THE SHAWMUT FUNDS
EQUITY FUNDS
SHAWMUT GROWTH EQUITY FUND
SHAWMUT GROWTH AND INCOME EQUITY FUND
SHAWMUT QUANTITATIVE 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 June 21, 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 REGISTERED
REPRESENTATIVES OF SHAWMUT BROKERAGE, INC. OR MDS SECURITIES, INC., MEMBERS
NASD/SIPC. SHAWMUT BROKERAGE, INC. IS AN AFFILIATE OF SHAWMUT BANK. MDS
SECURITIES, INC. IS NOT AN AFFILIATE OF SHAWMUT BANK.
Prospectus dated June 21, 1994
TABLE OF CONTENTS
SYNOPSIS 3
- ------------------------------------------------------
SUMMARY OF EQUITY FUND EXPENSES--
INVESTMENT SHARES 4
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 5
- ------------------------------------------------------
GENERAL INFORMATION 8
- ------------------------------------------------------
THE SHAWMUT FUNDS 8
- ------------------------------------------------------
OBJECTIVE AND POLICIES OF EACH FUND 8
- ------------------------------------------------------
Growth Equity Fund 8
Investment Objective 8
Investment Policies 8
Acceptable Investments 9
Growth and Income Equity Fund 9
Investment Objective 9
Investment Policies 9
Acceptable Investments 9
Quantitative Equity Fund 9
Investment Objective 9
Investment Policies 9
Acceptable Investments 10
Small Capitalization Equity Fund 10
Investment Objective 10
Investment Policies 10
Acceptable Investments 10
EQUITY FUNDS INVESTMENTS, STRATEGIES, AND RISKS 11
- ------------------------------------------------------
Common Stock 11
Convertible Securities 11
Securities of Foreign Issuers 12
Options and Futures Contracts 12
Stock Index Futures, Swap Agreements,
Indexed Securities, and Options 13
Restricted and Illiquid Securities 13
When-Issued and Delayed
Delivery Transactions 13
Lending of Portfolio Securities 14
Temporary Investments 14
Repurchase Agreements 14
Investing in Securities of Other
Investment Companies 14
Investment Limitations 15
THE SHAWMUT FUNDS INFORMATION 16
- ------------------------------------------------------
Management of The Shawmut Funds 16
Board of Trustees 16
Investment Adviser 16
Advisory Fees 16
Adviser's Background 16
Sub-Adviser 17
Distribution of Equity Funds' Shares 17
Distribution Plan 17
Administration of the Equity Funds 18
Administrative Services 18
Custodian 18
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services 19
Legal Counsel 19
Independent Accountants 19
Expenses of the Equity Funds
and Investment Shares 19
NET ASSET VALUE 19
- ------------------------------------------------------
INVESTING IN INVESTMENT SHARES 20
- ------------------------------------------------------
Through MDS 20
Directly from the Equity Funds 20
Minimum Investment Required 20
What Shares Cost 21
Purchases at Net Asset Value 21
Sales Charge Reallowance 21
Reducing the Sales Charge 21
Quantity Discounts and Accumulated
Purchases 21
Letter of Intent 22
Reinvestment Privilege 22
Concurrent Purchases 22
Systematic Investment Program 22
Subaccounting Services 23
Certificates and Confirmations 23
Dividends 23
Capital Gains 23
EXCHANGE PRIVILEGE 23
- ------------------------------------------------------
Exchanging Shares 23
Exchanging-by-Telephone 24
REDEEMING INVESTMENT SHARES 24
- ------------------------------------------------------
Through MDS 24
Directly from the Equity Funds 25
By Mail 25
Signatures 25
Receiving Payment 25
By Check 25
By Wire 25
Accounts with Low Balances 25
Systematic Withdrawal Program 26
Redemption in Kind 26
SHAREHOLDER INFORMATION 26
- ------------------------------------------------------
Voting Rights 26
Massachusetts Partnership Law 26
EFFECT OF BANKING LAWS 27
- ------------------------------------------------------
TAX INFORMATION 27
- ------------------------------------------------------
Federal Income Tax 27
OTHER CLASSES OF SHARES 28
- ------------------------------------------------------
PERFORMANCE INFORMATION 28
- ------------------------------------------------------
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 QUANTITATIVE EQUITY FUND
("Quantitative Equity Fund") seeks growth of capital by investing in a
diversified portfolio consisting of publicly-traded common stocks listed on
North American stock exchanges or traded in the over-the-counter market.
