INSIGHT U.S. GOVERNMENT FUND
(A PORTFOLIO OF INSIGHT INSTITUTIONAL SERIES, INC.)
PROSPECTUS
The shares offered by this prospectus represent interests in
Insight U.S. Government Fund (the "Fund"), a diversified
investment portfolio of Insight Institutional Series, Inc. (the
"Corporation"), an open-end, management investment company (a
mutual fund).
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The investment objective of the Fund is to provide current
income. The Fund invests primarily in a diversified portfolio
of U.S. government securities.
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THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY
BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and
know before you invest in shares of the Fund. Keep this
prospectus for future reference.
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The Fund has also filed a Statement of Additional Information
dated January 19, 1994, with the Securities and Exchange
Commission. The information contained in the Statement of
Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of
Additional Information free of charge by calling 1-800-235-
4669. To obtain other information or to make inquiries about
the Fund, contact your financial institution.
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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.
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Prospectus dated January 19, 1994
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TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES
GENERAL INFORMATION
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INVESTMENT INFORMATION
Investment Objective
Investment Policies
Acceptable Investments
Mortgage-Backed Securities
Adjustable Rate Mortgage Securities
("ARMS")
Collateralized Mortgage Obligations
("CMOs")
Real Estate Mortgage Investment Conduits
("REMICS")
Repurchase Agreements
Dollar Roll Transactions
Restricted and Illiquid Securities
Lending of Portfolio Securities
When-Issued and Delayed Delivery Transactions
Investment Limitations
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NET ASSET VALUE
INVESTING IN THE FUND
Share Purchases
Through a Financial Institution
Directly by Mail
Conversion to Federal Funds
Directly by Wire
Minimum Investment Required
What Shares Cost
Certificates and Confirmations
Dividends and Distributions
REDEEMING SHARES
Through a Financial Institution
Directly by Mail
Signatures
Receiving Payment
By Check
By Wire
Redemption Before Purchase Instruments Clear
Accounts with Low Balances
INSIGHT INSTITUTIONAL SERIES, INC. INFORMATION
Management of the Corporation
Board of Directors
Investment Adviser
Advisory Fees
Adviser's Background
Portfolio Managers' Background
Distribution of Fund Shares
Administration of the Fund
Administrative Services
Shareholder Services Plan
Administrative Arrangements
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Custodian
Transfer Agent and Dividend Disbursing Agent
Legal Counsel
Independent Public Accountants
Expenses of the Fund
SHAREHOLDER INFORMATION
Voting Rights
TAX INFORMATION
Federal Income Tax
Pennsylvania Corporate and
Personal Property Taxes
PERFORMANCE INFORMATION
STATEMENT OF ASSETS AND LIABILITIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ADDRESSES Inside Back Cover
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . . .
None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . .
None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable) . . . .
None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1) . . . . . . . . . . . . . . .
0.12%
12b-1 Fee None
Total Other Expenses . . . . . . . . . . . . . . . . . . . .
0.73%
Shareholder Servicing Fee . . . . . . . . . . . . . .
0.25%
Total Fund Operating Expenses (2) . . . . . . . . .
0.85%
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(1) The estimated management fee has been reduced to
reflect the anticipated voluntary waiver of a portion
of the management fee. The adviser can terminate this
voluntary waiver at any time at its sole discretion.
The maximum management fee is 0.70%.
(2) The Total Fund Operating Expenses are estimated to be
1.43% absent the anticipated voluntary waiver of a
portion of the management fee.
* Total Fund Operating Expenses are estimated based on
average expenses expected to be incurred during the
period ending September 30, 1994. During the course of
this period, expenses may be more or less than the
average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER
OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE
COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE
"INVESTING IN THE FUND" AND "INSIGHT INSTITUTIONAL SERIES, INC.
INFORMATION." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000
MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE
1 year 3 years
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, shares are not
subject to a redemption fee . $9 $27
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA
FOR THE FUND'S FISCAL YEAR ENDING SEPTEMBER 30, 1994.
GENERAL INFORMATION
The Corporation was incorporated under the laws of the State of
Maryland on October 11, 1993. The Articles of Incorporation
permit the Corporation to offer separate portfolios and classes
of shares. As of the date of this prospectus, the Board of
Directors (the "Directors") has established four separate
portfolios: Insight U.S. Government Fund, Insight Limited Term
Municipal Fund, Insight Limited Term Income Fund and Insight
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Adjustable Rate Mortgage Fund. This prospectus relates only to
the shares of Insight U.S. Government Fund.
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The Fund is designed for institutions seeking current income
through a professionally managed, diversified portfolio of U.S.
government securities. A minimum initial investment of $1
million is required.
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Fund shares are sold and redeemed at net asset value without a
sales charge imposed by the Fund.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
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The investment objective of the Fund is to provide current
income. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do
so by following the investment policies described in this
prospectus.
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INVESTMENT POLICIES
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The Fund will limit its investments to those that are permitted
for purchase by federally chartered savings associations
pursuant to applicable rules, regulations or interpretations of
the Office of Thrift Supervision and by federal credit unions
under the Federal Credit Union Act and the rules, regulations
and interpretations of the National Credit Union
Administration. Should additional permitted investments be
allowed as a result of future changes in applicable regulations
or federal laws, the Fund reserves the right, without
shareholder approval, to make such investments consistent with
the Fund's investment objective, policies and limitations.
Further, should existing statutes or regulations change so as
to cause any securities held by the Fund to become ineligible
for purchase by federally chartered savings associations or
federal credit unions, the Fund will dispose of those
securities at times advantageous to the Fund.
As operated within the limitations applicable to investments by
federally chartered savings associations and federal credit
unions, and pursuant to current interpretation by the Office of
the Comptroller of the Currency, the Fund will also serve as an
appropriate vehicle for a national bank as an investment for
its own account.
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The investment policies described below cannot be changed
without shareholder approval.
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ACCEPTABLE INVESTMENTS. The Fund pursues its investment
objective by investing primarily in a diversified portfolio of
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U.S. government securities. Under normal circumstances, the
Fund will invest at least 65% of the value of its total assets
in securities that are issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The securities
in which the Fund invests principally are:
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* direct obligations of the U.S. Treasury, such as U.S.
Treasury bills, notes and bonds;
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* obligations of U.S. government agencies or
instrumentalities, such as Federal Home Loan Banks,
Federal National Mortgage Association, Government
National Mortgage Association, Banks for Cooperatives
(including Central Bank for Cooperatives), Federal Land
Banks, Federal Intermediate Credit Banks, Federal Farm
Credit Banks, Tennessee Valley Authority, Export-Import
Bank of the United States, Commodity Credit
Corporation, Federal Financing Bank, Student Loan
Marketing Association, Federal Home Loan Mortgage
Corporation, or National Credit Union Administration;
and
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* repurchase agreements collateralized by eligible
investments.
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The government securities in which the Fund may invest are
backed in a variety of ways by the U.S. government or its
agencies or instrumentalities. Some of these securities, such
as Government National Mortgage Association ("Ginnie Mae")
mortgage-backed securities, are backed by the full faith and
credit of the U.S. government. Other securities, such as
obligations of the Federal National Mortgage Association
("Fannie Mae") or Federal Home Loan Mortgage Corporation
("Freddie Mac"), are backed by the credit of the agency or
instrumentality issuing the obligations but not the full faith
and credit of the U.S. government. No assurances can be given
that the U.S. government will provide financial support to
these other agencies or instrumentalities, because it is not
obligated to do so.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are
securities that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage
loans on real property. There are currently three basic types
of mortgage-backed securities: (i) those issued or guaranteed
by the U.S. government or one of its agencies or
instrumentalities, such as Ginnie Mae, Fannie Mae and Freddie
Mac; (ii) those issued by private issuers that represent an
interest in or are collateralized by mortgage-backed securities
issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities; and (iii) those issued by
private issuers that represent an interest in or are
collateralized by whole loans or mortgage-backed securities
without a government guarantee but usually having some form of
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private credit enhancement. The Fund may invest in only the
first two types.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are
pass-through mortgage securities with adjustable rather than
fixed interest rates. The ARMS in which the Fund invests
are issued by Ginnie Mae, Fannie Mae, and Freddie Mac and
are actively traded. The underlying mortgages which
collateralize ARMS issued by Ginnie Mae are fully guaranteed
by the Federal Housing Administration or Veterans
Administration, while those collateralizing ARMS issued by
Fannie Mae or Freddie Mac are typically conventional
residential mortgages conforming to strict underwriting size
and maturity constraints.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are debt
obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized
by Ginnie Mae, Fannie Mae or Freddie Mac certificates, but
may be collateralized by whole loans or private pass-through
securities. CMOs may have fixed or floating rates of
interest.
The Fund will invest only in CMOs that are rated AAA by a
nationally recognized statistical rating organization. The
CMOs in which the Fund may invest may be: (i) securities
which are collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S.
government; (ii) securities which are collateralized by
pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is
collateralized by U.S. government securities; and (iii)
other securities in which the proceeds of the issuance are
invested in mortgage-backed securities and payment of the
principal and interest is supported by the credit of an
agency or instrumentality of the U.S. government.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs
are offerings of multiple class real estate mortgage-backed
securities which qualify and elect treatment as such under
provisions of the Internal Revenue Code. Issuers of REMICs
may take several forms, such as trusts, partnerships,
corporations, associations, or segregated pools of
mortgages. Once REMIC status is elected and obtained, the
entity is not subject to federal income taxation. Instead,
income is passed through the entity and is taxed to the
person or persons who hold interests in the REMIC. A REMIC
interest must consist of one or more classes of "regular
interests," some of which may offer adjustable rates of
interest, and a single class of "residual interests." To
qualify as a REMIC, substantially all the assets of the
entity must be in assets directly or indirectly secured
principally by real property.
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Mortgage-backed securities may be subject to certain prepayment
risks because the underlying mortgage loans may be prepaid
without penalty or premium. Prepayment risks on mortgage
securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance their
mortgages to take advantage of the more favorable rates.
Depending upon market conditions, the yield that the Fund
receives from the reinvestment of such prepayments, or any
scheduled principal payments, may be lower than the yield on
the original mortgage security. As a consequence, mortgage
securities may be a less effective means of "locking in"
interest rates than other types of debt securities having the
same stated maturity and may also have less potential for
capital appreciation. For certain types of asset pools, such
as collateralized mortgage obligations, prepayments may be
allocated to one tranche of securities ahead of other tranches,
in order to reduce the risk of prepayment for the other
tranches.
Prepayments may result in a capital loss to the Fund to the
extent that the prepaid mortgage securities were purchased at a
market premium over their stated amount. Conversely, the
prepayment of mortgage securities purchased at a market
discount from their stated principal amount will accelerate the
recognition of interest income by the Fund, which would be
taxed as ordinary income when distributed to the shareholders.
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REPURCHASE AGREEMENTS. Repurchase agreements are arrangements
in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other
securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To
the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities.
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DOLLAR ROLL TRANSACTIONS. In order to enhance portfolio
returns and manage prepayment risks, the Fund may engage in
dollar roll transactions with respect to mortgage securities
issued by Ginnie Mae, Fannie Mae, and Freddie Mac. In a dollar
roll transaction, the Fund sells a mortgage security to a
financial institution, such as a bank or broker/dealer, and
simultaneously agrees to repurchase a substantially similar
(i.e., same type, coupon, and maturity) security from the
institution at a later date at an agreed upon price. The
mortgage securities that are repurchased will bear the same
interest rate as those sold, but generally will be
collateralized by different pools of mortgages with different
prepayment histories. During the period between the same and
repurchase, the Fund will not be entitled to receive interest
and principal payments on the securities sold. Proceeds of the
sale will be invested in short-term instruments, and the income
from these investments, together with any additional fee income
received on the sale, will generate income for the Fund
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exceeding the yield. When the Fund enters into a dollar roll
transaction, liquid assets of the Fund, in a dollar amount
sufficient to make payment for the obligations to be
repurchased, are segregated at the trade date. These
securities are marked to market daily and are maintained until
the transaction is settled.
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RESTRICTED AND ILLIQUID SECURITIES. The Fund intends to invest
in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to
its investment objective and policies, but which are subject to
restriction on resale under federal securities law. The Fund
will limit investments in illiquid securities, including
certain restricted securities not determined by the Directors
to be liquid, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of the
value of its net assets.
LENDING OF PORTFOLIO SECURITIES. In order to generate
additional income, the Fund may lend portfolio securities on a
short-term or a long-term basis up to one-third of the value of
its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only
enter into loan arrangements with broker/dealers, banks, or
other institutions which the investment adviser has determined
are creditworthy under guidelines established by the Directors.
In these loan arrangements, the Fund 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may
purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future
time. In when-issued and delayed delivery transactions, the
Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
INVESTMENT LIMITATIONS
The Fund will not:
* borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a
portfolio instrument for a percentage of its cash
value with an arrangement to buy it back on a set
date) or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third
of the value of its total assets and pledge up to
15% of the value of those assets to secure such
borrowings;
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* invest more than 5% of the value of its total assets in
securities of issuers that have records of less than
three years of continuous operations including the
operation of any predecessor. (This limitation does
not apply to issuers of asset-backed securities that
are collateralized by securities or mortgages issued or
guaranteed as to prompt payment of principal and
interest by an agency of the U.S. government); or
* invest more than 10% of its total assets in securities
issued by other investment companies. (This limitation
does not apply to securities acquired as part of a
merger, consolidation, reorganization or other
acquisition.) To the extent that the Fund invests in
securities issued by other investment companies, the
Fund will indirectly bear its proportionate share of
any fees and expenses paid by such companies in
addition to the fees and expenses payable directly by
the Fund.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is
determined by dividing the sum of the market value of all
securities and all other assets, less liabilities, by the
number of shares outstanding.
INVESTING IN THE FUND
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock
Exchange is open. Shares may be purchased through a financial
institution (such as a bank or investment dealer) who has a
sales agreement with the distributor, Federated Securities
Corp., or once an account has been established, directly from
Federated Securities Corp. either by mail or wire. The Fund
reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his
financial institution to place an order to purchase shares of
the Fund. Orders through a financial institution are
considered received when the Fund is notified of the purchase
order. Purchase orders must be received by the financial
institution and transmitted to the Fund before 4:00 p.m.
(Boston time) in order for shares to be purchased at that day's
price. It is the financial institution's responsibility to
transmit orders promptly. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m.
(Boston time) and must be transmitted by the broker to the Fund
before 5:00 p.m. (Boston time) in order for shares to be
purchased at that day's price.
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DIRECTLY BY MAIL. An investor may place an order to purchase
shares of the Fund by mail directly from Federated Securities
Corp. once an account has been established. To purchase shares
of the Fund by mail, send a check made payable to Insight U.S.
Government Fund to the Fund's transfer agent, Federated
Services Company, c/o State Street Bank and Trust Company,
P.O. Box 8604, Boston, Massachusetts 02266-8604.
CONVERSION TO FEDERAL FUNDS. It is the Fund's policy to be as
fully invested as possible so that maximum interest may be
earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before
shareholders begin to earn dividends. State Street Bank and
Trust Company ("State Street Bank") acts as the shareholder's
agent in depositing checks and converting them to federal
funds.
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DIRECTLY BY WIRE. To purchase shares of the Fund directly from
Federated Securities Corp. by Federal Reserve wire once an
account has been established, call the Fund. All information
needed will be taken over the telephone, and the order is
considered received when State Street Bank receives payment by
wire.
MINIMUM INVESTMENT REQUIRED
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The minimum initial investment in the Fund is $1 million.
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WHAT SHARES COST
Fund shares are sold at their net asset value next determined
after an order is received. There is no sales charge imposed
by the Fund. However, certain unaffiliated financial
institutions may charge fees for services provided which may
relate to ownership of shares. This prospectus should,
therefore, be read together with any agreement between the
customer and the institution with regard to services provided
and the fees charged for these services.
The net asset value is determined at 4:00 p.m. (Boston time),
Monday through Friday, except on: (i) days on which there are
not sufficient changes in the value of the Fund's portfolio
securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and
(iii) the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
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As transfer agent for the Fund, Federated Services Company
maintains a share account for each shareholder. Share
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certificates are not issued unless requested on the application
or by contacting the Fund.
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Detailed confirmations of each purchase or redemption are sent
to each shareholder. Monthly statements are sent to report
dividends paid during the month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly. Distributions
of any net realized long-term capital gains will be made at
least once every twelve months. Dividends and distributions
are automatically reinvested in additional shares of the Fund
on payment dates at net asset value, unless cash payments are
requested by shareholders on the application or by writing to
Federated Securities Corp.
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Dividends are declared just prior to determining net asset
value. If an order for shares is placed on the preceding
business day, shares purchased by wire begin earning dividends
on the business day wire payment is received by State Street
Bank. If the order for shares and payment by wire are received
on the same day, shares begin earning dividends on the next
business day. Shares purchased by check begin earning
dividends on the business day after the check is converted,
upon instruction of the transfer agent, into federal funds.
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Shares earn dividends through the business day that proper
written redemption instructions are received by State Street
Bank.
REDEEMING SHARES
The Fund redeems shares at their net asset value next
determined after State Street Bank receives the redemption
request. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be
received in proper form and can be made through a financial
institution, or directly from the Fund by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem shares of the Fund by calling his
financial institution (such as a bank or an investment dealer)
to request the redemption. Shares will be redeemed at the net
asset value next determined after the Fund receives the
redemption request from the financial institution. Redemption
requests must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Boston time) in order
for shares to be redeemed at that day's net asset value. The
financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption
instructions to the Fund. The financial institution may charge
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customary fees and commissions for this service. Redemption
requests through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Boston time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Boston
time) in order for shares to be redeemed at that day's net
asset value. If at any time the Fund shall determine it
necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.
Before a financial institution may request redemption by
telephone on behalf of a shareholder, an authorization form
permitting the Fund to accept redemption requests by telephone
must first be completed. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic
economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "Directly by
Mail," should be considered.
DIRECTLY BY MAIL
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Shareholders may also redeem shares by sending a written
request to Federated Services Company, c/o State Street Bank
and Trust Company, P.O. Box 8604, Boston, Massachusetts 02266-
8604. This written request must include the shareholder's
name, the Fund name, the Fund account number, and the share or
dollar amount to be redeemed. Shares will be redeemed at their
net asset value next determined after State Street Bank
receives the redemption request.
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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 may call the Fund 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 Fund, or a redemption payable
other than to the shareholder of record must have signatures on
written redemption requests guaranteed by:
* a trust company or commercial bank whose deposits
are insured by the Bank Insurance Fund ("BIF"),
which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
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* a member of the New York, American, Boston,
Midwest, or Pacific Stock Exchange;
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* a savings bank or savings and loan association
whose deposits are insured by the Savings
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Association Insurance Fund ("SAIF"), which is
administered by the FDIC; or
* any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary
public.
The Fund and its transfer agent have adopted standards for
accepting signature guarantees from the above institutions.
The Fund may elect in the future to limit eligible signature
guarantors to institutions that are members of a signature
guarantee program. The Fund and its transfer agent reserve the
right to amend these standards at any time without notice.
RECEIVING PAYMENT
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 written redemption request provided State
Street Bank has received payment for shares from the
shareholder.
BY WIRE. Normally, redemption proceeds will be wired the
following business day, but in no event more than seven days,
after receipt of the redemption request.
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REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check, or through Automated
Clearing House ("ACH"), the proceeds from the redemption of
those shares are not available, and the shares may not be
exchanged, until the Fund or its agents are reasonably certain
that the purchase check has cleared, which could take up to ten
calendar days.
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ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances,
the Fund may redeem shares in any account, and pay the proceeds
to the shareholder, if the account balance falls below a
required minimum value of $1 million due to shareholder
redemptions. This requirement does not apply, however, if the
balance falls below $1 million because of changes in the 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.
INSIGHT INSTITUTIONAL SERIES, INC. INFORMATION
MANAGEMENT OF THE CORPORATION
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BOARD OF DIRECTORS. The Fund is managed by a Board of
Directors. The Directors are responsible for managing the
Corporation's business affairs and for exercising all the
Corporation's powers except those reserved for the
shareholders. The Executive Committee of the Board of
Directors handles the Directors' responsibilities between
meetings of the Directors.
INVESTMENT ADVISER. Investment decisions for the Fund are made
by Federated Advisers, the Fund's investment adviser, subject
to direction by the Directors. The adviser continually
conducts investment research and supervision for the Fund and
is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual
investment advisory fee equal to 0.70 of 1% of the Fund's
average daily net assets. Under the investment advisory
contract, which provides for voluntary waivers of expenses
by the adviser, the adviser may voluntarily waive some or
all of its fee. The adviser can terminate this voluntary
waiver of some or all of its advisory fee at any time at its
sole discretion. The adviser has also undertaken to
reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware
business trust organized on April 11, 1989, is a registered
investment adviser under the Investment Advisers Act of
1940. It is a subsidiary of Federated Investors. All of
the Class A (voting) shares of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue,
Chairman and Trustee of Federated Investors, Mr. Donahue's
wife, and Mr. Donahue's son, J. Christopher Donahue, who is
President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated
Investors serve as investment advisers to a number of
investment companies and private accounts. Certain other
subsidiaries also provide administrative services to a
number of investment companies. Total assets under
management or administration by these and other subsidiaries
of Federated Investors are approximately $76 billion.
Federated Investors, which was founded in 1956 as Federated
Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track
record of competitive performance and its disciplined, risk
averse investment philosophy serve approximately 3,500
client institutions nationwide. Through these same client
institutions, individual shareholders also have access to
this same level of investment expertise.
PORTFOLIO MANAGERS' BACKGROUND. Gary J. Madich, Kathleen M.
Foody-Malus and Susan M. Nason have been the Fund's
<PAGE>
portfolio managers since its inception. Mr. Madich joined
Federated Investors in 1984 and has been a Senior Vice
President of the Fund's investment adviser since 1993. Mr.
Madich served as a Vice President of the Fund's investment
adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance
from the University of Pittsburgh. Ms. Foody-Malus joined
Federated Investors in 1983 and has been a Vice President of
the Fund's investment adviser since 1993. Ms. Foody-Malus
served as an Assistant Vice President of the Fund's
investment adviser from 1990 until 1993, and from 1986 until
1990 she acted as an investment analyst. Ms. Foody-Malus
received her M.B.A. in Accounting/Finance from the
University of Pittsburgh. Ms. Nason joined Federated
Investors in 1987 and has been a Vice President of the
Fund's investment adviser since 1993. Ms. Nason served as
an Assistant Vice President of the investment adviser from
1990 until 1993, and from 1987 until 1990 she acted as an
investment analyst. Ms. Nason is a Chartered Financial
Analyst and received her M.B.A. in Finance from Carnegie
Mellon University.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized
on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services,
Inc., which is a subsidiary of Federated Investors, provides
the Fund with the administrative personnel and services
necessary to operate the Fund. Such services include
shareholder servicing and certain legal and accounting
services. Federated Administrative Services, Inc. provides
these at approximate cost.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder
Services Plan (the "Services Plan"). Under the Services Plan,
financial institutions will enter into shareholder service
agreements with the Fund to provide administrative support
services to their customers who from time to time may be owners
of record or beneficial owners of shares. In return for
providing these support services, a financial institution may
receive payments from the Fund at a rate not exceeding 0.25 of
1% of the average daily net assets of the shares beneficially
owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship.
These administrative services may include, but not are not
limited to, the provision of personal services and maintenance
of shareholder accounts.
<PAGE>
ADMINISTRATIVE ARRANGEMENTS. The distributor may also pay
financial institutions a fee based upon the net asset value of
the Fund shares beneficially owned by the financial
institution's clients or customers. This fee is in addition to
amounts paid under the Shareholder Services Plan and will be
reimbursed by the adviser.
The Glass-Steagall Act limits the ability of a depository
institution (such as a commercial bank or a savings and loan
association) to become an underwriter or distributor of
securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities
described in this prospectus or should Congress relax current
restrictions on depository institutions, the Directors will
consider appropriate changes in the administrative 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.
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CUSTODIAN. State Street Bank and Trust Company, Boston,
Massachusetts, is custodian for the securities and cash of the
Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated
Services Company, Pittsburgh, Pennsylvania, is transfer agent
for the shares of the Fund, and dividend disbursing agent for
the Fund.
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LEGAL COUNSEL. Legal counsel is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro &
Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public
accountants for the Fund are Arthur Andersen & Co., Pittsburgh,
Pennsylvania.
EXPENSES OF THE FUND
Shareholders of the Fund pay their allocable portion of Fund
and Corporation expenses.
The Corporation expenses for which shareholders pay their
allocable portion include, but are not limited to, the cost of:
organizing the Corporation and continuing its existence;
registering the Corporation with federal and state securities
authorities; Directors' fees; auditors' fees; meetings of
Directors; legal fees of the Corporation; association
membership dues and such non-recurring and extraordinary items
as may arise from time to time.
<PAGE>
The Fund expenses for which shareholders pay their allocable
portion include, but are not limited to, the cost of:
investment advisory and administrative services; printing
prospectuses and other Fund documents for shareholders;
registering the Fund and shares of the Fund with federal and
state securities commissions; taxes and commissions; issuing,
purchasing, repurchasing and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents,
shareholder servicing agents and registrars; printing, mailing,
auditing, accounting and legal expenses; reports to
shareholders and governmental agencies; meetings of
shareholders and proxy solicitations therefor; insurance
premiums; and such non-recurring and extraordinary items as may
arise from time to time.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund is entitled to one vote at all meetings
of shareholders. All shares of all portfolios in the
Corporation have equal voting rights except that in matters
affecting only a particular portfolio, only shares of that
portfolio are entitled to vote.
As a Maryland corporation, the Fund is not required to hold
annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Fund's operation and for
the election of Directors under certain circumstances.
Directors may be removed by a majority vote of the shareholders
at a special meeting. A special meeting of shareholders shall
be called by the Directors upon the request of shareholders
owning at least 10% of the Fund's outstanding shares of all
series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to
meet requirements of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax
treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay
federal income tax on any dividends and other distributions
received. This applies whether dividends and distributions are
received in cash or as additional shares. Information on the
tax status of dividends and distributions is provided annually.
<PAGE>
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the
Fund:
* the Fund is subject to the Pennsylvania corporate
franchise tax; and
* Fund shares are not subject to Pennsylvania
personal property taxes.
Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local
tax laws.
PERFORMANCE INFORMATION
From time to time the Fund advertises its total return and
yield.
Total return represents the change, over a specified period of
time, in the value of an investment in the Fund after
reinvesting all income and capital gains distributions. It is
calculated by dividing that change by the initial investment
and is expressed as a percentage.
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The yield of the Fund is calculated by dividing the net
investment income per share (as defined by the Securities and
Exchange Commission) earned by the Fund over a thirty-day
period by the offering price per share of the Fund on the last
day of the period. This number is then annualized using semi-
annual compounding. The yield does not necessarily reflect
income actually earned by the Fund and, therefore, may not
correlate to the dividends or other distributions paid to
shareholders.
The Fund is sold without any sales charge or other similar non-
recurring charges. From time to time, the Fund may advertise
its performance using certain financial publications and/or
compare its performance to certain indices.
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INSIGHT U.S. GOVERNMENT FUND
(A PORTFOLIO OF INSIGHT INSTITUTIONAL SERIES, INC.)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 15, 1993
Assets:
Cash $100,000
Liabilities: ---
Net Assets for 10,000 shares of capital
stock outstanding $100,000
<PAGE>
Net Asset Value, Offering Price, and Redemption
Price Per Share ($100,000/10,000 shares of
capital stock outstanding) $ 10.00
NOTES:
(1) Insight Institutional Series, Inc. (the "Corporation")
was established as a Maryland corporation under
Articles of Incorporation dated October 11, 1993, and
has had no operations since that date other than those
relating to organizational matters, including the
issuance on December 15, 1993 of 10,000 shares of the
Insight U.S. Government Fund at $10.00 per share to
Federated Administrative Services, Inc., the
Administrator to the Fund. Expenses of organization
incurred by the Corporation, estimated at $33,100, were
borne initially by the Administrator. The Corporation
has agreed to reimburse the Administrator for
organizational expenses initially borne by the
Administrator during the five year period following the
date the Corporation's registration first became
effective.
(2) Reference is made to "Management of the Corporation,"
"Administration of the Fund," and "Tax Information" in
this Prospectus for a description of the investment
advisory fee, administrative and other services and
federal tax aspects of the Fund.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of
INSIGHT INSTITUTIONAL SERIES, INC. --
INSIGHT U.S. GOVERNMENT FUND:
We have audited the accompanying statement of assets and
liabilities of the Insight U.S. Government Fund (an investment
portfolio of Insight Institutional Series, Inc.) as of December
15, 1993. This financial statement is the responsibility of
the Corporation's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
<PAGE>
In our opinion, the aforementioned financial statement presents
fairly, in all material respects, the financial position of the
Insight U.S. Government Fund (an investment portfolio of
Insight Institutional Series, Inc.) as of December 15, 1993, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
December 15, 1993
ADDRESSES
Insight
U.S. Government Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser Federated Advisers
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Custodian State Street Bank and Trust Company
P.O. Box 8604
Boston, Massachusetts 02266-8604
Transfer Agent and
Dividend Disbursing Agent Federated Securities Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
/R
Legal Counsel Houston, Houston & Donnelly
2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
Legal Counsel Dickstein, Shapiro & Morin
2101 L Street, N.W.
Washington, D.C. 20037
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Independent
Public Accountants Arthur Andersen & Co.
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
/R
INSIGHT U.S. GOVERNMENT FUND
PROSPECTUS
A Diversified Portfolio of
<PAGE>
Insight Institutional Series, Inc.,
an Open-End, Management
Investment Company
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January 19, 1994
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FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
<PAGE>
INSIGHT LIMITED TERM MUNICIPAL FUND
(A PORTFOLIO OF INSIGHT INSTITUTIONAL SERIES, INC.)
PROSPECTUS
The shares offered by this prospectus represent interests in
Insight Limited Term Municipal Fund (the "Fund"), a diversified
investment portfolio of Insight Institutional Series, Inc. (the
"Corporation"), an open-end, management investment company (a
mutual fund).
The investment objective of the Fund is to provide a high level
of current income which is exempt from federal regular income
tax (federal regular income tax does not include the federal
alternative minimum tax) consistent with minimum fluctuation in
principal value. The Fund's weighted-average portfolio
duration will at all times be limited to four years or less.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY
BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and
know before you invest in shares of the Fund. Keep this
prospectus for future reference.
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The Fund has also filed a Statement of Additional Information
dated January 19, 1994, with the Securities and Exchange
Commission. The information contained in the Statement of
Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of
Additional Information free of charge by calling 1-800-235-
4669. To obtain other information or to make inquiries about
the Fund, contact your financial institution.
/R
<PAGE>
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.
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Prospectus dated January 19, 1994
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TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES
GENERAL INFORMATION
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INVESTMENT INFORMATION
Investment Objective
Investment Policies
Acceptable Investments
Municipal Securities
Characteristics
Participation Interests
Municipal Leases
Pre-Refunded Municipal Securities
Auction Rate Securities
Demand Features
Tender Option Bonds
Restricted and Illiquid Securities
Average Portfolio Duration
When-Issued and Delayed Delivery Transactions
Futures Contracts and Options to Buy or Sell
Such
Contracts
Temporary Investments
Investment Risks
Investment Limitations
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NET ASSET VALUE
INVESTING IN THE FUND
Share Purchases
Through a Financial Institution
Directly by Mail
Conversion to Federal Funds
Directly by Wire
Minimum Investment Required
What Shares Cost
Certificates and Confirmations
Dividends and Distributions
<PAGE>
REDEEMING SHARES
Through a Financial Institution
Directly by Mail
Signatures
Receiving Payment
By Check
By Wire
Redemption Before Purchase Instruments Clear
Accounts with Low Balances
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INSIGHT INSTITUTIONAL SERIES, INC. INFORMATION
Management of the Corporation
Board of Directors
Investment Adviser
Advisory Fees
Adviser's Background
Portfolio Managers' Background
Distribution of Fund Shares
Administration of the Fund
Administrative Services
Shareholder Services Plan
Administrative Arrangements
Custodian
Transfer Agent and Dividend Disbursing Agent
Legal Counsel
Independent Public Accountants
Expenses of the Fund
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SHAREHOLDER INFORMATION
Voting Rights
TAX INFORMATION
Federal Income Tax
Pennsylvania Corporate and
Personal Property Taxes
Other State and Local Taxes
PERFORMANCE INFORMATION
ADDRESSES Inside Back Cover
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . . .
None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . .
None
Deferred Sales Load (as a percentage of original
<PAGE>
purchase price or redemption proceeds, as applicable) . . . .
None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1) . . . . . . . . . . . . . . .
0.12%
12b-1 Fee None
Total Other Expenses . . . . . . . . . . . . . . . . . . . .
0.73%
Shareholder Servicing Fee . . . . . . . . . . . . . .
0.25%
Total Fund Operating Expenses (2) . . . . . . . . .
0.85%
(1) The estimated management fee has been reduced to
reflect the anticipated voluntary waiver of a portion
of the management fee. The adviser can terminate this
voluntary waiver at any time at its sole discretion.
The maximum management fee is 0.70%.
(2) The Total Fund Operating Expenses are estimated to be
1.43% absent the anticipated voluntary waiver of a
portion of the management fee.
* Total Fund Operating Expenses are estimated based on
average expenses expected to be incurred during the
period ending September 30, 1994. During the course of
this period, expenses may be more or less than the
average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER
OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE
COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE
"INVESTING IN THE FUND" AND "INSIGHT INSTITUTIONAL SERIES, INC.
INFORMATION." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000
MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE
1 year 3 years
<PAGE>
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, shares are not
subject to a redemption fee . $9 $27
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA
FOR THE FUND'S FISCAL YEAR ENDING SEPTEMBER 30, 1994.
GENERAL INFORMATION
The Corporation was incorporated under the laws of the State of
Maryland on October 11, 1993. The Articles of Incorporation
permit the Corporation to offer separate portfolios and classes
of shares. As of the date of this prospectus, the Board of
Directors (the "Directors") has established four separate
portfolios: Insight U.S. Government Fund, Insight Limited Term
Municipal Fund, Insight Limited Term Income Fund and Insight
Adjustable Rate Mortgage Fund. This prospectus relates only to
the shares of Insight Limited Term Municipal Fund.
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The Fund is designed for institutions seeking current income
exempt from federal regular income tax. A minimum initial
investment of $1 million is required.
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Fund shares are sold and redeemed at net asset value without a
sales charge imposed by the Fund.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide a high level
of current income which is exempt from federal regular income
tax (federal regular income tax does not include the federal
alternative minimum tax) consistent with minimum fluctuation in
principal value. Interest income of the Fund that is exempt
from federal regular income tax retains its tax-free status
when distributed to the Fund's shareholders. The investment
objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
INVESTMENT POLICIES
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<PAGE>
The Fund pursues its investment objective by investing in a
diversified portfolio, primarily limited to municipal
securities, the weighted-average duration of which will at all
times be limited to four years or less. The adviser will
attempt to minimize principal fluctuation through, among other
things, diversification, careful credit analysis and security
selection, and adjustments of the Fund's average portfolio
duration. Unless indicated otherwise, the investment policies
may be changed by the Directors without shareholder approval.
Shareholders will be notified before any material change in
these policies becomes effective.
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ACCEPTABLE INVESTMENTS. Municipal securities are debt
obligations issued by or on behalf of states, territories, and
possessions of the United States, including the District of
Columbia, and their political subdivisions, agencies and
instrumentalities, the interest from which is exempt from
federal regular income tax.
As a matter of investment policy, which may not be changed
without shareholder approval, under normal circumstances, the
Fund will be invested so that at least 80% of its net assets
are invested in obligations, the interest from which is exempt
from federal regular income tax. The Fund may invest up to 25%
of its assets in securities of issuers located in the same
state.
The Fund may also transact in put and call options, futures
contracts, and options on futures contracts for hedging
purposes.
MUNICIPAL SECURITIES. Municipal securities are generally
issued to finance public works, such as airports, bridges,
highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also
issued to repay outstanding obligations, to raise funds for
general operating expenses, and to make loans to other public
institutions and facilities.
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The two principal classifications of municipal securities are
"general obligation" and "revenue" issues. General obligation
issues are secured by the issuer's pledge of its full faith and
credit and taxing power for the payment of principal and
interest. Interest on and principal of revenue issues,
however, are payable only from the revenue generated by the
facility financed by the bond or other specified sources of
revenue. Revenue issues do not represent a pledge of credit or
create any debt of or charge against the general revenues of a
municipality or public authority.
/R
Industrial development bonds are typically classified as
revenue bonds. Industrial development bonds are issued by or
on behalf of public authorities to provide financing aid to
acquire sites or construct and equip facilities for privately
<PAGE>
or publicly owned corporations. The availability of this
financing encourages these corporations to locate within the
sponsoring communities and thereby increases local employment.
Municipal securities may carry fixed, floating or inverse
floating rates of interest. Fixed rate securities bear
interest at the same rate from issuance until maturity. The
interest rate on floating rate securities is subject to
adjustment based upon changes in market interest rates or
indices, such as a bank's prime rate or a published market
index. The interest rate may be adjusted at specified
intervals or immediately upon any change in the applicable
index rate. The interest rate for most floating rate
securities varies directly with changes in the index rate, so
that the market value of the security will approximate its
stated value at the time of each adjustment. However, inverse
floating rate securities have interest rates that vary
inversely with changes in the applicable index rate, such that
the security's interest rate rises when market interest rates
fall and falls when market interest rates rise. The market
value of floating rate securities is less sensitive than fixed
rate securities to changes in market interest rates. In
contrast, the market value of inverse floating rate securities
is more sensitive to market rate changes than fixed or floating
rate securities. The effect of market rate changes on
securities depends upon a variety of factors, including market
expectations as to future changes in interest rates and, in the
case of floating and inverse floating rate securities, the
frequency with which the interest rate is adjusted and the
multiple of the index rate used in making the adjustment.
Most municipal securities pay interest in arrears on a semi-
annual or more frequent basis. However, certain securities,
typically known as capital appreciation bonds or zero coupon
bonds, do not provide for any interest payments prior to
maturity. Such securities are normally sold at a discount from
their stated value, or provide for periodic increases in their
stated value to reflect a compounded interest rate. The market
value of these securities is also more sensitive to changes in
market interest rates than securities that provide for current
interest payments.
The Fund will not invest more than 25% of its total assets in
any one industry. Governmental issuers of municipal securities
are not considered part of any "industry." However, municipal
securities backed only by the assets and revenues of
nongovernmental users may, for this purpose, be deemed to be
related to the industry in which such nongovernmental users
engage, and the 25% limitation would apply to such obligations.
It is nonetheless possible that the Fund may invest more than
25% of its assets in a broader segment of the municipal
securities market, such as industrial development bonds and
revenue obligations of hospitals and other health care
facilities, housing agency revenue obligations, or airport
<PAGE>
revenue obligations. This would be the case only if the Fund
determines that the yields available from obligations in a
particular segment of the market justified the additional risks
associated with a large investment in such segment. Although
such obligations could be supported by the credit of
governmental users or by the credit of nongovernmental users
engaged in a number of industries, economic, business,
political and other developments generally affecting the
revenues of such users (for example, proposed legislation or
pending court decisions affecting the financing of such
projects and market factors affecting the demand for their
services or products) may have a general adverse effect on all
municipal securities in such a market segment.
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CHARACTERISTICS. The municipal securities in which the Fund
invests are rated, at the time of purchase, Baa or better by
Moody's Investors Service, Inc. ("Moody's") or BBB or better
by Standard & Poor's Corporation ("S&P") or Fitch Investors
Service, Inc. ("Fitch"). In certain cases the Fund's
adviser may choose bonds which are unrated if it determines
that such bonds are of comparable quality or have similar
characteristics to investment grade bonds. Bonds rated BBB
by S&P or Fitch or Baa by Moody's may have speculative
characteristics. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity
to make principal and interest payments than higher rated
bonds. If the Fund purchases an investment grade bond, and
the rating of such bond is subsequently downgraded so that
the bond is no longer classified as investment grade, the
Fund is not required to drop the bond from the portfolio,
but will consider whether such action is appropriate. A
description of the rating categories is contained in the
Appendix to the Statement of Additional Information.
PARTICIPATION INTERESTS. The Fund may purchase
participation interests from financial institutions such as
commercial banks, savings and loan associations and
insurance companies. These participation interests give the
Fund an undivided interest in one or more underlying
municipal securities. The financial institutions from which
the Fund purchases participation interests frequently
provide or obtain irrevocable letters of credit or
guarantees to attempt to assure that the participation
interests are of high quality. The Directors of the Fund
will evaluate whether participation interests meet the
prescribed quality standards for the Fund.
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MUNICIPAL LEASES. Municipal leases are obligations issued
by state and local governments or authorities to finance the
acquisition of equipment and facilities. They may take the
form of a lease, an installment purchase contract, a
conditional sales contract or a participation certificate of
any of the above.
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<PAGE>
PRE-REFUNDED MUNICIPAL SECURITIES. The Fund may invest in
pre-refunded municipal securities. The principal of and
interest on pre-refunded municipal securities are no longer
paid from the original revenue source for the municipal
securities. Instead, the source of such payments is
typically an escrow fund consisting of obligations issued or
guaranteed by the U.S. government. The assets in the escrow
fund are derived from the proceeds of refunding bonds issued
by the same issuer as the pre-refunded municipal securities,
but usually on more favorable terms. However, except for a
change in the revenue source from which principal and
interest payments are made, the pre-refunded municipal
securities remain outstanding on their original terms until
they mature or are redeemed by the issuer. The effective
maturity of pre-refunded municipal securities will be the
redemption date if the issuer has assumed an obligation or
indicated its intention to redeem such securities on the
redemption date. Pre-refunded municipal securities are
usually purchased at a price which represents a premium over
their face value or their redemption value.
AUCTION RATE SECURITIES. The Fund may invest in auction
rate municipal securities and auction rate preferred
securities issued by closed-end investment companies that
invest primarily in municipal securities (collectively,
"auction rate securities"). The Fund will indirectly bear
its proportionate share of any fees and expenses paid by
such closed-end funds in addition to the fees and expenses
payable directly by the Fund. The Fund does not intend to
invest more than 10% of its total assets in auction rate
securities. Provided that the auction mechanism is
successful, auction rate securities usually permit the
holder to sell the securities in an auction at par value at
specified intervals. The interest rate or dividend is reset
by "Dutch" auction in which bids are made by broker/dealers
and other institutions for a certain amount of securities at
a specified minimum yield. The interest rate or dividend
rate set by the auction is the lowest interest or dividend
rate that covers all securities offered for sale. While
this process is designed to permit auction rate securities
to be traded at par value, there is some risk that an
auction will fail due to insufficient demand for the
securities. If so, the securities may become illiquid and
subject to the Fund's 15% limitation on illiquid securities.
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DEMAND FEATURES. In order to enhance the liquidity of
municipal securities, the Fund may acquire the right to sell
a security to another party at a guaranteed price and date.
Such a right to resell may be referred to as a "demand
feature" or liquidity put, depending on its characteristics.
The aggregate price which the Fund pays for securities with
demand features may be higher than the price which otherwise
would be paid for the securities. Demand features may not
be available or may not be available on satisfactory terms.
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TENDER OPTION BONDS. A tender option bond is a municipal
security (generally held pursuant to a custodial
arrangement) having a relatively long maturity and bearing
interest at a fixed rate substantially higher than
prevailing short-term tax-exempt rates. The bond is
typically issued in conjunction with the agreement of a
third party, such as a bank, broker/dealer or other
financial institution, pursuant to which such institution
grants the security holders the option, at periodic
intervals, to tender their securities to the institution and
receive the face value thereof. As consideration for
providing the option, the financial institution receives
periodic fees equal to the difference between the bond's
fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of
such period, that would cause the securities, coupled with
the tender option, to trade at par at the date of such
determination. Thus, after payment of this fee, the
security holder effectively holds a demand obligation that
bears interest at the prevailing short-term tax-exempt rate.
The tender option will be taken into consideration in
determining the effective maturity of tender option bonds
and the average portfolio duration of the Fund. The
liquidity of a tender option bond is a function of both the
credit quality of the bond issuer and the financial
institution providing liquidity. Consequently, tender
option bonds are deemed to be liquid unless, in the opinion
of the Fund's investment adviser, the credit quality of the
bond issuer and the financial institution is deemed, in
light of the Fund's credit quality requirements, to be
inadequate.
RESTRICTED AND ILLIQUID SECURITIES. The Fund intends to invest
in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to
its investment objective and policies, but which are subject to
restriction on resale under federal securities law. The Fund
will limit investments in illiquid securities, including
certain restricted securities not determined by the Directors
to be liquid, non-negotiable time deposits, and repurchase
agreements providing for settlement in more than seven days
after notice, to 15% of the value of its net assets.
AVERAGE PORTFOLIO DURATION. Although the Fund will not
maintain a stable net asset value, the adviser will seek to
limit, to the extent consistent with the Fund's investment
objective of current income, the magnitude of fluctuations in
the Fund's net asset value by limiting the dollar-weighted
average duration of the Fund's portfolio. Duration is a
commonly used measure of the potential volatility of the price
of a debt security, or the aggregate market value of a
portfolio of debt securities, prior to maturity. Securities
with shorter durations generally have less volatile prices than
securities of comparable quality with longer durations. The
<PAGE>
Fund should be expected to maintain a higher average duration
during periods of lower expected market volatility, and a lower
average duration during periods of higher expected market
volatility. In any event, the Fund's dollar-weighted average
duration will not exceed four years.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may
purchase municipal securities on a when-issued or delayed
delivery basis. These transactions are arrangements in which
the Fund purchases securities with payment and delivery
scheduled for a future time. In when-issued and delayed
delivery transactions, the Fund relies on the seller to
complete the transaction. The seller's failure to complete the
transaction may cause the Fund to miss a price or yield
considered to be advantageous.
FUTURES CONTRACTS AND OPTIONS TO BUY OR SELL SUCH CONTRACTS.
The Fund may utilize bond futures contracts and options to a
limited extent. Specifically, the Fund may enter into futures
contracts provided that not more than 5% of its assets are
required as a futures contract deposit; in addition, the Fund
may enter into futures contracts and options transactions only
to the extent that obligations under such contracts or
transactions represent not more than 20% of the Fund's assets.
Futures contracts and option may be used for several reasons:
to maintain cash reserves while remaining fully invested, to
facilitate trading, to reduce transactions costs, or to seek
higher investment returns when a futures contract is priced
more attractively than the underlying municipal security or
index. The Fund may not use futures contracts or options
transactions to leverage its assets.
For example, in order to remain fully invested in bonds, while
maintaining liquidity to meet potential shareholder
redemptions, the Fund may invest a portion of its assets in a
bond futures contract. Because futures contracts only require
a small initial margin deposit, the Fund would then be able to
maintain a cash reserve to meet potential redemptions, while at
the same time remaining fully invested. Also, because the
transactions costs of futures contracts and options may be
lower than the costs of investing in bonds directly, it is
expected that the use of futures contracts and options may
reduce the Fund's total transactions costs.
The primary risks associated with the use of futures contracts
and options are: (i) imperfect correlation between the change
in market value of the bonds held by the Fund and the prices of
futures contracts and options; and (ii) possible lack of liquid
secondary market for a futures contract and the resulting
inability to close a futures position prior to its maturity
date. The risk of imperfect correlation will be minimized by
investing only in those contracts whose price fluctuations are
expected to resemble those of the Fund's underlying securities.
<PAGE>
The risk that the Fund will be unable to close out a futures
position will be minimized by entering into such transactions
on a national exchange with an active and liquid secondary
market. Much depends on the ability of the portfolio manager
to predict market conditions based upon certain economic
analyses and factors. In general, the futures market is more
liquid than the municipal bond market, and so by investing in
futures, liquidity may be improved.
TEMPORARY INVESTMENTS. From time to time, during periods of
other than normal market conditions, the Fund may invest in
short-term temporary investments which may or may not be exempt
from federal income tax. These temporary investments include:
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities; other debt securities;
commercial paper; certificates of deposit of domestic branches
of U.S. banks; and repurchase agreements (arrangements in which
the organization selling the Fund a security agrees at the time
of sale to repurchase it at a mutually agreed upon time and
price).
There are no rating requirements applicable to temporary
investments. However, the investment adviser will limit
temporary investments to those rated within the investment
grade categories described under "Acceptable Investments --
Characteristics" (if rated) or those which the investment
adviser judges to have the same characteristics as such
investment grade securities (if unrated). If the Fund
purchases an investment grade security, and the rating of such
security is subsequently downgraded so that the security is no
longer classified as investment grade, the Fund is not required
to drop the security from the portfolio, but will consider
whether such action is appropriate.
Although the Fund is permitted to make taxable, temporary
investments, there is no current intention of generating income
subject to federal regular income tax.
INVESTMENT RISKS
Yields on municipal securities depend on a variety of factors,
including: the general conditions of the municipal note market
and of the municipal bond market; the size of the particular
offering; the maturity of the obligations; and the rating of
the issue. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers
of municipal securities and participation interests, or the
guarantors of either, to meet their obligations for the payment
of interest and principal when due. Since the Fund will invest
primarily in municipal securities bearing fixed rates of
interest, the net asset value of the Fund's shares will
generally vary inversely with changes in prevailing interest
rates.
<PAGE>
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse
repurchase agreements (arrangements in which the Fund sells a
portfolio investment for a percentage of its cash value with an
agreement to buy it back on a set date) or pledge securities
except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15%
of the value of those assets to secure such borrowings.
The above investment limitation cannot be changed without
shareholder approval. The following limitation, however, may
be changed by the Directors without shareholder approval.
Shareholders will be notified before any material change in
this limitation becomes effective.
The Fund will not:
* invest more than 5% of the value of its total
assets in industrial development bonds where the
payment of principal and interest is the
responsibility of companies (or guarantors, where
applicable) with less than three years of
continuous operations, including the operation of
any predecessor.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is
determined by dividing the sum of the market value of all
securities and all other assets, less liabilities, by the
number of shares outstanding.
INVESTING IN THE FUND
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock
Exchange is open. Shares may be purchased through a financial
institution (such as a bank or investment dealer) who has a
sales agreement with the distributor, Federated Securities
Corp., or once an account has been established, directly from
Federated Securities Corp. either by mail or wire. The Fund
reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his
financial institution to place an order to purchase shares of
the Fund. Orders through a financial institution are
considered received when the Fund is notified of the purchase
order. Purchase orders must be received by the financial
institution and transmitted to the Fund before 4:00 p.m.
(Boston time) in order for shares to be purchased at that day's
<PAGE>
price. It is the financial institution's responsibility to
transmit orders promptly. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m.
(Boston time) and must be transmitted by the broker to the Fund
before 5:00 p.m. (Boston time) in order for shares to be
purchased at that day's price.
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DIRECTLY BY MAIL. An investor may place an order to purchase
shares of the Fund by mail directly from Federated Securities
Corp. once an account has been established. To purchase shares
of the Fund by mail, send a check made payable to Insight
Limited Term Municipal Fund to the Fund's transfer agent,
Federated Services Company, c/o State Street Bank and Trust
Company, P.O. Box 8604, Boston, Massachusetts 02266-8604.
CONVERSION TO FEDERAL FUNDS. It is the Fund's policy to be as
fully invested as possible so that maximum interest may be
earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before
shareholders begin to earn dividends. State Street Bank and
Trust Company ("State Street Bank") acts as the shareholder's
agent in depositing checks and converting them to federal
funds.
/R
DIRECTLY BY WIRE. To purchase shares of the Fund directly from
Federated Securities Corp. by Federal Reserve wire once an
account has been established, call the Fund. All information
needed will be taken over the telephone, and the order is
considered received when State Street Bank receives payment by
wire.
MINIMUM INVESTMENT REQUIRED
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The minimum initial investment in the Fund is $1 million.
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WHAT SHARES COST
Fund shares are sold at their net asset value next determined
after an order is received. There is no sales charge imposed
by the Fund. However, certain unaffiliated financial
institutions may charge fees for services provided which may
relate to ownership of shares. This prospectus should,
therefore, be read together with any agreement between the
customer and the institution with regard to services provided
and the fees charged for these services.
The net asset value is determined at 4:00 p.m. (Boston time),
Monday through Friday, except on: (i) days on which there are
not sufficient changes in the value of the Fund's portfolio
securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and
(iii) the following holidays: New Year's Day, Presidents' Day,
<PAGE>
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
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As transfer agent for the Fund, Federated Services Company
maintains a share account for each shareholder. Share
certificates are not issued unless requested on the application
or by contacting the Fund.
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Detailed confirmations of each purchase or redemption are sent
to each shareholder. Monthly statements are sent to report
dividends paid during the month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly. Distributions
of any net realized long-term capital gains will be made at
least once every twelve months. Dividends and distributions
are automatically reinvested in additional shares of the Fund
on payment dates at net asset value, unless cash payments are
requested by shareholders on the application or by writing to
Federated Securities Corp.
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Dividends are declared just prior to determining net asset
value. If an order for shares is placed on the preceding
business day, shares purchased by wire begin earning dividends
on the business day wire payment is received by State Street
Bank. If the order for shares and payment by wire are received
on the same day, shares begin earning dividends on the next
business day. Shares purchased by check begin earning
dividends on the business day after the check is converted,
upon instruction of the transfer agent, into federal funds.
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Shares earn dividends through the business day that proper
written redemption instructions are received by State Street
Bank.
REDEEMING SHARES
The Fund redeems shares at their net asset value next
determined after State Street Bank receives the redemption
request. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be
received in proper form and can be made through a financial
institution, or directly from the Fund by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem shares of the Fund by calling his
financial institution (such as a bank or an investment dealer)
to request the redemption. Shares will be redeemed at the net
asset value next determined after the Fund receives the
<PAGE>
redemption request from the financial institution. Redemption
requests must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Boston time) in order
for shares to be redeemed at that day's net asset value. The
financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption
instructions to the Fund. The financial institution may charge
customary fees and commissions for this service. Redemption
requests through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Boston time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Boston
time) in order for shares to be redeemed at that day's net
asset value. If at any time the Fund shall determine it
necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.
Before a financial institution may request redemption by
telephone on behalf of a shareholder, an authorization form
permitting the Fund to accept redemption requests by telephone
must first be completed. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic
economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "Directly by
Mail," should be considered.
DIRECTLY BY MAIL
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Shareholders may also redeem shares by sending a written
request to Federated Services Company, c/o State Street Bank
and Trust Company, P.O. Box 8604, Boston, Massachusetts 02266-
8604. This written request must include the shareholder's
name, the Fund name, the Fund account number, and the share or
dollar amount to be redeemed. Shares will be redeemed at their
net asset value next determined after State Street Bank
receives the redemption request.
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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 may call the Fund 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 Fund, or a redemption payable
other than to the shareholder of record must have signatures on
written redemption requests guaranteed by:
* a trust company or commercial bank whose deposits
are insured by the Bank Insurance Fund ("BIF"),
which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
<PAGE>
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* a member of the New York, American, Boston,
Midwest, or Pacific Stock Exchange;
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* a savings bank or savings and loan association
whose deposits are insured by the Savings
Association Insurance Fund ("SAIF"), which is
administered by the FDIC; or
* any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary
public.
The Fund and its transfer agent have adopted standards for
accepting signature guarantees from the above institutions.
The Fund may elect in the future to limit eligible signature
guarantors to institutions that are members of a signature
guarantee program. The Fund and its transfer agent reserve the
right to amend these standards at any time without notice.
RECEIVING PAYMENT
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 written redemption request provided State
Street Bank has received payment for shares from the
shareholder.
BY WIRE. Normally, redemption proceeds will be wired the
following business day, but in no event more than seven days,
after receipt of the redemption request.
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REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check, or through Automated
Clearing House ("ACH"), the proceeds from the redemption of
those shares are not available, and the shares may not be
exchanged, until the Fund or its agents are reasonably certain
that the purchase check has cleared, which could take up to ten
calendar days.
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ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances,
the Fund may redeem shares in any account, and pay the proceeds
to the shareholder, if the account balance falls below a
required minimum value of $1 million due to shareholder
redemptions. This requirement does not apply, however, if the
balance falls below $1 million because of changes in the 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.
<PAGE>
INSIGHT INSTITUTIONAL SERIES, INC. INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS. The Fund is managed by a Board of
Directors. The Directors are responsible for managing the
Corporation's business affairs and for exercising all the
Corporation's powers except those reserved for the
shareholders. The Executive Committee of the Board of
Directors handles the Directors' responsibilities between
meetings of the Directors.
INVESTMENT ADVISER. Investment decisions for the Fund are made
by Federated Advisers, the Fund's investment adviser, subject
to direction by the Directors. The adviser continually
conducts investment research and supervision for the Fund and
is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual
investment advisory fee equal to 0.70 of 1% of the Fund's
average daily net assets. Under the investment advisory
contract, which provides for voluntary waivers of expenses
by the adviser, the adviser may voluntarily waive some or
all of its fee. The adviser can terminate this voluntary
waiver of some or all of its advisory fee at any time at its
sole discretion. The adviser has also undertaken to
reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware
business trust organized on April 11, 1989, is a registered
investment adviser under the Investment Advisers Act of
1940. It is a subsidiary of Federated Investors. All of
the Class A (voting) shares of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue,
Chairman and Trustee of Federated Investors, Mr. Donahue's
wife, and Mr. Donahue's son, J. Christopher Donahue, who is
President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated
Investors serve as investment advisers to a number of
investment companies and private accounts. Certain other
subsidiaries also provide administrative services to a
number of investment companies. Total assets under
management or administration by these and other subsidiaries
of Federated Investors are approximately $76 billion.
Federated Investors, which was founded in 1956 as Federated
Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track
record of competitive performance and its disciplined, risk
averse investment philosophy serve approximately 3,500
client institutions nationwide. Through these same client
<PAGE>
institutions, individual shareholders also have access to
this same level of investment expertise.
PORTFOLIO MANAGERS' BACKGROUND. Jonathan C. Conley and Mary
Jo Ochson have been the Fund's portfolio managers since its
inception. Mr. Conley joined Federated Investors in 1979
and has been a Vice President of the Fund's investment
adviser since 1982. Mr. Conley is a Chartered Financial
Analyst and received his M.B.A. in Finance from the
University of Virginia. Ms. Ochson joined Federated
Investors in 1982 and has been a Vice President of the
Fund's investment adviser since 1988. Ms. Ochson is a
Chartered Financial Analyst and received her M.B.A. in
Finance from the University of Pittsburgh.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized
on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services,
Inc., which is a subsidiary of Federated Investors, provides
the Fund with the administrative personnel and services
necessary to operate the Fund. Such services include
shareholder servicing and certain legal and accounting
services. Federated Administrative Services, Inc. provides
these at approximate cost.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder
Services Plan (the "Services Plan"). Under the Services Plan,
financial institutions will enter into shareholder service
agreements with the Fund to provide administrative support
services to their customers who from time to time may be owners
of record or beneficial owners of shares. In return for
providing these support services, a financial institution may
receive payments from the Fund at a rate not exceeding 0.25 of
1% of the average daily net assets of the shares beneficially
owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship.
These administrative services may include, but not are not
limited to, the provision of personal services and maintenance
of shareholder accounts.
ADMINISTRATIVE ARRANGEMENTS. The distributor may also pay
financial institutions a fee based upon the net asset value of
the Fund shares beneficially owned by the financial
institution's clients or customers. This fee is in addition to
amounts paid under the Shareholder Services Plan and will be
reimbursed by the adviser.
<PAGE>
The Glass-Steagall Act limits the ability of a depository
institution (such as a commercial bank or a savings and loan
association) to become an underwriter or distributor of
securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities
described in this prospectus or should Congress relax current
restrictions on depository institutions, the Directors will
consider appropriate changes in the administrative 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.
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CUSTODIAN. State Street Bank and Trust Company, Boston,
Massachusetts, is custodian for the securities and cash of the
Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated
Services Company, Pittsburgh, Pennsylvania, is transfer agent
for the shares of the Fund, and dividend disbursing agent for
the Fund.
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LEGAL COUNSEL. Legal counsel is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro &
Morin, Washington, D.C.
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INDEPENDENT PUBLIC ACCOUNTANTS. The independent public
accountants for the Fund are Arthur Andersen & Co., Pittsburgh,
Pennsylvania.
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EXPENSES OF THE FUND
Shareholders of the Fund pay their allocable portion of Fund
and Corporation expenses.
The Corporation expenses for which shareholders pay their
allocable portion include, but are not limited to, the cost of:
organizing the Corporation and continuing its existence;
registering the Corporation with federal and state securities
authorities; Directors' fees; auditors' fees; meetings of
Directors; legal fees of the Corporation; association
membership dues and such non-recurring and extraordinary items
as may arise from time to time.
The Fund expenses for which shareholders pay their allocable
portion include, but are not limited to, the cost of:
investment advisory and administrative services; printing
prospectuses and other Fund documents for shareholders;
registering the Fund and shares of the Fund with federal and
state securities commissions; taxes and commissions; issuing,
purchasing, repurchasing and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents,
<PAGE>
shareholder servicing agents and registrars; printing, mailing,
auditing, accounting and legal expenses; reports to
shareholders and governmental agencies; meetings of
shareholders and proxy solicitations therefor; insurance
premiums; and such non-recurring and extraordinary items as may
arise from time to time.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund is entitled to one vote at all meetings
of shareholders. All shares of all portfolios in the
Corporation have equal voting rights except that in matters
affecting only a particular portfolio, only shares of that
portfolio are entitled to vote.
As a Maryland corporation, the Fund is not required to hold
annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Fund's operation and for
the election of Directors under certain circumstances.
Directors may be removed by a majority vote of the shareholders
at a special meeting. A special meeting of shareholders shall
be called by the Directors upon the request of shareholders
owning at least 10% of the Fund's outstanding shares of all
series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to
meet requirements of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax
treatment afforded to such companies. Shareholders are not
required to pay the federal regular income tax on any dividends
received from the Fund that represent net interest on tax-
exempt municipal bonds. However, under the Tax Reform Act of
1986, dividends representing net interest earned on some
municipal bonds may be included in calculating the federal
individual alternative minimum tax or the federal alternative
minimum tax for corporations.
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The alternative minimum tax, equal to up to 28% of alternative
minimum taxable income for individuals and 20% for
corporations, applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain
"tax preference" items not included in regular taxable income
and reduced by only a portion of the deductions allowed in the
calculation of the regular tax.
<PAGE>
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The Tax Reform Act of 1986 treats interest on certain "private
activity" bonds issued after August 7, 1986, as a tax
preference item for both individuals and corporations. Unlike
traditional governmental purpose municipal bonds, which finance
roads, schools, libraries, prisons and other public facilities,
private activity bonds provide benefits to private parties.
The Fund may purchase all types of municipal bonds, including
private activity bonds. Thus, should it purchase any such
bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends
of the Fund which represent interest on municipal bonds may be
subject to the 20% corporate alternative minimum tax because
the dividends are included in a corporation's "adjusted current
earnings." The corporate alternate minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings"
over the taxpayer's alternative minimum taxable income as a tax
preference item. "Adjusted current earnings" is based upon the
concept of a corporation's "earnings and profits." Since
"earnings and profits" generally includes the full amount of
any Fund dividend, and alternative minimum taxable income does
not include the portion of the Fund's dividend attributable to
municipal bonds which are not private activity bonds, the
difference will be included in the calculations of the
corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned
on some temporary investments and any realized net short-term
gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in
cash or as additional shares. Information on the tax status of
dividends and distributions is provided annually.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the
Fund:
* the Fund is subject to the Pennsylvania corporate
franchise tax; and
* Fund shares are not subject to Pennsylvania
personal property taxes.
OTHER STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt
municipal securities are not necessarily free from income taxes
of any state or local taxing authority. State laws differ on
this issue and shareholders are urged to consult their own tax
<PAGE>
advisers regarding the status of their accounts under state and
local tax laws.
PERFORMANCE INFORMATION
From time to time the Fund advertises its total return, yield
and tax-equivalent yield.
Total return represents the change, over a specified period of
time, in the value of an investment in the Fund after
reinvesting all income and capital gains distributions. It is
calculated by dividing that change by the initial investment
and is expressed as a percentage.
