THE FOLLOWING ARE FORMS OF THE PROSPECTUSES USED FROM JANUARY 21, 1994,
TO THE PRESENT.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 19, 1994
FEDERATED MANAGED INCOME FUND
(A PORTFOLIO OF MANAGED SERIES TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Federated Managed Income Fund (the
"Fund") offered by this prospectus represent interests in the Fund, which
is a diversified investment portfolio of Managed Series Trust (the
"Trust"). The Trust is an open-end management investment company (a
mutual fund).
The investment objective of the Fund is to seek current income. The Fund
invests in both bonds and stocks. Institutional Service Shares are sold
at net asset value.
THE INSTITUTIONAL SERVICE 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 INSTITUTIONAL SERVICE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in Institutional Service Shares of the Fund. Keep this
prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information
for Institutional Service Shares and Select Shares of all portfolios of
the Trust dated , 1994, with the Securities and Exchange
Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this prospectus.
You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the
address listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated , 1994
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Asset Allocation 2
Bond Asset Categories 3
U.S. Treasury Securities 3
Mortgage-Backed Securities 3
Investment-Grade Corporate Bonds 4
High Yield Corporate Bonds 4
Foreign Bonds 4
Equity Asset Categories 4
Large Company Stocks 4
Utility Stocks 4
Small Company Stocks 4
Foreign Stocks 5
Cash Reserves 5
Acceptable Investments 5
U.S. Treasury and Other U.S.
Government Securities 5
Mortgage-Backed Securities 5
Collateralized Mortgage Obligations
("CMOs") 5
Real Estate Mortgage Investment Conduits
("REMICS") 6
Characteristics of Mortgage-Backed
Securities 6
Dollar Roll Transactions 7
Corporate Bonds 7
Equity Securities 8
Foreign Securities 8
Cash Reserves 9
Repurchase Agreements 9
Investing in Securities of Other
Investment Companies 9
Restricted and Illiquid Securities 9
When-Issued and Delayed Delivery
Transactions 9
Lending of Portfolio Securities 9
Foreign Currency Transactions 9
Forward Foreign Currency Exchange
Contracts 10
Options 10
Futures and Options on Futures 11
Risks 11
Investment Limitations 12
TRUST INFORMATION 12
- ------------------------------------------------------
Management of the Trust 12
Board of Trustees 12
Investment Adviser 12
Advisory Fees 12
Adviser's Background 12
Distribution of Institutional Service Shares 13
Administration of the Fund 13
Administrative Services 13
Shareholder Services Plan 13
Custodian 14
Transfer Agent and Dividend
Disbursing Agent 14
Legal Counsel 14
Independent Auditors 14
Brokerage Transactions 14
Expenses of the Fund and Institutional Service
Shares 14
NET ASSET VALUE 15
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 15
- ------------------------------------------------------
Share Purchases 15
Through a Financial Institution 15
By Wire 15
By Mail 15
Minimum Investment Required 16
What Shares Cost 16
Subaccounting Services 16
Systematic Investment Program 16
Certificates and Confirmations 16
Dividends 17
Capital Gains 17
REDEEMING INSTITUTIONAL SERVICE SHARES 17
- ------------------------------------------------------
Through a Financial Institution 17
Telephone Redemption 17
Written Requests 18
Signatures 18
Receiving Payment 18
Redemption Before Purchase Instruments Clear 18
Systematic Withdrawal Program 18
Accounts with Low Balances 19
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
Massachusetts Partnership Law 19
TAX INFORMATION 20
- ------------------------------------------------------
Federal Income Tax 20
Pennsylvania Corporate and
Personal Property Taxes 20
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
OTHER CLASSES OF SHARES 21
- ------------------------------------------------------
APPENDIX 22
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
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 INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1)............................................................. 0.48%
12b-1 Fee..................................................................................... None
Other Expenses................................................................................ 0.52%
Shareholder Servicing Fee (2)............................................................. 0.00%
Total Institutional Service Shares Operating Expenses (3)............................ 1.00%
</TABLE>
- ------------
(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 0.75%.
(2) The maximum shareholder servicing fee is 0.25%.
(3) The Total Institutional Service Shares Operating Expenses are estimated to
be 1.27% absent the anticipated voluntary waiver of a portion of the
management fee.
* Total Operating Expenses are based on average expenses expected to be incurred
during the period ending January 31, 1995. 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 INSTITUTIONAL SERVICE
SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND
"INVESTING IN INSTITUTIONAL SERVICE SHARES." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fee for Institutional Service Shares................................................ $10 $32
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING JANUARY 31,
1995.