The selection of investment securities is made by use of a quantitative
computer valuation model, as described in this prospectus.
- ------------------------------------------------------
- ------------------------------------------------------
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. The sub-adviser to the Quantitative
Equity Fund is Marque Millennium Group Limited.
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 SMALL
GROWTH INCOME QUANTITATIVE CAPITALIZATION
EQUITY EQUITY EQUITY EQUITY
FUND FUND FUND* FUND
-------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................ 4.00% 4.00% 4.00% 4.00%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................ None None None None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, as applicable)......................... None None None None
Redemption Fee (as a percentage of amount redeemed, if
applicable).................................................... None None None None
Exchange Fee..................................................... None None None None
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)................................. 0.50% 0.80% 1.00% 0.75%
12b-1 Fees (2)................................................... 0.25% 0.25% 0.25% 0.25%
Total Other Expenses (3)......................................... 0.68% 0.27% 0.50% 0.33%
Total Investment Shares Operating Expenses (after waiver and
reimbursement)(4).............................................. 1.43% 1.32% 1.75% 1.33%
</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. Estimated other expenses
for the Quantitative Equity Fund have been reduced to reflect the voluntary
waiver by the administrator and reimbursement by the adviser.
(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 and reimbursement explained in the
above footnotes, the Investment Shares Operating Expenses are estimated to
be 2.51% for Growth Equity Fund; 1.77% for Growth and Income Equity Fund;
3.25% for Quantitative Equity Fund; and 1.83% for Small Capitalization
Equity Fund.
* The Quantitative Equity Fund became effective with the Securities and Exchange
Commission on June 21, 1994. Therefore, this Fund does not have audited
financial statements and Financial Highlights have not been prepared or
included in this prospectus.
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 charge 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
Quantitative Equity Fund.................................................. $57 $93 N/A N/A
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.
(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.
(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.
(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 each of the Equity Funds, known as Trust
Shares and Investment Shares. This prospectus relates only to Investment Shares
of the Equity Funds. 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.
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. Investment 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, Shawmut
Quantitative Equity 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. The
sub-adviser to the Quantitative Equity Fund is Marque Millennium Group Limited.
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 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.
QUANTITATIVE EQUITY FUND
INVESTMENT OBJECTIVE
The investment objective of the Quantitative Equity Fund is to provide growth of
capital. The investment objective of the Quantitative Equity Fund cannot be
changed without the approval of shareholders. While there is no assurance that
the Quantitative 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
- ------------------------------------------------------
UNDER NORMAL MARKET CIRCUMSTANCES, THE QUANTITATIVE EQUITY FUND WILL INVEST
AT LEAST 65% OF ITS ASSETS IN EQUITY SECURITIES.
- ------------------------------------------------------
The Quantitative Equity Fund will invest its assets in a diversified portfolio
of equity securities issued by companies with a market value capitalization in
excess of $250 million and a minimum daily average trading volume as established
by the Sub-Adviser from time to time. To select common stocks for the
Quantitative Equity Fund, the Sub-Adviser uses a quantitative computer valuation
model to evaluate the relative attractiveness of common stocks listed on North
American stock exchanges or traded in the over-the-counter market. Stocks are
selected based upon their price momentum, as measured by combining four
quantitative disciplines: price trend analysis, velocity of price movements (the
speed at which securities prices may change), analysis of price compared to
moving averages, and current price and volume activity (for valuation
judgments). Then, the selected stocks are reviewed based upon fundamental
characteristics, such as present and historical price-to-earnings and market
price-to-book ratios; changes in analysts' earnings forecasts; and positive or
negative earnings realized. Since the primary analysis is of price momentum
rather than these fundamentals, the Quantitative Equity Fund will include stocks
with not only capital growth potential, but also with prospects for growth in
earnings and dividends (value characteristics).
The Quantitative Equity Fund is comprised of stocks selected in accordance with
strict investment criteria. Stocks that are candidates for purchase may have
undergone persistent price deterioration and are deemed likely to reverse and
move up in price (a contrarian strategy). The Quantitative Equity Fund will also
purchase stocks that are in firmly established patterns of price appreciation.
Sales of portfolio securities also adhere to a strict discipline based upon
system analytics or price movement, similar to the selection process. In
addition, the Quantitative 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 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, STRATEGIES, AND RISKS
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, other than
the Quantitative Equity Fund, 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 versa.
