks, stock indices and stock index futures contracts
for the purposes of managing cash flows into and out of the Fund's
portfolio and potentially reducing transactional costs. The Equity
Funds may not use stock index futures contracts and options for
speculative purposes.
As a means of reducing fluctuations in the net asset value of shares
of the Equity Funds, the Equity Funds may attempt to hedge all or a
portion of its portfolio through the purchase of listed put options
on stocks, stock indices, and stock index futures contracts. These
options will be used as a form of forward pricing to protect
portfolio securities against decreases in value resulting from
market factors such as an anticipated increase in interest rates. A
put option gives the Equity Funds, 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. Put options on stock
indices are similar to put options on stocks except for the delivery
requirements. Instead of giving the Equity Funds the right to make
delivery of stock at a specified price, a put option on a stock
index gives the Equity Funds, as holders, the right to receive an
amount of cash upon exercise of the option.
The Equity Funds may also write covered call options. As the writer
of a call option, the Equity Funds have the obligation upon exercise
of the option during the option period to deliver the underlying
security upon payment of the exercise price.
The Equity Funds may only: (1) buy listed put options on stock
indices and stock index futures contracts; (2) buy listed put
options on securities held in its portfolio; and (3) sell listed
call options either on securities held in its portfolio or on
securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any
such additional consideration). The Equity Funds will maintain its
positions in securities, option rights, and segregated cash subject
to puts and calls until the options are exercised, closed, or
expired. The Equity Funds may also enter into stock index futures
contracts. A stock index futures contract is a bilateral agreement
which obligates the seller to deliver (and the purchaser to take
delivery of) an amount of cash equal to a specific dollar amount
times the difference between the value of a specific stock index at
the close of trading of the contract and the price at which the
agreement is originally made. There is no physical delivery of the
stocks constituting the index, and no price is paid upon entering
into a futures contract.
In general, contracts are closed out prior to their expiration. The
Equity Funds, when purchasing or selling a futures contract, will
initially be required to deposit in a segregated account in the
broker's name with the Equity Funds' custodian an amount of cash or
U.S. government securities approximately equal to 5%-10% of the
contract value. This amount is known as 'initial margin,' and it is
subject to change by the exchange or board of trade on which the
contract is traded. Subsequent payments to and from the broker are
made on a daily basis as the price of the index or the securities
underlying the futures contract fluctuates. These payments are known
as "variation margins," and the fluctuation in value of the long and
short positions in the futures contract is a process referred to as
"marking to market." The Equity Funds may decide to close its
position on a contract at any time prior to the contract's
expiration. This is accomplished by the Equity Funds taking an
opposite position at the then prevailing price, thereby terminating
their existing position in the contract. Because the initial margin
resembles a performance bond or good faith deposit on the contract,
it is returned to the Equity Funds upon the termination of the
contract, assuming that all contractual obligations have been
satisfied. Therefore, the margin utilized in futures contracts is
readily distinguishable from the margin employed in security
transactions, since the margin employed in futures contracts does
not involve the borrowing of funds to finance the transaction.
- --------------------------------------------------------------------------------
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS
The Equity Fund will not enter into futures contracts to the extent
that, immediately thereafter, the sum of its initial margin deposits
on open contracts exceeds 5% of the market value of the Equity
Funds' total assets. Further, the Equity Funds will enter into stock
index futures contracts only for bona fide hedging purposes or such
other purposes permitted under Part 4 of the regulations promulgated
by the Commodity Futures Trading Commission. Also, the Equity Funds
may not enter into stock index futures contracts and options to the
extent that the value of such contracts would exceed 20% of the
Equity Funds' total net assets and may not purchase put options to
the extent that more than 5% of the value of the Equity Funds' total
assets would be invested in premiums on open put option positions.
INDEXED SECURITIES
The Equity Funds may invest in indexed securities whose value is
linked to foreign currencies, interest rates, commodities, indices,
or other financial indicators. Most indexed securities are short to
intermediate term fixed-income securities whose values at maturity
or interest rates rise or fall according to the change in one or
more specified underlying instruments. Indexed securities may be
positively or negatively indexed (i.e., their value may increase or
decrease if the underlying instrument appreciates), and may have
return characteristics similar to direct investments in the
underlying instrument or to one or more options on the underlying
instrument. Indexed securities may be more volatile than the
underlying instrument itself.