The information set forth in the foregoing table and example relates only to
Institutional Service Shares of the Fund. The Fund also offers another class of
shares called Select Shares. Institutional Service Shares and Select Shares are
subject to certain of the same expenses; however, Select Shares are subject to a
12b-1 fee of up to 0.75%. See "Other Classes of Shares."
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 15, 1993. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Institutional Service Shares and Select Shares. This prospectus relates only
to Institutional Service Shares.
Institutional Service Shares ("Shares") of the Fund are designed to give
institutions, individuals, and financial institutions acting in a fiduciary or
agency capacity a convenient means of accumulating an interest in a
professionally managed, diversified investment portfolio. A minimum initial
investment of $25,000 over a 90-day period is required.
Shares are currently 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 seek current income. There can be, of
course, no assurance that the Fund will achieve its investment objective. The
Fund's investment objective cannot be changed without the approval of
shareholders. Unless otherwise noted, the Fund's investment policies may be
changed by the Trustees without shareholder approval.
INVESTMENT POLICIES
ASSET ALLOCATION. The Fund will invest in two types of assets: bonds and
stocks. The Fund's investment approach is based on the conviction that, over
time, the choice of investment asset categories and their relative long-term
weightings within the portfolio will have the primary impact on its investment
performance. Of secondary importance to the Fund's performance are the shifting
of money among asset categories and the selection of securities within asset
categories. Therefore, the Fund will pursue its investment objective in the
following manner: (1) by setting long-term ranges for each asset category; (2)
by moving money among asset categories within those defined ranges; and (3) by
actively selecting securities within each of the asset categories. The Fund
attempts to minimize risk by allocating its assets in such a fashion.
Within each of these types of investments, the Fund has designated asset
categories. As a matter of investment policy, ranges have been set for each
asset category's portfolio commitment.
The Fund will invest between 70 and 90 percent of its assets in bonds. The bond
asset categories are U.S. Treasury securities, mortgage-backed securities,
investment-grade corporate bonds, high yield corporate bonds and foreign bonds.
The Fund will invest between 10 and 30 percent of its assets in stocks. The
Fund's ability to invest a portion of its assets in stocks offers the
opportunity for higher return than other income-oriented funds.
The stock asset categories are large company stocks, utility stocks, small
company stocks, foreign stocks and cash reserves.
The following is a summary of the asset categories and the amount of the Fund's
total assets which may be invested in each asset category:
<TABLE>
<S> <C>
ASSET CATEGORY RANGE
BONDS 70-90%
U.S. Treasury Securities 0-90%
Mortgage-Backed Securities 0-45%
Investment-Grade Corporate Bonds 0-45%
High Yield Corporate Bonds 0-9%
Foreign Bonds 0-9%
STOCKS 10-30%
Large Company Stocks 0-30%
Utility Stocks 0-15%
Small Company Stocks 0-3%
Foreign Stocks 0-3%
Cash Reserves 0-12%
</TABLE>
The Fund's adviser will regularly review the Fund's allocation among the asset
categories and make any changes, within the ranges established for each asset
category, that it believes will provide the most favorable outlook for achieving
the Fund's investment objective. The Fund's adviser will attempt to exploit
inefficiencies among the various asset categories. If, for example, U.S.
Treasury securities are judged to be unusually attractive relative to other
asset categories, the allocation for U.S. Treasury securities may be moved to
its upper limit. At other times when U.S. Treasury securities appear to be
overvalued, the commitment may be moved down to a lesser allocation.
Each asset category within the Fund will be a managed portfolio. The Fund will
seek superior investment performance through security selection in addition to
determining the percentage of its assets to allocate to each of the asset
categories.
BOND ASSET CATEGORIES. The portion of the Fund's assets which is invested in
bonds ("Bond Assets") will be allocated among the following asset categories
within the ranges specified. The average duration of the Fund's Bond Assets will
be not less than two nor more than four years.
U.S. TREASURY SECURITIES. U.S. Treasury securities are direct obligations
of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds. The
Fund may invest up to 90 percent of its total assets in U.S. Treasury
securities. The Fund may invest in other U.S. government securities if, in
the judgment of the adviser, other U.S. government securities are more
attractive than U.S. Treasury securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
undivided interest in a pool of residential mortgages or may be
collateralized by a pool of residential mortgages. Mortgage-backed
securities are generally either issued or guaranteed by the Government
National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal
Home Loan Mortgage Corporation ("FHLMC") or other U.S. government agencies
or instrumentalities. Mortgage-backed securities may also be issued by
single-purpose, stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment bankers, or companies related
to the construction industry. The Fund may invest up to 45 percent of its
total assets in mortgage-backed securities.