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The yield of the Fund is calculated by dividing the net
investment income per share (as defined by the Securities and
Exchange Commission) earned by the Fund over a thirty-day
period by the offering price per share of the Fund on the last
day of the period. This number is then annualized using semi-
annual compounding. The tax-equivalent yield of the Fund is
calculated similarly to the yield, but is adjusted to reflect
the taxable yield that the Fund would have had to earn to equal
the actual yield, assuming a specific tax rate. The yield and
tax-equivalent yield do not necessarily reflect income actually
earned by the Fund and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The Fund is sold without any sales charge or other similar non-
recurring charges. From time to time, the Fund may advertise
its performance using certain financial publications and/or
compare its performance to certain indices.
/R
ADDRESSES
Insight Limited Term
Municipal Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser Federated Advisers
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Custodian State Street Bank and Trust Company
P.O. Box 8604
Boston, Massachusetts 02266-8604
Transfer Agent and
Dividend Disbursing Agent Federated Services Company
<PAGE>
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
/R
Legal Counsel Houston, Houston & Donnelly
2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
Legal Counsel Dickstein, Shapiro & Morin
2101 L Street, N.W.
Washington, D.C. 20037
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Independent
Public Accountants Arthur Andersen & Co.
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
/R
INSIGHT LIMITED TERM MUNICIPAL FUND
PROSPECTUS
A Diversified Portfolio of
Insight Institutional Series, Inc.,
an Open-End, Management
Investment Company
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January 19, 1994
/R
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
<PAGE>
INSIGHT LIMITED TERM INCOME FUND
(A PORTFOLIO OF INSIGHT INSTITUTIONAL SERIES, INC.)
PROSPECTUS
The shares offered by this prospectus represent interests in
Insight Limited Term Income Fund (the "Fund"), a diversified
investment portfolio of Insight Institutional Series, Inc. (the
"Corporation"), an open-end, management investment company (a
mutual fund).
The investment objective of the Fund is to seek a high level of
current income consistent with minimum fluctuation in principal
value. The Fund's weighted-average portfolio duration will at
all times be limited to three years or less.
<PAGE>
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY
BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and
know before you invest in shares of the Fund. Keep this
prospectus for future reference.
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The Fund has also filed a Statement of Additional Information
dated January 19, 1994, with the Securities and Exchange
Commission. The information contained in the Statement of
Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of
Additional Information free of charge by calling 1-800-235-
4669. To obtain other information or to make inquiries about
the Fund, contact your financial institution.
/R
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.
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Prospectus dated January 19, 1994
/R
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES
GENERAL INFORMATION
INVESTMENT INFORMATION
Investment Objective
Investment Policies
Acceptable Investments
Corporate Debt Obligations
Floating Rate Corporate Debt Obligations
Fixed Rate Corporate Debt Obligations
Variable Rate Demand Notes
Asset-Backed Securities
Non-Mortgage Related Asset-Backed Securities
Mortgage-Related Asset-Backed Securities
Bank Instruments
Credit Facilities
Credit Enhancement
Average Portfolio Duration
<PAGE>
Demand Features
Interest Rate Swaps
Financial Futures and Options on Futures
Risks
Repurchase Agreements
Foreign Securities
Currency Risks
Forward Foreign Currency Exchange Contracts
Restricted and Illiquid Securities
Lending of Portfolio Securities
When-Issued and Delayed Delivery Transactions
Investment Limitations
NET ASSET VALUE
INVESTING IN THE FUND
Share Purchases
Through a Financial Institution
Directly by Mail
Conversion to Federal Funds
Directly by Wire
Minimum Investment Required
What Shares Cost
Certificates and Confirmations
Dividends and Distributions
REDEEMING SHARES
Through a Financial Institution
Directly by Mail
Signatures
Receiving Payment
By Check
By Wire
Redemption Before Purchase Instruments Clear
Accounts with Low Balances
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INSIGHT INSTITUTIONAL SERIES, INC. INFORMATION
Management of the Corporation
Board of Directors
Investment Adviser
Advisory Fees
Adviser's Background
Portfolio Managers' Background
Distribution of Fund Shares
Administration of the Fund
Administrative Services
Shareholder Services Plan
Administrative Arrangements
Custodian
Transfer Agent and Dividend Disbursing Agent
Legal Counsel
Independent Public Accountants
Expenses of the Fund
/R
<PAGE>
SHAREHOLDER INFORMATION
Voting Rights
TAX INFORMATION
Federal Income Tax
Pennsylvania Corporate and
Personal Property Taxes
PERFORMANCE INFORMATION
ADDRESSES Inside Back Cover
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . . .
None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . .
None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable) . . . .
None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1) . . . . . . . . . . . . . . .
0.12%
12b-1 Fee None
Total Other Expenses . . . . . . . . . . . . . . . . . . . .
0.73%
Shareholder Servicing Fee . . . . . . . . . . . . . .
0.25%
Total Fund Operating Expenses (2) . . . . . . . . .
0.85%
(1) The estimated management fee has been reduced to
reflect the anticipated voluntary waiver of a portion
of the management fee. The adviser can terminate this
voluntary waiver at any time at its sole discretion.
The maximum management fee is 0.70%.
(2) The Total Fund Operating Expenses are estimated to be
1.43% absent the anticipated voluntary waiver of a
portion of the management fee.
<PAGE>
* Total Fund Operating Expenses are estimated based on
average expenses expected to be incurred during the
period ending September 30, 1994. During the course of
this period, expenses may be more or less than the
average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER
OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE
COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE
"INVESTING IN THE FUND" AND "INSIGHT INSTITUTIONAL SERIES, INC.
INFORMATION." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000
MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE
1 year 3 years
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, shares are not
subject to a redemption fee . $9 $27
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA
FOR THE FUND'S FISCAL YEAR ENDING SEPTEMBER 30, 1994.
GENERAL INFORMATION
The Corporation was incorporated under the laws of the State of
Maryland on October 11, 1993. The Articles of Incorporation
permit the Corporation to offer separate portfolios and classes
of shares. As of the date of this prospectus, the Board of
Directors (the "Directors") has established four separate
portfolios: Insight U.S. Government Fund, Insight Limited Term
Municipal Fund, Insight Limited Term Income Fund and Insight
Adjustable Rate Mortgage Fund. This prospectus relates only to
the shares of Insight Limited Term Income Fund.
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The Fund is designed for institutions seeking current income
through a professionally managed, diversified portfolio
investing primarily in corporate debt obligations. A minimum
initial investment of $1 million is required.
/R
Fund shares are sold and redeemed at net asset value without a
sales charge imposed by the Fund.
<PAGE>
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek a high level of
current income consistent with minimum fluctuation in principal
value. 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 Fund pursues its investment objective by investing
primarily in a diversified portfolio of investment grade debt
obligations. Under normal circumstances, the Fund will invest
at least 65% of the value of its total assets in debt
obligations rated in one of the three highest categories by a
nationally recognized statistical rating organization. The
Fund is not required to sell securities if the 65% investment
level changes due to increases or decreases in the market value
of portfolio securities. The Fund's weighted-average portfolio
duration will at all times be limited three years or less.
The net asset value of the Fund is expected to fluctuate with
changes in interest rates and bond market conditions, although
this fluctuation should be more moderate than that of a fund
with a longer average portfolio duration. The adviser,
however, will attempt to minimize principal fluctuation
through, among other things, diversification, careful credit
analysis and security selection, and adjustments of the Fund's
average portfolio duration. In periods of rising interest
rates and falling bond prices, the adviser may shorten the
Fund's average duration to minimize the effect of declining
bond values on the Fund's net asset value. Conversely, during
times of falling interest rates and rising prices a longer
average duration to three years may be sought. Unless
indicated otherwise, the investment policies may be changed by
the Directors without the approval of shareholders.
Shareholders will be notified before any material change in
these investment policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests in a professionally
managed, diversified portfolio consisting primarily of
corporate debt obligations, and may also invest in U.S.
government obligations and asset-backed securities. The Fund
may also invest in derivative instruments of such securities,
including instruments with demand features or credit
enhancement, as well as money market instruments and cash.
The securities in which the Fund invests principally are:
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<PAGE>
* domestic and foreign issues of corporate debt
obligations having floating or fixed rates of
interest and rated in one of the four highest
categories by a nationally recognized statistical
rating organization (rated Aaa, Aa, A or Baa by
Moody's Investors Service, Inc. ("Moody's"), or
AAA, AA, A or BBB by Standard & Poor's Corporation
("Standard & Poor's"), or Fitch Investors Service,
Inc. ("Fitch")), or which are of comparable quality
in the judgment of the adviser;
/R
* rated commercial paper which matures in 270 days or
less so long as at least one rating is considered
high quality by a nationally recognized statistical
rating organizations (such ratings would include
Prime-1 or Prime-2 by Moody's, A-1 or A-2 by
Standard & Poor's, or F-1 or F-2 by Fitch), or
which is of comparable quality in the judgment of
the adviser;
* asset-backed securities rated in one of the four
highest categories by a nationally recognized
statistical rating organization, or which are of
comparable quality in the judgment of the adviser;
* direct obligations of the U.S. Treasury, such as U.S.
Treasury bills, notes and bonds;
* notes, bonds, and discount notes of U.S. government
agencies or instrumentalities, such as Federal Home
Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Federal
Farm Credit Banks, Tennessee Valley Authority,
Export-Import Bank of the United States, Commodity
Credit Corporation, Federal Financing Bank, Student
Loan Marketing Association, Federal Home Loan
Mortgage Corporation, or National Credit Union
Administration;
* time deposits (including savings deposits and
certificates of deposit) and bankers acceptances in
commercial or savings banks whose accounts are
insured by the Bank Insurance Fund ("BIF") or the
Savings Association Insurance Fund ("SAIF"), both
of which are administered by the Federal Deposit
Insurance Corporation ("FDIC"), including
certificates of deposit issued by and other time
deposits in foreign branches of FDIC insured banks
or who have at least $100 million in capital; and
* repurchase agreements collateralized by eligible
investments.
The Fund will not invest in corporate debt obligations having a
rating of less than BBB by Standard & Poor's or Fitch, or Baa
<PAGE>
by Moody's. Bonds rated BBB by Standard & Poor's or Fitch, or
Baa by Moody's, may have speculative characteristics. Changes
in economic conditions or other circumstances are more likely
to lead to weakened capacity to make principal and interest
payments than higher rated bonds. Downgraded securities will
be evaluated on a case-by-case basis by the adviser. The
adviser will determine whether or not the security continues to
be an acceptable investment. If not, the security will be
sold. A description of the rating categories is contained in
the Appendix to the Statement of Additional Information.
CORPORATE DEBT OBLIGATIONS. The Fund invests in corporate
debt obligations, including corporate bonds, notes, medium
term notes, and debentures, which may have floating or fixed
rates of interest.
FLOATING RATE CORPORATE DEBT OBLIGATIONS. The Fund expects
to invest in floating rate corporate debt obligations,
including increasing rate securities. Floating rate
securities are generally offered at an initial interest rate
which is at or above prevailing market rates. The interest
rate paid on these securities is then reset periodically
(commonly every 90 days) to an increment over some
predetermined interest rate index. Commonly utilized
indices include the three-month Treasury bill rate, the six-
month Treasury bill rate, the one-month or three-month
London Interbank Offered Rate (LIBOR), the prime rate of a
bank, the commercial paper rates, or the longer-term rates
on U.S. Treasury securities.
R
Some of the floating rate corporate debt obligations in
which the Fund may invest include floating rate corporate
debt securities issued by savings and loans and
collateralized by adjustable rate mortgage loans, also known
as collateralized thrift notes. Many of these
collateralized thrift notes have received AAA ratings from
nationally recognized statistical rating organizations.
Collateralized thrift notes differ from traditional "pass
through" certificates in which payments made are linked to
monthly payments made by individual borrowers net of any
fees paid to the issuer or guarantor of such securities.
Collateralized thrift notes pay a floating interest rate
which is tied to a pre-determined index, such as the six-
month Treasury bill rate. Floating rate corporate debt
obligations also include securities issued to fund
commercial real estate construction.
/R
Increasing rate securities, which currently do not make up a
significant share of the market in corporate debt
securities, are generally offered at an initial interest
rate which is at or above prevailing market rates. Interest
rates are reset periodically (most commonly every 90 days)
at different levels on a predetermined scale. These levels
of interest are ordinarily set at progressively higher
<PAGE>
increments over time. Some increasing rate securities may,
by agreement, revert to a fixed rate status. These
securities may also contain features which allow the issuer
the option to convert the increasing rate of interest to a
fixed rate under such terms, conditions, and limitations as
are described in each issue's prospectus.
FIXED RATE CORPORATE DEBT OBLIGATIONS. The Fund will also
invest in fixed rate securities, including fixed rate
securities with short-term characteristics. Fixed rate
securities with short-term characteristics are long-term
debt obligations but are treated in the market as having
short maturities because call features of the securities may
make them callable within a short period of time. A fixed
rate security with short-term characteristics would include
a fixed income security priced close to call or redemption
price or a fixed income security approaching maturity, where
the expectation of call or redemption is high.
Fixed rate securities tend to exhibit more price volatility
during times of rising or falling interest rates than
securities with floating rates of interest. This is because
floating rate securities, as described above, behave like
short-term instruments in that the rate of interest they pay
is subject to periodic adjustments based on a designated
interest rate index. Fixed rate securities pay a fixed rate
of interest and are more sensitive to fluctuating interest
rates. In periods of rising interest rates the value of a
fixed rate security is likely to fall. Fixed rate
securities with short-term characteristics are not subject
to the same price volatility as fixed rate securities
without such characteristics. Therefore, they behave more
like floating rate securities with respect to price
volatility.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are
long-term corporate debt instruments that have variable or
floating interest rates and provide the Fund with the right
to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause
the securities to trade at par. The interest rate may float
or be adjusted at regular intervals (ranging from daily to
annually), and is normally based on an interest index or a
stated percentage of a prime rate or another published rate.
Many variable rate demand notes allow the Fund to demand the
repurchase of the security on not more than seven days prior
notice. Other notes only permit the Fund to tender the
security at the time of each interest rate adjustment or at
other fixed intervals. See "Demand Features."
ASSET-BACKED SECURITIES. Asset-backed securities are
created by the grouping of certain governmental, government
related and private loans, receivables and other lender
<PAGE>
assets into pools. Interests in these pools are sold as
individual securities. Payments from the asset pools may be
divided into several different tranches of debt securities,
with some tranches entitled to receive regular installments
of principal and interest, other tranches entitled to
receive regular installments of interest, with principal
payable at maturity or upon specified call dates, and other
tranches only entitled to receive payments of principal and
accrued interest at maturity or upon specified call dates.
Different tranches of securities will bear different
interest rates, which may be fixed or floating.
Because the loans held in the asset pool often may be
prepaid without penalty or premium, asset-backed securities
can be subject to higher prepayment risks than most other
types of debt instruments. Prepayment risks on mortgage
securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance
their mortgages to take advantage of the more favorable
rates. Depending upon market conditions, the yield that the
Fund receives from the reinvestment of such prepayments, or
any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence,
mortgage securities may be a less effective means of
"locking in" interest rates than other types of debt
securities having the same stated maturity and may also have
less potential for capital appreciation. For certain types
of asset pools, such as collateralized mortgage obligations,
prepayments may be allocated to one tranche of securities
ahead of other tranches, in order to reduce the risk of
prepayment for the other tranches.
Prepayments may result in a capital loss to the Fund to the
extent that the prepaid mortgage securities were purchased
at a market premium over their stated amount. Conversely,
the prepayment of mortgage securities purchased at a market
discount from their stated principal amount will accelerate
the recognition of interest income by the Fund, which would
be taxed as ordinary income when distributed to the
shareholders.
The credit characteristics of asset-backed securities also
differ in a number of respects from those of traditional
debt securities. The credit quality of most asset-backed
securities depends primarily upon the credit quality of the
assets underlying such securities, how well the entity
issuing the securities is insulated from the credit risk of
the originator or any other affiliated entities, and the
amount and quality of any credit enhancement to such
securities.
R
NON-MORTGAGE RELATED ASSET-BACKED SECURITIES. The Fund may
invest in non-mortgage related asset-backed securities
including, but not limited to, interests in pools of
<PAGE>
receivables, such as credit card and accounts receivable and
motor vehicle and other installment purchase obligations and
leases. These securities may be in the form of pass-through
instruments or asset-backed obligations. The securities,
all of which are issued by non-governmental entities and
carry no direct or indirect government guarantee, are
structurally similar to collateralized mortgage obligations
and mortgage pass-through securities, which are described
below. However, non-mortgage related asset-backed
securities present certain risks that are not presented by
mortgage securities, primarily because these securities do
not have the benefit of the same security interest in the
related collateral. Credit card receivables, for example,
are generally unsecured, while the trustee of asset-backed
securities backed by automobile receivables may not have a
proper security interest in all of the obligations backing
such receivables.
MORTGAGE-RELATED ASSET-BACKED SECURITIES. The Fund may also
invest in various mortgage-related asset-backed securities.
These types of investments may include adjustable rate
mortgage securities, collateralized mortgage obligations,
real estate mortgage investment conduits, or other
securities collateralized by or representing an interest in
real estate mortgages (collectively, "mortgage securities").
Many mortgage securities are issued or guaranteed by
government agencies. The interest rates paid on the
mortgage securities in which the Fund invests generally are
readjusted at intervals of one year or less to an increment
over some predetermined interest rate index. Adjustable
rate mortgage securities which use indices that lag changes
in market rates should experience greater price volatility
than adjustable rate mortgage securities that closely mirror
the market. In addition, the value of mortgage securities
in which the Fund invests may be affected if market interest
rates rise or fall faster and farther than any allowable
caps or floors on the underlying residential mortgage loans.
/R
BANK INSTRUMENTS. The Fund only invests in Bank Instruments
either issued by an institution having capital, surplus and
undivided profits over $100 million or insured by the BIF or
the SAIF. Bank Instruments may include Eurodollar Certificates
of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee
CDs") and Eurodollar Time Deposits ("ETDs"). The banks issuing
these instruments are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as
reserve requirements, loan requirements, loan limitations,
examinations, accounting, auditing, and recording keeping and
the public availability of information.
CREDIT FACILITIES. Demand notes are borrowing arrangements
between a corporation and an institutional lender (such as the
Fund) payable upon demand by either party. The notice period
<PAGE>
for demand typically ranges from one to seven days, and the
party may demand full or partial payment.
Revolving credit facilities are borrowing arrangements in which
the lender agrees to make loans up to a maximum amount upon
demand by the borrower during a specified term. As the
borrower repays the loan, an amount equal to the repayment may
be borrowed again during the term of the facility. The Fund
generally acquires a participation interest in a revolving
credit facility from a bank or other financial institution.
The terms of the participation require the Fund to make a pro
rata share of all loans extended to the borrower and entitles
the Fund to a pro rata share of all payments made by the
borrower. Demand notes and revolving facilities usually
provide for floating or variable rates of interest.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable
investments may have been credit enhanced by a guaranty, letter
of credit or insurance. The Fund typically evaluates the
credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the
issuer. Generally, the Fund will not treat credit enhanced
securities as having been issued by the credit enhancer for
diversification purposes. However, under certain circumstances
applicable regulations may require the Fund to treat the
securities as having been issued by both the issuer and the
credit enhancer. The bankruptcy, receivership or default of
the credit enhancer will adversely affect the quality and
marketability of the underlying security.
AVERAGE PORTFOLIO DURATION. Although the Fund will not
maintain a stable net asset value, the adviser will seek to
limit, to the extent consistent with the Fund's investment
objective of current income, the magnitude of fluctuations in
the Fund's net asset value by limiting the dollar-weighted
average duration of the Fund's portfolio. Duration is a
commonly used measure of the potential volatility of the price
of a debt security, or the aggregate market value of a
portfolio of debt securities, prior to maturity. Securities
with shorter durations generally have less volatile prices than
securities of comparable quality with longer durations. The
Fund should be expected to maintain a higher average duration
during periods of lower expected market volatility, and a lower
average duration during periods of higher expected market
volatility. In any event, the Fund's dollar-weighted average
duration will not exceed three years.
DEMAND FEATURES. The Fund may acquire securities that are
subject to puts and standby commitments ("demand features") to
purchase the securities at their principal amount (usually with
accrued interest) within a fixed period following a demand by
the Fund. The demand feature may be issued by the issuer of
the underlying securities, a dealer in the securities or by
<PAGE>
another third party, and may not be transferred separately from
the underlying security. The Fund uses these arrangements to
provide the Fund with liquidity and not to protect against
changes in the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event
that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security.
Demand features that are exercisable even after a payment
default on the underlying security are treated as a form of
credit enhancement.
INTEREST RATE SWAPS
The Fund reserves the right to engage in interest rate swap
transactions; however, the Securities and Exchange Commission
has questioned whether the Investment Company Act of 1940
permits open-end investment companies to engage in these
transactions. Therefore, the Fund will not engage in these
transactions until the Securities and Exchange Commission has
determined that these transactions are permitted, and the Fund
has included appropriate disclosure in an amendment to this
prospectus and notified shareholders of its intention to engage
in these transactions. An interest rate swap is an agreement
between two parties to exchange interest payment obligations
without an exchange of underlying securities. The Fund intends
to utilize interest rate swaps primarily to acquire floating
rates of interest which may be tied to various indices as
described above.
FINANCIAL FUTURES AND OPTIONS ON FUTURES
The Fund may purchase and sell financial futures contracts to
hedge all or a portion of its portfolio against changes in
interest rates. Financial futures contracts call for the
delivery of particular debt instruments at a certain time in
the future. The seller of the contract agrees to make delivery
of the type of instrument called for in the contract and the
buyer agrees to take delivery of the instrument at the
specified future time.
The Fund may also write call options and purchase put options
on financial futures contracts as a hedge to attempt to protect
securities in its portfolio against decreases in value. When
the Fund writes a call option on a futures contract, it is
undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option
is exercised. Conversely, as purchaser of a put option on a
futures contract, the Fund is entitled (but not obligated) to
sell a futures contract at the fixed price during the life of
the option.
The Fund may not purchase or sell futures contracts or related
options if immediately thereafter the sum of the amount of
<PAGE>
margin deposits on the Fund's existing futures positions and
premiums paid for related options would exceed 5% of the market
value of the Fund's total assets. When the Fund purchases a
futures contracts, an amount of cash and cash equivalents,
equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited
in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position and
thereby insure that the use of such futures contract is
unleveraged.
RISKS. When the Fund uses financial futures and options on
financial futures as hedging devices, there is a risk that the
prices of the securities subject to the futures contracts may
not correlate perfectly with the prices of the securities in
the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio
securities to market changes. In addition, the Fund's
investment adviser could be incorrect in its expectations about
the direction or extent of market factors such as interest rate
movements. In these events, the Fund may lose money on the
futures contract or option. It is not certain that a secondary
market for positions in futures contracts or for options will
exist at all times. Although the investment adviser will
consider liquidity before entering into options transactions,
there is no assurance that a liquid secondary market on an
exchange or otherwise will exist for any particular futures
contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions
depends on this secondary market.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/
dealers, and other recognized financial institutions sell U.S.
government securities or other securities to the Fund and agree
at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the original seller
does not repurchase the securities from the Fund, the Fund
could receive less than the repurchase price on any sale of
such securities.
FOREIGN SECURITIES
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The Fund may invest without limitation in foreign securities,
including foreign securities not publicly traded in the United
States. Investments in foreign securities involve special
risks that differ from those associated with investments in
domestic securities. The risks associated with investments in
foreign securities relate to political and economic
developments abroad, as well as those that result from the
differences between the regulation of domestic securities and
issuers and foreign securities and issuers. These risks may
include, but are not limited to, expropriation, confiscatory
<PAGE>
taxation, currency fluctuations, withholding taxes on interest,
limitations on the use or transfer of assets, political or
social instability, ability to obtain or enforce court
judgments abroad and adverse diplomatic developments.
Moreover, individual foreign economies may differ favorably or
unfavorably from the domestic economy in such respects as
growth of gross national product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of
payments position.
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Additional differences exist between investing in foreign and
domestic securities. Examples of such differences include:
less publicly available information about foreign issuers;
credit risks associated with certain foreign governments; the
lack of uniform financial accounting standards applicable to
foreign issuers; less readily available market quotations on
foreign issues; the likelihood that securities of foreign
issuers may be less liquid or more volatile; generally higher
foreign brokerage commissions; and unreliable mail service
between countries.
CURRENCY RISKS. Foreign securities are denominated in
foreign currencies. Therefore, the value in U.S. dollars of
the Fund's assets and income may be affected by changes in
exchange rates and regulations. Although the Fund values
its assets daily in U.S. dollars, it will not convert its
holdings of foreign currencies to U.S. dollars daily. When
the Fund converts its holdings to another currency, it may
incur conversion costs. Foreign exchange dealers realize a
profit on the difference between the prices at which they
buy and sell currencies.
The Fund will engage in foreign currency exchange
transactions in connection with its investments in foreign
securities. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange
market or through forward contracts to purchase or sell
foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward
foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded directly
between currency traders (usually large commercial banks)
and their customers. When the Fund enters into a contract
for the purchase or sale of a security denominated in a
foreign currency, it may want to establish the U.S. dollar
cost or proceeds, as the case may be. By entering into a
forward contract in U.S. dollars for the purchase or sale of
the amount of foreign currency involved in an underlying
security transaction, the Fund is able to protect itself
<PAGE>
against a possible loss between trade and settlement dates
resulting from an adverse change in the relationship between
the U.S. dollar and such foreign currency. However, this
tends to limit potential gains which might result from a
positive change in such currency relationships.
The Fund will not enter into forward foreign currency
exchange contracts or maintain a net exposure in such
contracts where the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the
Fund's securities or other assets denominated in that
currency or denominated in a currency or currencies that the
adviser believes will reflect a high degree of correlation
with the currency with regard to price movements. The Fund
generally will not enter into forward foreign currency
exchange contracts with a term longer than one year.
RESTRICTED AND ILLIQUID SECURITIES
The Fund intends to invest in restricted securities.
Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and
policies, but which are subject to restriction on resale under
federal securities law. The Fund will limit investments in
illiquid securities, including certain restricted securities
not determined by the Directors to be liquid, non-negotiable
time deposits, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of the
value of its net assets.
LENDING OF PORTFOLIO SECURITIES. In order to generate
additional income, the Fund may lend portfolio securities on a
short-term or a long-term basis up to one-third of the value of
its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only
enter into loan arrangements with broker/dealers, banks, or
other institutions which the investment adviser has determined
are creditworthy under guidelines established by the Directors.
In these loan arrangements, the Fund 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may
purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future
time. In when-issued and delayed delivery transactions, the
Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
INVESTMENT LIMITATIONS
The Fund will not:
<PAGE>
* borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a
portfolio instrument for a percentage of its cash
value with an arrangement to buy it back on a set
date) or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third
of the value of its total assets and pledge up to
15% of the value of those assets to secure such
borrowings; or
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* with respect to 75% of the value of its total
assets, invest more than 5% in securities of any
one issuer other than cash, cash items or
securities issued or guaranteed by the government
of the United States, its agencies, or
instrumentalities and repurchase agreements
collateralized by such securities. (For purposes
of this Fund, cash items means time deposits
(including savings deposits and certificates of
deposit) and bankers acceptances issued by a U.S.
branch of a domestic bank or savings association
having capital, surplus and undivided profits in
excess of $100 million at the time of investment.)
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The above investment limitations cannot be changed without
shareholder approval. The following investment limitation,
however, may be changed by the Directors without shareholder
approval. Shareholders will be notified before any material
change in this investment limitation becomes effective.
The Fund will not:
* invest more than 5% of the value of its total
assets in securities of issuers that have records
of less than three years of continuous operations
including the operation of any predecessor.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is
determined by dividing the sum of the market value of all
securities and all other assets, less liabilities, by the
number of shares outstanding.
<PAGE>
INVESTING IN THE FUND
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock
Exchange is open. Shares may be purchased through a financial
institution (such as a bank or investment dealer) who has a
sales agreement with the distributor, Federated Securities
Corp., or once an account has been established, directly from
Federated Securities Corp. either by mail or wire. The Fund
reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his
financial institution to place an order to purchase shares of
the Fund. Orders through a financial institution are
considered received when the Fund is notified of the purchase
order. Purchase orders must be received by the financial
institution and transmitted to the Fund before 4:00 p.m.
(Boston time) in order for shares to be purchased at that day's
price. It is the financial institution's responsibility to
transmit orders promptly. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m.
(Boston time) and must be transmitted by the broker to the Fund
before 5:00 p.m. (Boston time) in order for shares to be
purchased at that day's price.
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DIRECTLY BY MAIL. An investor may place an order to purchase
shares of the Fund by mail directly from Federated Securities
Corp. once an account has been established. To purchase shares
of the Fund by mail, send a check made payable to Insight
Limited Term Income Fund to the Fund's transfer agent,
Federated Services Company, c/o State Street Bank and Trust
Company, P.O. Box 8604, Boston, Massachusetts 02266-8604.
CONVERSION TO FEDERAL FUNDS. It is the Fund's policy to be as
fully invested as possible so that maximum interest may be
earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before
shareholders begin to earn dividends. State Street Bank and
Trust Company ("State Street Bank") acts as the shareholder's
agent in depositing checks and converting them to federal
funds.
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DIRECTLY BY WIRE. To purchase shares of the Fund directly from
Federated Securities Corp. by Federal Reserve wire once an
account has been established, call the Fund. All information
needed will be taken over the telephone, and the order is
considered received when State Street Bank receives payment by
wire.
MINIMUM INVESTMENT REQUIRED
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The minimum initial investment in the Fund is $1 million.
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<PAGE>
WHAT SHARES COST
Fund shares are sold at their net asset value next determined
after an order is received. There is no sales charge imposed
by the Fund. However, certain unaffiliated financial
institutions may charge fees for services provided which may
relate to ownership of shares. This prospectus should,
therefore, be read together with any agreement between the
customer and the institution with regard to services provided
and the fees charged for these services.
The net asset value is determined at 4:00 p.m. (Boston time),
Monday through Friday, except on: (i) days on which there are
not sufficient changes in the value of the Fund's portfolio
securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and
(iii) the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
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As transfer agent for the Fund, Federated Services Company
maintains a share account for each shareholder. Share
certificates are not issued unless requested on the application
or by contacting the Fund.
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Detailed confirmations of each purchase or redemption are sent
to each shareholder. Monthly statements are sent to report
dividends paid during the month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly. Distributions
of any net realized long-term capital gains will be made at
least once every twelve months. Dividends and distributions
are automatically reinvested in additional shares of the Fund
on payment dates at net asset value, unless cash payments are
requested by shareholders on the application or by writing to
Federated Securities Corp.
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Dividends are declared just prior to determining net asset
value. If an order for shares is placed on the preceding
business day, shares purchased by wire begin earning dividends
on the business day wire payment is received by State Street
Bank. If the order for shares and payment by wire are received
on the same day, shares begin earning dividends on the next
business day. Shares purchased by check begin earning
dividends on the business day after the check is converted,
upon instruction of the transfer agent, into federal funds.
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<PAGE>
Shares earn dividends through the business day that proper
written redemption instructions are received by State Street
Bank.
REDEEMING SHARES
The Fund redeems shares at their net asset value next
determined after State Street Bank receives the redemption
request. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be
received in proper form and can be made through a financial
institution, or directly from the Fund by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem shares of the Fund by calling his
financial institution (such as a bank or an investment dealer)
to request the redemption. Shares will be redeemed at the net
asset value next determined after the Fund receives the
redemption request from the financial institution. Redemption
requests must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Boston time) in order
for shares to be redeemed at that day's net asset value. The
financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption
instructions to the Fund. The financial institution may charge
customary fees and commissions for this service. Redemption
requests through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Boston time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Boston
time) in order for shares to be redeemed at that day's net
asset value. If at any time the Fund shall determine it
necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.
Before a financial institution may request redemption by
telephone on behalf of a shareholder, an authorization form
permitting the Fund to accept redemption requests by telephone
must first be completed. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic
economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "Directly by
Mail," should be considered.