SWAP AGREEMENTS
As one way of managing its exposure to different types of
investments, the Equity Funds may enter into interest rate swaps,
currency swaps, and other types of swap agreements such as caps,
collars, and floors. In a typical interest rate swap, one party
agrees to make regular payments equal to a floating interest rate
times a "notional principal amount," in return for payments equal to
a fixed rate times the same amount, for a specified period of time.
If a swap agreement provides for payments in different currencies,
the parties might agree to exchange notional principal amount as
well. Swaps may also depend on other prices or rates, such as the
value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make
payments only under specified circumstances, usually in return for
payment of a fee by the other party. For example, the buyer or an
interest rate cap obtains the right to receive payments to the
extent that a specified interest rate exceeds an agreed-upon level,
while the seller of an interest rate floor is obligated to make
payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of
buying a cap and selling a floor.
Swap agreements will tend to shift the Equity Funds' investment
exposure from one type of investment to another. For example, if the
Equity Funds agreed to exchange payments in dollars for payments in
foreign currency, the swap agreement would tend to decrease the
Equity Funds' exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors
have an effect similar to buying or writing options. Depending on
how they are used, swap agreements may increase or decrease the
overall volatility of the Equity Funds' investments and its share
price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of
risks assumed. As a result, swaps can be highly volatile and may
have a considerable impact on the Equity Funds' performance. Swap
agreements are subject to risks related to the counterparty's
ability to perform, and may decline in value if the counterparty's
creditworthiness deteriorates. The Equity Funds may also suffer
losses if it is unable to terminate outstanding swap agreements or
reduce its exposure through offsetting transactions.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Equity Funds will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of portfolio securities. A
deposit or payment by the Equity Funds of initial or variation margin in
connection with financial futures contracts or related options
transactions is not considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Equity Funds will not issue senior securities except that the Equity
Funds may borrow money in amounts up to one-third of the value of its
total assets including the amounts borrowed; and except to the
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extent that the Equity Funds will enter into futures contracts. The
Equity Funds will not borrow money except as a temporary, extraordinary,
or emergency measure to facilitate management of the portfolio by
enabling the Equity Funds to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Equity Funds will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding. In the
past year ending October 31, 1993, borrowings were not at any time in
excess of 5% of the Equity Funds' respective total assets.
INVESTING IN REAL ESTATE
The Equity Funds will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or which represent
interests in real estate.
INVESTING IN COMMODITIES
The Equity Funds will not purchase or sell commodities, commodity
contracts, or commodity futures contracts except that the Equity Funds
may purchase and sell financial futures contracts and related options.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Equity Funds will not purchase securities issued by any one
issuer (other than cash, cash items or securities issued or guaranteed by
the government of the United States or its agencies or instrumentalities
and repurchase agreements collateralized by such securities) if as a
result more than 5% of the value of its total assets would be invested in
the securities of that issuer or if it would own more than 10% of the
outstanding voting securities of such issuer. (For purposes of this
limitation the Equity Funds consider instruments issued by a U.S. branch
of a domestic bank having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items").
CONCENTRATION OF INVESTMENTS
The Equity Funds will not purchase securities if, as a result of such
purchase, 25% or more of the value of their respective total assets would
be invested in any one industry or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects. However, the Equity Funds may invest as
temporary investments more than 25% of the value of their respective
assets in cash or cash items (the Equity Funds consider cash items to be
instruments issued by a U.S. branch of a domestic bank or savings and
loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment), securities issued or guaranteed
by the U.S. government, its agencies, or instrumentalities, or
instruments secured by these money market instruments, such as repurchase
agreements.
UNDERWRITING
The Equity Funds will not underwrite any issue of securities, except as
it may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Equity Funds
may purchase pursuant to its investment objective, policies and
limitations.
LENDING CASH OR SECURITIES
The Equity Funds will not lend any of its assets, except portfolio
securities. This shall not prevent the Equity Funds from purchasing or
holding money market instruments, repurchase agreements, obligations of
the U.S. government, its agencies or instrumentalities, and certain debt
instruments as permitted by its investment objective, policies and
limitations, and Declaration of Trust.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Equity Funds will not invest more than 10% of its total assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Board of Trustees. In
order to comply with registration requirements of a certain state, the
Equity Funds have agreed to limit its investment in restricted securities
to 5% of its total assets. If state requirements change, this policy may
be changed without notice to shareholders.