Therefore, investors should expect 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.
In the case of the Quantitative Equity Fund, stocks that show growth or value
characteristics may be included in the investment portfolio, even though those
characteristics do not drive the stock selection process. Because of its price
and volume oriented selection method, the Quantitative Equity Fund tends to be
less volatile than the market. Of course, there can be no assurance that this
will occur.
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 Fitch Investors Service, Inc., or "Ba" or higher by Moody's
Investors Service, Inc., at the time of investment. Securities rated "BB" by
Standard & Poor's Corporation or Fitch Investors Service, Inc., or "Ba" by
Moody's Investors Service, Inc., either have speculative characteristics or are
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. Debt obligations that
are not determined to be investment grade are high-yield, high-risk bonds,
typically subject to greater market fluctuations, and securities in the lowest
rating category may be in danger of loss of income and principal due to an
issuer's default. To a greater extent than investment-grade bonds, the value of
lower-rated bonds tends to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit quality. In
addition, lower-rated bonds may be more difficult to dispose of or to value than
high-rated, lower-yielding bonds. The investment adviser or sub-adviser, as
appropriate, attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer, as well
as by monitoring broad economic trends and corporate and legislative
developments. 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. A
description of the rating categories is contained in the Appendix to the
Statement of Additional Information.
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 ad-
viser 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 fixed time deposits with maturities over
seven days, over-the-counter options, 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 one other investment company managed
similarly to the appropriate Fund. 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 an Equity 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, an Equity 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 United States or 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.
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 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 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, N.A. (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 or 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, with the anticipated advisory fee waivers,
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, N.A., MANAGED MORE THAN $15 BILLION IN DISCRETIONARY TRUST ASSETS.
SHAWMUT BANK, N.A., 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 and 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 and Income Equity Management Group.
He is an honors graduate of St. Anselm's College, where he concentrated in
economics.
Kenneth J. Garvey is the portfolio manager of the Quantitative Equity Fund. Mr.
Garvey is a Managing Director and co-founder of Marque Millennium Group Limited,
which serves as the sub-adviser to the Quantitative Equity Fund. Mr. Garvey has
served as a senior investment executive at several major investment firms.
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.
SUB-ADVISER
- ------------------------------------------------------
PURSUANT TO THE TERMS OF AN INVESTMENT SUB-ADVISORY AGREEMENT BETWEEN THE
ADVISER AND MARQUE MILLENNIUM GROUP LIMITED ("MARQUE MILLENNIUM" OR THE
"SUB-ADVISER"), MARQUE MILLENNIUM FURNISHES CERTAIN INVESTMENT ADVISORY
SERVICES TO THE ADVISER ON BEHALF OF THE QUANTITATIVE EQUITY FUND.
- ------------------------------------------------------
Marque Millennium assists the Adviser in identifying securities for potential
purchase and/or sale through its quantitative analysis of common stocks, as
described in the "Acceptable Investment" section for the Quantitative Equity
Fund. For the services provided and the expenses incurred by the Sub-Adviser
pursuant to the sub-advisory agreement, Marque Millennium is entitled to receive
an annual fee of one-half of the total advisory fee being charged (up to .50 of
1.00% of the Quantitative Equity Fund's average daily net assets being paid to
the Sub-Adviser), payable by the Adviser. Marque Millennium may elect to waive
some or all of its fee. In no event shall the Quantitative Equity Fund be
responsible for any fees due to the Sub-Adviser for its services to the Adviser.
Marque Millennium, which is located at 126 East 56th Street, New York, New York
10022, provides investment counsel to both individuals and institutions. As of
March 31, 1994, Marque Millennium furnished services, substantially similar to
the services it provides to the Adviser, to other discretionary and
nondiscretionary investment accounts with assets of approximately $555 million.
Marque Millennium has not previously acted as an investment adviser or
sub-adviser to an investment company. The Sub-Adviser is a limited partnership
founded and controlled by
Wilfred J. Meckel II and Kenneth J. Garvey, Managing Directors.
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 Com-
pany 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 Plan is a "compensation" type plan. As such, the Equity Funds make no
payments to the distributor except as described above. 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. However, the
distributor may be able to recover such amounts or may earn a profit from future
payments made by the Equity 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 EQUITY FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779, 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, L.L.P., 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
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 Trustees reserve
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.