DIRECTLY BY MAIL
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Shareholders may also redeem shares by sending a written
request to Federated Services Company, c/o State Street Bank
and Trust Company, P.O. Box 8604, Boston, Massachusetts 02266-
8604. This written request must include the shareholder's
<PAGE>
name, the Fund name, the Fund account number, and the share or
dollar amount to be redeemed. Shares will be redeemed at their
net asset value next determined after State Street Bank
receives the redemption request.
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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 may call the Fund 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 Fund, 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 BIF, which is administered by
the FDIC;
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* a member of the New York, American, Boston,
Midwest, or Pacific Stock Exchange;
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* a savings bank or savings and loan association
whose deposits are insured by the SAIF, which is
administered by the FDIC; or
* any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary
public.
The Fund and its transfer agent have adopted standards for
accepting signature guarantees from the above institutions.
The Fund may elect in the future to limit eligible signature
guarantors to institutions that are members of a signature
guarantee program. The Fund and its transfer agent reserve the
right to amend these standards at any time without notice.
RECEIVING PAYMENT
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 written redemption request provided State
Street Bank has received payment for shares from the
shareholder.
BY WIRE. Normally, redemption proceeds will be wired the
following business day, but in no event more than seven days,
after receipt of the redemption request.
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REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
<PAGE>
When shares are purchased by check, or through Automated
Clearing House ("ACH"), the proceeds from the redemption of
those shares are not available, and the shares may not be
exchanged, until the Fund or its agents are reasonably certain
that the purchase check has cleared, which could take up to ten
calendar days.
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ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances,
the Fund may redeem shares in any account, and pay the proceeds
to the shareholder, if the account balance falls below a
required minimum value of $1 million due to shareholder
redemptions. This requirement does not apply, however, if the
balance falls below $1 million because of changes in the 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.
INSIGHT INSTITUTIONAL SERIES, INC. INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS. The Fund is managed by a Board of
Directors. The Directors are responsible for managing the
Corporation's business affairs and for exercising all the
Corporation's powers except those reserved for the
shareholders. The Executive Committee of the Board of
Directors handles the Directors' responsibilities between
meetings of the Directors.
INVESTMENT ADVISER. Investment decisions for the Fund are made
by Federated Advisers, the Fund's investment adviser, subject
to direction by the Directors. The adviser continually
conducts investment research and supervision for the Fund and
is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual
investment advisory fee equal to 0.70 of 1% of the Fund's
average daily net assets. Under the investment advisory
contract, which provides for voluntary waivers of expenses
by the adviser, the adviser may voluntarily waive some or
all of its fee. The adviser can terminate this voluntary
waiver of some or all of its advisory fee at any time at its
sole discretion. The adviser has also undertaken to
reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware
business trust organized on April 11, 1989, is a registered
investment adviser under the Investment Advisers Act of
<PAGE>
1940. It is a subsidiary of Federated Investors. All of
the Class A (voting) shares of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue,
Chairman and Trustee of Federated Investors, Mr. Donahue's
wife, and Mr. Donahue's son, J. Christopher Donahue, who is
President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated
Investors serve as investment advisers to a number of
investment companies and private accounts. Certain other
subsidiaries also provide administrative services to a
number of investment companies. Total assets under
management or administration by these and other subsidiaries
of Federated Investors are approximately $76 billion.
Federated Investors, which was founded in 1956 as Federated
Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track
record of competitive performance and its disciplined, risk
averse investment philosophy serve approximately 3,500
client institutions nationwide. Through these same client
institutions, individual shareholders also have access to
this same level of investment expertise.
PORTFOLIO MANAGERS' BACKGROUND. Deborah A. Cunningham and
Randy Bauer have been the Fund's portfolio managers since
its inception. Ms. Cunningham joined Federated Investors in
1981 and has been a Vice President of the Fund's investment
adviser since 1993. Ms. Cunningham served as an Assistant
Vice President of the investment adviser from 1989 until
1992, and from 1986 until 1989 she acted as an investment
analyst. Ms. Cunningham is a Chartered Financial Analyst
and received her M.S.B.A. in Finance from Robert Morris
College. Mr. Bauer joined Federated Investors in 1989 and
is an Assistant Vice President of the Fund's investment
adviser. Mr. Bauer served as an Assistant Vice President of
the International Banking Division of Pittsburgh National
Bank from 1982 until 1989. Mr. Bauer is a Chartered
Financial Analyst and received his M.B.A. in Finance from
Pennsylvania State University.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized
on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services,
Inc., which is a subsidiary of Federated Investors, provides
the Fund with the administrative personnel and services
necessary to operate the Fund. Such services include
<PAGE>
shareholder servicing and certain legal and accounting
services. Federated Administrative Services, Inc. provides
these at approximate cost.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder
Services Plan (the "Services Plan"). Under the Services Plan,
financial institutions will enter into shareholder service
agreements with the Fund to provide administrative support
services to their customers who from time to time may be owners
of record or beneficial owners of shares. In return for
providing these support services, a financial institution may
receive payments from the Fund at a rate not exceeding 0.25 of
1% of the average daily net assets of the shares beneficially
owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship.
These administrative services may include, but not are not
limited to, the provision of personal services and maintenance
of shareholder accounts.
ADMINISTRATIVE ARRANGEMENTS. The distributor may also pay
financial institutions a fee based upon the net asset value of
the Fund shares beneficially owned by the financial
institution's clients or customers. This fee is in addition to
amounts paid under the Shareholder Services Plan and will be
reimbursed by the adviser.
The Glass-Steagall Act limits the ability of a depository
institution (such as a commercial bank or a savings and loan
association) to become an underwriter or distributor of
securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities
described in this prospectus or should Congress relax current
restrictions on depository institutions, the Directors will
consider appropriate changes in the administrative 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.
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CUSTODIAN. State Street Bank and Trust Company, Boston,
Massachusetts, is custodian for the securities and cash of the
Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated
Services Company, Pittsburgh, Pennsylvania, is transfer agent
for the shares of the Fund, and dividend disbursing agent for
the Fund.
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LEGAL COUNSEL. Legal counsel is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro &
Morin, Washington, D.C.
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<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public
accountants for the Fund are Arthur Andersen & Co., Pittsburgh,
Pennsylvania.
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EXPENSES OF THE FUND
Shareholders of the Fund pay their allocable portion of Fund
and Corporation expenses.
The Corporation expenses for which shareholders pay their
allocable portion include, but are not limited to, the cost of:
organizing the Corporation and continuing its existence;
registering the Corporation with federal and state securities
authorities; Directors' fees; auditors' fees; meetings of
Directors; legal fees of the Corporation; association
membership dues and such non-recurring and extraordinary items
as may arise from time to time.
The Fund expenses for which shareholders pay their allocable
portion include, but are not limited to, the cost of:
investment advisory and administrative services; printing
prospectuses and other Fund documents for shareholders;
registering the Fund and shares of the Fund with federal and
state securities commissions; taxes and commissions; issuing,
purchasing, repurchasing and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents,
shareholder servicing agents and registrars; printing, mailing,
auditing, accounting and legal expenses; reports to
shareholders and governmental agencies; meetings of
shareholders and proxy solicitations therefor; insurance
premiums; and such non-recurring and extraordinary items as may
arise from time to time.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund is entitled to one vote at all meetings
of shareholders. All shares of all portfolios in the
Corporation have equal voting rights except that in matters
affecting only a particular portfolio, only shares of that
portfolio are entitled to vote.
As a Maryland corporation, the Fund is not required to hold
annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Fund's operation and for
the election of Directors under certain circumstances.
Directors may be removed by a majority vote of the shareholders
at a special meeting. A special meeting of shareholders shall
be called by the Directors upon the request of shareholders
owning at least 10% of the Fund's outstanding shares of all
series entitled to vote.
<PAGE>
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to
meet requirements of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax
treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay
federal income tax on any dividends and other distributions,
including capital gains distributions, received. This applies
whether dividends and distributions are received in cash or as
additional shares. Distributions representing long-term
capital gains, if any, will be taxable to shareholders as long-
term capital gains no matter how long the shareholders have
held their shares. Information on the tax status of dividends
and distributions is provided annually.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the
Fund:
* the Fund is subject to the Pennsylvania corporate
franchise tax; and
* Fund shares are exempt from personal property taxes
imposed by counties, municipalities and school
districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local
tax laws.
PERFORMANCE INFORMATION
From time to time the Fund advertises its total return and
yield.
Total return represents the change, over a specified period of
time, in the value of an investment in the Fund after
reinvesting all income and capital gains distributions. It is
calculated by dividing that change by the initial investment
and is expressed as a percentage.
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The yield of the Fund is calculated by dividing the net
investment income per share (as defined by the Securities and
Exchange Commission) earned by the Fund over a thirty-day
period by the offering price per share of the Fund on the last
day of the period. This number is then annualized using semi-
annual compounding. The yield does not necessarily reflect
income actually earned by the Fund and, therefore, may not
<PAGE>
correlate to the dividends or other distributions paid to
shareholders.
The Fund is sold without any sales charge or other similar non-
recurring charges. From time to time, the Fund may advertise
its performance using certain financial publications and/or
compare its performance to certain indices.
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ADDRESSES
Insight Limited Term
Income Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser Federated Advisers
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Custodian State Street Bank and Trust Company
P.O. Box 8604
Boston, Massachusetts 02266-8604
Transfer Agent and
Dividend Disbursing Agent Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Legal Counsel Houston, Houston & Donnelly
2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
Legal Counsel Dickstein, Shapiro & Morin
2101 L Street, N.W.
Washington, D.C. 20037
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Independent
Public Accountants Arthur Andersen & Co.
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
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INSIGHT LIMITED TERM INCOME FUND
PROSPECTUS
A Diversified Portfolio of
Insight Institutional Series, Inc.,
an Open-End, Management
<PAGE>
Investment Company
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January 19, 1994
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FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
<PAGE>
INSIGHT ADJUSTABLE RATE MORTGAGE FUND
(A PORTFOLIO OF INSIGHT INSTITUTIONAL SERIES, INC.)
PROSPECTUS
The shares offered by this prospectus represent interests in
Insight Adjustable Rate Mortgage Fund (the "Fund"), a
diversified investment portfolio of Insight Institutional
Series, Inc. (the "Corporation"), an open-end, management
investment company (a mutual fund).
The investment objective of the Fund is to provide current
income consistent with minimum fluctuation in principal value.
The Fund pursues this objective by investing primarily in a
diversified portfolio of adjustable and floating rate mortgage
securities that are issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY
BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and
know before you invest in shares of the Fund. Keep this
prospectus for future reference.
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The Fund has also filed a Statement of Additional Information
dated January 19, 1994, with the Securities and Exchange
Commission. The information contained into the Statement of
Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Statement of
Additional Information free of charge by calling 1-800-235-
4669. To obtain other information or to make inquiries about
the Fund, contact your financial institution.
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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
<PAGE>
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
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Prospectus dated January 19, 1994
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TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES
GENERAL INFORMATION
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INVESTMENT INFORMATION
Investment Objective
Investment Policies
Acceptable Investments
Adjustable Rate Mortgage Securities ("ARMS")
Collateralized Mortgage Obligations ("CMOs")
Real Estate Mortgage
Investment
Conduits
("REMICs")
Resets of Interest
Caps and Floors
Dollar Roll Transactions
Temporary Investments
Repurchase Agreements
Lending of Portfolio Securities
When-Issued and Delayed Delivery Transactions
Portfolio Turnover
Investment Limitations
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NET ASSET VALUE
INVESTING IN THE FUND
Share Purchases
Through a Financial Institution
Directly by Mail
Conversion to Federal Funds
Directly by Wire
Minimum Investment Required
What Shares Cost
Certificates and Confirmations
Dividends and Distributions
REDEEMING SHARES
Through a Financial Institution
Directly by Mail
Signatures
Receiving Payment
By Check
<PAGE>
By Wire
Redemption Before Purchase Instruments Clear
Accounts with Low Balances
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INSIGHT INSTITUTIONAL SERIES, INC. INFORMATION
Management of the Corporation
Board of Directors
Investment Adviser
Advisory Fees
Adviser's Background
Portfolio Managers' Background
Distribution of Fund Shares
Administration of the Fund
Administrative Services
Shareholder Services Plan
Administrative Arrangements
Custodian
Transfer Agent and Dividend Disbursing Agent
Legal Counsel
Independent Public Accountants
Expenses of the Fund
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SHAREHOLDER INFORMATION
Voting Rights
TAX INFORMATION
Federal Income Tax
Pennsylvania Corporate and
Personal Property Taxes
PERFORMANCE INFORMATION
ADDRESSES Inside Back Cover
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . . .
None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . .
None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable) . . . .
None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES*
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(As a percentage of projected average net assets)
Management Fee (after waiver) (1) . . . . . . . . . . . . . . .
0.12%
12b-1 Fee None
Total Other Expenses . . . . . . . . . . . . . . . . . . . .
0.73%
Shareholder Servicing Fee . . . . . . . . . . . . . .
0.25%
Total Fund Operating Expenses (2) . . . . . . . . .
0.85%
(1) The estimated management fee has been reduced to
reflect the anticipated voluntary waiver of a portion
of the management fee. The adviser can terminate this
voluntary waiver at any time at its sole discretion.
The maximum management fee is 0.70%.
(2) The Total Fund Operating Expenses are estimated to be
1.43% absent the anticipated voluntary waiver of a
portion of the management fee.
* Total Fund Operating Expenses are estimated based on
average expenses expected to be incurred during the
period ending September 30, 1994. During the course of
this period, expenses may be more or less than the
average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER
OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE
COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE
"INVESTING IN THE FUND" AND "INSIGHT INSTITUTIONAL SERIES, INC.
INFORMATION." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000
MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE
1 year 3 years
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, shares are not
subject to a redemption fee . $9 $27
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA
FOR THE FUND'S FISCAL YEAR ENDING SEPTEMBER 30, 1994.
<PAGE>
GENERAL INFORMATION
The Corporation was incorporated under the laws of the State of
Maryland on October 11, 1993. The Articles of Incorporation
permit the Corporation to offer separate portfolios and classes
of shares. As of the date of this prospectus, the Board of
Directors (the "Directors") has established four separate
portfolios: Insight U.S. Government Fund, Insight Limited Term
Municipal Fund, Insight Limited Term Income Fund and Insight
Adjustable Rate Mortgage Fund. This prospectus relates only to
the shares of Insight Adjustable Rate Mortgage Fund.
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The Fund is designed for institutions seeking current income
consistent with minimum fluctuation in principal value through
a professionally managed, diversified portfolio of adjustable
and floating rate mortgage securities which are issued or
guaranteed by the U.S. government, its agencies or
instrumentalities. A minimum initial investment of $1 million
is required.
/R
Fund shares are sold and redeemed at net asset value without a
sales charge imposed by the Fund.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current
income consistent with minimum fluctuation in principal value.
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
Except as otherwise noted, the investment policies described
below may not be changed by the Directors without shareholder
approval.
The Fund will limit its investments to those that are permitted
for purchase by federally chartered savings associations
pursuant to applicable rules, regulations or interpretations of
the Office of Thrift Supervision and by federal credit unions
under the Federal Credit Union Act and the rules, regulations
and interpretations of the National Credit Union
Administration. Should additional permitted investments be
allowed as a result of future changes in applicable regulations
or federal laws, the Fund reserves the right, without
shareholder approval, to make such investments consistent with
the Fund's investment objective, policies and limitations.
Further, should existing statutes or regulations change so as
<PAGE>
to cause any securities held by the Fund to become ineligible
for purchase by federally chartered savings associations or
federal credit unions, the Fund will dispose of those
securities at times advantageous to the Fund.
As operated within the limitations applicable to investments by
federally chartered savings associations and federal credit
unions, and pursuant to current interpretation by the Office of
the Comptroller of the Currency, the Fund will also serve as an
appropriate vehicle for a national bank as an investment for
its own account.
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ACCEPTABLE INVESTMENTS. The Fund pursues its investment
objective by investing primarily in adjustable and floating
rate mortgage securities. Under normal circumstances, the Fund
will invest at least 65% of the value of its total assets in
adjustable and floating rate mortgage securities that are
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. By investing primarily in these securities,
the Fund should tend to have a lower degree of fluctuation in
principal value than a fund that invests, for example,
primarily in a non-diversified portfolio of fixed-rate
securities.
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The types of mortgage securities in which the Fund invests
principally are:
* adjustable rate mortgage securities;
* collateralized mortgage obligations;
* real estate mortgage investment conduits; and
* other securities collateralized by or representing an
interest in real estate mortgages whose interest rates
reset at periodic intervals and are issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
In addition to the securities described above, the Fund may
also invest in the following:
* direct obligations of the U.S. Treasury, such as U.S.
Treasury bills, notes and bonds; and
* notes, bonds, and discount notes of U.S. government
agencies or instrumentalities, such as Federal Home
Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Banks for
Cooperatives (including Central Bank for Cooperatives),
Federal Land Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Tennessee Valley Authority,
Export-Import Bank of the United States, Commodity
Credit Corporation, Federal Financing Bank, Student
<PAGE>
Loan Marketing Association, Federal Home Loan Mortgage
Corporation, or National Credit Union Administration.
The government securities in which the Fund may invest are
backed in a variety of ways by the U.S. government or its
agencies or instrumentalities. Some of these securities, such
as Government National Mortgage Association mortgage-backed
securities, are backed by the full faith and credit of the U.S.
government. Other securities, such as obligations of the
Federal National Mortgage Association or Federal Home Loan
Mortgage Corporation, are backed by the credit of the agency
or instrumentality issuing the obligations but not the full
faith and credit of the U.S. government.
The Fund also may acquire up to 3% of the outstanding
securities of closed-end funds in open-market transactions
involving only customary broker's commissions. The Fund will
indirectly bear its proportionate share of any fees and
expenses paid by such closed-end funds in addition to the fees
and expenses payable directly by the Fund.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are
pass-through mortgage securities representing interests in
adjustable rather than fixed interest rate mortgages. The
ARMS in which the Fund invests are issued by the Government
National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA"), and the Federal Home Loan
Mortgage Corporation ("FHLMC") and are actively traded. The
underlying mortgages which collateralize ARMS issued by GNMA
are fully guaranteed by the Federal Housing Administration
("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMS issued by FHLMC or FNMA are typically
conventional residential mortgages conforming to strict
underwriting size and maturity constraints.
Unlike conventional bonds, ARMS pay back principal over the
life of the ARMS rather than at maturity. Thus, a holder of
the ARMS, such as the Fund, would receive monthly scheduled
payments of principal and interest, and may receive
unscheduled principal payments representing payments on the
underlying mortgages. At the time that a holder of the ARMS
reinvests the payments and any unscheduled prepayments of
principal that it receives, the holder may receive a rate of
interest which is actually lower than the rate of interest
paid on the existing ARMS. As a consequence, ARMS may be a
less effective means of "locking in" long-term interest
rates than other types of U.S. government securities.
Not unlike other U.S. government securities, the market
value of ARMS will generally vary inversely with changes in
market interest rates. Thus, the market value of ARMS
generally declines when interest rates rise and generally
rises when interest rates decline.
<PAGE>
While ARMS generally entail less risk of a decline during
periods of rapidly rising rates, ARMS may also have less
potential for capital appreciation than other similar
investments (e.g., investments with comparable maturities)
because as interest rates decline, the likelihood increases
that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and
unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium
paid. Conversely, if ARMS are purchased at a discount, both
a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total
returns and would accelerate the recognition of income,
which would be taxed as ordinary income when distributed to
shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are
bonds issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government
agencies, investment bankers, or companies related to the
construction industry. CMOs purchased by the Fund may be:
* collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the
U.S. government;
* collateralized by pools of mortgages in which
payment of principal and interest is guaranteed by
the issuer and such guarantee is collateralized by
U.S. government securities; or
* securities in which the proceeds of the issuance
are invested in mortgage securities and payment of
the principal and interest is supported by the
credit of an agency or instrumentality of the U.S.
government.
All privately issued CMOs purchased by the Fund are
investment grade, as rated by a nationally recognized
statistical rating organization.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs
are offerings of multiple class real estate mortgage-backed
securities which qualify and elect treatment as such under
provisions of the Internal Revenue Code. Issuers of REMICs
may take several forms, such as trusts, partnerships,
corporations, associations, or segregated pools of
mortgages. Once REMIC status is elected and obtained, the
entity is not subject to federal income taxation. Instead,
income is passed through the entity and is taxed to the
person or persons who hold interests in the REMIC. A REMIC
interest must consist of one or more classes of "regular
interests," some of which may offer adjustable rates of
<PAGE>
interest (the type in which the Fund primarily invests), and
a single class of "residual interests." To qualify as a
REMIC, substantially all the assets of the entity must be in
assets directly or indirectly secured principally by real
property.
RESETS OF INTEREST. The interest rates paid on the ARMS, CMOs,
and REMICs in which the Fund invests generally are readjusted
at intervals of one year or less to an increment over some
predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities
and those derived from a calculated measure, such as a cost of
funds index or a moving average of mortgage rates. Commonly
utilized indices include the one-year and five-year constant
maturity Treasury Note rates, the three-month Treasury Bill
rate, the six-month Treasury Bill rate, rates on longer-term
Treasury securities, the National Median Cost of Funds, the
one-month or three-month London Interbank Offered Rate (LIBOR)
or the prime rate of a specific bank. Some indices, such as
the one-year constant maturity Treasury Note rate, closely
mirror changes in market interest rate levels.
To the extent that the adjusted interest rate on the mortgage
security reflects current market rates, the market value of an
adjustable rate mortgage security will tend to be less
sensitive to interest rate changes than a fixed rate debt
security of the same stated maturity. Hence, ARMS which use
indices that lag changes in market rates should experience
greater price volatility than adjustable rate mortgage
securities that closely mirror the market.
CAPS AND FLOORS. The underlying mortgages which collateralize
the ARMS, CMOs, and REMICs in which the Fund invests will
frequently have caps and floors which limit the maximum amount
by which the loan rate to the residential borrower may change
up or down: (1) per reset or adjustment interval, and (2) over
the life of the loan. Some residential mortgage loans restrict
periodic adjustments by limiting changes in the borrower's
monthly principal and interest payments rather than limiting
interest rate changes. These payment caps may result in
negative amortization.
The value of mortgage securities in which the Fund invests may
be affected if market interest rates rise or fall faster and
farther than the allowable caps or floors on the underlying
residential mortgage loans. Additionally, even though the
interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby
causing the effective maturities of the mortgage securities in
which the Fund invests to be shorter than the maturities stated
in the underlying mortgages.
DOLLAR ROLL TRANSACTIONS. In order to enhance portfolio
returns and manage prepayment risks, the Fund may engage in
<PAGE>
dollar roll transactions with respect to mortgage securities
issued by GNMA, FNMA, and FHLMC. In a dollar roll transaction,
the Fund sells a mortgage security to a financial institution,
such as a bank or broker/dealer, and simultaneously agrees to
repurchase a substantially similar (i.e., same type, coupon,
and maturity) security from the institution at a later date at
an agreed upon price. The mortgage securities that are
repurchased will bear the same interest rate as those sold, but
generally will be collateralized by different pools of
mortgages with different prepayment histories. During the
period between the same and repurchase, the Fund will not be
entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in
short-term instruments, and the income from these investments,
together with any additional fee income received on the sale,
will generate income for the Fund exceeding the yield. When
the Fund enters into a dollar roll transaction, liquid assets
of the Fund, in a dollar amount sufficient to make payment for
the obligations to be repurchased, are segregated at the trade
date. These securities are marked to market daily and are
maintained until the transaction is settled.
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TEMPORARY INVESTMENTS. The Fund may invest temporarily in cash
and cash items during times of unusual market conditions for
defensive purposes and to maintain liquidity in anticipation of
favorable investment opportunities. The Fund considers cash
items to mean time deposits (including savings deposits and
certificates of deposit) and bankers acceptances issued by a
U.S. branch of a domestic bank or savings association having
capital, surplus and undivided profits in excess of $100
million at the time of investment.
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REPURCHASE AGREEMENTS. Repurchase agreements are
arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon
time and price. To the extent that the original seller does
not repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such
securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate
additional income, the Fund may lend portfolio securities on a
short-term or a long-term basis up to one-third of the value of
its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only
enter into loan arrangements with broker/dealers, banks, or
other institutions which the investment adviser has determined
are creditworthy under guidelines established by the Directors.
In these loan arrangements, the Fund 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.
<PAGE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may
purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future
time. In when-issued and delayed delivery transactions, the
Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
PORTFOLIO TURNOVER. The Fund may trade or dispose of portfolio
securities as considered necessary to meet its investment
objective.
INVESTMENT LIMITATIONS
The Fund will not:
* borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a
portfolio instrument for a percentage of its cash
value with an arrangement to buy it back on a set
date) or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third
of the value of its total assets and pledge up to
15% of the value of those assets to secure such
borrowings;
* invest more than 10% of the value of its net assets in
securities subject to restrictions on resale under the
Securities Act of 1933 except for certain restricted
securities that meet the criteria for liquidity as
established by the Directors;
* invest more than 15% of the value of its net assets in
securities that are not readily marketable or that are
otherwise considered illiquid, including repurchase
agreements providing for settlement in more than seven
days after notice; or
* invest more than 5% of the value of its total assets in
securities of issuers that have records of less than
three years of continuous operations including the
operation of any predecessor. (This limitation does
not apply to issuers of CMOs or REMICs that are
collateralized by securities or mortgages issued or
guaranteed as to prompt payment of principal and
interest by an agency of the U.S. government.)
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is
determined by dividing the sum of the market value of all
<PAGE>
securities and all other assets, less liabilities, by the
number of shares outstanding.
INVESTING IN THE FUND
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock
Exchange is open. Shares may be purchased through a financial
institution (such as a bank or investment dealer) who has a
sales agreement with the distributor, Federated Securities
Corp., or once an account has been established, directly from
Federated Securities Corp. either by mail or wire. The Fund
reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his
financial institution to place an order to purchase shares of
the Fund. Orders through a financial institution are
considered received when the Fund is notified of the purchase
order. Purchase orders must be received by the financial
institution and transmitted to the Fund before 4:00 p.m.
(Boston time) in order for shares to be purchased at that day's
price. It is the financial institution's responsibility to
transmit orders promptly. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m.
(Boston time) and must be transmitted by the broker to the Fund
before 5:00 p.m. (Boston time) in order for shares to be
purchased at that day's price.
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DIRECTLY BY MAIL. An investor may place an order to purchase
shares of the Fund by mail directly from Federated Securities
Corp. once an account has been established. To purchase shares
of the Fund by mail, send a check made payable to Insight
Adjustable Rate Mortgage Fund to the Fund's transfer agent,
Federated Services Company, c/o State Street Bank and Trust
Company, P.O. Box 8604, Boston, Massachusetts 02266-8604.
CONVERSION TO FEDERAL FUNDS. It is the Fund's policy to be as
fully invested as possible so that maximum interest may be
earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before
shareholders begin to earn dividends. State Street Bank and
Trust Company ("State Street Bank") acts as the shareholder's
agent in depositing checks and converting them to federal
funds.
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DIRECTLY BY WIRE. To purchase shares of the Fund directly from
Federated Securities Corp. by Federal Reserve wire once an
account has been established, call the Fund. All information
needed will be taken over the telephone, and the order is
considered received when State Street Bank receives payment by
wire.
<PAGE>
MINIMUM INVESTMENT REQUIRED
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The minimum initial investment in the Fund is $1 million.
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WHAT SHARES COST
Fund shares are sold at their net asset value next determined
after an order is received. There is no sales charge imposed
by the Fund. However, certain unaffiliated financial
institutions may charge fees for services provided which may
relate to ownership of shares. This prospectus should,
therefore, be read together with any agreement between the
customer and the institution with regard to services provided
and the fees charged for these services.
The net asset value is determined at 4:00 p.m. (Boston time),
Monday through Friday, except on: (i) days on which there are
not sufficient changes in the value of the Fund's portfolio
securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and
(iii) the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
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As transfer agent for the Fund, Federated Services Company
maintains a share account for each shareholder. Share
certificates are not issued unless requested on the application
or by contacting the Fund.
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Detailed confirmations of each purchase or redemption are sent
to each shareholder. Monthly statements are sent to report
dividends paid during the month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly. Distributions
of any net realized long-term capital gains will be made at
least once every twelve months. Dividends and distributions
are automatically reinvested in additional shares of the Fund
on payment dates at net asset value, unless cash payments are
requested by shareholders on the application or by writing to
Federated Securities Corp.
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Dividends are declared just prior to determining net asset
value. If an order for shares is placed on the preceding
business day, shares purchased by wire begin earning dividends
on the business day wire payment is received by State Street
Bank. If the order for shares and payment by wire are received
on the same day, shares begin earning dividends on the next
business day. Shares purchased by check begin earning
<PAGE>
dividends on the business day after the check is converted,
upon instruction of the transfer agent, into federal funds.
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Shares earn dividends through the business day that proper
written redemption instructions are received by State Street
Bank.
REDEEMING SHARES
The Fund redeems shares at their net asset value next
determined after State Street Bank receives the redemption
request. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be
received in proper form and can be made through a financial
institution, or directly from the Fund by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem shares of the Fund by calling his
financial institution (such as a bank or an investment dealer)
to request the redemption. Shares will be redeemed at the net
asset value next determined after the Fund receives the
redemption request from the financial institution. Redemption
requests must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Boston time) in order
for shares to be redeemed at that day's net asset value. The
financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption
instructions to the Fund. The financial institution may charge
customary fees and commissions for this service. Redemption
requests through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Boston time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Boston
time) in order for shares to be redeemed at that day's net
asset value. If at any time the Fund shall determine it
necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.
Before a financial institution may request redemption by
telephone on behalf of a shareholder, an authorization form
permitting the Fund to accept redemption requests by telephone
must first be completed. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic
economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "Directly by
Mail," should be considered.
DIRECTLY BY MAIL
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<PAGE>
Shareholders may also redeem shares by sending a written
request to Federated Services Company, c/o State Street Bank
and Trust Company, P.O. Box 8604, Boston, Massachusetts 02266-
8604. This written request must include the shareholder's
name, the Fund name, the Fund account number, and the share or
dollar amount to be redeemed. Shares will be redeemed at their
net asset value next determined after State Street Bank
receives the redemption request.
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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 may call the Fund 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 Fund, or a redemption payable
other than to the shareholder of record must have signatures on
written redemption requests guaranteed by:
* a trust company or commercial bank whose deposits
are insured by the Bank Insurance Fund ("BIF"),
which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
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* a member of the New York, American, Boston,
Midwest, or Pacific Stock Exchange;
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* a savings bank or savings and loan association
whose deposits are insured by the Savings
Association Insurance Fund ("SAIF"), which is
administered by the FDIC; or
* any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary
public.
The Fund and its transfer agent have adopted standards for
accepting signature guarantees from the above institutions.
The Fund may elect in the future to limit eligible signature
guarantors to institutions that are members of a signature
guarantee program. The Fund and its transfer agent reserve the
right to amend these standards at any time without notice.
RECEIVING PAYMENT
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 written redemption request provided State
Street Bank has received payment for shares from the
shareholder.
<PAGE>
BY WIRE. Normally, redemption proceeds will be wired the
following business day, but in no event more than seven days,
after receipt of the redemption request.
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REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check, or through Automated
Clearing House ("ACH"), the proceeds from the redemption of
those shares are not available, and the shares may not be
exchanged, until the Fund or its agents are reasonably certain
that the purchase check has cleared, which could take up to ten
calendar days.
/R
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances,
the Fund may redeem shares in any account, and pay the proceeds
to the shareholder, if the account balance falls below a
required minimum value of $1 million due to shareholder
redemptions. This requirement does not apply, however, if the
balance falls below $1 million because of changes in the 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.
INSIGHT INSTITUTIONAL SERIES, INC. INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS. The Fund is managed by a Board of
Directors. The Directors are responsible for managing the
Corporation's business affairs and for exercising all the
Corporation's powers except those reserved for the
shareholders. The Executive Committee of the Board of
Directors handles the Directors' responsibilities between
meetings of the Directors.