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INVESTING IN ILLIQUID SECURITIES
The Equity Funds will not invest more than 15% of the value of its net
assets in illiquid securities, including repurchase agreements providing
for settlement in more than seven days after notice, over-the-counter
options, and certain securities not determined by the Trustees to be
liquid.
PLEDGING ASSETS
The Equity Funds will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In those cases, it may pledge
assets having a market value not exceeding the lesser of the dollar
amounts borrowed or 10% of the value of total assets at the time of the
pledge. For purposes of this limitation, the following are not deemed to
be pledges: margin deposits for the purchase and sale of financial
futures contracts and related options; and segregation of collateral
arrangements made in connection with options activities or the purchase
of securities on a when-issued basis.
INVESTING IN MINERALS
The Equity Funds will not purchase interests in oil, gas, or other
mineral exploration or development programs or leases, except it may
purchase the securities of issuers which invest in or sponsor such
programs.
INVESTING IN NEW ISSUERS
The Equity Funds will not invest more than 5% of the value of its total
assets in securities of issuers which have records of less than three
years of continuous operations, including the operation of any
predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Equity Funds will not purchase or retain the securities of any issuer
if the officers and Trustees of the Trust or its investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Equity Funds will not purchase securities of a company for purpose of
exercising control or management.
INVESTING IN WARRANTS
The Equity Funds will not invest more than 5% of its net assets in
warrants, including those acquired in units or attached to other
securities. To comply with certain state restrictions, the Equity Funds
will limit its investment in such warrants not listed on the New York or
American Stock Exchanges to 2% of its net assets. (If state restrictions
change, this latter restriction may be revised without notice to
shareholders.) For purposes of this investment restriction, warrants will
be valued at the lower of cost or market, except that warrants acquired
by the Equity Funds in units with or attached to securities may be deemed
to be without value.
PURCHASING SECURITIES FROM OR SELLING TO OFFICERS AND TRUSTEES
The Equity Funds may not purchase securities directly from or sell
securities directly to the Equity Funds' officers and Trustees.
INVESTING IN PUT OPTIONS
The Equity Funds will not purchase put options on securities, unless the
securities are held in the Equity Funds' portfolio and not more than 5%
of the value of the Equity Funds' total assets would be invested in
premiums on open put option positions.
WRITING COVERED CALL OPTIONS
The Equity Funds will not write call options on securities unless the
securities are held in the Equity Funds' portfolio or unless the Equity
Funds is entitled to them in deliverable form without further payment or
after segregating cash in the amount of any further payment. The Equity
Funds will not write call options in excess of 5% of the value of its
total assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Equity Funds will limit their investment in other investment
companies to no more than 3% of the total outstanding voting stock of any
investment company, will invest no more than 5% of total assets in any
one investment company, and will invest no more than 10% of its total
assets in investment companies in general. The Equity Funds will purchase
securities of closed-end investment companies only in open market
transactions involving only customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization, or acquisition of assets. It
should be noted that
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investment companies incur certain expenses such as management fees, and
therefore any investment by the Equity Funds in shares of another
investment company would be subject to such duplicate expenses.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Equity Funds did not borrow money or pledge securities in excess of 5% of
net assets during the past fiscal year, and do not intend to borrow money in
excess of 5% of the value of its net assets during the coming fiscal year.
THE SHAWMUT FUNDS MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Shawmut Bank, N.A.,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John F. Donahue+* Chairman Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors and Trustee Advisers, Federated Management, and Federated Research; Director, AEtna Life
Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire
Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice
President of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee Senior Vice-President, John R. Wood and Associates, Inc., Realtors;
Wood/IPC President, Investment Properties Corporation, Naples Property Management,
Commercial Department Inc., and Northgate Village Development Corporation; General Partner or
John R. Wood Trustee in private real estate ventures in Southwest Florida; Director,
& Associates Trustee, or Managing General Partner of the Funds.
3255 Tamiami Trail North
Naples, FL
- --------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
Suite 2310 PNB Building Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Pittsburgh, PA Chairman and Director, PNC Financial Corp and Director, Ryan Homes, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA Cross of Massachusetts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Trustee,
225 Franklin Street Lahey Clinic Foundation, Inc.; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly President, State Street Bank & Trust Company
and State Street Boston Corporation.