INVESTMENT-GRADE CORPORATE BONDS. Investment-grade corporate bonds are
corporate debt obligations having fixed or floating rates of interest and
which are rated BBB or higher by a nationally recognized statistical rating
organization ("NRSRO"). The Fund may invest up to 45 percent of its total
assets in investment-grade corporate bonds. 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 the
investment-grade bonds described above.
HIGH YIELD CORPORATE BONDS. High yield corporate bonds are corporate debt
obligations having fixed or floating rates of interest and which are rated
BB or lower by NRSROs. The Fund may invest up to nine percent of its total
assets in high yield corporate bonds. 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 the high yield bonds
described above.
FOREIGN BONDS. Foreign bonds are high-quality debt securities of nations
other than the United States. The Fund's portfolio of foreign bonds will be
comprised mainly of foreign government, foreign governmental agency or
supranational institution bonds. The Fund will also invest in high-quality
debt securities issued by corporations in nations other than the United
States and subject to the Fund's credit limitations for foreign bonds. The
Fund may invest up to nine percent of its total assets in foreign bonds.
EQUITY ASSET CATEGORIES. The portion of the Fund's assets which is invested in
stocks will be allocated among the following asset categories within the ranges
specified:
LARGE COMPANY STOCKS. Large company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of high-quality companies selected by the Fund's
adviser. Ordinarily, these companies will be in the top 25 percent of their
industries with regard to revenues. However, other factors, such as product
position or market share, will be considered by the Fund's adviser and may
outweigh revenues. The Fund may invest up to 30 percent of its total assets
in large company stocks.
UTILITY STOCKS. Utility stocks are common stocks and securities
convertible into or exchangeable for common stocks, such as rights and
warrants, of utility companies. The Fund may invest up to 15 percent of its
total assets in utility stocks.
SMALL COMPANY STOCKS. Small company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of companies with a market capitalization (market
price a number of shares outstanding) below the top 1,000 stocks that
comprise the large and mid-range capitalization sector of the United States
equity market. These stocks are comparable to, but not limited to, the
stocks comprising the Russell 2000 Index, an index of small capitalization
stocks. The Fund may invest up to three percent of its total assets in
small company stocks.
FOREIGN STOCKS. Foreign stocks are equity securities of established
companies in economically developed countries other than the United States.
These securities may be either dollar-denominated or denominated in foreign
currencies. The Fund may invest up to three percent of its total assets in
foreign stocks.
CASH RESERVES. When the adviser believes that a temporary defensive
position is available, the Fund may invest in cash reserves. Cash reserves
will consist of U.S. and foreign short-term money market instruments,
including interest-bearing call deposits with banks, government
obligations, certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate debt securities, and repurchase agreements. The
Fund may invest up to 12 percent of its total assets in cash reserves.
ACCEPTABLE INVESTMENTS
U.S. TREASURY AND OTHER U.S. GOVERNMENT SECURITIES. The U.S. Treasury and
other U.S. government securities in which the Fund invests are either
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The U.S. government securities in which the Fund may
invest are limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
obligations issued by U.S. government agencies or instrumentalities,
including securities that are supported by the full faith and credit of
the U.S. Treasury (such as GNMA certificates); securities that are
supported by the right of the issuer to borrow from the U.S. Treasury
(such as securities of Federal Home Loan Banks); and securities that are
supported by the credit of the agency or instrumentality (such as FNMA
and FHLMC bonds).
MORTGAGE-BACKED SECURITIES. Mortgaged-backed securities are securities
collateralized by residential mortgages. The mortgage-backed securities in
which the Fund may invest may be:
issued by an agency of the U.S. government, typically GNMA, FNMA or
FHLMC;
privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government;
privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by
the issuer and such guarantee is collateralized by U.S. government
securities; and
other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal
and interest are supported by the credit of an agency or instrumentality
of the U.S. government.
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. Most of the CMOs in which the
Fund would invest use the same basic structure:
Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities. The first three (A, B, and C bonds) pay
interest at their stated rates beginning with the issue date; the
final class (or Z bond) typically receives the residual income from
the underlying investments after payments are made to the other
classes.
The cash flows from the underlying mortgages are applied first to
pay interest and then to retire securities.
The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A
bonds). When those securities are completely retired, all principal
payments are then directed to the next-shortest maturity security
(or B bond). This process continues until all of the classes have
been paid off.
Because the cash flow is distributed sequentially instead of pro
rata as with pass-through securities, the cash flows and average
lives of CMOs are more predictable, and there is a period of time
during which the investors in the longer-maturity classes receive
no principal paydowns. The interest portion of these payments is
distributed by the Fund as income and the capital portion is
reinvested.
The Fund will invest only in CMOs which are rated AAA by an NRSRO.