INVESTMENT ADVISER. Investment decisions for the Fund are made
by Federated Advisers, the Fund's investment adviser, subject
to direction by the Directors. The adviser continually
conducts investment research and supervision for the Fund and
is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual
investment advisory fee equal to 0.70 of 1% of the Fund's
average daily net assets. Under the investment advisory
contract, which provides for voluntary waivers of expenses
by the adviser, the adviser may voluntarily waive some or
all of its fee. The adviser can terminate this voluntary
waiver of some or all of its advisory fee at any time at its
sole discretion. The adviser has also undertaken to
<PAGE>
reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware
business trust organized on April 11, 1989, is a registered
investment adviser under the Investment Advisers Act of
1940. It is a subsidiary of Federated Investors. All of
the Class A (voting) shares of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue,
Chairman and Trustee of Federated Investors, Mr. Donahue's
wife, and Mr. Donahue's son, J. Christopher Donahue, who is
President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated
Investors serve as investment advisers to a number of
investment companies and private accounts. Certain other
subsidiaries also provide administrative services to a
number of investment companies. Total assets under
management or administration by these and other subsidiaries
of Federated Investors are approximately $76 billion.
Federated Investors, which was founded in 1956 as Federated
Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track
record of competitive performance and its disciplined, risk
averse investment philosophy serve approximately 3,500
client institutions nationwide. Through these same client
institutions, individual shareholders also have access to
this same level of investment expertise.
R
PORTFOLIO MANAGERS' BACKGROUND. Gary J. Madich, Kathleen M.
Foody-Malus and Susan M. Nason have been the Fund's
portfolio managers since its inception. Mr. Madich joined
Federated Investors in 1984 and has been a Senior Vice
President of the Fund's investment adviser since 1993. Mr.
Madich served as a Vice President of the Fund's investment
adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance
from the University of Pittsburgh. Ms. Foody-Malus joined
Federated Investors in 1983 and has been a Vice President of
the Fund's investment adviser since 1993. Ms. Foody-Malus
served as an Assistant Vice President of the Fund's
investment adviser from 1990 until 1993, and from 1986 until
1990 she acted as an investment analyst. Ms. Foody-Malus
received her M.B.A. in Accounting/Finance from the
University of Pittsburgh. Ms. Nason joined Federated
Investors in 1987 and has been a Vice President of the
Fund's investment adviser since 1993. Ms. Nason served as
an Assistant Vice President of the investment adviser from
1990 until 1993, and from 1987 until 1990 she acted as an
investment analyst. Ms. Nason is a Chartered Financial
Analyst and received her M.B.A. in Finance from Carnegie
Mellon University.
/R
DISTRIBUTION OF FUND SHARES
<PAGE>
Federated Securities Corp. is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized
on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services,
Inc., which is a subsidiary of Federated Investors, provides
the Fund with the administrative personnel and services
necessary to operate the Fund. Such services include
shareholder servicing and certain legal and accounting
services. Federated Administrative Services, Inc. provides
these at approximate cost.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder
Services Plan (the "Services Plan"). Under the Services Plan,
financial institutions will enter into shareholder service
agreements with the Fund to provide administrative support
services to their customers who from time to time may be owners
of record or beneficial owners of shares. In return for
providing these support services, a financial institution may
receive payments from the Fund at a rate not exceeding 0.25 of
1% of the average daily net assets of the shares beneficially
owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship.
These administrative services may include, but not are not
limited to, the provision of personal services and maintenance
of shareholder accounts.
ADMINISTRATIVE ARRANGEMENTS. The distributor may also pay
financial institutions a fee based upon the net asset value of
the Fund shares beneficially owned by the financial
institution's clients or customers. This fee is in addition to
amounts paid under the Shareholder Services Plan and will be
reimbursed by the adviser.
The Glass-Steagall Act limits the ability of a depository
institution (such as a commercial bank or a savings and loan
association) to become an underwriter or distributor of
securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities
described in this prospectus or should Congress relax current
restrictions on depository institutions, the Directors will
consider appropriate changes in the administrative 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.
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<PAGE>
CUSTODIAN. State Street Bank and Trust Company, Boston,
Massachusetts, is custodian for the securities and cash of the
Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated
Services Company, Pittsburgh, Pennsylvania, is transfer agent
for the shares of the Fund and dividend disbursing agent for
the Fund.
/R
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro &
Morin, Washington, D.C.
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INDEPENDENT PUBLIC ACCOUNTANTS. The independent public
accountants for the Fund are Arthur Andersen & Co., Pittsburgh,
Pennsylvania.
/R
EXPENSES OF THE FUND
Shareholders of the Fund pay their allocable portion of Fund
and Corporation expenses.
The Corporation expenses for which shareholders pay their
allocable portion include, but are not limited to, the cost of:
organizing the Corporation and continuing its existence;
registering the Corporation with federal and state securities
authorities; Directors' fees; auditors' fees; meetings of
Directors; legal fees of the Corporation; association
membership dues and such non-recurring and extraordinary items
as may arise from time to time.
The Fund expenses for which shareholders pay their allocable
portion include, but are not limited to, the cost of:
investment advisory and administrative services; printing
prospectuses and other Fund documents for shareholders;
registering the Fund and shares of the Fund with federal and
state securities commissions; taxes and commissions; issuing,
purchasing, repurchasing and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents,
shareholder servicing agents and registrars; printing, mailing,
auditing, accounting and legal expenses; reports to
shareholders and governmental agencies; meetings of
shareholders and proxy solicitations therefor; insurance
premiums; and such non-recurring and extraordinary items as may
arise from time to time.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund is entitled to one vote at all meetings
of shareholders. All shares of all portfolios in the
Corporation have equal voting rights except that in matters
<PAGE>
affecting only a particular portfolio, only shares of that
portfolio are entitled to vote.
As a Maryland corporation, the Fund is not required to hold
annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Fund's operation and for
the election of Directors under certain circumstances.
Directors may be removed by a majority vote of the shareholders
at a special meeting. A special meeting of shareholders shall
be called by the Directors upon the request of shareholders
owning at least 10% of the Fund's outstanding shares of all
series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to
meet requirements of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax
treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay
federal income tax on any dividends and other distributions,
including capital gains distributions, received. This applies
whether dividends and distributions are received in cash or as
additional shares. Distributions representing long-term
capital gains, if any, will be taxable to shareholders as long-
term capital gains no matter how long the shareholders have
held their shares. Information on the tax status of dividends
and distributions is provided annually.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the
Fund:
* the Fund is subject to the Pennsylvania corporate
franchise tax; and
* Fund shares are exempt from personal property taxes
imposed by counties, municipalities and school
districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local
tax laws.
PERFORMANCE INFORMATION
<PAGE>
From time to time the Fund advertises its total return and
yield.
Total return represents the change, over a specified period of
time, in the value of an investment in the Fund after
reinvesting all income and capital gains distributions. It is
calculated by dividing that change by the initial investment
and is expressed as a percentage.
R
The yield of the Fund is calculated by dividing the net
investment income per share (as defined by the Securities and
Exchange Commission) earned by the Fund over a thirty-day
period by the offering price per share of the Fund on the last
day of the period. This number is then annualized using semi-
annual compounding. The yield does not necessarily reflect
income actually earned by the Fund and, therefore, may not
correlate to the dividends or other distributions paid to
shareholders.
From time to time, the Fund may advertise its performance using
certain financial publications and/or compare its performance
to certain indices.
/R
ADDRESSES
Insight Adjustable
Rate Mortgage Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser Federated Advisers
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Custodian State Street Bank and Trust Company
P.O. Box 8604
Boston, Massachusetts 02266-8604
Transfer Agent and
Dividend Disbursing Agent Federated Service Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
/R
Legal Counsel Houston, Houston & Donnelly
2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
Legal Counsel Dickstein, Shapiro & Morin
2101 L Street, N.W.
Washington, D.C. 20037
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<PAGE>
Independent
Public Accountants Arthur Andersen & Co.
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
/R
INSIGHT ADJUSTABLE RATE MORTGAGE FUND
PROSPECTUS
A Diversified Portfolio of
Insight Institutional Series, Inc.,
an Open-End, Management
Investment Company
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January 19, 1994
/R
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
<PAGE>
INSIGHT U.S. GOVERNMENT FUND
(A PORTFOLIO OF INSIGHT INSTITUTIONAL SERIES, INC.)
STATEMENT OF ADDITIONAL INFORMATION
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This Statement of Additional Information should be read with
the prospectus of Insight U.S. Government Fund (the "Fund")
dated January 19, 1994. This Statement is not a prospectus
itself. To receive a copy of the prospectus, write or call the
Fund.
/R
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Statement dated January 19, 1994
/R
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND
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INVESTMENT OBJECTIVE AND POLICIES
<PAGE>
Types of Investments
Resets of Interest
Caps and Floors
When-Issued and Delayed Delivery Transactions
Lending of Portfolio Securities
Restricted and Illiquid Securities
Repurchase Agreements
Reverse Repurchase Agreements
Portfolio Turnover
/R
INVESTMENT LIMITATIONS
INSIGHT INSTITUTIONAL SERIES, INC. MANAGEMENT
Officers and Directors
The Funds
Fund Ownership
Director Liability
INVESTMENT ADVISORY SERVICES
Adviser to the Fund
Advisory Fees
SHAREHOLDER SERVICING
ADMINISTRATIVE SERVICES
BROKERAGE TRANSACTIONS
PURCHASING SHARES
DETERMINING NET ASSET VALUE
Determining Market Value of Securities
REDEEMING SHARES
Redemption in Kind
TAX STATUS
The Fund's Tax Status
Shareholders' Tax Status
TOTAL RETURN
YIELD
PERFORMANCE COMPARISONS
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Insight Institutional Series, Inc.
(the "Corporation"). The Corporation was incorporated under
the laws of the State of Maryland on October 11, 1993.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to provide current
income. The investment objective and policies of the Fund
cannot be changed without approval of shareholders.
/R
TYPES OF INVESTMENTS
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The Fund invests primarily in a diversified portfolio of U.S.
government securities. Under normal circumstances, the Fund
will invest at least 65% of the value of its total assets in
securities that are issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The investment
portfolio includes the following securities:
/R
* U.S. government obligations, including U.S. Treasury bills,
notes, and bonds, and securities issued by agencies and
instrumentalities of the U.S. government;
R
* repurchase agreements; and
* money market instruments.
/R
RESETS OF INTEREST
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The interest rates paid on the adjustable rate mortgage
securities ("ARMS"), collateralized mortgage obligations
("CMOs"), and real estate mortgage investment conduits
("REMICs") in which the Fund invests generally are readjusted
at intervals of one year or less to an increment over some
predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities
and those derived from a calculated measure, such as a cost of
funds index or a moving average of mortgage rates. Commonly
utilized indices include the one-year and five-year constant
maturity Treasury Note rates, the three-month Treasury Bill
rate, the 180-day Treasury Bill rate, rates on longer-term
Treasury securities, the National Median Cost of Funds, the
one-month or three-month London Interbank Offered Rate (LIBOR),
the prime rate of a specific bank, or commercial paper rates.
Some indices, such as the one-year constant maturity Treasury
Note rate, closely mirror changes in market interest rate
levels.
/R
To the extent that the adjusted interest rate on the mortgage
security reflects current market rates, the market value of an
adjustable rate mortgage security will tend to be less
sensitive to interest rate changes than a fixed rate debt
security of the same stated maturity. Hence, ARMS which use
indices that lag changes in market rates should experience
greater price volatility than adjustable rate mortgage
securities that closely mirror the market.
CAPS AND FLOORS
<PAGE>
The underlying mortgages which collateralize the ARMS, CMOs,
and REMICs in which the Fund invests will frequently have caps
and floors which limit the maximum amount by which the loan
rate to the residential borrower may change up or down:
(1) per reset or adjustment interval, and (2) over the life of
the loan. Some residential mortgage loans restrict periodic
adjustments by limiting changes in the borrower's monthly
principal and interest payments rather than limiting interest
rate changes. These payment caps may result in negative
amortization.
The value of mortgage securities in which the Fund invests may
be affected if market interest rates rise or fall faster and
farther than the allowable caps or floors on the underlying
residential mortgage loans. Additionally, even though the
interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby
causing the effective maturities of the mortgage securities in
which the Fund invests to be shorter than the maturities stated
in the underlying mortgages.
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/R
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future
time. The Fund engages in when-issued and delayed delivery
transactions only for the purpose of acquiring portfolio
securities consistent with the Fund's investment objective and
policies, and 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 Fund sufficient to
make payment for the securities to be purchased are segregated
at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled. The Fund
may engage in these transactions to an extent that would cause
the segregation of an amount up to 20% of the total value of
its assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the 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 the Fund. During the time portfolio
securities are on loan, the borrower pays the Fund any
dividends or interest paid on such securities. Loans are
<PAGE>
subject to termination at the option of the Fund or the
borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.
RESTRICTED AND ILLIQUID SECURITIES
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The ability of the Board of Directors ("Directors") to
determine the liquidity of certain restricted securities is
permitted under the Securities and Exchange Commission ("SEC")
Staff position set forth in the adopting release for Rule 144A
under the Securities Act of 1933 (the "Rule"). The Rule is a
non-exclusive safe harbor for certain secondary market
transactions involving 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 Rule 144A. The
Fund believes that the Staff of the SEC has left the question
of determining the liquidity of all restricted securities to
the Directors. The Directors consider the following criteria
in determining the liquidity of certain restricted securities:
/R
* 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
The 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
Fund, the Fund could receive less than the repurchase price on
any sale of such securities. In the event that a defaulting
seller files for bankruptcy or becomes insolvent, disposition
of securities by the Fund might be delayed pending court
action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and
allow retention or disposition of such securities. The Fund
will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which
are deemed by the Fund's adviser to be creditworthy pursuant to
guidelines established by the Directors.
<PAGE>
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. A
reverse repurchase transaction is similar to borrowing cash.
In a reverse repurchase agreement the Fund transfers possession
of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees
that on a stipulated date in the future, the Fund will
repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of
reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into
reverse repurchase agreements does not ensure that the Fund
will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of
the Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date.
These securities are marked to market daily and are maintained
until the transaction is settled.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover
rate since any turnover would be incidental to transactions
undertaken in an attempt to achieve the Fund's investment
objective. It is not anticipated that the portfolio trading
engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%.
INVESTMENT LIMITATIONS
The Fund may not change any of the investment limitations
described below without approval of shareholders.
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SELLING SHORT OR BUYING ON MARGIN
The Fund will not sell securities short or purchase
securities on margin, but may obtain such short-term credits
as are necessary for clearance of transactions.
/R
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the
Fund may borrow money and engage in reverse repurchase
agreements in amounts up to one-third of the value of its
total assets, including the amounts borrowed. The Fund will
not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate
<PAGE>
management of the portfolio by enabling the Fund to meet
redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while borrowings
in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. In those
cases, it may pledge assets having a market value not
exceeding the lesser of the dollar amounts borrowed or 15%
of the value of total assets at the time of the borrowing.
DIVERSIFICATION OF INVESTMENTS
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With respect to securities comprising 75% of the value of
its total assets, the Fund will not purchase securities of
any one issuer (other than cash, cash items (including time
deposits (including savings deposits and certificates of
deposit) and bankers acceptances issued by a U.S. branch of
a domestic bank or savings association having capital,
surplus, and undivided profits in excess of $100,000,000 at
the time of investment) or securities issued or guaranteed
by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized
by U.S. government securities) if as a result more than 5%
of the value of its total assets would be invested in the
securities of that issuer or the Fund would own more than
10% of the outstanding voting securities of that issuer.
/R
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its
total assets in any one industry, except it may invest 25%
or more of the value of its total assets in securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, including limited
partnership interests in real estate, although it may invest
in securities of companies whose business involves the
purchase or sale of real estate or in securities which are
secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities.
INVESTING IN RESTRICTED SECURITIES
<PAGE>
The Fund will not invest more than 10% of the value of its
total assets in securities subject to restrictions on resale
under the Securities Act of 1933, except for commercial
paper issued under Section 4(2) of the Securities Act of
1933 and certain other restricted securities which meet the
criteria for liquidity as established by the Directors.
UNDERWRITING
The Fund will not underwrite any issue of securities, except
as it may be deemed to be an underwriter under the
Securities Act of 1933 in connection with the sale of
restricted securities which the Fund may purchase pursuant
to its investment objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio
securities up to one-third of the value of its total assets.
This shall not prevent the Fund from purchasing or holding
U.S. government obligations, money market instruments,
variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities,
entering into repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment
objective, policies and limitations.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its
total assets in securities of companies, including their
predecessors, that have been in operation for less than
three years. (This limitation does not apply to issuers of
asset-backed securities which are collateralized by
securities or mortgages issued or guaranteed as to prompt
payment of principal and interest by an agency or
instrumentality of the U.S. government.)
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other
mineral exploration or development programs or leases,
although it may purchase the securities of issuers which
invest in or sponsor such programs.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investments in other investment
companies to no more than 3% of the total outstanding voting
securities of any such investment company, will invest no
more than 5% of its total assets in any one investment
company, and will invest no more than 10% of its total
assets in investment companies in general. These
limitations are not applicable if the securities are
<PAGE>
acquired as part of a merger, consolidation, reorganization,
or other acquisition.
Except with respect to borrowing money, if a percentage
limitation is adhered to at the time of the investment, a later
increase or decrease in percentage resulting from any change in
value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money, pledge securities or
invest in stock of closed-end investment companies during the
coming fiscal year.
INSIGHT INSTITUTIONAL SERIES, INC. MANAGEMENT
OFFICERS AND DIRECTORS
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Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any
affiliation with Federated Advisers, Federated Investors,
Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as
defined below).
/R
<PAGE>
Positions with Principal Occupations
Name and Address the Corporation During Past Five Years
John F. Donahue*+ Chairman and Chairman and Trustee,
Federated Director Federated Investors;
Investors Tower Chairman and Trustee,
Pittsburgh, PA Federated Advisers,
Federated Management, and
Federated Research;
Director, Aetna Life and
Casualty Company; Chief
Executive Officer and
Director, Trustee, or
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
Corporation.
John T. Conroy, Director President, Investment
Jr., Wood/IPC Properties Corporation;
Commercial Senior Vice-President,
Department John R. Wood and
John R. Wood and Associates, Inc.,
Associates, Inc., Realtors; President,
Realtors Northgate Village
3255 Tamiami Development Corporation
Trail North and Investment Properties
Naples, FL Corporation; General
Partner or Trustee in
private real estate
ventures in Southwest
Florida; Director,
Trustee, or Managing
General Partner of the
Funds; formerly,
President, Naples Property
Management, Inc.
William J. Director Director and Member of the
Copeland Executive Committee,
One PNC Plaza - Michael Baker, Inc.;
23rd Floor Director, Trustee, or
Pittsburgh, PA Managing General Partner
of the Funds; formerly,
Vice Chairman and
Director, PNC Bank, N.A.
and PNC Bank Corp. and
Director, Ryan Homes, Inc.
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<PAGE>
James E. Dowd Director Attorney-at-law; Director,
571 Hayward Mill The Emerging Germany Fund,
Road Inc.; Director, Trustee,
Concord, MA or Managing General
Partner of the Funds;
formerly, Director, Blue
Cross of Massachusetts,
Inc.
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Lawrence D. Director Hematologist, Oncologist,
Ellis, M.D. and Internist,
3471 Fifth Avenue Presbyterian and
Suite 1111 Montefiore Hospitals;
Pittsburgh, PA Clinical Professor of
Medicine and Trustee,
University of Pittsburgh;
Director, Trustee, or
Managing General Partner
of the Funds.
Richard B. President and Executive Vice President
Fisher* Director and Trustee, Federated
Federated Investors; Chairman,
Investors Tower Federated Securities
Pittsburgh, PA Corp.; President or Vice
President of the Funds;
Director or Trustee of
some of the Funds.
Edward L. Director Attorney-at-law; Partner,
Flaherty, Jr.+ Meyer and Flaherty;
5916 Penn Mall Director, Eat'N Park
Pittsburgh, PA Restaurants, Inc., and
Statewide Settlement
Agency, Inc.; Director,
Trustee, or Managing
General Partner of the
Funds; formerly, Counsel,
Horizon Financial, F.A.,
Western Region.
Peter E. Madden Director Consultant; State
225 Franklin Representative,
Street Commonwealth of
Boston, MA Massachusetts; Director,
Trustee, or Managing
General Partner of the
Funds; formerly,
President, State Street
Bank and Trust Company and
State Street Boston
Corporation and Trustee,
Lahey Clinic Foundation,
Inc.
<PAGE>
Gregor F. Meyer Director Attorney-at-law; Partner,
5916 Penn Mall Meyer and Flaherty;
Pittsburgh, PA Chairman, Meritcare, Inc.;
Director, Eat'N Park
Restaurants, Inc.;
Director, Trustee, or
Managing General Partner
of the Funds; formerly,
Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar Director Professor, Foreign Policy
1202 Cathedral of and Management Consultant;
Learning Trustee, Carnegie
University of Endowment for
Pittsburgh International Peace, RAND
Pittsburgh, PA Corporation, Online
Computer Library Center,
Inc., and U.S. Space
Foundation; Chairman,
Czecho Slovak Management
Center; Director, Trustee,
or Managing General
Partner of the Funds;
President Emeritus,
University of Pittsburgh;
formerly, Chairman,
National Advisory Council
for Environmental Policy
and Technology.
Marjorie P. Smuts Director Public relations/marketing
4905 Bayard consultant; Director,
Street Trustee, or Managing
Pittsburgh, PA General Partner of the
Funds.
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<PAGE>
J. Christopher Vice President President and Trustee,
Donahue Federated Investors;
Federated Trustee, Federated
Investors Tower Advisers, Federated
Pittsburgh, PA Management, and Federated
Research; Trustee,
Federated Services
Company; President and
Director, Federated
Administrative Services,
Inc.; 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 Director of the
Corporation.
Edward C. Vice President and Vice President, Treasurer
Gonzales Treasurer and Trustee, Federated
Federated Investors; Vice President
Investors Tower and Treasurer, Federated
Pittsburgh, PA Advisers, Federated
Management, and Federated
Research; Executive Vice
President, Treasurer, and
Director, Federated
Securities Corp.; Trustee,
Federated Services
Company; Chairman,
Treasurer, and Director,
Federated Administrative
Services, Inc.; Trustee or
Director of some of the
Funds; Vice President and
Treasurer of the Funds.
<PAGE>
John W. McGonigle Vice President Vice President, Secretary,
Federated and Secretary General Counsel, and
Investors Tower Trustee, Federated
Pittsburgh, PA Investors; Vice President,
Secretary, and Trustee,
Federated Advisers,
Federated Management, and
Federated Research;
Trustee, Federated
Services Company;
Executive Vice President,
Secretary, and Director,
Federated Administrative
Services, Inc.; Director
and Executive Vice
President, Federated
Securities Corp.; Vice
President and Secretary of
the Funds.
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John A. Vice President Vice President and
Staley, IV Trustee, Federated
Federated Investors; Executive Vice
Investors Tower President, Federated
Pittsburgh, PA Securities Corp.;
President and Trustee,
Federated Advisers,
Federated Management, and
Federated Research; Vice
President of the Funds;
Director, Trustee, or
Managing General Partner
of some of the Funds;
formerly, Vice President,
The Standard Fire
Insurance Company and
President of its Federated
Research Division.
* This Director is deemed to be an "interested person" of the
Fund as defined in the Investment Company Act of 1940.
+ Member of the Corporation's Executive Committee. The
Executive Committee of the Board of Directors handles the
Directors' responsibilities between meetings of the
Directors.
THE FUNDS
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"The Funds" and "Funds" mean the following investment
companies: A.T. Ohio Tax-Free Money Fund; American Leaders
Fund, Inc.; Annuity Management Series; Automated Cash
Management Trust; Automated Government Money Trust; BankSouth
Select Funds; The Boulevard Funds; California Municipal Cash
<PAGE>
Trust; Cash Trust Series, Inc.; Cash Trust Series II;
111 Corcoran Funds; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs
Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated Growth Trust; Federated
High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Intermediate Government Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund;
First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal
Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities,
Inc.; High Yield Cash Trust; Insurance Management Series;
Intermediate Municipal Trust; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty
U.S. Government Money Market Trust; Liberty Utility Fund, Inc.;
Liquid Cash Trust; Mark Twain Funds; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; New York Municipal Cash
Trust; The Planters Funds; Portage Funds; RIMCO Monument Funds;
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; and Trust for
U.S. Treasury Obligations.
/R
FUND OWNERSHIP
Officers and Directors own less than 1% of the outstanding
shares of the Fund.
DIRECTOR LIABILITY
The Corporation's Articles of Incorporation provide that the
Directors 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 FUND
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<PAGE>
The Fund's investment adviser is Federated Advisers (the
"Adviser"). It is a subsidiary of Federated Investors. All of
the voting securities of Federated Investors are owned by a
trust, the Trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. John F. Donahue, Chairman and
Trustee of Federated Advisers, is Chairman and Trustee of
Federated Investors, and Chairman and Director of the Fund.
John A. Staley, IV, President and Trustee of Federated
Advisers, is Vice President and Trustee of Federated Investors,
Executive Vice President of Federated Securities Corp., and
Vice President of the Fund. J. Christopher Donahue, Trustee of
Federated Advisers, is President and Trustee of Federated
Investors, Trustee of Federated Services Company, President and
Director of Federated Administrative Services, Inc. and Vice
President of the Fund. John W. McGonigle, Vice President,
Secretary and Trustee of Federated Advisers, is Trustee, Vice
President, Secretary and General Counsel of Federated
Investors, Trustee of Federated Services Company, Executive
Vice President, Secretary and Director of Federated
Administrative Services, Inc., Executive Vice President and
Director of Federated Securities Corp., and Vice President and
Secretary of the Fund. The Adviser shall not be liable to the
Fund or any shareholder for any losses that may be sustained in
the purchase, holding, or sale of any security or for anything
done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with
the Fund.
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ADVISORY FEES
For its advisory services, Federated Advisers receives an
annual investment advisory fee as described in the prospectus.
STATE EXPENSE LIMITATION
The Adviser has undertaken to comply with the expense
limitation established by certain states for investment
companies whose shares are registered for sale in those
states. If the Fund's normal operating expenses
(including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2-1/2% per year of the
first $30 million of average net assets, 2% per year of
the next $70 million of average net assets, and 1-1/2%
per year of the remaining average net assets, the
Adviser will reimburse the Fund for its expenses over
the limitation.
If the Fund's monthly projected operating expenses
exceed this expense limitation, the investment advisory
fee paid will be reduced by the amount of the excess,
subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be waived by the
<PAGE>
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.
SHAREHOLDER SERVICING
In return for providing shareholder servicing to its customers
who from time to time may be owners of record or beneficial
owners of shares of the Fund, a financial institution may
receive payments from the Fund at a rate not exceeding 0.25 of
1% of the average daily net assets of the shares beneficially
owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship.
These services may include, but not are not limited to, the
provision of personal services and maintenance of shareholder
accounts.
Federated Securities Corp. may also pay financial institutions
a fee based upon the net asset value of the Fund shares
beneficially owned by the financial institution's clients or
customers. This fee is in addition to amounts paid under the
Shareholder Services Plan and will be reimbursed by the
Adviser.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, Inc., a subsidiary of
Federated Investors, provides administrative personnel and
services to the Fund at approximate cost. John A. Staley, IV,
an officer of the Fund, and Dr. Henry J. Gailliot, an officer
of Federated Advisers, the Adviser to the Fund, each hold
approximately 15% and 20%, respectively, of the outstanding
common stock and serve as directors of Commercial Data
Services, Inc., a company which provides computer processing
services to Federated Administrative Services, Inc.
/R
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and
sale of portfolio instruments, the Adviser looks for prompt
execution of the order at a favorable price. In working with
dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review
by the Directors.
<PAGE>
The Adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished
directly to the Fund or to the Adviser and may include:
* advice as to the advisability of investing in securities;
* security analysis and reports;
* economic studies;
* industry studies;
* receipt of quotations for portfolio evaluations; and
* similar services.
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 or by affiliates of Federated Investors in advising
Federated funds and other accounts. To the extent that receipt
of these services may supplant services for which the Adviser
or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
Except under certain circumstances described in the prospectus,
shares are sold at their net asset value on days the New York
Stock Exchange is open for business. The procedure for
purchasing shares of the Fund is explained in the prospectus
under "Investing in the Fund."
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which
net asset value is calculated by the Fund are described in the
prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's securities are determined as
follows:
* as provided by an independent pricing service;
<PAGE>
* for short-term obligations, according to the mean bid and
asked prices, as furnished by an independent pricing
service, or for short-term obligations with maturities of
less than 60 days, at amortized cost unless the Directors
determine this is not fair value; or
* at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be
determined without relying exclusively on quoted prices.
Pricing services may consider:
* yield;
* quality;
* coupon rate;
* maturity;
* type of issue;
* trading characteristics; and
* other market data.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value
after the Fund receives the redemption request. Redemption
procedures are explained in the prospectus under "Redeeming
Shares." Although State Street Bank does not charge for
telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than
$5,000.
REDEMPTION IN KIND
The Corporation is obligated to redeem shares solely in cash up
to $250,000 or 1% of the Fund's net asset value, whichever is
less, for any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless
the Directors determine that payments should be in kind. In
such a case, the Fund will pay all or a portion of the
remainder of the redemption in portfolio instruments, valued in
the same way that net asset value is determined. The portfolio
instruments will be selected in a manner that the Directors
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
<PAGE>
less than the redemption value of their securities and could
incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to
meet the requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
To qualify for this treatment, the Fund must, among other
requirements:
* 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 and
capital gains received as cash or additional shares. No
portion of any income dividend paid by the Fund is eligible for
the dividends received deduction available to corporations.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on
long-term capital gains distributed to them regardless of
how long they have held the Fund shares.
TOTAL RETURN
R
The average annual total return for the Fund is the average
compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by
multiplying the number of shares owned at the end of the period
by the offering price per share at the end of the period. The
number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with
$1,000, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and
distributions.
/R
<PAGE>
YIELD
R
The yield of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and
Exchange Commission) earned by the Fund over a thirty-day
period by the offering price per share of the Fund 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 12-month period and is reinvested every six
months. The yield does not necessarily reflect income actually
earned by the Fund because of certain adjustments required by
the 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 Fund, performance will
be reduced for those shareholders paying those fees.
/R
PERFORMANCE COMPARISONS
The Fund's 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 Fund expenses; and
* various other factors.
R
The Fund's 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 the Fund's performance. When
comparing performance, investors should consider all relevant
factors such as the composition of any index used, prevailing
market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute net
asset value. The financial publications and/or indices which
the Fund uses in advertising may include:
* SALOMON BROTHERS MORTGAGE-BACKED SECURITIES INDEX -- 15
YEARS includes the average of all 15-year mortgage
securities, which include Federal Home Loan Mortgage
<PAGE>
Corporation (Freddie Mac), Federal National Mortgage
Association (Fannie Mae), and Government National Mortgage
Association (Ginnie Mae).
* 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 offering price over a specific
period of time. From time to time, the Fund will quote its
Lipper ranking in the "U.S. Mortgage Funds" category in
advertising and sales literature.
/R
Advertisements and other sales literature for the Fund may
quote total returns which are calculated on non-standardized
base periods. These total returns represent the historic
change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of
time.
R
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<PAGE>
INSIGHT LIMITED TERM MUNICIPAL FUND
(A PORTFOLIO OF INSIGHT INSTITUTIONAL SERIES, INC.)
STATEMENT OF ADDITIONAL INFORMATION
R
This Statement of Additional Information should be read with
the prospectus of Insight Limited Term Municipal Fund (the
"Fund") dated January 19, 1994. This Statement is not a
prospectus itself. To receive a copy of the prospectus, write
or call the Fund.