- --------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Pittsburgh, PA Chairman, Horizon Financial, F.A.
- --------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Management Consultant; Trustee, Carnegie Endowment for International Peace
1202 Cathedral of and RAND Corporation; Chairman, National Advisory Council for Environmental
Learning Policy & Technology; Czecho Slovak Management Center; Director, Trustee, or
University of Pittsburgh Managing General Partner of the Funds; formerly, President, University of
Pittsburgh, PA Pittsburgh.
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue* Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; President and Director,
Tower Federated Administrative Services; Trustee, Federated Services Company;
Pittsburgh, PA President or Vice President of the Funds; Director, Trustee or Managing
General Partner of some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales President, Vice President, Treasurer and Trustee, Federated Investors; Vice President
Federated Investors Treasurer, and Treasurer, Federated Advisers, Federated Management, and Federated
Tower and Trustee Research; Executive Vice President, Treasurer, and Director, Federated
Pittsburgh, PA Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer,
and Director, Federated Administrative Services; Trustee or Director of some
of the Funds; Vice President and Treasurer of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Trustee, Federated Services
Pittsburgh, PA Company; Executive Vice President, Secretary, and Trustee, Federated
Administrative Services; Director and Executive Vice President, Federated
Securities Corp.; Vice President and Secretary of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President,
Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Trustee, Federated Services
Pittsburgh, PA Company; Vice President of the Funds; Director, Trustee, or Managing General
Partner of the Funds; formerly, Vice President, The Standard Fire Insurance
Company and President of its Federated Research Division.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Jeffrey W. Sterling Vice President Vice President, Federated Administrative Services; Director of Private Label
Federated Investors and Assistant Management, Federated Investors; Vice President and Assistant Treasurer of
Tower Treasurer some of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
+ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
FUNDS
"The Funds," and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; BayFunds;
Berry Street Funds; The Boulevard Funds; California Municipal Cash Trust; Cash
Trust Series; Cash Trust Series II; Convertible Securities and Income, Inc.; 111
Corcoran Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; FT Series, Inc.; Federated ARMs Fund; Federated Bond Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Intermediate Government
Trust; Federated Intermediate Municipal Trust; Federated Master Trust; Federated
Municipal Income Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Intermediate Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress
Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insurance Management Series; Investment Series Funds, Inc.; Investment
Series Trust; Liberty High Income Bond Fund, Inc.; Liberty Term Trust,
Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Losantiville Funds; Mark Twain Funds; Money Market
Management; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; New York Municipal Cash Trust; The Planters Funds; The
Passageway Funds; Portage Funds; RIMCO Monument Funds; Signet Select Funds; The
Shawmut Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund,
Inc. Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust
for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations.
EQUITY FUNDS OWNERSHIP
Officers and Trustees own less than 1% of the Equity Funds' outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
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ADVISER TO THE EQUITY FUNDS
The Equity Funds' investment adviser is Shawmut Bank, N.A. (the "Adviser"). The
Adviser shall not be liable to the Trust, the Equity Funds or any shareholder of
the Equity Funds for any losses that may be sustained in the purchase, holding,
or sale of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
During the fiscal year ended October 31, 1993, the Fund's adviser earned the
following advisory fees: Growth Equity Fund, $222,953, of which $75,986 was
voluntarily waived; Growth and Income Equity Fund, $1,191,845, of which $319,550
was voluntarily waived; and Small Capitalization Equity Fund, $817,430, of which
$230,774 was voluntarily waived.
- --------------------------------------------------------------------------------
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Equity Funds' normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2 1/2% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets, and
1 1/2% per year of the remaining average net assets, the Adviser will
reimburse the Equity Funds for its expenses over the limitation.
If the Equity Funds' monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fee set forth in the
prospectus. For the fiscal year ended October 31, 1993 Federated Administrative
Services earned the following administrative fees from the Funds: Growth Equity
Fund, $28,063, all of which was voluntarily waived; Growth and Income Equity
Fund, $149,519; and Small Capitalization Equity Fund, $102,587.
Shawmut Bank, N.A., serves as custodian to the Equity Funds. As compensation for
its services, the custodian receives a fee based upon a sliding scale ranging
from a minimum of .011% to a maximum of .02%, plus certain transaction costs.