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 a segregated
pool 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, and a single class of "residual interests." To qualify as a
REMIC, substantially all of the assets of the entity must be in assets
directly or indirectly secured principally by real property.
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed
securities have yield and maturity characteristics corresponding to the
underlying mortgages. Distributions to holders of mortgage-backed
securities include both interest and principal payments. Principal
payments represent the amortization of the principal of the underlying
mortgages and any prepayments of principal due to prepayment,
refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective
maturities of mortgage-backed securities. Due to these features,
mortgage-backed securities are less effective as a means of "locking
in" attractive long-term interest rates than fixed-income securities
which pay only a stated amount of interest until maturity, when the
entire principal amount is returned. This is caused by the need to
reinvest at lower interest rates both distributions of principal
generally and significant prepayments which become more likely
as mortgage interest rates decline. Since comparatively high interest
rates cannot be effectively "locked in," mortgage-backed securities may
have less potential for capital appreciation during periods of
declining interest rates than other non-callable, fixed-income
government securities of comparable stated maturities. However,
mortgage-backed securities may experience less pronounced declines in
value during periods of rising interest rates.
In addition, some of the CMOs purchased by the Fund may represent an
interest solely in the principal repayments or solely in the interest
payments on mortgage-backed securities (stripped mortgage-backed
securities or "SMBSs"). Due to the possibility of prepayments on the
underlying mortgages, SMBSs may be more interest-rate sensitive than
other securities purchased by the Fund. If prevailing interest rates
fall below the level at which SMBSs were issued, there may be
substantial prepayments on the underlying mortgages, leading to the
relatively early prepayments of principal-only SMBSs and a reduction in
the amount of payments made to holders of interest-only SMBSs. It is
possible that the Fund might not recover its original investment in
interest-only SMBSs if there are substantial prepayments on the
underlying mortgages. Therefore, interest-only SMBSs generally increase
in value as interest rates rise and decrease in value as interest rates
fall, counter to changes in value experienced by most fixed-income
securities. The Fund's adviser intends to use this characteristic of
interest-only SMBSs to reduce the effects of interest rate changes on
the value of the Fund's portfolio, while continuing to pursue the
Fund's investment objective.
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 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
security (i.e., same type, coupon and maturity) 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 sale 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.
CORPORATE BONDS. The investment-grade corporate bonds in which the Fund
invests are:
rated within the four highest ratings for corporate bonds by Moody's
Investors Service, Inc. (Aaa, Aa, A, or Baa) ("Moody's"), Standard &
Poor's Corporation (AAA, AA, A, or BBB) ("Standard & Poor's"), or Fitch
Investors Service, Inc. (AAA, AA, A, or BBB) ("Fitch");
unrated if other long-term debt securities of that issuer are rated, at
the time of purchase, Baa or better by Moody's or BBB or better by
Standard & Poor's or Fitch; or
unrated if determined to be of equivalent quality to one of the foregoing
rating categories by the Fund's adviser.
The high yield corporate bonds in which the Fund invests are rated Ba or
lower by Moody's or BB or lower by Standard & Poor's or Fitch. A
description of the rating categories is contained in the Appendix to this
prospectus.
Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments.
This is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher-rated securities which
react primarily to fluctuations in the general level of interest rates.
Short-term corporate and market developments affecting the price or
liquidity of lower-rated securities could include adverse news affecting
major issuers, underwriters, or dealers of lower-rated corporate debt
obligations. In addition, since there are fewer investors in lower-rated
securities, it may be harder to sell the securities at an optimum time. As
a result of these factors, lower-rated securities tend to have more price
volatility and carry more risk to principal than higher-rated securities.
Many corporate debt obligations, including many lower-rated bonds, permit
the issuers to call the security and thereby redeem their obligations
earlier than the stated maturity dates. Issuers are more likely to call
bonds during periods of declining interest rates. In these cases, if the
Fund owns a bond which is called, the Fund will receive its return of
principal earlier than expected and would likely be required to reinvest
the proceeds at lower interest rates, thus reducing income to the Fund.
EQUITY SECURITIES. Common stocks represent ownership interest in a
corporation. Unlike bonds, which are debt securities, common stocks have
neither fixed maturity dates nor fixed schedules of promised payments.
Utility stocks are common stocks of utility companies, including water
companies, companies that produce, transmit, or distribute gas and electric
energy and those companies that provide communications facilities, such as
telephone and telegraph companies. Foreign stocks are equity securities of
foreign issuers.
FOREIGN SECURITIES. The foreign bonds in which the Fund invests are rated
within the four highest ratings for bonds by Moody's (Aaa, Aa, A or Baa) or
by Standard & Poor's (AAA, AA, A or BBB) or are unrated if determined to be
of equivalent quality by the Fund's adviser.