/R
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
R
Statement dated January 19, 1994
/R
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND
R
INVESTMENT OBJECTIVE AND POLICIES
Types of Investments
Participation Interests
<PAGE>
Municipal Leases
Industrial Development Bonds
Inverse Floaters
Municipal Notes
Tax-Exempt Commercial Paper
Variable and Floating Rate Securities
Auction Rate Securities
Tender Option Bonds
Zero Coupon and Capital Appreciation Bonds
Insurance
Futures and Options Transactions
Weighted Average Portfolio Duration
When-Issued and Delayed Delivery Transactions
Restricted and Illiquid Securities
Reverse Repurchase Agreements
Portfolio Turnover
/R
INVESTMENT LIMITATIONS
INSIGHT INSTITUTIONAL SERIES, INC. MANAGEMENT
Officers and Directors
The Funds
Fund Ownership
Director Liability
INVESTMENT ADVISORY SERVICES
Adviser to the Fund
Advisory Fees
SHAREHOLDER SERVICING
ADMINISTRATIVE SERVICES
BROKERAGE TRANSACTIONS
PURCHASING SHARES
DETERMINING NET ASSET VALUE
Determining Market Value of Securities
REDEEMING SHARES
Redemption in Kind
TAX STATUS
The Fund's Tax Status
Shareholders' Tax Status
TOTAL RETURN
YIELD
TAX-EQUIVALENT YIELD
Tax Equivalency Table
<PAGE>
PERFORMANCE COMPARISONS
APPENDIX
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Insight Institutional Series, Inc.
(the "Corporation"). The Corporation was incorporated under
the laws of the State of Maryland on October 11, 1993.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide a high level
of current income which is exempt from federal regular income
tax (federal regular income tax does not include the federal
alternative minimum tax) consistent with minimum fluctuation in
principal value. The investment objective stated above cannot
be changed without approval of shareholders. Unless indicated
otherwise, the investment policies stated below may be changed
by the Board of Directors ("Directors") without shareholder
approval. Shareholders will be notified before any material
change in the investment policies becomes effective.
TYPES OF INVESTMENTS
R
The Fund pursues its investment objective by investing in a
diversified portfolio primarily limited to municipal
securities, the weighted-average duration of which will at all
times be limited to four years or less. By investing primarily
in these securities, the Fund should tend to have a lower
degree of fluctuation in principal value than a fund that
invests primarily in a non-diversified portfolio of longer-
term, non-investment grade securities. As a matter of
investment policy, which may not be changed without shareholder
approval, under normal circumstances, the Fund will be invested
so that at least 80% of its net assets are invested in
obligations, the interest from which is exempt from federal
regular income tax. The municipal securities in which the Fund
invests are rated, at the time of purchase, Baa or better by
Moody's Investors Service, Inc. ("Moody's") or BBB or better by
Standard & Poor's Corporation ("S&P") or Fitch Investors
Service, Inc. ("Fitch"). In certain cases the Fund's adviser
may choose bonds which are unrated if it determines that such
bonds are of comparable quality or have similar characteristics
to investment grade bonds.
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The following are examples of the types of municipal securities
in which the Fund invests:
* general obligation bonds;
<PAGE>
* municipal leases, installment purchase contracts,
conditional sales contracts or participation certificates of
any of the above, issued by state and municipal authorities
where payment is provided by installment payments for
equipment, buildings or other facilities acquired by the
state or municipality;
* industrial development bonds;
* derivative municipal securities whose interest rates bear an
inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters");
* municipal notes and tax-exempt commercial paper;
* pre-refunded municipal securities whose timely payment of
interest and principal is ensured by an escrow of U.S.
government obligations;
* auction rate and tender option securities; and
* zero coupon and capital appreciation bonds, which are issued
at a discount from their face value and do not pay interest
prior to maturity or a specified date.
The Fund may also engage in put and call options, futures
contracts, and options on futures contracts for hedging
purposes.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases
participation interests frequently provide or secure from
another financial institution irrevocable letters of credit or
guarantees and give the Fund the right to demand payment of the
principal amounts of the participation interests plus accrued
interest on short notice (usually within seven days).
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional
interests in lease payments by a governmental or non-profit
entity. The lease payments and other rights under the lease
provide for and secure the payments on the certificates. Lease
obligations may be limited by municipal charter or the nature
of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the
entity does not appropriate funds for the future lease
payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee
cannot accelerate lease obligations upon default. The trustee
would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, it
<PAGE>
is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment.
In determining the liquidity of municipal lease securities, the
Fund's investment adviser, under the authority delegated by the
Directors, will base its determination on the following
factors:
* whether the lease can be terminated by the lessee;
* the potential recovery, if any, from a sale of the leased
property upon termination of the lease;
* the lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
* the likelihood that the lessee will discontinue
appropriating funding for the leased property because the
property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation");
and
* any credit enhancement or legal recourse provided upon an
event of non-appropriation or other termination of the
lease.
INDUSTRIAL DEVELOPMENT BONDS
Industrial development bonds are generally issued to provide
financing aid to acquire sites or construct and equip
facilities for use by privately or publicly owned corporations.
Most state and local governments have the power to permit the
issuance of industrial development bonds to provide financing
for such corporations in order to encourage the corporations to
locate within their communities. Industrial development bonds
do not represent a pledge of credit or create any debt of
municipality or a public authority, and no taxes may be levied
for payment of principal or interest on these bonds. The
principal and interest is payable solely out of monies
generated by the entities using or purchasing the sites or
facilities.
INVERSE FLOATERS
The Fund may invest in various types of derivative municipal
securities whose interest rates bear an inverse relationship to
the interest rate on another security or the value of an index
("inverse floaters"). Because changes in the interest rate on
the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse
floater is generally more volatile than that of a fixed rate
bond. The effective duration of an inverse floating rate
security, in the absence of rate "ceilings" or "floors", is
<PAGE>
greater than that of a fixed rate security of equivalent
maturity. Inverse floaters have interest rate adjustment
formulas which generally reduce or, in the extreme, eliminate
the interest paid to the Fund when short-term interest rates
rise, and increase the interest paid to the Fund when short-
term interest rates fall. Inverse floaters have varying
degrees of liquidity, and the market for these securities is
new and relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising
interest rate environment, but tend to outperform the market
for fixed rate bonds when interest rates decline. Shifts in
the relationship between short-term and long-term interest
rates may alter this tendency, however. In return for this
volatility, inverse floaters typically offer the potential for
yields exceeding the yields available on fixed rate bonds with
comparable credit quality and stated maturity. These
securities usually permit the investor to convert the floating
rate to a fixed rate (normally adjusted downward), and this
optional conversion feature may provide a partial hedge against
rising interest rates if exercised at an opportune time. The
Fund does not intend to invest more than 20% of its total
assets in inverse floaters.
MUNICIPAL NOTES
Municipal securities in the form of notes generally are used to
provide for short-term capital needs, in anticipation of an
issuer's receipt of other revenues or financing, and typically
have maturities of up to three years. Such instruments may
include Tax Anticipation Notes, Revenue Anticipation Notes,
Bond Anticipation Notes, and Tax and Revenue Anticipation
Notes. The obligations of an issuer of municipal notes are
generally secured by the anticipated revenues from taxes,
grants or bond financing. An investment in such instruments,
however, presents a risk that the anticipated revenues will not
be received or that such revenues will be insufficient to
satisfy the issuer's payment obligations under the notes or
that refinancing will be otherwise unavailable.
TAX-EXEMPT COMMERCIAL PAPER
Issues of commercial paper typically represent short-term,
unsecured, negotiable promissory notes. These obligations are
issued by state and local governments and their agencies to
finance working capital needs of municipalities or to provide
interim construction financing and are paid from general
revenues of municipalities or are refinanced with long-term
debt. In most cases, tax-exempt commercial paper is backed by
letters of credit, lending agreements, note repurchase
agreements or other credit facility agreements offered by banks
or other institutions.
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VARIABLE AND FLOATING RATE SECURITIES
<PAGE>
Variable or floating rate obligations generally permit the
holders of such obligations to demand payment of principal from
the issuer or a third party at any time or at stated intervals.
Variable and floating rate obligations are less effective than
fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in
response to interest rate changes if there is a delay between
changes in market interest rates and the interest reset date
for an obligation. The Fund will take demand features into
consideration in determining the average portfolio duration of
the Fund and the effective maturity of individual municipal
securities. In addition, the absence of an unconditional
demand feature exercisable within seven days will, and the
failure of the issuer or a third party to honor its obligations
under a demand feature might, require a variable or floating
rate obligation to be treated as illiquid for purposes of the
Fund's 15% limitation on illiquid investments.
AUCTION RATE SECURITIES
Dividends on auction rate preferred securities issued by a
closed-end fund may be designated as exempt from federal income
tax to the extent they are attributable to exempt income earned
by the closed-end fund on the securities in its portfolio and
distributed to holders of the preferred securities, provided
that the preferred securities are treated as equity securities
for federal income tax purposes and the closed-end fund
complies with certain tests under the Internal Revenue Code.
For purposes of complying with the 20% limitation on the Fund's
investments in taxable securities, auction rate preferred
securities will be treated as taxable securities unless
substantially all of the dividends on such securities is
expected to be exempt from regular federal income taxes.
The Fund's investments in auction rate preferred securities of
closed-end funds are subject to the limitations prescribed by
the Investment Company Act of 1940 and certain state securities
regulations. These limitations include a prohibition against
acquiring more than 3% of the voting securities of any other
investment company, and investing more than 5% of the Fund's
assets in securities of any one investment company or more than
10% of its assets in securities of all investment companies.
The Fund will indirectly bear its proportionate share of any
management fees paid by such closed-end funds in addition to
the advisory fee payable directly by the Fund.
TENDER OPTION BONDS
Although the Fund intends to invest in tender option bonds the
interest on which will, in the opinion of bond counsel for the
issuer or counsel selected by the Fund's investment adviser, be
exempt from regular federal income tax, there is a risk that
the Fund will not be considered the owner of such tender option
bonds and thus will not be entitled to treat such interest as
<PAGE>
exempt from such tax. In addition, tender offer bonds may be
considered to be securities of an unregistered investment
company for purposes of the limitations imposed by the
Investment Company Act of 1940 on the Fund's investments in
investment company securities. Accordingly, the Fund will
comply with the following percentage limitations on investments
in tender option bonds. The Fund will not acquire more than 3%
of the voting securities of the issuer of the tender option
bonds, invest more than 5% of its assets in any one issue of
tender option bonds or invest more than 10% of its assets in
tender option bonds in the aggregate.
ZERO COUPON AND CAPITAL APPRECIATION BONDS
Zero coupon and capital appreciation securities carry the risk
that, unlike securities that periodically pay interest to
maturity, the Fund will realize no cash until a specified
future payment date unless a portion of such securities is sold
and, if the issuer of such securities defaults, the Fund may
obtain no return at all on its investment. In addition, even
though such securities do not pay current interest in cash, the
Fund is nonetheless required to accrue income on such
investments and may be required to distribute such amounts at
least annually. Because no cash is received at the time of the
accrual, the Fund may be required to liquidate other portfolio
securities to satisfy the Fund's distribution obligations.
INSURANCE
The Fund may invest in "insured" municipal securities. Insured
municipal securities are those for which scheduled payments of
interest and principal are guaranteed by a private
(nongovernmental) insurance company. The insurance only
entitles the Fund to receive the face or par value of the
securities held by the Fund. The insurance does not guarantee
the market value of the municipal securities or the value of
the shares of the Fund.
The Fund may utilize new issue or secondary market insurance.
A new issue insurance policy is purchased by a bond issuer who
wishes to increase the credit rating of a security. By paying
a premium and meeting the insurer's underwriting standards, the
bond issuer is able to obtain a high credit rating (usually,
Aaa from Moody's or AAA from S&P) for the issued security.
Such insurance is likely to increase the purchase price and
resale value of the security. New issue insurance policies are
non-cancellable and continue in force as long as the bonds are
outstanding. A secondary market insurance policy is purchased
by an investor (such as the Fund) subsequent to a bond's
original issuance and generally insures a particular bond for
the remainder of its term. The Fund may purchase bonds which
have already been insured under a secondary market insurance
policy by a prior investor, or the Fund may itself purchase
<PAGE>
such a policy from insurers for bonds which are currently
uninsured.
An insured municipal security acquired by the Fund will
typically be covered by only one of the above types of
policies. All of the insurance policies used by the Fund will
be obtained only from insurance companies rated, at the time of
purchase, Aaa by Moody's or AAA by S&P.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may purchase and sell futures contracts and options on
futures contracts on financial instruments. The Fund will
engage in futures and related options transactions only for
bona fide hedging or other appropriate risk management
purposes. The Fund may enter into futures contracts provided
that not more than 5% of its assets are required as a futures
contract deposit; in addition, the Fund may enter into futures
contracts and options transactions only to the extent that
obligations under such contracts or transactions represent not
more than 20% of the Fund's assets. All futures contracts
entered into by the Fund are traded on U.S. exchanges or boards
of trade that are licensed and regulated by the Commodity
Futures Trading Commission. For example, the Fund may enter
into transactions in futures and related options on U.S.
government securities or on the Bond Buyer Municipal Bond
Index, a price-weighted measure of the market value of 40
large, recently issued tax-exempt securities.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the
seller who agrees to make delivery of the specific type of
security called for in the contract ("going short") and the
buyer who agrees to take delivery of the security ("going
long") at a certain time in the future. In the fixed income
securities market, price moves inversely to interest rates.
A rise in rates means a drop in price. Conversely, a drop
in rates means a rise in price. In order to hedge its
holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to
deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the
prices of its fixed income securities may decline during the
Fund's anticipated holding period. The Fund would agree to
purchase securities in the future at a predetermined price
(i.e., "go long") to hedge against a decline in market
interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial
futures contracts. Unlike entering directly into a futures
contract, which requires the purchaser to buy a financial
<PAGE>
instrument on a set date at a specified price, the purchase
of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.
The Fund would purchase put options on futures contracts to
protect portfolio securities against decreases in value
resulting from an anticipated increase in market interest
rates. Generally, if the hedged portfolio securities
decrease in value during the term of an option, the related
futures contracts will also decrease in value and the option
will increase in value. In such an event, the Fund will
normally close out its option by selling an identical
option. If the hedge is successful, the proceeds received
by the Fund upon the sale of the second option will be large
enough to offset both the premium paid by the Fund for the
original option plus the decrease in value of the hedged
securities.
Alternatively, the Fund may exercise its put option. To do
so, it would simultaneously enter into a futures contract of
the type underlying the option (for a price less than the
strike price of the option) and exercise the option. The
Fund would then deliver the futures contract in return for
payment of the strike price. If the Fund neither closes out
nor exercises an option, the option will expire on the date
provided in the option contract, and the premium paid for
the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund
may write listed call options on futures contracts to hedge
its portfolio against an increase in market interest rates.
When the Fund writes a call option on a futures contract, it
is undertaking the obligation of assuming a short futures
position (selling a futures contract) at the fixed strike
price at any time during the life of the option if the
option is exercised. As market interest rates rise, causing
the prices of futures to go down, the Fund's obligation
under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of the Fund's call
option position to increase.
In other words, as the underlying futures price goes down
below the strike price, the buyer of the option has no
reason to exercise the call, so that the Fund keeps the
premium received for the option. This premium can offset
the drop in value of the Fund's fixed income portfolio which
is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or
exercise of it by the buyer, the Fund may close out the
option by buying an identical option. If the hedge is
<PAGE>
successful, the cost of the second option will be less than
the premium received by the Fund for the initial option.
The net premium income of the Fund will then offset the
decrease in value of the hedged securities.
The Fund will not maintain open positions in futures
contracts it has sold or call options it has written on
futures contracts if, in the aggregate, the value of the
open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted
for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to
close out a sufficient number of open contracts to bring its
open futures and options positions within this limitation.
Perfect correlation between the Fund's futures and options
positions and portfolio positions may be difficult to
achieve because no futures contracts based on individual
municipal securities are currently available. The only
futures contracts available to hedge the Fund's portfolio
are various futures on U.S. government securities and a
municipal bond index.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not
pay or receive money upon the purchase or sale of a futures
contract. Rather, the Fund is required to deposit an amount
of "initial margin" in cash or U.S. Treasury bills with its
custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from
that of margin in securities transactions in that futures
contract initial margin does not involve the borrowing of
funds by the Fund to finance the transactions. Initial
margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund
and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset
value, the Fund will mark-to-market its open futures
positions.
<PAGE>
The Fund is also required to deposit and maintain margin
when it writes call options on futures contracts.
WEIGHTED AVERAGE PORTFOLIO DURATION
Duration is a commonly used measure of the potential volatility
of the price of a debt security, or the aggregate market value
of a portfolio of debt securities, prior to maturity. Duration
measures the magnitude of the change in the price of a debt
security relative to a given change in the market rate of
interest. The duration of a debt security depends upon three
primary variables: the security's coupon rate, maturity date
and the level of market interest rates for similar debt
securities. Generally, debt securities with lower coupons or
longer maturities will have a longer duration than securities
with higher coupons or shorter maturities.
Duration is calculated by dividing the sum of the time-weighted
values of cash flows of a security or portfolio of securities,
including principal and interest payments, by the sum of the
present values of the cash flows. Certain debt securities,
such as asset-backed securities, may be subject to prepayment
at irregular intervals. The duration of these instruments will
be calculated based upon assumptions established by the
investment adviser as to the probable amount and sequence of
principal prepayments.
Mathematically, duration is measured as follows:
PVCF1(1) PVCF2(2) PVCF3(3) PVCFn(n)
Duration = -------- + -------- + -------- + ... + --------
PVTCF PVTCF PVTCF PVTCF
where
PVCFt = the present value of the cash flow in period t
discounted at the prevailing yield-to-maturity
t = the period when the cash flow is received
n = remaining number of periods until maturity
PVTCF = total present value of the cash flow from the bond
where the present value is determined using the prevailing
yield-to-maturity
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future
time. The Fund engages in when-issued and delayed delivery
transactions only for the purpose of acquiring portfolio
securities consistent with the Fund's investment objective and
policies, and not for investment leverage.
<PAGE>
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 Fund sufficient to
make payment for the securities to be purchased are segregated
at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled. The Fund
may engage in these transactions to an extent that would cause
the segregation of an amount up to 20% of the total value of
its assets.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of
certain restricted securities is permitted under the Securities
and Exchange Commission ("SEC") Staff position set forth in the
adopting release for Rule 144A under the Securities Act of 1933
(the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving 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 Rule 144A. The Fund believes that the Staff
of the SEC has left the question of determining the liquidity
of all restricted securities to the Directors. The Directors
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.
The Fund will not invest more than 15% of its net assets in
illiquid obligations, including repurchase agreements providing
for settlement in more than seven days after notice, and
certain restricted securities determined by the Directors to be
illiquid, including certain municipal leases and inverse
floaters.
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REVERSE REPURCHASE AGREEMENTS
<PAGE>
The Fund may also enter into reverse repurchase agreements. A
reverse repurchase transaction is similar to borrowing cash.
In a reverse repurchase agreement the Fund transfers possession
of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees
that on a stipulated date in the future, the Fund will
repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of
reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into
reverse repurchase agreements does not ensure that the Fund
will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of
the Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date.
These securities are marked to market daily and are maintained
until the transaction is settled.
/R
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover
rate since any turnover would be incidental to transactions
undertaken in an attempt to achieve the Fund's investment
objective. It is not anticipated that the portfolio trading
engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%.
INVESTMENT LIMITATIONS
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SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell securities short or purchase
securities on margin, other than in connection with the
purchase and sale of financial futures, but may obtain such
short-term credits as are necessary for clearance of
transactions.
/R
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the
Fund may borrow money and engage in reverse repurchase
agreements in amounts up to one-third of the value of its
total assets, including the amounts borrowed. The Fund will
not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet
redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
<PAGE>
The Fund will not purchase any securities while borrowings
in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. In those
cases, it may pledge assets having a market value not
exceeding the lesser of the dollar amounts borrowed or 15%
of the value of total assets at the time of the borrowing.
Margin deposits for the purchase and sale of financial
futures contracts and related options are not deemed to be a
pledge.
DIVERSIFICATION OF INVESTMENTS
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With respect to securities comprising 75% of the value of
its total assets, the Fund will not purchase securities of
any one issuer (other than cash, cash items (including time
deposits (including savings deposits and certificates of
deposit) and bankers acceptances issued by a U.S. branch of
a domestic bank or savings association having capital,
surplus, and undivided profits in excess of $100,000,000 at
the time of investment) or securities issued or guaranteed
by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized
by U.S. government securities) if as a result more than 5%
of the value of its total assets would be invested in the
securities of that issuer or the Fund would own more than
10% of the outstanding voting securities of that issuer.
/R
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, including limited
partnership interests in real estate, although it may invest
in municipal securities which are secured by real estate or
interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, except that
the Fund may purchase and sell financial futures contracts
and related options to the extent that obligations under
such contracts or transactions represent not more than 20%
of the Fund's total assets.
UNDERWRITING
The Fund will not underwrite any issue of securities, except
as it may be deemed to be an underwriter under the
Securities Act of 1933 in connection with the sale of
restricted securities which the Fund may purchase pursuant
to its investment objective, policies, and limitations.
<PAGE>
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its
total assets in any one industry. Governmental issuers of
municipal securities are not considered part of any
"industry." The Fund may invest more than 25% of the value
of its total assets in a broader segment of the municipal
securities market, such as revenue obligations of hospitals
and other health care facilities, housing agency revenue
obligations, or airport revenue obligations. In addition,
for temporary defensive purposes, the Fund may invest 25% or
more of the value of its total assets in securities issued
or guaranteed by the U.S. government, its agencies or
instrumentalities.
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LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may
acquire publicly or non-publicly issued municipal bonds or
temporary investments or enter into repurchase agreements in
accordance with its investment objective, policies, and
limitations or its Articles of Incorporation.
/R
The above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may
be changed by the Directors without shareholder approval.
Shareholders will be notified before any material change in
these limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its
total assets in securities subject to restrictions on resale
under the Securities Act of 1933, except for certain
restricted securities that meet criteria for liquidity
established by the Directors.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in
illiquid obligations, including repurchase agreements
providing for settlement in more than seven days after
notice, and certain restricted securities.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its
total assets in industrial development bonds where the
payment of principal and interest is the responsibility of
companies (or guarantors, where applicable) with less than
three years of continuous operations, including the
operations of any predecessor.
INVESTING IN MINERALS
<PAGE>
The Fund will not purchase or sell oil, gas, or other
mineral exploration or development programs or leases,
although it may purchase the securities of issuers which
invest in or sponsor such programs.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may not own securities of other investment
companies except as part of a merger, consolidation,
reorganization, or other acquisition, and except that,
subject to the limitations of the Investment Company Act of
1940, the Fund may invest up to 10% of the value of its
total assets in tender option bonds and in auction rate
preferred securities issued by closed-end investment
companies that invest primarily in municipal securities.
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INVESTING IN PUT OPTIONS
The Fund will not purchase put options unless the underlying
securities are held in the Fund's portfolio and not more
than 5% of the value of the Fund's total assets would be
invested in premiums on open put positions.
/R
Except with respect to borrowing money, if a percentage
limitation is adhered to at the time of the investment, a later
increase or decrease in percentage resulting from any change in
value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities
during the coming fiscal year.
INSIGHT INSTITUTIONAL SERIES, INC. MANAGEMENT
OFFICERS AND DIRECTORS
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Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any
affiliation with Federated Advisers, Federated Investors,
Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as
defined below).
/R
Positions with Principal Occupations
Name and Address the Corporation During Past Five Years
<PAGE>
John F. Donahue*+ Chairman and Chairman and Trustee,
Federated Director Federated Investors;
Investors Tower Chairman and Trustee,
Pittsburgh, PA Federated Advisers,
Federated Management, and
Federated Research;
Director, Aetna Life and
Casualty Company; Chief
Executive Officer and
Director, Trustee, or
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
Corporation.
John T. Conroy, Director President, Investment
Jr., Wood/IPC Properties Corporation;
Commercial Senior Vice-President,
Department John R. Wood and
John R. Wood and Associates, Inc.,
Associates, Inc., Realtors; President,
Realtors Northgate Village
3255 Tamiami Development Corporation
Trail North and Investment Properties
Naples, FL Corporation; General
Partner or Trustee in
private real estate
ventures in Southwest
Florida; Director,
Trustee, or Managing
General Partner of the
Funds; formerly,
President, Naples Property
Management, Inc.
William J. Director Director and Member of the
Copeland Executive Committee,
One PNC Plaza - Michael Baker, Inc.;
23rd Floor Director, Trustee, or
Pittsburgh, PA Managing General Partner
of the Funds; formerly,
Vice Chairman and
Director, PNC Bank, N.A.
and PNC Bank Corp. and
Director, Ryan Homes, Inc.
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<PAGE>
James E. Dowd Director Attorney-at-law; Director,
571 Hayward Mill The Emerging Germany Fund,
Road Inc.; Director, Trustee,
Concord, MA or Managing General
Partner of the Funds;
formerly, Director, Blue
Cross of Massachusetts,
Inc.
/R
Lawrence D. Director Hematologist, Oncologist,
Ellis, M.D. and Internist,
3471 Fifth Avenue Presbyterian and
Suite 1111 Montefiore Hospitals;
Pittsburgh, PA Clinical Professor of
Medicine and Trustee,
University of Pittsburgh;
Director, Trustee, or
Managing General Partner
of the Funds.
Richard B. President and Executive Vice President
Fisher* Director and Trustee, Federated
Federated Investors; Chairman,
Investors Tower Federated Securities
Pittsburgh, PA Corp.; President or Vice
President of the Funds;
Director or Trustee of
some of the Funds.
Edward L. Director Attorney-at-law; Partner,
Flaherty, Jr.+ Meyer and Flaherty;
5916 Penn Mall Director, Eat'N Park
Pittsburgh, PA Restaurants, Inc., and
Statewide Settlement
Agency, Inc.; Director,
Trustee, or Managing
General Partner of the
Funds; formerly, Counsel,
Horizon Financial, F.A.,
Western Region.
Peter E. Madden Director Consultant; State
225 Franklin Representative,
Street Commonwealth of
Boston, MA Massachusetts; Director,
Trustee, or Managing
General Partner of the
Funds; formerly,
President, State Street
Bank and Trust Company and
State Street Boston
Corporation and Trustee,
Lahey Clinic Foundation,
Inc.
<PAGE>
Gregor F. Meyer Director Attorney-at-law; Partner,
5916 Penn Mall Meyer and Flaherty;
Pittsburgh, PA Chairman, Meritcare, Inc.;
Director, Eat'N Park
Restaurants, Inc.;
Director, Trustee, or
Managing General Partner
of the Funds; formerly,
Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar Director Professor, Foreign Policy
1202 Cathedral of and Management Consultant;
Learning Trustee, Carnegie
University of Endowment for
Pittsburgh International Peace, RAND
Pittsburgh, PA Corporation, Online
Computer Library Center,
Inc., and U.S. Space
Foundation; Chairman,
Czecho Slovak Management
Center; Director, Trustee,
or Managing General
Partner of the Funds;
President Emeritus,
University of Pittsburgh;
formerly, Chairman,
National Advisory Council
for Environmental Policy
and Technology.
Marjorie P. Smuts Director Public relations/marketing
4905 Bayard consultant; Director,
Street Trustee, or Managing
Pittsburgh, PA General Partner of the
Funds.
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<PAGE>
J. Christopher Vice President President and Trustee,
Donahue Federated Investors;
Federated Trustee, Federated
Investors Tower Advisers, Federated
Pittsburgh, PA Management, and Federated
Research; Trustee,
Federated Services
Company; President and
Director, Federated
Administrative Services,
Inc.; 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 Director of the
Corporation.
Edward C. Vice President and Vice President, Treasurer
Gonzales Treasurer and Trustee, Federated
Federated Investors; Vice President
Investors Tower and Treasurer, Federated
Pittsburgh, PA Advisers, Federated
Management, and Federated
Research; Executive Vice
President, Treasurer, and
Director, Federated
Securities Corp.; Trustee,
Federated Services
Company; Chairman,
Treasurer, and Director,
Federated Administrative
Services, Inc.; Trustee or
Director of some of the
Funds; Vice President and
Treasurer of the Funds.
<PAGE>
John W. McGonigle Vice President Vice President, Secretary,
Federated and Secretary General Counsel, and
Investors Tower Trustee, Federated
Pittsburgh, PA Investors; Vice President,
Secretary, and Trustee,
Federated Advisers,
Federated Management, and
Federated Research;
Trustee, Federated
Services Company;
Executive Vice President,
Secretary, and Director,
Federated Administrative
Services, Inc.; Director
and Executive Vice
President, Federated
Securities Corp.; Vice
President and Secretary of
the Funds.
John A. Vice President Vice President and
Staley, IV Trustee, Federated
Federated Investors; Executive Vice
Investors Tower President, Federated
Pittsburgh, PA Securities Corp.;
President and Trustee,
Federated Advisers,
Federated Management, and
Federated Research; Vice
President of the Funds;
Director, Trustee, or
Managing General Partner
of some of the Funds;
formerly, Vice President,
The Standard Fire
Insurance Company and
President of its Federated
Research Division.
/R
* This Director is deemed to be an "interested person" of the
Fund as defined in the Investment Company Act of 1940.
+ Member of the Corporation's Executive Committee. The
Executive Committee of the Board of Directors handles the
Directors' responsibilities between meetings of the
Directors.
THE FUNDS
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"The Funds" and "Funds" mean the following investment
companies: A.T. Ohio Tax-Free Money Fund; American Leaders
Fund, Inc.; Annuity Management Series; Automated Cash
Management Trust; Automated Government Money Trust; BankSouth
Select Funds; The Boulevard Funds; California Municipal Cash
<PAGE>
Trust; Cash Trust Series, Inc.; Cash Trust Series II;
111 Corcoran Funds; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs
Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated Growth Trust; Federated
High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Intermediate Government Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund;
First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal
Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities,
Inc.; High Yield Cash Trust; Insurance Management Series;
Intermediate Municipal Trust; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty
U.S. Government Money Market Trust; Liberty Utility Fund, Inc.;
Liquid Cash Trust; Mark Twain Funds; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; New York Municipal Cash
Trust; The Planters Funds; Portage Funds; RIMCO Monument Funds;
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; and Trust for
U.S. Treasury Obligations.
/R
FUND OWNERSHIP
Officers and Directors own less than 1% of the outstanding
shares of the Fund.
DIRECTOR LIABILITY
The Corporation's Articles of Incorporation provide that the
Directors 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 FUND
R
<PAGE>
The Fund's investment adviser is Federated Advisers (the
"Adviser"). It is a subsidiary of Federated Investors. All of
the voting securities of Federated Investors are owned by a
trust, the Trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. John F. Donahue, Chairman and
Trustee of Federated Advisers, is Chairman and Trustee of
Federated Investors, and Chairman and Director of the Fund.
John A. Staley, IV, President and Trustee of Federated
Advisers, is Vice President and Trustee of Federated Investors,
Executive Vice President of Federated Securities Corp., and
Vice President of the Fund. J. Christopher Donahue, Trustee of
Federated Advisers, is President and Trustee of Federated
Investors, Trustee of Federated Services Company, President and
Director of Federated Administrative Services, Inc. and Vice
President of the Fund. John W. McGonigle, Vice President,
Secretary and Trustee of Federated Advisers, is Trustee, Vice
President, Secretary and General Counsel of Federated
Investors, Trustee of Federated Services Company, Executive
Vice President, Secretary and Director of Federated
Administrative Services, Inc., Executive Vice President and
Director of Federated Securities Corp., and Vice President and
Secretary of the Fund. The Adviser shall not be liable to the
Fund or any shareholder for any losses that may be sustained in
the purchase, holding, or sale of any security or for anything
done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with
the Fund.
/R
ADVISORY FEES
For its advisory services, Federated Advisers receives an
annual investment advisory fee as described in the prospectus.
STATE EXPENSE LIMITATION
The Adviser has undertaken to comply with the expense
limitation established by certain states for investment
companies whose shares are registered for sale in those
states. If the Fund's normal operating expenses (including
the investment advisory fee, but not including brokerage
commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average
net assets, and 1-1/2% per year of the remaining average net
assets, the Adviser will reimburse the Fund for its expenses
over the limitation.
If the Fund's monthly projected operating expenses exceed
this expense limitation, the investment advisory fee paid
will be reduced by the amount of the excess, subject to an
annual adjustment. If the expense limitation is exceeded,
the amount to be waived by the Adviser will be limited, in
<PAGE>
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.
SHAREHOLDER SERVICING
In return for providing shareholder servicing to its customers
who from time to time may be owners of record or beneficial
owners of shares of the Fund, a financial institution may
receive payments from the Fund at a rate not exceeding 0.25 of
1% of the average daily net assets of the shares beneficially
owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship.