For the fiscal year ended October 31, 1993, the Funds' custodian earned the
following fees: Growth Equity Fund, $4,900; Growth and Income Equity Fund,
$10,719; and Small Capitalization Equity Fund, $7,827.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
It is the Equity Funds' policy with respect to the selection of brokers and
dealers in the purchase and sale of securities to obtain the "best net realized
price" on each transaction. The Equity Funds conducts business only with
financially sound brokers or dealers on that basis. Brokerage commission is,
however, only one element in determining "best net realized price." The Adviser
may also select brokers and dealers who offer research and other services. These
services may be furnished directly to the Equity Funds or to the Adviser and may
include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser for other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
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Shares are sold at their net asset value plus a sales charge (Investment Shares
only) on days on which the New York Stock Exchange and the Federal Reserve Wire
System are open for business. The procedure for purchasing Shares is explained
in the respective prospectuses under "Investing in Trust Shares," or "Investing
in Investment Shares."
DISTRIBUTION PLAN (INVESTMENT SHARES)
With respect to the Investment Shares class of the Equity Funds, the Trust has
adopted a Plan pursuant to Rule 12b-1 which was promulgated by the Securities
and Exchange Commission pursuant to the Investment Company Act of 1940. The Plan
permits the payment of fees to administrators (including broker/dealers and
depository institutions such as commercial banks and savings and loan
associations) for distribution and administrative services. The Plan is designed
to stimulate administrators to provide distribution and administrative support
services to the Equity Funds and their
- --------------------------------------------------------------------------------
shareholders. The administrative services are provided by a representative who
has knowledge of the shareholder's particular circumstances and goals, and
include, but are not limited to: communicating account openings; communicating
account closings; entering purchase transactions; entering redemption
transactions; providing or arranging to provide accounting support for all
transactions, wiring funds and receiving funds for Share purchases and
redemptions, confirming and reconciling all transactions, reviewing the activity
in Equity Funds accounts, and providing training and supervision of broker
personnel; posting and reinvesting dividends to Equity Funds accounts or
arranging for this service to be performed by the Equity Funds' transfer agent;
and maintaining and distributing current copies of prospectuses and shareholder
reports to the beneficial owners of shares of the Equity Funds and prospective
shareholders.
By adopting the Plan, the Board of Trustees expects that the Equity Funds will
be able to achieve a more predictable flow of cash for investment purposes and
to meet redemptions. This will facilitate more efficient portfolio management
and assist the Equity Funds in seeking to achieve its investment objectives. By
identifying potential investors whose needs are served by the Equity Funds'
objective, and properly servicing these accounts, the Equity Funds may be able
to curb sharp fluctuations in rates of redemptions and sales.
Other benefits which the Equity Funds hopes to achieve through the Plan include,
but are not limited to, the following: (1) an efficient and effective
administrative system; (2) a more efficient use of shareholder assets by having
them rapidly invested in the Equity Funds, through an automatic transfer of
funds from a demand deposit account to an investment account, with a minimum of
delay and administrative detail; and (3) an efficient and reliable shareholder
records system and prompt responses to shareholder requests and inquiries
concerning their accounts.
For the fiscal year ended October 31, 1993, brokers earned the following fees
from the Funds pursuant to the Plan: Growth Equity Fund, $8,860, of which $4,431
was voluntarily waived; Growth and Income Equity Fund, $33,658, of which $16,829
was voluntarily waived; and Small Capitalization Equity Fund, $29,532, of which
$14,766 was voluntarily waived.
CONVERSION TO FEDERAL FUNDS
It is the Equity Funds' 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. Shawmut Bank, N.A. acts
as the shareholder's agent in depositing checks and converting them to federal
funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value generally changes each day. The days on which net asset
value is calculated by the Equity Funds are described in the respective
prospectuses for Trust Shares and Investment Shares.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Equity Funds' portfolio securities are determined as
follows:
- - for equity securities, according to the last sale price on a national
securities exchange, if available;
- - in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
- - for bonds and other fixed income securities, at the last sale price on a
national securities exchange if available, otherwise as determined by an
independent pricing service;
- - for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service or for short-term obligations
with maturities of less than 60 days, at amortized cost; or
- - for all other securities, at fair value as determined in good faith by the
Board of Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Equity Funds will value stock index futures contracts, options on stock and
stock indices, and put options on stock index futures and financial futures at
their market values established by the exchanges at the close of option trading
on such exchanges unless the Board of Trustees determines in good faith that
another method of valuing option positions is necessary.