- ------------------------------------------------------
Each Equity Fund's net asset value per Investment Share fluctuates. The net
asset value for Investment Shares is determined by adding the interest of the
Investment Shares in the market value of all securities and other assets of an
Equity Fund, subtracting the interest of the Investment Shares in the
liabilities of an Equity Fund and those attributable to Investment Shares, and
dividing the remainder by the total number of Investment Shares outstanding. The
net asset value for Investment Shares of an Equity Fund may differ from that of
Trust Shares due to the variance in daily net income realized by each class.
Such variance will reflect only accrued net income to which the shareholders of
a particular class are entitled.
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 MDS Securities, Inc.
("MDS"), with offices located in branches of Shawmut Bank, N.A., Shawmut Bank
Connecticut, National Association, and their affiliates (collectively, "Shawmut
Bank"), on days on which both Shawmut Bank and the New York Stock Exchange and
Federal Reserve Wire System are open for business. Texas residents must
purchase, exchange, and redeem Investment Shares through Federated Securities
Corp. at 800-356-2805. The Equity Funds reserve the right to reject any purchase
request.
THROUGH MDS. An investor may call MDS (call toll-free 1-800-SHAWMUT) to receive
information and to place an order to purchase Investment Shares. Orders placed
through MDS 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
MDS receives a purchase order. Purchase orders must be received by MDS before
4:00 p.m. (Eastern time) and must be transmitted by MDS 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, wire transfer of federal funds, or federal
funds deposited into a deposit account established by the shareholder at Shawmut
Bank. Payment is normally made through a debit to the deposit account no later
than the business day following the conversion of a check into federal funds. In
addition, Investment Shares may be purchased through other brokers or dealers
who have sales agreements with the Equity Funds' distributor.
DIRECTLY FROM THE EQUITY FUNDS. An investor may place an order to purchase
Investment Shares directly from the Equity Funds. To do so call
1-800-SHAWMUT to request a new account form. Once received, complete and sign
the form; enclose a check made
payable to Shawmut Growth Equity Funds, Shawmut Growth and Income Equity Fund,
Shawmut Quantitative Equity Fund, or Shawmut Small Capitalization Equity Fund
(as appropriate)--Investment Shares; and mail both to The Shawmut Funds, c/o
Transfer Agency, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3779. The
order is considered received after the check is converted into federal funds and
the transfer agent establishes a shareholder account for the investor. This is
generally the next business day after the Fund receives the check.
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
CHARGE AS A SALES
PERCENTAGE CHARGE AS A
OF PUBLIC PERCENTAGE OF
OFFERING NET 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 Shawmut
Funds, Shawmut Bank, N.A., Shawmut Bank Connecticut, National Association, MDS,
Marque Millenium Group Limited, 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,
MDS will normally receive up to 85% of the applicable sales charge. Any portion
of the sales charge which is not paid to MDS will be retained by the
distributor. Other brokers or dealers who sell Investment Shares, if any, will
also normally receive up to 85% of the applicable sales charge, with the unpaid
portion being 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.
From time to time, the distributor will conduct sales programs or contests that
compensate brokers with cash or non-cash items, such as merchandise and
attendance at sales seminars in resort locations. The cost of such compensation
is borne by the distributor and is not an Equity Fund expense.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Investment 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 Investment 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 Investment Shares having a current net asset value of $30,000, and
he purchases $20,000 or more of an Equity Fund at the current net asset value,
the sales charge on the additional purchase of an Equity Fund, according to the
schedule now in effect, would be 3.75% instead of 4.00%.
To receive this sales charge reduction, MDS or the distributor must be notified
by the shareholder in writing at the time the purchase is made that Investment
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
Investment 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 Investment
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 Investment
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; however, these previous purchases will not receive the reduced
sales charge.
REINVESTMENT PRIVILEGE. If Investment 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. MDS 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 Investment 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, MDS or the distributor must be notified
by the shareholder in writing 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 Investment 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 MDS or the
distributor.
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 MDS in writing.
Detailed confirmations of each purchase or redemption are sent to each
shareholder of record. Monthly statements are sent 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, Investment 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 MDS.
EXCHANGE-BY-TELEPHONE. Instructions for exchanges between participating funds
which are part of the Trust may be given by calling MDS at 1-800-SHAWMUT or by
calling the Fund. 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. Investment Shares may be exchanged by telephone only between fund
accounts having identical shareholder registrations. Exchange instructions given
by telephone may be electronically recorded.