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 taxation, currency fluctuations,
withholding taxes on interest, limitations on the use or transfer of Fund
assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual
obligations or obtain court judgments abroad than would be the case in the
United States because of differences in the legal systems. 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.
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 issuers; 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.
CASH RESERVES. The Fund's cash reserves may be cash received from the sale
of Fund shares, reserves for temporary defensive purposes or to take
advantage of market opportunities.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3
percent of the total outstanding voting stock of any such investment company,
invest more than 5 percent of its total assets in any one such investment
company, or invest more than 10 percent of its total assets in such other
investment companies in general.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, over-the-counter
options, and repurchase agreements providing for settlement in more than seven
days after notice, to 15 percent of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or 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 adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100 percent of the value of the securities loaned.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). The period between trade date and settlement date will vary
between 24 hours and 30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the adviser
will consider the likelihood of changes in currency values when making
investment decisions, the adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency.
OPTIONS. The Fund may deal in options on foreign currencies, foreign currency
futures, securities, and securities indices, which options may be listed for
trading on a national securities exchange or traded over-the-counter. The Fund
will use options only to manage interest rate and currency risks. The Fund may
write covered call options to generate income. The Fund may write covered call
options and secured put options on up to 25 percent of its net assets and may
purchase put and call options provided that no more than 5 percent of the fair
market value of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying
asset over the exercise price plus the premium received. In writing puts, there
is a risk that the Fund may be required to take delivery of the underlying asset
at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets and with a wider range of expiration
dates and exercise prices, than are exchange traded options.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to accommodate cash flows into and out of the Fund's portfolio and to
hedge against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions. Futures contracts
call for the delivery of particular 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.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the firms included in the indexes. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect its portfolio securities 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 margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5
percent of the market value of the Fund's total assets. When the Fund purchases
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contracts are unleveraged. When the Fund sells
futures contracts, it will either own or have the right to receive the
underlying future or security or will make deposits to collateralize the
position as discussed above.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the investment adviser could be incorrect in
its expectations about the direction or extent of market factors such as
stock price movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements 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 percent of
the value of those assets to secure such borrowings;
lend any securities except for portfolio securities; or
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.
The above investment limitations cannot be changed without shareholder approval.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .75 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for voluntary reimbursement of expenses
by the adviser, the adviser may voluntarily waive some or all of its fee.
This does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The
adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, 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 Management 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.
Charles A. Ritter has been the Fund's portfolio manager since the Fund's
inception. Mr. Ritter joined Federated Investors in 1983 and has been a
Vice President of the Fund's investment adviser since 1992. From 1988 until
1991, Mr. Ritter acted as an Assistant Vice President. Mr. Ritter is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Chicago and his M.S. in Economics from Carnegie Mellon
University.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Shares. 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., 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. Management of the Fund intends to propose to the
Trustees that a Shareholder Services Plan be adopted with respect to the Shares
(the "Services Plan"). Under the Services Plan, financial institutions would
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 would receive payments from the Fund
at a rate not exceeding .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 would include, but not be limited to, the provision of
personal service and maintenance of shareholder accounts.
In addition to receiving the payments under the Services Plan, financial
institutions could be compensated by the distributor, who could be reimbursed by
the adviser, or affiliates thereof, for providing administrative support
services to holders of Shares. These payments would be made directly by the
distributor, and will not be made from the assets of the Fund.
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.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro and Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Arthur Andersen
& Co., Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND AND INSTITUTIONAL SERVICE SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, no expenses are allocated to the Shares as a class. However, the
Trustees reserves the right to allocate certain other expenses to holders of
Shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses
would be limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Shares; fees under the Fund's
Shareholder Services Plan, if any; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; registration fees paid to the Securities
and Exchange Commission and registration fees paid to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Shares; legal fees relating solely to Shares; and
Trustees' fees incurred as a result of issues relating solely to Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Service Shares may exceed that of Select Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased through a financial institution which has a
sales agreement with the distributor or by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Fund reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank
or an investment dealer) to place an order to purchase Shares. Texas residents
must purchase
Shares through a broker registered with the State of Texas or through Federated
Securities Corp. at
1-800-358-2801. Orders through a financial institution are considered received
when the Fund is notified of the purchase order. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated Managed Income Fund--Institutional
Service Shares; Fund Number (this number can be found on the account statement
or by contacting the Fund); Group Number or Wire Order Number; Nominee or
Institution Name; and ABA Number 011000028.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Managed Income Fund--Institutional Service Shares to State Street Bank and Trust
Company, P.O. Box 8602, Boston,
Massachusetts 02266-8602. Orders by mail are considered received after payment
by check is converted by State Street Bank into federal funds. This is normally
the next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities such 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.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding Shares in a fiduciary, agency, custodial, or similar capacity may charge
or pass through subaccounting fees as part of or in addition to normal trust or
agency account fees. They may also charge fees for other services provided which
may be related to the ownership of Shares. This prospectus should, therefore, be
read together with any agreement between the customer and the institution with
regard to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the Fund. A
shareholder may apply for participation in this program through Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
that quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Unless shareholders request cash payments by writing
the Fund, dividends are automatically reinvested in additional Shares of the
Fund on payment dates at the ex-dividend date net asset value without a sales
charge.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
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, by telephone
request or by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares 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 through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern 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.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern Time). All proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System. If
at any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. 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 written requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares
name, his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $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");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("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. 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.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, 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.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Shares,
and the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually use up, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in the Fund. To
be eligible to participate in this program, a shareholder must have an account
value of at least $25,000. A shareholder may apply for participation in this
program through Federated Securities Corp.