These services may include, but not are not limited to, the
provision of personal services and maintenance of shareholder
accounts.
Federated Securities Corp. may also pay financial institutions
a fee based upon the net asset value of the Fund shares
beneficially owned by the financial institution's clients or
customers. This fee is in addition to amounts paid under the
Shareholder Services Plan and will be reimbursed by the
Adviser.
ADMINISTRATIVE SERVICES
R
Federated Administrative Services, Inc., a subsidiary of
Federated Investors, provides administrative personnel and
services to the Fund at approximate cost. John A. Staley, IV,
an officer of the Fund, and Dr. Henry J. Gailliot, an officer
of Federated Advisers, the Adviser to the Fund, each hold
approximately 15% and 20%, respectively, of the outstanding
common stock and serve as directors of Commercial Data
Services, Inc., a company which provides computer processing
services to Federated Administrative Services, Inc.
/R
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and
sale of portfolio instruments, the Adviser looks for prompt
execution of the order at a favorable price. In working with
dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review
by the Directors.
<PAGE>
The Adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished
directly to the Fund or to the Adviser and may include:
* advice as to the advisability of investing in securities;
* security analysis and reports;
* economic studies;
* industry studies;
* receipt of quotations for portfolio evaluations; and
* similar services.
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 or by affiliates of Federated Investors in advising
Federated funds and other accounts. To the extent that receipt
of these services may supplant services for which the Adviser
or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
Except under certain circumstances described in the prospectus,
shares are sold at their net asset value on days the New York
Stock Exchange is open for business. The procedure for
purchasing shares of the Fund is explained in the prospectus
under "Investing in the Fund."
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which
net asset value is calculated by the Fund are described in the
prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's securities are determined as
follows:
* as provided by an independent pricing service;
<PAGE>
* for short-term obligations, according to the mean bid and
asked prices, as furnished by an independent pricing
service, or for short-term obligations with maturities of
less than 60 days, at amortized cost unless the Directors
determine this is not fair value; or
* at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be
determined without relying exclusively on quoted prices.
Pricing services may consider:
* yield;
* quality;
* coupon rate;
* maturity;
* type of issue;
* trading characteristics; and
* other market data.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value
after the Fund receives the redemption request. Redemption
procedures are explained in the prospectus under "Redeeming
Shares." Although State Street Bank does not charge for
telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than
$5,000.
REDEMPTION IN KIND
The Corporation is obligated to redeem shares solely in cash up
to $250,000 or 1% of the Fund's net asset value, whichever is
less, for any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless
the Directors determine that payments should be in kind. In
such a case, the Fund will pay all or a portion of the
remainder of the redemption in portfolio instruments, valued in
the same way that net asset value is determined. The portfolio
instruments will be selected in a manner that the Directors
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
<PAGE>
less than the redemption value of their securities and could
incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to
meet the requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
To qualify for this treatment, the Fund must, among other
requirements:
* 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 not required to pay the federal regular income
tax on any dividends received from the Fund that represent net
interest on tax-exempt municipal bonds. However, under the Tax
Reform Act of 1986, dividends representing net interest earned
on some municipal bonds may be included in calculating the
federal individual alternative minimum tax or the federal
alternative minimum tax for corporations. In addition, the Tax
Reform Act of 1986 treats interest on certain "private
activity" bonds issued after August 7, 1986, as a tax
preference item for both individuals and corporations. Thus,
should the Fund purchase any such bonds, a portion of the
Fund's dividends may be treated as a tax preference item.
Dividends of the Fund representing net interest income earned
on some temporary investments and any realized net short-term
gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in
cash or as additional shares. No portion of any income
dividend paid by the Fund is eligible for the dividends
received deduction available to corporations.
CAPITAL GAINS
<PAGE>
Shareholders will pay federal tax at capital gains rates on
long-term capital gains distributed to them regardless of
how long they have held the Fund shares.
TOTAL RETURN
R
The average annual total return for the Fund is the average
compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by
multiplying the number of shares owned at the end of the period
by the offering price per share at the end of the period. The
number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with
$1,000, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and
distributions.
/R
YIELD
R
The yield of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and
Exchange Commission) earned by the Fund over a thirty-day
period by the offering price per share of the Fund 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 12-month period and is reinvested every six
months. The yield does not necessarily reflect income actually
earned by the Fund because of certain adjustments required by
the 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 Fund, performance will
be reduced for those shareholders paying those fees.
/R
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that
the Fund would have to earn to equal the actual yield, assuming
tax rates of 15%, 28%, 31%, 36% and 39.6%, and assuming that
income is 100% tax-exempt.
TAX EQUIVALENCY TABLE
The Fund may also use a tax equivalency table in advertising
and sales literature. The interest earned by the municipal
obligations in the Fund's portfolio generally remain free from
federal regular income tax,* and often is free from state and
<PAGE>
local taxes as well. As the table below indicates, a "tax-
free" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and
taxable yields.
<TABLE>
Federal Income Tax Bracket:
<CAPTION>
15.00% 28.00% 31.00%
36.00% 39.60%
<S> <C> <C> <C>
<C> <C>
Joint Return: $1-36,900 $36,901-89,150 $89,151-
140,000 $140,001-250,000 Over $250,000
Single Return: $1-22,100 $22,101-53,500 $53,501-
115,000 $115,001-250,000 Over $250,000
</TABLE>
<TABLE>
<CAPTION>
Tax-Exempt
Yield Taxable Yield
Equivalent
<S> <C> <C> <C>
<C> <C>
2.50% 2.94% 3.47% 3.62%
3.91% 4.14%
3.00% 3.53% 4.17% 4.35%
4.69% 4.97%
3.50% 4.12% 4.86% 5.07%
5.47% 5.79%
4.00% 4.71% 5.56% 5.80%
6.25% 6.62%
4.50% 5.29% 6.25% 6.52%
7.03% 7.45%
5.00% 5.88% 6.94% 7.25%
7.81% 8.28%
5.50% 6.47% 7.64% 7.97%
8.59% 9.11%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used
in calculating the taxable yield equivalent.
The chart above is for illustrative purposes only. It is not
an indicator of past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the
federal alternative minimum tax and state and local taxes.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
<PAGE>
* portfolio quality;
* average portfolio duration;
* type of instruments in which the portfolio is invested;
* changes in interest rates and market value of portfolio
securities;
* changes in the Fund expenses; and
* various other factors.
R
The Fund's 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 the Fund's performance. When
comparing performance, investors should consider all relevant
factors such as the composition of any index used, prevailing
market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute net
asset value. The financial publications and/or indices which
the Fund uses in advertising may include:
/R
* Lehman Three-Year State General Obligation Index.
R
* 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 offering price over a specific
period of time. From time to time, the Fund will quote its
Lipper ranking in the "Short-Intermediate Municipal Funds"
category in advertising and sales literature.
/R
Advertisements and other sales literature for the Fund may
quote total returns which are calculated on non-standardized
base periods. These total returns represent the historic
change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of
time.
In addition, advertising and sales literature for the Fund may
include the following:
* Charts and other illustrations that depict the hypothetical
growth of a tax-free investment as compared to a taxable
investment.
* Quotations from the Tax Foundation that illustrate the
effect of taxes on income.
<PAGE>
APPENDIX
STANDARD AND POOR'S CORPORATION MUNICIPAL 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.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL 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 sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
<PAGE>
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.
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.
STANDARD AND POOR'S CORPORATION MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming
safety characteristics will be given a (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a
present strong protection by established cash flows, superior
liquidity support or demonstrated broadbased access to the
market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
<PAGE>
F-1+--Exceptionally Strong Credit Quality. Issues assigned
this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the F-1+ and F-1
categories.
R
STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS
/R
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 alternative 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. COMMERCIAL PAPER RATINGS
FITCH-1--(Highest Grade) Commercial paper assigned this rating
is regarded as having the strongest degree of assurance for
timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree
than the strongest issues.
<PAGE>
<PAGE>
INSIGHT LIMITED TERM INCOME FUND
(A PORTFOLIO OF INSIGHT INSTITUTIONAL SERIES, INC.)
STATEMENT OF ADDITIONAL INFORMATION
R
This Statement of Additional Information should be read with
the prospectus of Insight Limited Term Income Fund (the "Fund")
dated January 19, 1994. This Statement is not a prospectus
itself. To receive a copy of the prospectus, write or call the
Fund.
/R
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
R
Statement dated January 19, 1994
/R
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND
INVESTMENT OBJECTIVE AND POLICIES
Types of Investments
Non-Mortgage Related Asset-Backed Securities
Adjustable Rate Mortgage Securities ("ARMS")
Collateralized Mortgage Obligations ("CMOs")
Real Estate Mortgage Investment Conduits ("REMICs")
Resets of Interest
Caps and Floors
Foreign Bank Instruments
Futures and Options Transactions
Medium Term Notes and Deposit Notes
Average Life
Weighted Average Portfolio Duration
When-Issued and Delayed Delivery Transactions
Lending of Portfolio Securities
Restricted and Illiquid Securities
Repurchase Agreements
Reverse Repurchase Agreements
Portfolio Turnover
INVESTMENT LIMITATIONS
INSIGHT INSTITUTIONAL SERIES, INC. MANAGEMENT
Officers and Directors
<PAGE>
The Funds
Fund Ownership
Director Liability
INVESTMENT ADVISORY SERVICES
Adviser to the Fund
Advisory Fees
SHAREHOLDER SERVICING
ADMINISTRATIVE SERVICES
BROKERAGE TRANSACTIONS
PURCHASING SHARES
DETERMINING NET ASSET VALUE
Determining Market Value of Securities
REDEEMING SHARES
Redemption in Kind
TAX STATUS
The Fund's Tax Status
Shareholders' Tax Status
TOTAL RETURN
YIELD
PERFORMANCE COMPARISONS
APPENDIX
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Insight Institutional Series, Inc.
(the "Corporation"). The Corporation was incorporated under
the laws of the State of Maryland on October 11, 1993.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek a high level of
current income consistent with minimum fluctuation in principal
value. The investment objective stated above cannot be changed
without approval of shareholders. The investment policies
stated below may be changed by the Board of Directors
("Directors") without shareholder approval. Shareholders will
be notified before any material change in the investment
policies becomes effective.
<PAGE>
TYPES OF INVESTMENTS
R
The Fund pursues its investment objective by investing
primarily in a diversified portfolio of U.S. government
securities and investment grade corporate debt obligations and
asset-backed securities. At least 65% of the value of the
total assets of the Fund shall be invested in securities that
are rated in one of the three highest categories by a
nationally recognized statistical rating organization [rated
Aaa, Aa, or A by Moody's Investors Service, Inc. ("Moody's"),
or AAA, AA, or A by Standard & Poor's Corporation ("Standard &
Poor's") or Fitch Investors Service, Inc. ("Fitch")]. The
Fund's weighted-average portfolio duration will at all times be
limited to three years or less.
/R
The investment portfolio includes the following securities:
* corporate debt securities rated within the four highest
categories by a nationally recognized statistical rating
organization, including bonds, notes, and indentures;
R
* asset-backed securities;
* U.S. government securities, including U.S. Treasury bills,
notes, and bonds, and securities issued by agencies and
instrumentalities of the U.S. government; and
/R
* repurchase agreements.
NON-MORTGAGE RELATED ASSET-BACKED SECURITIES
Non-mortgage related asset-backed securities present certain
risks that are not presented by mortgage-backed securities.
Primarily, these securities do not have the benefit of the same
security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right
to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed
securities backed by motor vehicle installment purchase
obligations permit the servicer of such receivables to retain
possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a
vehicle is registered in one state and is then registered
because the owner and the obligor move to another state, such
re-registration could defeat the original security interest in
the vehicle in certain cases. In addition, because of the
large number of vehicles involved in a typical issuance and
technical requirements under state laws, the trustee with the
holders of asset-backed securities backed by automobile
receivables may not have a proper security interest in all of
<PAGE>
the obligations backing such receivables. Therefore, there is
a possibility that recoveries on repossessed collateral may
not, in some cases, be available to support payments on these
securities.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
ARMS are pass-through mortgage securities representing
interests in adjustable rather than fixed interest rate
mortgages. The ARMS in which the Fund invests are issued by
the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA"), and the Federal
Home Loan Mortgage Corporation ("FHLMC") as well as other
private issuers and are actively traded. The underlying
mortgages which collateralize ARMS issued by GNMA are fully
guaranteed by the Federal Housing Administration ("FHA") or
Veterans Administration ("VA"), while those collateralizing
ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size
and maturity constraints.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
CMOs are bonds issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government
agencies, investment bankers, or companies related to the
construction industry. CMOs purchased by the Fund may be:
* collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the
U.S. government;
* collateralized by pools of mortgages in which
payment of principal and interest is guaranteed by
the issuer and such guarantee is collateralized by
U.S. government securities;
* collateralized by pools of mortgages in which
payment of principal and interest is dependent upon
the underlying pool of mortgages with no U.S.
government guarantee; or
* securities in which the proceeds of the issuance
are invested in mortgage securities and payment of
the principal and interest is supported by the
credit of an agency or instrumentality of the U.S.
government.
All CMOs purchased by the Fund are investment grade, as
rated by a nationally recognized statistical rating
organization.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS")
<PAGE>
REMICs are offerings of multiple class real estate mortgage-
backed securities which qualify and elect treatment as such
under provisions of the Internal Revenue Code. Issuers of
REMICs may take several forms, such as trusts, partnerships,
corporations, associations, or segregated pools of mortgages.
Once REMIC status is elected and obtained, the entity is not
subject to federal income taxation. Instead, income is passed
through the entity and is taxed to the person or persons who
hold interests in the REMIC. A REMIC interest must consist of
one or more classes of "regular interests," some of which may
offer adjustable rates of interest, and a single class of
"residual interests." To qualify as a REMIC, substantially all
the assets of the entity must be in assets directly or
indirectly secured principally by real property.
RESETS OF INTEREST
The interest rates paid on the ARMS, CMOs, and REMICs in which
the Fund invests generally are readjusted at intervals of one
year or less to an increment over some predetermined interest
rate index. There are two main categories of indices: those
based on U.S. Treasury securities and those derived from a
calculated measure, such as a cost of funds index or a moving
average of mortgage rates. Commonly utilized indices include
the one-year and five-year constant maturity Treasury Note
rates, the three-month Treasury Bill rate, the 180-day Treasury
Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month
London Interbank Offered Rate (LIBOR), the prime rate of a
specific bank, or commercial paper rates. Some indices, such
as the one-year constant maturity Treasury Note rate, closely
mirror changes in market interest rate levels.
To the extent that the adjusted interest rate on the mortgage
security reflects current market rates, the market value of an
adjustable rate mortgage security will tend to be less
sensitive to interest rate changes than a fixed rate debt
security of the same stated maturity. Hence, ARMs which use
indices that lag changes in market rates should experience
greater price volatility than adjustable rate mortgage
securities that closely mirror the market.
CAPS AND FLOORS
The underlying mortgages which collateralize the ARMS, CMOs,
and REMICs in which the Fund invests will frequently have caps
and floors which limit the maximum amount by which the loan
rate to the residential borrower may change up or down:
(1) per reset or adjustment interval, and (2) over the life of
the loan. Some residential mortgage loans restrict periodic
adjustments by limiting changes in the borrower's monthly
principal and interest payments rather than limiting interest
rate changes. These payment caps may result in negative
amortization.
<PAGE>
The value of mortgage securities in which the Fund invests may
be affected if market interest rates rise or fall faster and
farther than the allowable caps or floors on the underlying
residential mortgage loans. Additionally, even though the
interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby
causing the effective maturities of the mortgage securities in
which the Fund invests to be shorter than the maturities stated
in the underlying mortgages.
FOREIGN BANK INSTRUMENTS
Eurodollar Certificates of Deposit ("ECDs"), Eurodollar Time
Deposits ("ETDs"), Yankee Certificates of Deposit ("Yankee
CDs"), and Europaper are subject to somewhat different risks
than domestic obligations of domestic issuers. Examples of
these risks include international, economic and political
developments, foreign governmental restrictions that may
adversely affect the payment of principal or interest, foreign
withholdings or other taxes on interest income, difficulties in
obtaining or enforcing a judgment against the issuing bank, and
the possible impact of interruptions of the flow of
international currency transactions. Different risks may also
exist for ECDs, ETDs, and Yankee CDs because the banks issuing
these instruments, or their domestic or foreign branches, are
not necessarily subject to the same regulatory requirements
that apply to domestic banks, such as reserve requirements,
loan requirements, loan limitations, examinations, accounting,
auditing, and recording keeping and the public availability of
information. These factors will be carefully considered by the
Fund's adviser in selecting investments for the Fund.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio
by buying and selling financial futures contracts, buying put
options on portfolio securities and listed put options on
futures contracts, and writing call options on futures
contracts. The Fund may also write covered call options on
portfolio securities to attempt to increase its current income.
The Fund currently does not intend to invest more than 5% of
its total assets in options transactions.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the
seller who agrees to make delivery of the specific type of
security called for in the contract ("going short") and the
buyer who agrees to take delivery of the security ("going
long") at a certain time in the future. In the fixed income
securities market, price moves inversely to interest rates.
A rise in rates means a drop in price. Conversely, a drop
in rates means a rise in price. In order to hedge its
holdings of fixed income securities against a rise in market
<PAGE>
interest rates, the Fund could enter into contracts to
deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the
prices of its fixed income securities may decline during the
Fund's anticipated holding period. The Fund would agree to
purchase securities in the future at a predetermined price
(i.e., "go long") to hedge against a decline in market
interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial
futures contracts. Unlike entering directly into a futures
contract, which requires the purchaser to buy a financial
instrument on a set date at a specified price, the purchase
of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.
The Fund would purchase put options on futures contracts to
protect portfolio securities against decreases in value
resulting from an anticipated increase in market interest
rates. Generally, if the hedged portfolio securities
decrease in value during the term of an option, the related
futures contracts will also decrease in value and the option
will increase in value. In such an event, the Fund will
normally close out its option by selling an identical
option. If the hedge is successful, the proceeds received
by the Fund upon the sale of the second option will be large
enough to offset both the premium paid by the Fund for the
original option plus the decrease in value of the hedged
securities.
Alternatively, the Fund may exercise its put option. To do
so, it would simultaneously enter into a futures contract of
the type underlying the option (for a price less than the
strike price of the option) and exercise the option. The
Fund would then deliver the futures contract in return for
payment of the strike price. If the Fund neither closes out
nor exercises an option, the option will expire on the date
provided in the option contract, and the premium paid for
the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund
may write listed call options on futures contracts to hedge
its portfolio against an increase in market interest rates.
When the Fund writes a call option on a futures contract, it
is undertaking the obligation of assuming a short futures
position (selling a futures contract) at the fixed strike
price at any time during the life of the option if the
option is exercised. As market interest rates rise, causing
the prices of futures to go down, the Fund's obligation
<PAGE>
under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of the Fund's call
option position to increase.
In other words, as the underlying futures price goes down
below the strike price, the buyer of the option has no
reason to exercise the call, so that the Fund keeps the
premium received for the option. This premium can offset
the drop in value of the Fund's fixed income portfolio which
is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or
exercise of it by the buyer, the Fund may close out the
option by buying an identical option. If the hedge is
successful, the cost of the second option will be less than
the premium received by the Fund for the initial option.
The net premium income of the Fund will then offset the
decrease in value of the hedged securities.
The Fund will not maintain open positions in futures
contracts it has sold or call options it has written on
futures contracts if, in the aggregate, the value of the
open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted
for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to
close out a sufficient number of open contracts to bring its
open futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not
pay or receive money upon the purchase or sale of a futures
contract. Rather, the Fund is required to deposit an amount
of "initial margin" in cash or U.S. Treasury bills with its
custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from
that of margin in securities transactions in that futures
contract initial margin does not involve the borrowing of
funds by the Fund to finance the transactions. Initial
margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund
<PAGE>
and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset
value, the Fund will mark-to-market its open futures
positions.
The Fund is also required to deposit and maintain margin
when it writes call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to
protect against price movements in particular securities in
its portfolio. A put option gives the Fund, in return for a
premium, the right to sell the underlying security to the
writer (seller) at a specified price during the term of the
option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate
income. As writer of a call option, the Fund has the
obligation upon exercise of the option during the option
period to deliver the underlying security upon payment of
the exercise price. The Fund may only sell call options
either on securities held in its portfolio or on securities
which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any
additional consideration).
MEDIUM TERM NOTES AND DEPOSIT NOTES
Medium term notes ("MTNs") and Deposit Notes are similar to
corporate debt obligations as described in the prospectus.
MTNs and Deposit Notes trade like commercial paper, but may
have maturities from 9 months to ten years.
AVERAGE LIFE
Average life, as applicable to asset-backed securities, is
computed by multiplying each principal repayment by the time of
payment (months or years from the evaluation date), summing
these products, and dividing the sum by the total amount of
principal repaid. The weighted-average life is calculated by
multiplying the maturity of each security in a given pool by
its remaining balance, summing the products, and dividing the
result by the total remaining balance.
WEIGHTED AVERAGE PORTFOLIO DURATION
Duration is a commonly used measure of the potential volatility
of the price of a debt security, or the aggregate market value
of a portfolio of debt securities, prior to maturity. Duration
measures the magnitude of the change in the price of a debt
security relative to a given change in the market rate of
<PAGE>
interest. The duration of a debt security depends upon three
primary variables: the security's coupon rate, maturity date
and the level of market interest rates for similar debt
securities. Generally, debt securities with lower coupons or
longer maturities will have a longer duration than securities
with higher coupons or shorter maturities.
Duration is calculated by dividing the sum of the time-weighted
values of cash flows of a security or portfolio of securities,
including principal and interest payments, by the sum of the
present values of the cash flows. Certain debt securities,
such as asset-backed securities, may be subject to prepayment
at irregular intervals. The duration of these instruments will
be calculated based upon assumptions established by the
investment adviser as to the probable amount and sequence of
principal prepayments.
Mathematically, duration is measured as follows:
PVCF1(1) PVCF2(2) PVCF3(3) PVCFn(n)
Duration = -------- + -------- + -------- + ... + --------
PVTCF PVTCF PVTCF PVTCF
where
PVCFt = the present value of the cash flow in period t
discounted at the prevailing yield-to-maturity
t = the period when the cash flow is received
n = remaining number of periods until maturity
PVTCF = total present value of the cash flow from the bond
where the present value is determined using the
prevailing yield-to-maturity
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future
time. The Fund engages in when-issued and delayed delivery
transactions only for the purpose of acquiring portfolio
securities consistent with the Fund's investment objective and
policies, and 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 Fund sufficient to
make payment for the securities to be purchased are segregated
at the trade date. These securities are marked to market daily
<PAGE>
and are maintained until the transaction is settled. The Fund
may engage in these transactions to an extent that would cause
the segregation of an amount up to 20% of the total value of
its assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the 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 the Fund. During the time portfolio
securities are on loan, the borrower pays the Fund any
dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the
borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of
certain restricted securities is permitted under the Securities
and Exchange Commission ("SEC") Staff position set forth in the
adopting release for Rule 144A under the Securities Act of 1933
(the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving 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 Rule 144A. The Fund believes that the Staff
of the SEC has left the question of determining the liquidity
of all restricted securities to the Directors. The Directors
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
The 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
<PAGE>
Fund, the Fund could receive less than the repurchase price on
any sale of such securities. In the event that a defaulting
seller files for bankruptcy or becomes insolvent, disposition
of securities by the Fund might be delayed pending court
action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and
allow retention or disposition of such securities. The Fund
will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which
are deemed by the Fund's adviser to be creditworthy pursuant to
guidelines established by the Directors.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. A
reverse repurchase transaction is similar to borrowing cash.
In a reverse repurchase agreement the Fund transfers possession
of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees
that on a stipulated date in the future, the Fund will
repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of
reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into
reverse repurchase agreements does not ensure that the Fund
will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of
the Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date.
These securities are marked to market daily and are maintained
until the transaction is settled.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover
rate since any turnover would be incidental to transactions
undertaken in an attempt to achieve the Fund's investment
objective. It is not anticipated that the portfolio trading
engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%.
INVESTMENT LIMITATIONS
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SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell securities short or purchase
securities on margin, other than in connection with the
<PAGE>
purchase and sale of financial futures, but may obtain such
short-term credits as are necessary for clearance of
transactions.
/R
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the
Fund may borrow money and engage in reverse repurchase
agreements in amounts up to one-third of the value of its
total assets, including the amounts borrowed. The Fund will
not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet
redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while borrowings
in excess of 5% of its total assets are outstanding. During
the period any reverse repurchase agreements are
outstanding, but only to the extent necessary to assure
completion of the reverse repurchase agreements, the Fund
will restrict the purchase of portfolio instruments to money
market instruments maturing on or before the expiration date
of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. In those
cases, it may pledge assets having a market value not
exceeding the lesser of the dollar amounts borrowed or 15%
of the value of total assets at the time of the borrowing.
Margin deposits for the purchase and sale of financial
futures contracts and related options are not deemed to be a
pledge.
DIVERSIFICATION OF INVESTMENTS
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With respect to securities comprising 75% of the value of
its total assets, the Fund will not purchase securities of
any one issuer (other than cash, cash items (including time
deposits (including savings deposits and certificates of
deposit) and bankers acceptances issued by a U.S. branch of
a domestic bank or savings association having capital,
surplus, and undivided profits in excess of $100,000,000 at
the time of investment) or securities issued or guaranteed
by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized
by U.S. government securities) if as a result more than 5%
of the value of its total assets would be invested in the
securities of that issuer or the Fund would own more than
10% of the outstanding voting securities of that issuer.
/R
INVESTING IN REAL ESTATE
<PAGE>
The Fund will not buy or sell real estate, including limited
partnership interests in real estate, although it may invest
in securities of companies whose business involves the
purchase or sale of real estate or in securities which are
secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, except that
the Fund may purchase and sell financial futures contracts
and related options.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its
total assets in securities subject to restrictions on resale
under the Securities Act of 1933, except for commercial
paper issued under Section 4(2) of the Securities Act of
1933 and certain other restricted securities which meet the
criteria for liquidity as established by the Directors.
UNDERWRITING
The Fund will not underwrite any issue of securities, except
as it may be deemed to be an underwriter under the
Securities Act of 1933 in connection with the sale of
restricted securities which the Fund may purchase pursuant
to its investment objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio
securities up to one-third of the value of its total assets.
This shall not prevent the Fund from purchasing or holding
U.S. government obligations, money market instruments,
variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities,
entering into repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment
objective, policies and limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its
total assets in any one industry, except it may invest 25%
or more of the value of its total assets in securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
The above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may
be changed by the Directors without shareholder approval.
Shareholders will be notified before any material change in
these limitations becomes effective.
<PAGE>
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its
total assets in securities of companies, including their
predecessors, that have been in operation for less than
three years. With respect to asset-backed securities, the
Fund will treat the originator of the asset pool as the
company issuing the security for purposes of determining
compliance with this limitation.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other
mineral exploration or development programs or leases,
although it may purchase the securities of issuers which
invest in or sponsor such programs.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may not own securities of other investment
companies excepts as part of a merger, consolidation,
reorganization, or other acquisition.
DEALING IN PUTS AND CALLS
The Fund will not purchase puts, calls, straddles, spreads,
or any combination of them, if by reason thereof the value
of such securities would exceed 5% of its total assets.
Except with respect to borrowing money, if a percentage
limitation is adhered to at the time of the investment, a later
increase or decrease in percentage resulting from any change in
value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money, pledge securities or
invest in stock of closed-end investment companies during the
coming fiscal year.
INSIGHT INSTITUTIONAL SERIES, INC. MANAGEMENT
OFFICERS AND DIRECTORS
R
Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any
affiliation with Federated Advisers, Federated Investors,
Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as
defined below).
/R
Positions with Principal Occupations
Name and Address the Corporation During Past Five Years
<PAGE>
John F. Donahue*+ Chairman and Chairman and Trustee,
Federated Director Federated Investors;
Investors Tower Chairman and Trustee,
Pittsburgh, PA Federated Advisers,
Federated Management, and
Federated Research;
Director, Aetna Life and
Casualty Company; Chief
Executive Officer and
Director, Trustee, or
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
Corporation.
John T. Conroy, Director President, Investment
Jr., Wood/IPC Properties Corporation;
Commercial Senior Vice-President,
Department John R. Wood and
John R. Wood and Associates, Inc.,
Associates, Inc., Realtors; President,
Realtors Northgate Village
3255 Tamiami Development Corporation
Trail North and Investment Properties
Naples, FL Corporation; General
Partner or Trustee in
private real estate
ventures in Southwest
Florida; Director,
Trustee, or Managing
General Partner of the
Funds; formerly,
President, Naples Property
Management, Inc.
William J. Director Director and Member of the
Copeland Executive Committee,
One PNC Plaza - Michael Baker, Inc.;
23rd Floor Director, Trustee, or
Pittsburgh, PA Managing General Partner
of the Funds; formerly,
Vice Chairman and
Director, PNC Bank, N.A.
and PNC Bank Corp. and
Director, Ryan Homes, Inc.
R
<PAGE>
James E. Dowd Director Attorney-at-law; Director,
571 Hayward Mill The Emerging Germany Fund,
Road Inc.; Director, Trustee,
Concord, MA or Managing General
Partner of the Funds;
formerly, Director, Blue
Cross of Massachusetts,
Inc.
/R
Lawrence D. Director Hematologist, Oncologist,
Ellis, M.D. and Internist,
3471 Fifth Avenue Presbyterian and
Suite 1111 Montefiore Hospitals;
Pittsburgh, PA Clinical Professor of
Medicine and Trustee,
University of Pittsburgh;
Director, Trustee, or
Managing General Partner
of the Funds.
Richard B. President and Executive Vice President
Fisher* Director and Trustee, Federated
Federated Investors; Chairman,
Investors Tower Federated Securities
Pittsburgh, PA Corp.; President or Vice
President of the Funds;
Director or Trustee of
some of the Funds.
Edward L. Director Attorney-at-law; Partner,
Flaherty, Jr.+ Meyer and Flaherty;
5916 Penn Mall Director, Eat'N Park
Pittsburgh, PA Restaurants, Inc., and
Statewide Settlement
Agency, Inc.; Director,
Trustee, or Managing
General Partner of the
Funds; formerly, Counsel,
Horizon Financial, F.A.,
Western Region.
Peter E. Madden Director Consultant; State
225 Franklin Representative,
Street Commonwealth of
Boston, MA Massachusetts; Director,
Trustee, or Managing
General Partner of the
Funds; formerly,
President, State Street
Bank and Trust Company and
State Street Boston
Corporation and Trustee,
Lahey Clinic Foundation,
Inc.
<PAGE>
Gregor F. Meyer Director Attorney-at-law; Partner,
5916 Penn Mall Meyer and Flaherty;
Pittsburgh, PA Chairman, Meritcare, Inc.;
Director, Eat'N Park
Restaurants, Inc.;
Director, Trustee, or
Managing General Partner
of the Funds; formerly,
Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar Director Professor, Foreign Policy
1202 Cathedral of and Management Consultant;
Learning Trustee, Carnegie
University of Endowment for
Pittsburgh International Peace, RAND
Pittsburgh, PA Corporation, Online
Computer Library Center,
Inc., and U.S. Space
Foundation; Chairman,
Czecho Slovak Management
Center; Director, Trustee,
or Managing General
Partner of the Funds;
President Emeritus,
University of Pittsburgh;
formerly, Chairman,
National Advisory Council
for Environmental Policy
and Technology.
Marjorie P. Smuts Director Public relations/marketing
4905 Bayard consultant; Director,
Street Trustee, or Managing
Pittsburgh, PA General Partner of the
Funds.
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<PAGE>
J. Christopher Vice President President and Trustee,
Donahue Federated Investors;
Federated Trustee, Federated
Investors Tower Advisers, Federated
Pittsburgh, PA Management, and Federated
Research; Trustee,
Federated Services
Company; President and
Director, Federated
Administrative Services,
Inc.; 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 Director of the
Corporation.
Edward C. Vice President and Vice President, Treasurer
Gonzales Treasurer and Trustee, Federated
Federated Investors; Vice President
Investors Tower and Treasurer, Federated
Pittsburgh, PA Advisers, Federated
Management, and Federated
Research; Executive Vice
President, Treasurer, and
Director, Federated
Securities Corp.; Trustee,
Federated Services
Company; Chairman,
Treasurer, and Director,
Federated Administrative
Services, Inc.; Trustee or
Director of some of the
Funds; Vice President and
Treasurer of the Funds.