Any Investment 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 Investment 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 MDS or the Fund during times of
drastic economic or market changes. If a shareholder cannot contact MDS or the
Fund by telephone, it is recommended that an exchange request be made in
writing and sent by overnight mail to The Shawmut Funds, c/o Transfer Agency,
1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3779.
If reasonable procedures are not followed by an Equity Fund, it may be liable
for losses due to unauthorized or fraudulent telephone instructions.
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 your MDS Investment Specialist 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 MDS
Shareholders may redeem Investment Shares by calling their MDS Investment
Specialist to request the redemption. Investment Shares will be redeemed at the
net asset value next determined after Federated Services Company receives the
redemption request. MDS 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, MDS is responsible for the timely
transmission of the redemption request to the appropriate Equity Fund.
Before MDS 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 the
shareholder account application. Redemption instructions given by telephone may
be electronically recorded. 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 The Shawmut Funds, c/o Transfer Agency, 1001 Liberty
Avenue, Pittsburgh, Pennsylvania 15222-3779.
If reasonable procedures are not followed by
an Equity Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
DIRECTLY FROM THE EQUITY FUNDS
BY MAIL. A shareholder may redeem Investment Shares by sending a written
request to The Shawmut Funds, c/o Transfer Agency, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. 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 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, 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, after 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 MDS,
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 MDS receives
proper instructions. Applicable charges are imposed on a shareholder's account
maintained with Shawmut Bank.
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, Investment
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
Investment Shares, and the fluctuation of the net asset value of Investment
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
MDS. 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 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 an Equity 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.
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 ex-
pressly 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 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, and, with respect to the Quantitative Equity Fund, to customers of
Marque Millenium Group Limited. 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. As of June 6,
1994, Shawmut Bank or its affiliates, acting as fiduciary of various accounts,
was the owner of record of approximately 1,759,274 Trust Shares (98.53%) of the
Growth Equity Fund; approximately 14,598,565 Trust Shares (99.75%) of the Growth
and Income Equity Fund; and approximately 9,231,172 Trust Shares (99.86%) of the
Small Capitalization Equity Fund, and, therefore, may, for certain purposes, be
deemed to control such Equity Funds and be able to affect the outcome of certain
matters presented for a vote of shareholders.
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 by dividing
the net investment income per Investment 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 Investment 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 financial publications 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 (6/94)
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 QUANTITATIVE 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"), Shawmut Quantitative Equity Fund
("Quantitative 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 June 21, 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 REGISTERED
REPRESENTATIVES OF SHAWMUT BROKERAGE, INC. OR MDS SECURITIES, INC., MEMBERS
NASD/SIPC. SHAWMUT BROKERAGE, INC. IS AN AFFILIATE OF SHAWMUT BANK. MDS
SECURITIES, INC. IS NOT AN AFFILIATE OF SHAWMUT BANK.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated June 21, 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
When-Issued and Delayed
Delivery Transactions 2
Restricted and Illiquid Securities 2
Repurchase Agreements 2
Reverse Repurchase Agreements 3
Lending of Portfolio Securities 3
Portfolio Turnover 3
Derivative Securities 3
Investment Limitations 5
THE SHAWMUT FUNDS MANAGEMENT 7
- ---------------------------------------------------------------
Officers and Trustees 7
The Funds 9
Equity Funds Ownership 9
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
- ---------------------------------------------------------------
Adviser to the Equity Funds 10
Advisory Fees 10
Sub-Adviser to the Quantitative Equity Fund 10
Sub-Advisory Fees 10
ADMINISTRATIVE SERVICES 11
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 11
- ---------------------------------------------------------------
PURCHASING SHARES 11
- ---------------------------------------------------------------
Distribution Plan (Investment Shares) 11
Conversion to Federal Funds 12
DETERMINING NET ASSET VALUE 12
- ---------------------------------------------------------------
Determining Market Value of Securities 12
EXCHANGE PRIVILEGE 12
- ---------------------------------------------------------------
Requirements for Exchange 12
Making an Exchange 12
REDEEMING SHARES 13
- ---------------------------------------------------------------
Redemption in Kind 13
TAX STATUS 13
- ---------------------------------------------------------------
The Equity Funds' Tax Status 13
Shareholders' Tax Status 13
Capital Gains 13
TOTAL RETURN 13
- ---------------------------------------------------------------
YIELD 13
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 14
- ---------------------------------------------------------------
FINANCIAL STATEMENTS 14
- ---------------------------------------------------------------
APPENDIX 15
- ---------------------------------------------------------------
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 a relatively high total return
through long-term capital appreciation and current income. The Quantitative
Equity Fund's investment objective is to provide growth of capital. The
investment objectives cannot be changed without 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.