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 $25,000. This
requirement does not apply, however, if the balance falls below $25,000 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.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or the Fund's operation and for the election
of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect the
shareholders of the Fund, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX 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.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
Fund shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
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 for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Service
Shares and Select Shares. Because Select Shares are subject to 12b-1 fees, the
total return and yield for Institutional Service Shares, for the same period,
will exceed that of Select Shares.
From time to time the Fund may advertise the performance of Institutional
Service Shares using certain reporting services and/or compare the performance
of Institutional Service Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Select Shares are sold primarily to retail and private banking customers of
financial institutions. Select Shares are sold at net asset value. Investments
in Select Shares are subject to a minimum initial investment of $1,500.
Select Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust
whereby the distributor is paid a fee of .75 of 1% of the Select Shares' average
daily net assets. Select Shares are also subject to a Shareholder Services Plan
fee of .25 of 1%.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Fund is sold.
The amount of dividends payable to Institutional Service Shares will exceed that
of Select Shares by the difference between Class Expenses and distribution
expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, AND CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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 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.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus or minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Managed Income Fund
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Arthur Andersen & Co. 2000 PNC Bank Building
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
FEDERATED MANAGED INCOME
FUND
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Diversified Portfolio of
Managed Series Trust, an Open-End
Management Investment Company
Prospectus dated , 1994
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3122013A-ISS (1/94)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 19, 1994
FEDERATED MANAGED INCOME FUND
(A PORTFOLIO OF MANAGED SERIES TRUST)
SELECT SHARES
PROSPECTUS
The Select Shares of Federated Managed Income Fund (the "Fund") offered
by this prospectus represent interests in the Fund, which is a
diversified investment portfolio of Managed Series Trust (the "Trust").
The Trust is an open-end management investment company (a mutual fund).
The investment objective of the Fund is to seek current income. The Fund
invests in both bonds and stocks. Select Shares are sold at net asset
value.
THE SELECT 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 SELECT
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in Select Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information
for Select Shares and Institutional Service Shares, of all portfolios of
the Trust dated , 1994, with the Securities and Exchange
Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this prospectus.
You may request
a copy of the Combined Statement of Additional Information free of charge
by calling
1-800-235-4669. To obtain other information or to make inquiries about
the Fund, contact the Fund at the address listed in the back of this
prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated , 1994
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Asset Allocation 2
Bond Asset Categories 3
U.S. Treasury Securities 3
Mortgage-Backed Securities 3
Investment-Grade Corporate Bonds 4
High Yield Corporate Bonds 4
Foreign Bonds 4
Equity Asset Categories 4
Large Company Stocks 4
Utility Stocks 4
Small Company Stocks 4
Foreign Stocks 5
Cash Reserves 5
Acceptable Investments 5
U.S. Treasury and Other
U.S. Government Securities 5
Mortgage-Backed Securities 5
Collateralized Mortgage Obligations
("CMOs") 5
Real Estate Mortgage Investment
Conduits ("REMICS") 6
Characteristics of Mortgage-
Backed Securities 6
Dollar Roll Transactions 7
Corporate Bonds 7
Equity Securities 8
Foreign Securities 8
Cash Reserves 9
Repurchase Agreements 9
Investing in Securities of
Other Investment Companies 9
Restricted and Illiquid Securities 9
When-Issued and Delayed
Delivery Transactions 9
Lending of Portfolio Securities 9
Foreign Currency Transactions 9
Forward Foreign Currency
Exchange Contracts 10
Options 10
Futures and Options on Futures 11
Risks 11
Investment Limitations 12
TRUST INFORMATION 12
- ------------------------------------------------------
Management of the Trust 12
Board of Trustees 12
Investment Adviser 12
Advisory Fees 12
Adviser's Background 12
Distribution of Select Shares 13
Distribution Plan 13
Administration of the Fund 14
Administrative Services 14
Shareholder Services Plan 14
Custodian 14
Transfer Agent and Dividend
Disbursing Agent 14
Legal Counsel 14
Independent Auditors 14
Brokerage Transactions 15
Expenses of the Fund and Select Shares 15