REDEEMING SHARES
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The Equity Funds redeems Shares at the next computed net asset value after the
redemption requests are received. Redemption procedures are explained in the
respective prospectuses under "Redeeming Trust Shares" or "Redeeming Investment
Shares."
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REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Equity Funds' portfolio. Redemption in kind
will be made in conformity with applicable Securities and Exchange Commission
rules, taking such securities at the same value employed in determining net
asset value and selecting the securities in a manner the Trustees determine to
be fair and equitable.
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 Equity Funds'
net asset value during any 90-day period.
EXCHANGE PRIVILEGE
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REQUIREMENTS FOR EXCHANGE
Shareholders using the exchange privilege must exchange Shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
Further information on the exchange privilege and prospectuses may be obtained
by calling Shawmut Bank.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing or by telephone. Written
instructions may require a signature guarantee.
TAX STATUS
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THE EQUITY FUNDS' TAX STATUS
The Equity Funds will pay no federal income tax because the Equity Funds expect
to meet the requirements of Subchapter M of the Internal Revenue Code applicable
to regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Equity Funds
must, among other requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional Shares.
CAPITAL GAINS
Capital gains experienced by the Equity Funds could result in an increase in
dividends. Capital losses could result in a decrease in dividends. The Equity
Funds will distribute net long-term capital gains at least once every 12 months.
TOTAL RETURN
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The average annual total return for the Equity Funds 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 net asset value 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
(Investment Shares only), adjusted over the period by any additional Shares,
assuming the quarterly reinvestment of all dividends and distributions.
YIELD
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The yield for both classes of Shares of the Equity Funds is determined each day
by dividing the net investment income per share (as defined by the Securities
and Exchange Commission) earned by the Equity Funds over a thirty-day period by
the maximum offering price per Share on the last day of the period. This value
is annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The yield
does not necessarily
reflect income actually earned by the Equity Funds because of certain
adjustments required by the Securities and Exchange Commission and, therefore,
may not correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Equity Funds, performance will be reduced for those shareholders paying those
fees.
PERFORMANCE COMPARISONS
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The Equity Funds' performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolio securities;
- - changes in the Equity Funds' or either class of shares' expenses;
- - the relative amount of cash flow; and
- - various other factors.
The Equity Funds' performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings and
offering price per Share are factors in the computation of yield and total
return.
From time to time the Equity Funds may advertise its performance compared to
similar funds or portfolios using various indices, including the following:
- - 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.
From time to time, the Equity Funds will quote its Lipper ranking in the
"growth funds" category in advertising and sales literature.
- - DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected blue
chip industrial corporations as well as public utility and transportation
companies. The DJIA indicates daily changes in the average price of stocks in
any of its categories. It also reports total sales for each group of
industries. Because it represents the top corporations of America, the DJIA's
index movement are leading economic indicators for the stock market as a
whole.
- - STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, and financial and public
utility companies, compares total returns of funds whose portfolios are
invested primarily in common stocks. In addition, the Standard & Poor's index
assumes reinvestment 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 Standard & Poor's figures.
The Equity Funds may also advertise the performance of such indices and the
types of securities in which it invests as compared to the rate of inflation.
Investors may use such indices or reporting services in addition to the Equity
Funds' prospectuses for Trust Shares and Investment Shares to obtain a more
complete view of the Equity Funds' performance before investing. Of course, when
comparing Equity Funds performance to any index, factors such as composition of
the index and prevailing market conditions should be considered in assessing the
significance of such comparisons.
When comparing funds using reporting services, or total return and yield,
investors should take into consideration any relevant differences in funds such
as permitted portfolio compositions and methods used to value portfolio
securities and compute offering price.
Advertisements and other sales literature for the Equity Funds may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in the
Equity Funds based on quarterly reinvestment of dividends over a specified
period of time.
FINANCIAL STATEMENTS
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The financial statements for the fiscal year ended October 31, 1993 are
incorporated herein by reference to the Annual Report of the Trust dated October
31, 1993. A copy of the Annual Report may be obtained without charge by
contacting the Trust at the address located on the back cover of the prospectus.
APPENDIX
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STANDARD AND POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B--Debt rated BB or B, is regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates a low degree of speculation.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
BAA--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
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STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; well established access to a range of
financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment.
3120919B (2/94)