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 Quantitative Equity Fund invests primarily in a diversified portfolio of
publicly-traded common stocks listed on North American stock exchanges. The
selection of investment securities is made by use of a quantitative computer
valuation model, as described in the prospectus. Under normal circumstances, the
Quantitative Equity Fund will invest at least 65% of its total assets in equity
securities. In addition, the Quantitative Equity Fund may invest as described
below and 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, and 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 & Poor's Corporation,
Prime-1 by Moody's Investors Service, Inc., or F-1 by Fitch Investors
Service, Inc.).
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 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 Equity Funds, 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 Trustees are quite
liquid. The Equity Funds intend, 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 Equity Funds' 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.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission (the "SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under the
Rule. The Trust, on behalf of the Equity Funds, believes that the Staff of the
SEC has left the question of determining the liquidity of all restricted
securities (eligible for resale under Rule 144A) for determination to the
Trustees. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities.
- - the frequency of trades and quotes for the security;
- - the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
- - dealer undertakings to make a market in the security; and
- - the nature of the security and the nature of the marketplace trades.
REPURCHASE AGREEMENTS
An Equity Fund requires 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 Equity Fund, the Equity 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 an
Equity Fund might be delayed pending court action. The Equity Funds believe
that, under the regular procedures normally in effect for custody of an Equity
Fund's portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Equity Fund 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.
REVERSE REPURCHASE AGREEMENTS
The Equity Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement,
an Equity 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 Equity 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 an Equity 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 Equity Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of an Equity Fund in
a dollar amount sufficient to make payment for the obligations to be purchased
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
The collateral received when an Equity Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to an Equity Fund. During the time
portfolio securities are on loan, the borrower pays the Equity Fund 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 a 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. For the fiscal year ending October 31, 1994, the
Quantitative Equity Fund does not expect its portfolio turnover to exceed 100%.
During the period from December 14, 1992 (date of initial public investment), to
October 31, 1993, the portfolio turnover rates for the Growth Equity Fund,
Growth and Income Equity Fund, and Small Capitalization Equity Fund were 71%,
38%, and 29%, respectively.
DERIVATIVE SECURITIES
PUT AND CALL OPTIONS
An Equity Fund 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 an Equity 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.
An Equity Fund 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.
An Equity Fund 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). An Equity Fund
will maintain its positions
- --------------------------------------------------------------------------------
in securities, option rights, and segregated cash subject to puts and
calls until the options are exercised, closed, or expired. An Equity Fund
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. An Equity
Fund, 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 Fund's 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." An Equity Fund may decide to close its position on a
contract at any time prior to the contract's expiration. This is
accomplished by the Equity Fund taking an opposite position at the
then-prevailing price, thereby terminating its 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 Fund
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
An 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 Fund's total
assets. Further, an Equity Fund 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, an Equity Fund 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 Fund's total net assets and may
not purchase put 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.
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 they are unable to terminate
outstanding swap agreements or reduce their 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 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 directly or through reverse repurchase agreements
in amounts up to one-third of the value of its total assets, including
the amounts borrowed; and except to the extent that the Equity Funds will
enter into futures contracts. The Equity Funds will not borrow money or
engage in reverse repurchase agreements for investment leverage, but
rather 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 their
respective total assets are outstanding.
PLEDGING ASSETS
The Equity Funds will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10% of
the value of total assets at the time of the pledge. For purposes of this
limitation, the following will not be deemed to be pledges of an Equity
Fund's assets: (a) the deposit of assets in escrow in connection with the
writing of covered put or call options and the purchase of securities on
a when-issued basis; and (b) collateral arrangements with respect to (i)
the purchase and sale of stock options (and options on stock indices) and
(ii) initial or variation margin for futures contracts. Margin deposits
for the purchase and sale of futures contracts and related options are
not deemed to be a pledge.
INVESTING IN REAL ESTATE
An Equity Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Equity Funds will not purchase or sell commodities, commodity
contracts, or commodity futures contracts except to the extent that an
Equity Fund may engage in transactions involving financial futures
contracts or options on financial futures contracts.
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 their
respective total assets would be invested in the securities of that
issuer. An Equity Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer.