NET ASSET VALUE 15
- ------------------------------------------------------
INVESTING IN SELECT SHARES 16
- ------------------------------------------------------
Share Purchases 16
Through a Financial Institution 16
By Wire 16
By Mail 16
Minimum Investment Required 16
What Shares Cost 16
Subaccounting Services 17
Systematic Investment Program 17
Certificates and Confirmations 17
Dividends 17
Capital Gains 17
REDEEMING SELECT SHARES 18
- ------------------------------------------------------
Through a Financial Institution 18
Telephone Redemption 18
Written Requests 18
Signatures 18
Receiving Payment 19
Redemption Before Purchase
Instruments Clear 19
Systematic Withdrawal Program 19
Accounts with Low Balances 19
SHAREHOLDER INFORMATION 20
- ------------------------------------------------------
Voting Rights 20
Massachusetts Partnership Law 20
TAX INFORMATION 20
- ------------------------------------------------------
Federal Income Tax 20
Pennsylvania Corporate and
Personal Property Taxes 20
PERFORMANCE INFORMATION 21
- ------------------------------------------------------
OTHER CLASSES OF SHARES 21
- ------------------------------------------------------
APPENDIX 22
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
SELECT SHARES
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 SELECT SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1).............................................................. 0.48%
12b-1 Fee (after waiver) (2)................................................................... 0.50%
Other Expenses................................................................................. 0.77%
Shareholder Servicing Fee.................................................................. 0.25%
Total Select Shares Operating Expenses (3)............................................ 1.75%
</TABLE>
- ------------
(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 as its sole discretion. The
maximum management fee is 0.75%.
(2) The maximum 12b-1 fee is 0.75%.
(3) The Total Select Shares Operating Expenses are estimated to be 2.27% absent
the anticipated voluntary waivers of a portion of the management fee and a
portion of the 12b-1 fee.
* Total Operating Expenses are based on average expenses expected to be
incurred during the period ending January 31, 1995. 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 SELECT SHARES OF THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND "INVESTING IN SELECT
SHARES." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fee for Select Shares............................................................... $18 $55
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING JANUARY 31,
1995.
The information set forth in the foregoing table and example relates only to
Select Shares of the Fund. The Fund also offers another class of shares called
Institutional Service Shares. Institutional Service Shares and Select Shares are
subject to certain of the same expenses; however, Institutional Service Shares
are not subject to a 12b-1 fee. See "Other Classes of Shares."
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 15, 1993. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Select Shares and Institutional Service Shares. This prospectus relates only
to Select Shares.
Select Shares ("Shares") of the Fund are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
bonds and stocks. A minimum initial investment of $1,500 is required.
Shares are currently 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 seek current income. There can be, of
course, no assurance that the Fund will achieve its investment objective. The
Fund's investment objective cannot be changed without the approval of
shareholders. Unless otherwise noted, the Fund's investment policies may be
changed by the Trustees without shareholder approval.
INVESTMENT POLICIES
ASSET ALLOCATION. The Fund will invest in two types of assets: bonds and
stocks. The Fund's investment approach is based on the conviction that, over
time, the choice of investment asset categories and their relative long-term
weightings within the portfolio will have the primary impact on its investment
performance. Of secondary importance to the Fund's performance are the shifting
of money among asset categories and the selection of securities within asset
categories. Therefore, the Fund will pursue its investment objective in the
following manner: (1) by setting long-term ranges for each asset category; (2)
by moving money among asset categories within those defined ranges; and (3) by
actively selecting securities within each of the asset categories. The Fund
attempts to minimize risk by allocating its assets in such a fashion.
Within each of these types of investments, the Fund has designated asset
categories. As a matter of investment policy, ranges have been set for each
asset category's portfolio commitment.
The Fund will invest between 70 and 90 percent of its assets in bonds. The bond
asset categories are U.S. Treasury securities, mortgage-backed securities,
investment-grade corporate bonds, high yield corporate bonds and foreign bonds.
The Fund will invest between 10 and 30 percent of its assets in stocks. The
Fund's ability to invest a portion of its assets in stocks offers the
opportunity for higher return than other income-oriented funds. The stock asset
categories are large company stocks, utility stocks, small company stocks,
foreign stocks and cash reserves.