<PAGE>
John W. McGonigle Vice President Vice President, Secretary,
Federated and Secretary General Counsel, and
Investors Tower Trustee, Federated
Pittsburgh, PA Investors; Vice President,
Secretary, and Trustee,
Federated Advisers,
Federated Management, and
Federated Research;
Trustee, Federated
Services Company;
Executive Vice President,
Secretary, and Director,
Federated Administrative
Services, Inc.; Director
and Executive Vice
President, Federated
Securities Corp.; Vice
President and Secretary of
the Funds.
/R
John A. Vice President Vice President and
Staley, IV Trustee, Federated
Federated Investors; Executive Vice
Investors Tower President, Federated
Pittsburgh, PA Securities Corp.;
President and Trustee,
Federated Advisers,
Federated Management, and
Federated Research; Vice
President of the Funds;
Director, Trustee, or
Managing General Partner
of some of the Funds;
formerly, Vice President,
The Standard Fire
Insurance Company and
President of its Federated
Research Division.
* This Director is deemed to be an "interested person" of the
Fund as defined in the Investment Company Act of 1940.
+ Member of the Corporation's Executive Committee. The
Executive Committee of the Board of Directors handles the
Directors' responsibilities between meetings of the
Directors.
THE FUNDS
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"The Funds" and "Funds" mean the following investment
companies: A.T. Ohio Tax-Free Money Fund; American Leaders
Fund, Inc.; Annuity Management Series; Automated Cash
Management Trust; Automated Government Money Trust; BankSouth
Select Funds; The Boulevard Funds; California Municipal Cash
<PAGE>
Trust; Cash Trust Series, Inc.; Cash Trust Series II;
111 Corcoran Funds; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs
Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated Growth Trust; Federated
High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Intermediate Government Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund;
First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal
Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities,
Inc.; High Yield Cash Trust; Insurance Management Series;
Intermediate Municipal Trust; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty
U.S. Government Money Market Trust; Liberty Utility Fund, Inc.;
Liquid Cash Trust; Mark Twain Funds; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; New York Municipal Cash
Trust; The Planters Fund; 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; and Trust for
U.S. Treasury Obligations.
/R
FUND OWNERSHIP
Officers and Directors own less than 1% of the outstanding
shares of the Fund.
DIRECTOR LIABILITY
The Corporation's Articles of Incorporation provide that the
Directors 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 FUND
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<PAGE>
The Fund's investment adviser is Federated Advisers (the
"Adviser"). It is a subsidiary of Federated Investors. All of
the voting securities of Federated Investors are owned by a
trust, the Trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. John F. Donahue, Chairman and
Trustee of Federated Advisers, is Chairman and Trustee of
Federated Investors, and Chairman and Director of the Fund.
John A. Staley, IV, President and Trustee of Federated
Advisers, is Vice President and Trustee of Federated Investors,
Executive Vice President of Federated Securities Corp., and
Vice President of the Fund. J. Christopher Donahue, Trustee of
Federated Advisers, is President and Trustee of Federated
Investors, Trustee of Federated Services Company, President and
Director of Federated Administrative Services, Inc. and Vice
President of the Fund. John W. McGonigle, Vice President,
Secretary and Trustee of Federated Advisers, is Trustee, Vice
President, Secretary and General Counsel of Federated
Investors, Trustee of Federated Services Company, Executive
Vice President, Secretary and Director of Federated
Administrative Services, Inc., Executive Vice President and
Director of Federated Securities Corp., and Vice President and
Secretary of the Fund. The Adviser shall not be liable to the
Fund or any shareholder for any losses that may be sustained in
the purchase, holding, or sale of any security or for anything
done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with
the Fund.
/R
ADVISORY FEES
For its advisory services, Federated Advisers receives an
annual investment advisory fee as described in the prospectus.
STATE EXPENSE LIMITATION
The Adviser has undertaken to comply with the expense
limitation established by certain states for investment
companies whose shares are registered for sale in those
states. If the Fund's normal operating expenses (including
the investment advisory fee, but not including brokerage
commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average
net assets, and 1-1/2% per year of the remaining average net
assets, the Adviser will reimburse the Fund for its expenses
over the limitation.
If the Fund's monthly projected operating expenses exceed
this expense limitation, the investment advisory fee paid
will be reduced by the amount of the excess, subject to an
annual adjustment. If the expense limitation is exceeded,
the amount to be waived by the Adviser will be limited, in
<PAGE>
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.
SHAREHOLDER SERVICING
In return for providing shareholder servicing to its customers
who from time to time may be owners of record or beneficial
owners of shares of the Fund, a financial institution may
receive payments from the Fund at a rate not exceeding 0.25 of
1% of the average daily net assets of the shares beneficially
owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship.
These services may include, but not are not limited to, the
provision of personal services and maintenance of shareholder
accounts.
Federated Securities Corp. may also pay financial institutions
a fee based upon the net asset value of the Fund shares
beneficially owned by the financial institution's clients or
customers. This fee is in addition to amounts paid under the
Shareholder Services Plan and will be reimbursed by the
Adviser.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, Inc., a subsidiary of
Federated Investors, provides administrative personnel and
services to the Fund at approximate cost. John A. Staley, IV,
an officer of the Fund, and Dr. Henry J. Gailliot, an officer
of Federated Advisers, the Adviser to the Fund, each hold
approximately 15% and 20%, respectively, of the outstanding
common stock and serve as directors of Commercial Data
Services, Inc., a company which provides computer processing
services to Federated Administrative Services, Inc.
/R
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and
sale of portfolio instruments, the Adviser looks for prompt
execution of the order at a favorable price. In working with
dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review
by the Directors.
<PAGE>
The Adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished
directly to the Fund or to the Adviser and may include:
* advice as to the advisability of investing in securities;
* security analysis and reports;
* economic studies;
* industry studies;
* receipt of quotations for portfolio evaluations; and
* similar services.
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 or by affiliates of Federated Investors in advising
Federated funds and other accounts. To the extent that receipt
of these services may supplant services for which the Adviser
or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
Except under certain circumstances described in the prospectus,
shares are sold at their net asset value on days the New York
Stock Exchange is open for business. The procedure for
purchasing shares of the Fund is explained in the prospectus
under "Investing in the Fund."
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which
net asset value is calculated by the Fund are described in the
prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's securities are determined as
follows:
* as provided by an independent pricing service;
<PAGE>
* for short-term obligations, according to the mean bid and
asked prices, as furnished by an independent pricing
service, or for short-term obligations with maturities of
less than 60 days, at amortized cost unless the Directors
determine this is not fair value; or
* at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be
determined without relying exclusively on quoted prices.
Pricing services may consider:
* yield;
* quality;
* coupon rate;
* maturity;
* type of issue;
* trading characteristics; and
* other market data.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value
after the Fund receives the redemption request. Redemption
procedures are explained in the prospectus under "Redeeming
Shares." Although State Street Bank does not charge for
telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than
$5,000.
REDEMPTION IN KIND
The Corporation is obligated to redeem shares solely in cash up
to $250,000 or 1% of the Fund's net asset value, whichever is
less, for any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless
the Directors determine that payments should be in kind. In
such a case, the Fund will pay all or a portion of the
remainder of the redemption in portfolio instruments, valued in
the same way that net asset value is determined. The portfolio
instruments will be selected in a manner that the Directors
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
<PAGE>
less than the redemption value of their securities and could
incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to
meet the requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
To qualify for this treatment, the Fund must, among other
requirements:
* 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 and
capital gains received as cash or additional shares. No
portion of any income dividend paid by the Fund is eligible for
the dividends received deduction available to corporations.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on
long-term capital gains distributed to them regardless of
how long they have held the Fund shares.
TOTAL RETURN
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The average annual total return for the Fund is the average
compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by
multiplying the number of shares owned at the end of the period
by the offering price per share at the end of the period. The
number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with
$1,000, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and
distributions.
/R
<PAGE>
YIELD
R
The yield of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and
Exchange Commission) earned by the Fund over a thirty-day
period by the offering price per share of the Fund 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 12-month period and is reinvested every six
months. The yield does not necessarily reflect income actually
earned by the Fund because of certain adjustments required by
the 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 Fund, performance will
be reduced for those shareholders paying those fees.
/R
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
* portfolio quality;
* average portfolio duration;
* type of instruments in which the portfolio is invested;
* changes in interest rates and market value of portfolio
securities;
* changes in the Fund expenses; and
* various other factors.
R
The Fund's 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 the Fund's performance. When
comparing performance, investors should consider all relevant
factors such as the composition of any index used, prevailing
market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute net
asset value. The financial publications and/or indices which
the Fund uses in advertising may include:
/R
* Merrill Lynch Short-Term Debt Index.
R
<PAGE>
* 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 offering price over a specific
period of time. From time to time, the Fund will quote its
Lipper ranking in the "Short-Term Investment Grade Debt
Funds" category in advertising and sales literature.
/R
Advertisements and other sales literature for the Fund may
quote total returns which are calculated on non-standardized
base periods. These total returns represent the historic
change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of
time.
APPENDIX
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STANDARD AND POOR'S CORPORATION CORPORATE BOND RATINGS
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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.
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
<PAGE>
lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long term risks appear somewhat
larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
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.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (for related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. PRIME-1 repayment capacity
<PAGE>
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 alternative liquidity.
P-2--Issuers rated PRIME-2 (for 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.
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STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS
/R
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."
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING
DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating
is regarded as having the strongest degree of assurance for
timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree
than the strongest issues.
<PAGE>
INSIGHT ADJUSTABLE RATE MORTGAGE FUND
(A PORTFOLIO OF INSIGHT INSTITUTIONAL SERIES, INC.)
STATEMENT OF ADDITIONAL INFORMATION
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This Statement of Additional Information should be read with
the prospectus of Insight Adjustable Rate Mortgage Fund (the
"Fund") dated January 19, 1994. This Statement is not a
prospectus itself. To receive a copy of the prospectus, write
or call the Fund.
/R
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
R
<PAGE>
Statement dated January 19, 1994
/R
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND
INVESTMENT OBJECTIVE AND POLICIES
Types of Investments
Caps and Floors
When-Issued and Delayed Delivery Transactions
Lending of Portfolio Securities
Repurchase Agreements
Reverse Repurchase Agreements
Restricted and Illiquid Securities
Portfolio Turnover
INVESTMENT LIMITATIONS
INSIGHT INSTITUTIONAL SERIES, INC. MANAGEMENT
Officers and Directors
The Funds
Fund Ownership
Director Liability
INVESTMENT ADVISORY SERVICES
Adviser to the Fund
Advisory Fees
SHAREHOLDER SERVICING
ADMINISTRATIVE SERVICES
BROKERAGE TRANSACTIONS
PURCHASING SHARES
DETERMINING NET ASSET VALUE
Determining Market Value of Securities
REDEEMING SHARES
Redemption in Kind
TAX STATUS
The Fund's Tax Status
Shareholders' Tax Status
<PAGE>
TOTAL RETURN
YIELD
PERFORMANCE COMPARISONS
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Insight Institutional Series, Inc.
(the "Corporation"). The Corporation was incorporated under
the laws of the State of Maryland on October 11, 1993.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide current
income consistent with minimum fluctuation in principal value.
The investment objective stated above cannot be changed without
approval of shareholders. Unless indicated otherwise herein or
in the Fund's prospectus, the investment policies stated below
may not be changed by the Board of Directors (the "Directors")
without shareholder approval. Shareholders will be notified
before any material change in the investment policies becomes
effective.
TYPES OF INVESTMENTS
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The Fund invests primarily in adjustable and floating rate
mortgage securities that are issued or guaranteed by the U.S.
government, its agencies or instrumentalities. These
securities are backed by:
/R
* the full faith and credit of the U.S. Treasury;
* the issuer's right to borrow from the U.S. Treasury;
* the discretionary authority of the U.S. government to
purchase certain obligations of agencies or
instrumentalities; or
* the credit of the agency or instrumentality issuing such
obligations.
Examples of agencies and instrumentalities that may not always
receive financial support from the U.S. government are:
* Federal Land Banks;
* Banks for Cooperatives;
* Federal Intermediate Credit Banks;
<PAGE>
* Federal Home Loan Banks;
* Farmers Home Administration;
* Federal National Mortgage Association;
* Federal Home Loan Mortgage Corporation; and
* Student Loan Marketing Association.
CAPS AND FLOORS
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The value of mortgage securities in which the Fund invests may
be affected if market interest rates rise or fall faster and
farther than the allowable caps or floors on the underlying
residential mortgage loans. For example, consider a
residential mortgage loan with a rate which adjusts annually,
an initial interest rate of 6%, a 2% per annum interest rate
cap, and a 6% life of loan interest rate cap. If the index
against which the underlying interest rate on the residential
mortgage loan is compared -- such as the one-year Treasury --
moves up by 3%, the residential mortgage loan rate may not
increase by more than 2% to 6% the first year. As one of the
underlying residential mortgages for the securities in which
the Fund invests, the residential mortgage would depress the
value of the securities and, therefore, the net asset value of
the Fund. If the index against which the interest rate on the
underlying residential mortgage loan is compared moves up no
faster or farther than the cap on the underlying mortgage loan
allows, or if the index moves down as fast or faster than the
floor on the underlying mortgage loan allows, the mortgage
would maintain or improve the value of the securities in which
the Fund invests and, therefore, the net asset value of the
Fund.
/R
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future
time. The Fund engages in when-issued and delayed delivery
transactions only for the purpose of acquiring portfolio
securities consistent with the Fund's investment objective and
policies, and 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 Fund sufficient to
make payment for the securities to be purchased are segregated
at the trade date. These securities are marked to market daily
<PAGE>
and are maintained until the transaction is settled. The Fund
may engage in these transactions to an extent that would cause
the segregation of an amount up to 20% of the total value of
its assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the 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 the Fund. During the time portfolio
securities are on loan, the borrower pays the Fund any
dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the
borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.
REPURCHASE AGREEMENTS
The 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
Fund, the Fund could receive less than the repurchase price on
any sale of such securities. In the event that a defaulting
seller files for bankruptcy or becomes insolvent, disposition
of securities by the Fund might be delayed pending court
action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and
allow retention or disposition of such securities. The Fund
will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which
are deemed by the Fund's adviser to be creditworthy pursuant to
guidelines established by the Directors.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. A
reverse repurchase transaction is similar to borrowing cash.
In a reverse repurchase agreement the Fund transfers possession
of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees
that on a stipulated date in the future, the Fund will
repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of
reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into
reverse repurchase agreements does not ensure that the Fund
<PAGE>
will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of
the Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date.
These securities are marked to market daily and are maintained
until the transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of
certain restricted securities is permitted under the Securities
and Exchange Commission ("SEC") Staff position set forth in the
adopting release for Rule 144A under the Securities Act of 1933
(the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving 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 Rule 144A. The Fund believes that the Staff
of the SEC has left the question of determining the liquidity
of all restricted securities to the Directors. The Directors
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.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover
rate since any turnover would be incidental to transactions
undertaken in an attempt to achieve the Fund's investment
objective. It is not anticipated that the portfolio trading
engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%.
INVESTMENT LIMITATIONS
The Fund may not change any of the investment limitations
described below without approval of shareholders.
R
SELLING SHORT AND BUYING ON MARGIN
<PAGE>
The Fund will not sell securities short or purchase
securities on margin, but may obtain such short-term credits
as are necessary for clearance of transactions.
/R
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the
Fund may borrow money and engage in reverse repurchase
agreements in amounts up to one-third of the value of its
total assets, including the amounts borrowed. The Fund will
not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet
redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while borrowings
in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. In those
cases, it may pledge assets having a market value not
exceeding the lesser of the dollar amounts borrowed or 15%
of the value of total assets at the time of the borrowing.
DIVERSIFICATION OF INVESTMENTS
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With respect to securities comprising 75% of the value of
its total assets, the Fund will not purchase securities of
any one issuer (other than cash, cash items (including time
deposits (including savings deposits and certificates of
deposit) and bankers acceptances) issued by a U.S. branch of
a domestic bank or savings association having capital,
surplus, and undivided profits in excess of $100,000,000 at
the time of investment) or securities issued or guaranteed
by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized
by U.S. government securities) if as a result more than 5%
of the value of its total assets would be invested in the
securities of that issuer or the Fund would own more than
10% of the outstanding voting securities of that issuer.
/R
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its
total assets in any one industry, except it may invest 25%
or more of the value of its total assets in securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
INVESTING IN REAL ESTATE
<PAGE>
The Fund will not buy or sell real estate, including limited
partnership interests in real estate, although it may invest
in securities of companies whose business involves the
purchase or sale of real estate or in securities which are
secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its
total assets in securities subject to restrictions on resale
under the Securities Act of 1933, except for certain
restricted securities which meet the criteria for liquidity
as established by the Directors.
UNDERWRITING
The Fund will not underwrite any issue of securities, except
as it may be deemed to be an underwriter under the
Securities Act of 1933 in connection with the sale of
restricted securities which the Fund may purchase pursuant
to its investment objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio
securities up to one-third of the value of its total assets.
This shall not prevent the Fund from purchasing or holding
U.S. government obligations, money market instruments,
variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities,
entering into repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment
objective, policies and limitations.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its
total assets in securities of issuers that have records of
less than three years of continuous operations including the
operation of any predecessor. (This limitation does not
apply to issuers of CMOs or REMICs which are collateralized
by securities or mortgages issued or guaranteed as to prompt
payment of principal and interest by an agency or
instrumentality of the U.S. government.)
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other
mineral exploration or development programs or leases,
<PAGE>
although it may purchase the securities of issuers which
invest in or sponsor such programs.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may not own securities of open-end investment
companies. The Fund can acquire up to 3% of the total
outstanding stock of closed-end investment companies. The
Fund will not be subject to any other limitations with
regard to the acquisition of securities of closed-end
investment companies so long as the public offering price of
the Fund's shares does not include a sales load exceeding 1-
1/2 percent. The Fund will purchase securities of closed-
end investment companies only in open-market transactions
involving only customary broker's commissions. However,
these limitations are not applicable if the securities are
acquired in a merger, consolidation, reorganization or other
acquisition.
Except with respect to borrowing money, if a percentage
limitation is adhered to at the time of the investment, a later
increase or decrease in percentage resulting from any change in
value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities
during the coming fiscal year.
INSIGHT INSTITUTIONAL SERIES, INC. MANAGEMENT
OFFICERS AND DIRECTORS
R
Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any
affiliation with Federated Advisers, Federated Investors,
Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as
defined below).
/R
Positions with Principal Occupations
Name and Address the Corporation During Past Five Years
<PAGE>
John F. Donahue*+ Chairman and Chairman and Trustee,
Federated Director Federated Investors;
Investors Tower Chairman and Trustee,
Pittsburgh, PA Federated Advisers,
Federated Management, and
Federated Research;
Director, Aetna Life and
Casualty Company; Chief
Executive Officer and
Director, Trustee, or
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
Corporation.
John T. Conroy, Director President, Investment
Jr., Wood/IPC Properties Corporation;
Commercial Senior Vice-President,
Department John R. Wood and
John R. Wood and Associates, Inc.,
Associates, Inc., Realtors; President,
Realtors Northgate Village
3255 Tamiami Development Corporation
Trail North and Investment Properties
Naples, FL Corporation; General
Partner or Trustee in
private real estate
ventures in Southwest
Florida; Director,
Trustee, or Managing
General Partner of the
Funds; formerly,
President, Naples Property
Management, Inc.
William J. Director Director and Member of the
Copeland Executive Committee,
One PNC Plaza - Michael Baker, Inc.;
23rd Floor Director, Trustee, or
Pittsburgh, PA Managing General Partner
of the Funds; formerly,
Vice Chairman and
Director, PNC Bank, N.A.
and PNC Bank Corp. and
Director, Ryan Homes, Inc.
<PAGE>
James E. Dowd Director Attorney-at-law; Director,
571 Hayward Mill The Emerging Germany Fund,
Road Inc.; Director, Trustee,
Concord, or Managing General
Partner of the Funds;
formerly, Director, Blue
Cross of Massachusetts,
Inc.
Lawrence D. Director Hematologist, Oncologist,
Ellis, M.D. and Internist,
3471 Fifth Avenue Presbyterian and
Suite 1111 Montefiore Hospitals;
Pittsburgh, PA Clinical Professor of
Medicine and Trustee,
University of Pittsburgh;
Director, Trustee, or
Managing General Partner
of the Funds.
Richard B. President and Executive Vice President
Fisher* Director and Trustee, Federated
Federated Investors; Chairman,
Investors Tower Federated Securities
Pittsburgh, PA Corp.; President or Vice
President of the Funds;
Director or Trustee of
some of the Funds.
Edward L. Director Attorney-at-law; Partner,
Flaherty, Jr.+ Meyer and Flaherty;
5916 Penn Mall Director, Eat'N Park
Pittsburgh, PA Restaurants, Inc., and
Statewide Settlement
Agency, Inc.; Director,
Trustee, or Managing
General Partner of the
Funds; formerly, Counsel,
Horizon Financial, F.A.,
Western Region.
Peter E. Madden Director Consultant; State
225 Franklin Representative,
Street Commonwealth of
Boston, MA Massachusetts; Director,
Trustee, or Managing
General Partner of the
Funds; formerly,
President, State Street
Bank and Trust Company and
State Street Boston
Corporation and Trustee,
Lahey Clinic Foundation,
Inc.
<PAGE>
Gregor F. Meyer Director Attorney-at-law; Partner,
5916 Penn Mall Meyer and Flaherty;
Pittsburgh, PA Chairman, Meritcare, Inc.;
Director, Eat'N Park
Restaurants, Inc.;
Director, Trustee, or
Managing General Partner
of the Funds; formerly,
Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar Director Professor, Foreign Policy
1202 Cathedral of and Management Consultant;
Learning Trustee, Carnegie
University of Endowment for
Pittsburgh International Peace, RAND
Pittsburgh, PA Corporation, Online
Computer Library Center,
Inc., and U.S. Space
Foundation; Chairman,
Czecho Slovak Management
Center; Director, Trustee,
or Managing General
Partner of the Funds;
President Emeritus,
University of Pittsburgh;
formerly, Chairman,
National Advisory Council
for Environmental Policy
and Technology.
Marjorie P. Smuts Director Public relations/marketing
4905 Bayard consultant; Director,
Street Trustee, or Managing
Pittsburgh, PA General Partner of the
Funds.
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<PAGE>
J. Christopher Vice President President and Trustee,
Donahue Federated Investors;
Federated Trustee, Federated
Investors Tower Advisers, Federated
Pittsburgh, PA Management, and Federated
Research; Trustee,
Federated Services
Company; President and
Director, Federated
Administrative Services,
Inc.; 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 Director of the
Corporation.
Edward C. Vice President and Vice President, Treasurer
Gonzales Treasurer and Trustee, Federated
Federated Investors; Vice President
Investors Tower and Treasurer, Federated
Pittsburgh, PA Advisers, Federated
Management, and Federated
Research; Executive Vice
President, Treasurer, and
Director, Federated
Securities Corp.; Trustee,
Federated Services
Company; Chairman,
Treasurer, and Director,
Federated Administrative
Services, Inc.; Trustee or
Director of some of the
Funds; Vice President and
Treasurer of the Funds.
<PAGE>
John W. McGonigle Vice President Vice President, Secretary,
Federated and Secretary General Counsel, and
Investors Tower Trustee, Federated
Pittsburgh, PA Investors; Vice President,
Secretary, and Trustee,
Federated Advisers,
Federated Management, and
Federated Research;
Trustee, Federated
Services Company;
Executive Vice President,
Secretary, and Director,
Federated Administrative
Services, Inc.; Director
and Executive Vice
President, Federated
Securities Corp.; Vice
President and Secretary of
the Funds.
/R
John A. Vice President Vice President and
Staley, IV Trustee, Federated
Federated Investors; Executive Vice
Investors Tower President, Federated
Pittsburgh, PA Securities Corp.;
President and Trustee,
Federated Advisers,
Federated Management, and
Federated Research; Vice
President of the Funds;
Director, Trustee, or
Managing General Partner
of some of the Funds;
formerly, Vice President,
The Standard Fire
Insurance Company and
President of its Federated
Research Division.
* This Director is deemed to be an "interested person" of the
Fund as defined in the Investment Company Act of 1940.
+ Member of the Corporation's Executive Committee. The
Executive Committee of the Board of Directors handles the
Directors' responsibilities between meetings of the
Directors.
THE FUNDS
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"The Funds" and "Funds" mean the following investment
companies: A.T. Ohio Tax-Free Money Fund; American Leaders
Fund, Inc.; Annuity Management Series; Automated Cash
Management Trust; Automated Government Money Trust; BankSouth
Select Funds; The Boulevard Funds; California Municipal Cash
<PAGE>
Trust; Cash Trust Series, Inc.; Cash Trust Series II;
111 Corcoran Funds; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs
Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated Growth Trust; Federated
High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Intermediate Government Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund;
First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal
Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities,
Inc.; High Yield Cash Trust; Insurance Management Series;
Intermediate Municipal Trust; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty
U.S. Government Money Market Trust; Liberty Utility Fund, Inc.;
Liquid Cash Trust; Mark Twain Funds; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; New York Municipal Cash
Trust; The Planters Funds; Portage Funds; RIMCO Monument Funds;
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; and Trust for
U.S. Treasury Obligations.
/R
FUND OWNERSHIP
Officers and Directors own less than 1% of the outstanding
shares of the Fund.
DIRECTOR LIABILITY
The Corporation's Articles of Incorporation provide that the
Directors 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 FUND
R
<PAGE>
The Fund's investment adviser is Federated Advisers (the
"Adviser"). It is a subsidiary of Federated Investors. All of
the voting securities of Federated Investors are owned by a
trust, the Trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. John F. Donahue, Chairman and
Trustee of Federated Advisers, is Chairman and Trustee of
Federated Investors, and Chairman and Director of the Fund.
John A. Staley, IV, President and Trustee of Federated
Advisers, is Vice President and Trustee of Federated Investors,
Executive Vice President of Federated Securities Corp., and
Vice President of the Fund. J. Christopher Donahue, Trustee of
Federated Advisers, is President and Trustee of Federated
Investors, Trustee of Federated Services Company, President and
Director of Federated Administrative Services, Inc. and Vice
President of the Fund. John W. McGonigle, Vice President,
Secretary and Trustee of Federated Advisers, is Trustee, Vice
President, Secretary and General Counsel of Federated
Investors, Trustee of Federated Services Company, Executive
Vice President, Secretary and Director of Federated
Administrative Services, Inc., Executive Vice President and
Director of Federated Securities Corp., and Vice President and
Secretary of the Fund. The Adviser shall not be liable to the
Fund or any shareholder for any losses that may be sustained in
the purchase, holding, or sale of any security or for anything
done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with
the Fund.
/R
ADVISORY FEES
For its advisory services, Federated Advisers receives an
annual investment advisory fee as described in the prospectus.
STATE EXPENSE LIMITATION
The Adviser has undertaken to comply with the expense
limitation established by certain states for investment
companies whose shares are registered for sale in those
states. If the Fund's normal operating expenses (including
the investment advisory fee, but not including brokerage
commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average
net assets, and 1-1/2% per year of the remaining average net
assets, the Adviser will reimburse the Fund for its expenses
over the limitation.
If the Fund's monthly projected operating expenses exceed
this expense limitation, the investment advisory fee paid
will be reduced by the amount of the excess, subject to an
annual adjustment. If the expense limitation is exceeded,
the amount to be waived by the Adviser will be limited, in
<PAGE>
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.
SHAREHOLDER SERVICING
In return for providing shareholder servicing to its customers
who from time to time may be owners of record or beneficial
owners of shares of the Fund, a financial institution may
receive payments from the Fund at a rate not exceeding 0.25 of
1% of the average daily net assets of the shares beneficially
owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship.
These services may include, but not are not limited to, the
provision of personal services and maintenance of shareholder
accounts.
Federated Securities Corp. may also pay financial institutions
a fee based upon the net asset value of the Fund shares
beneficially owned by the financial institution's clients or
customers. This fee is in addition to amounts paid under the
Shareholder Services Plan and will be reimbursed by the
Adviser.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, Inc., a subsidiary of
Federated Investors, provides administrative personnel and
services to the Fund at approximate cost. John A. Staley, IV,
an officer of the Fund, and Dr. Henry J. Gailliot, an officer
of Federated Advisers, the Adviser to the Fund, each hold
approximately 15% and 20%, respectively, of the outstanding
common stock and serve as directors of Commercial Data
Services, Inc., a company which provides computer processing
services to Federated Administrative Services, Inc.
/R
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and
sale of portfolio instruments, the Adviser looks for prompt
execution of the order at a favorable price. In working with
dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review
by the Directors.
<PAGE>
The Adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished
directly to the Fund or to the Adviser and may include:
* advice as to the advisability of investing in securities;
* security analysis and reports;
* economic studies;
* industry studies;
* receipt of quotations for portfolio evaluations; and
* similar services.
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 or by affiliates of Federated Investors in advising
Federated funds and other accounts. To the extent that receipt
of these services may supplant services for which the Adviser
or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
Except under certain circumstances described in the prospectus,
shares are sold at their net asset value on days the New York
Stock Exchange is open for business. The procedure for
purchasing shares of the Fund is explained in the prospectus
under "Investing in the Fund."
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which
net asset value is calculated by the Fund are described in the
prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's securities are determined as
follows:
* as provided by an independent pricing service;
<PAGE>
* for short-term obligations, according to the mean bid and
asked prices, as furnished by an independent pricing
service, or for short-term obligations with maturities of
less than 60 days, at amortized cost unless the Directors
determine this is not fair value; or
* at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be
determined without relying exclusively on quoted prices.
Pricing services may consider:
* yield;
* quality;
* coupon rate;
* maturity;
* type of issue;
* trading characteristics; and
* other market data.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value
after the Fund receives the redemption request. Redemption
procedures are explained in the prospectus under "Redeeming
Shares." Although State Street Bank does not charge for
telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than
$5,000.
REDEMPTION IN KIND
The Corporation is obligated to redeem shares solely in cash up
to $250,000 or 1% of the Fund's net asset value, whichever is
less, for any one shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless
the Directors determine that payments should be in kind. In
such a case, the Fund will pay all or a portion of the
remainder of the redemption in portfolio instruments, valued in
the same way that net asset value is determined. The portfolio
instruments will be selected in a manner that the Directors
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
<PAGE>
less than the redemption value of their securities and could
incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to
meet the requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
To qualify for this treatment, the Fund must, among other
requirements:
* 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 and
capital gains received as cash or additional shares. No
portion of any income dividend paid by the Fund is eligible for
the dividends received deduction available to corporations.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on
long-term capital gains distributed to them regardless of
how long they have held the Fund shares.
TOTAL RETURN
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The average annual total return for the Fund is the average
compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by
multiplying the number of shares owned at the end of the period
by the offering price per share at the end of the period. The
number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with
$1,000, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and
distributions.
/R
<PAGE>
YIELD
R
The yield of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and
Exchange Commission) earned by the Fund over a thirty-day
period by the offering price per share of the Fund 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 12-month period and is reinvested every six
months. The yield does not necessarily reflect income actually
earned by the Fund because of certain adjustments required by
the 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 Fund, performance will
be reduced for those shareholders paying those fees.
/R
PERFORMANCE COMPARISONS
The Fund's 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 Fund expenses; and
* various other factors.
R
The Fund's 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 the Fund's performance. When
comparing performance, investors should consider all relevant
factors such as the composition of any index used, prevailing
market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute net
asset value. The financial publications and/or indices which
the Fund uses in advertising may include:
/R
* Lehman Adjustable Rate Mortgage Index.
R
<PAGE>
* 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 offering price over a specific
period of time. From time to time, the Fund will quote its
Lipper ranking in the "Adjustable Rate Mortgage Funds"
category in advertising and sales literature.
/R
Advertisements and other sales literature for the Fund may
quote total returns which are calculated on non-standardized
base periods. These total returns represent the historic
change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of
time.
<PAGE>
<PAGE>