CONCENTRATION OF INVESTMENTS
The Equity Funds will not invest 25% or more of the value of their
respective total assets in any one industry (other than securities issued
by the U.S. government, its agencies or instrumentalities). However, the
Equity 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, such as repurchase agreements.
UNDERWRITING
An Equity Fund will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
LENDING CASH OR SECURITIES
An Equity Fund will not lend any of its assets, except portfolio
securities up to one-third of the value of its total assets. This shall
not prevent an Equity Fund from purchasing or holding money market
instruments, repurchase agreements, obligations of the U.S. government,
its agencies or instrumentalities, variable rate demand notes, bonds
debentures, notes, certificates of indebtedness, or certain debt
instruments as permitted by its investment objective, policies, and
limitations or the Trust's 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
An Equity 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 Trustees.
INVESTING IN ILLIQUID SECURITIES
An Equity Fund will not invest more than 15% of the value of its net
assets in illiquid securities, including repurchase agreements providing
for settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, over-the-counter options,
and certain securities not determined by the Trustees to be liquid.
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 the Equity Funds' 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. No more than 2% of this 5% may be warrants which are not listed
on the New York or American Stock Exchanges.
INVESTING IN PUT OPTIONS
An Equity Fund will not purchase put options on securities, unless the
securities are held in the Equity Fund's portfolio and not more than 5%
of the value of the Equity Fund's total assets would be invested in
premiums on open put option positions.
WRITING COVERED CALL OPTIONS
An Equity Fund will not write call options on securities unless the
securities are held in the Equity Fund's portfolio or unless the Equity
Fund is entitled to them in deliverable form without further payment or
after segregating cash in the amount of any further payment. An Equity
Fund 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 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.
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
their respective net assets during the past fiscal year, and do not intend to
borrow money in excess of 5% of the value of their respective net assets or
invest more than 5% of their respective total assets in securities of foreign
issuers during the coming fiscal year.
For purposes of their policies and limitations, the Equity 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."
To comply with registration requirements in certain states, each Equity Fund (1)
will limit the aggregate value of the assets underlying covered call options or
put options written by an Equity Fund to not more than 25% of its net assets,
(2) will limit the premiums paid for options purchased by an Equity Fund to 5%
of its net assets, (3) will limit the margin deposits on futures contracts
entered into by an Equity Fund to 5% of its net assets, and (4) will limit
investments in warrants to 5% of its net assets. No more than 2% will be in
warrants which are listed on the New York or American Stock Exchanges. Also, to
comply with certain state restrictions, each Equity Fund will limit its
investment in restricted securities to 5% of total assets. (If state
requirements change, these restrictions may be revised without shareholder
notification.)
THE SHAWMUT FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
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>
POSITIONS WITH PRINCIPAL OCCUPATIONS
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/Commercial Wood and Associates, Inc., Realtors; President, Northgate Village
Department Development Corporation; General Partner or Trustee in private real estate
John R. Wood and ventures in Southwest Florida; Director, Trustee, or Managing General
Associates, Inc., Partner of the Funds; formerly, President, Naples Property Management, Inc.
Realtors
3255 Tamiami Trail North
Naples, FL
- --------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza, Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
23rd Floor Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan
Pittsburgh, PA Homes, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales* President, Vice President, Treasurer, and Trustee, Federated Investors;
Federated Investors Treasurer, Vice President and Treasurer, Federated Advisers, Federated Management, and
Tower and Trustee Federated Research; Executive Vice President, Treasurer, and Director,
Pittsburgh, PA Federated 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.
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director,
225 Franklin Street Trustee, or Managing General Partner of the Funds; formerly, President,
Boston, MA State Street Bank and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation.
- --------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, 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, RAND Corporation, Online Computer Library
Learning Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Management
University of Pittsburgh Center; Director, Trustee, or Managing General Partner of the Funds;
Pittsburgh, PA President Emeritus, University of Pittsburgh; formerly, Chairman, National
Advisory Council for Environmental Policy and Technology.
- --------------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------------------------------------------------------
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.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; 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
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; Insight Institutional Series, Inc.; Insurance Management
Series; Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty Term Trust, Inc.-1999; Liberty U.S. Government Money Market Trust;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain
Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust;
111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select
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; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
EQUITY FUNDS OWNERSHIP
Officers and Trustees own less than 1% of the Equity Funds' outstanding shares.
As of June 6, 1994, no shareholder of record owned 5% or more of the Investment
Shares of an Equity Fund.
As of June 6, 1994, the following shareholder of record owned 5% or more of the
Trust Shares of the indicated Equity Funds: Olsen & Co., Boston, Massachusetts,
owned approximately 1,759,274 Trust Shares (98.53%) of the Shawmut Growth Equity
Fund; approximately 14,598,565 Trust Shares (99.75%) of the Shawmut Growth and
Income Equity Fund; and approximately 9,231,172 Trust Shares (99.86%) of the
Shawmut Small Capitalization Equity 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 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.
Because of the internal controls maintained by Shawmut Bank, N.A., to restrict
the flow of non-public information, an Equity Fund's investments are typically
made without any knowledge of Shawmut Bank, N.A.'s., or its affiliates lending
relationships with an issuer.
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.
SUB-ADVISER TO THE QUANTITATIVE EQUITY FUND
The sub-adviser to the Quantitative Equity Fund is Marque Millennium Group
Limited (the "Sub-Adviser"). As is the case with the Adviser, the Sub-Adviser
shall not be liable to the Trust, the Quantitative Equity Fund, or any
shareholder of the Quantitative Equity Fund for any losses that may be sustained
in the purchase, holding, or sale of any security or for anything done or
omitted by it, except acts or omissions involving willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties imposed upon it by
its contact with the Adviser.
SUB-ADVISORY FEES
For its services, Marque Millennium Group Limited, as Sub-Adviser to the
Quantitative Equity Fund, receives an annual fee as described in the prospectus.
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 Equity 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 Equity
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 Equity 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.
For the period from December 14, 1992 (date of initial public investment), to
October 31, 1993, the Growth Equity Fund, Growth and Income Equity Fund, and
Small Capitalization Equity Fund paid $51,698, $168,202, and $83,018,
respectively, in brokerage commissions on brokerage transactions.
PURCHASING SHARES
- --------------------------------------------------------------------------------
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 Trustees expect 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 Equity 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., on
behalf of its customers, acts as the shareholder's agent in depositing checks
and converting them to federal funds. Purchases through the distributor are
converted to federal funds by the Equity Funds' transfer agent who, in turn,
purchases the Shares of the appropriate Equity Fund on behalf of the
shareholder.
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 60 days or less at the time of purchase, at amortized cost;
or
- - for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The 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 Trustees determines in good faith that another
method of valuing option positions is necessary.
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.
REDEEMING SHARES
- --------------------------------------------------------------------------------
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."
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.
TAX STATUS
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
The cumulative total return for Investment Shares of the Growth Equity Fund,
Growth and Income Equity Fund, and Small Capitalization Equity Fund for the
period from February 12, 1993 (date of initial public offering), to October 31,
1993, were 0.65%, 1.95%, and 2.30%, respectively. The cumulative total return
for the Trust Shares of the Growth Equity Fund, Growth and Income Equity Fund,
and Small Capitalization Equity Fund for the period from December 14, 1992 (date
of initial public investment) to October 31, 1993 were 5.09%, 8.80%, and 12.12%,
respectively. Cumulative total return reflects an Equity Fund's total
performance over a specific period of time. This total return assumes and is
reduced by the payment of the maximum sales load (Investment Shares only). The
Equity Funds' total returns are representative of approximately nine months of
activity since the Equity Funds' effective date.
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
- --------------------------------------------------------------------------------
The thirty-day yield for Investment Shares of the Growth Equity Fund, Growth and
Income Equity Fund, and Small Capitalization Equity Fund for the period ending
October 31, 1993, were (0.02%), 1.82%, and (0.27%), respectively. The thirty-day
yield for Trust Shares of the Growth Equity Fund, Growth and Income Equity Fund,
and Small Capitalization Equity Fund for the same period were 0.24%, 2.16%, and
(0.03%), respectively.
The yield for both classes of Shares of the Equity Funds is determined 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
- --------------------------------------------------------------------------------
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.
Investors may use financial publications and/or indices to obtain a more
complete view of an Equity Fund's performance. When comparing performance,
investors should consider all relevant factors, such as the composition of any
index used, prevailing market conditions, portfolio compositions of other funds,
and methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Equity Funds use in advertising
may include:
- - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
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.
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
- --------------------------------------------------------------------------------
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.
APPENDIX
- --------------------------------------------------------------------------------
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--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.
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.
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 (6/94)