The following is a summary of the asset categories and the amount of the Fund's
total assets which may be invested in each asset category:
<TABLE>
<S> <C>
ASSET CATEGORY RANGE
BONDS 70-90%
U.S. Treasury Securities 0-90%
Mortgage-Backed Securities 0-45%
Investment-Grade Corporate Bonds 0-45%
High Yield Corporate Bonds 0-9%
Foreign Bonds 0-9%
STOCKS 10-30%
Large Company Stocks 0-30%
Utility Stocks 0-15%
Small Company Stocks 0-3%
Foreign Stocks 0-3%
Cash Reserves 0-12%
</TABLE>
The Fund's adviser will regularly review the Fund's allocation among the asset
categories and make any changes, within the ranges established for each asset
category, that it believes will provide the most favorable outlook for achieving
the Fund's investment objective. The Fund's adviser will attempt to exploit
inefficiencies among the various asset categories. If, for example, U.S.
Treasury securities are judged to be unusually attractive relative to other
asset categories, the allocation for U.S. Treasury securities may be moved to
its upper limit. At other times when U.S. Treasury securities appear to be
overvalued, the commitment may be moved down to a lesser allocation.
Each asset category within the Fund will be a managed portfolio. The Fund will
seek superior investment performance through security selection in addition to
determining the percentage of its assets to allocate to each of the asset
categories.
BOND ASSET CATEGORIES. The portion of the Fund's assets which is invested in
bonds ("Bond Assets") will be allocated among the following asset categories
within the ranges specified. The average duration of the Fund's Bond Assets will
be not less than two nor more than four years.
U.S. TREASURY SECURITIES. U.S. Treasury securities are direct obligations
of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds. The
Fund may invest up to 90 percent of its total assets in U.S. Treasury
securities. The Fund may invest in other U.S. government securities if, in
the judgment of the adviser, other U.S. government securities are more
attractive than U.S. Treasury securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
undivided interest in a pool of residential mortgages or may be
collateralized by a pool of residential mortgages. Mortgage-backed
securities are generally either issued or guaranteed by the Government
National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") or
other U.S. government agencies or instrumentalities. Mortgage-backed
securities may also be issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government agencies,
investment bankers, or companies related to the construction industry. The
Fund may invest up to 45 percent of its total assets in mortgage-backed
securities.
INVESTMENT-GRADE CORPORATE BONDS. Investment-grade corporate bonds are
corporate debt obligations having fixed or floating rates of interest and
which are rated BBB or higher by a nationally recognized statistical rating
organization ("NRSRO"). The Fund may invest up to 45 percent of its total
assets in investment-grade corporate bonds. 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 the
investment-grade bonds described above.
HIGH YIELD CORPORATE BONDS. High yield corporate bonds are corporate debt
obligations having fixed or floating rates of interest and which are rated
BB or lower by NRSROs. The Fund may invest up to nine percent of its total
assets in high yield corporate bonds. 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 the high yield bonds
described above.
FOREIGN BONDS. Foreign bonds are high-quality debt securities of nations
other than the United States. The Fund's portfolio of foreign bonds will be
comprised mainly of foreign government, foreign governmental agency or
supranational institution bonds. The Fund will also invest in high-quality
debt securities issued by corporations in nations other than the United
States and subject to the Fund's credit limitations for foreign bonds. The
Fund may invest up to nine percent of its total assets in foreign bonds.
EQUITY ASSET CATEGORIES. The portion of the Fund's assets which is invested in
stocks will be allocated among the following asset categories within the ranges
specified:
LARGE COMPANY STOCKS. Large company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of high-quality companies selected by the Fund's
adviser. Ordinarily, these companies will be in the top 25 percent of their
industries with regard to revenues. However, other factors, such as product
position or market share, will be considered by the Fund's adviser and may
outweigh revenues. The Fund may invest up to 30 percent of its total assets
in large company stocks.
UTILITY STOCKS. Utility stocks are common stocks and securities
convertible into or exchangeable for common stocks, such as rights and
warrants, of utility companies. The Fund may invest up to 15 percent of its
total assets in utility stocks.
SMALL COMPANY STOCKS. Small company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of companies with a market capitalization (market
price x number of shares outstanding) below the top 1,000 stocks that
comprise the large and mid-range capitalization sector of the United States
equity market. These stocks are comparable to, but not limited to, the
stocks comprising the Russell 2000 Index, an index of small capitalization
stocks. The Fund may invest up to three percent of its total assets in
small company stocks.
FOREIGN STOCKS. Foreign stocks are equity securities of established
companies in economically developed countries other than the United States.
These securities may be either dollar-denominated or denominated in foreign
currencies. The Fund may invest up to three percent of its total assets in
foreign stocks.
CASH RESERVES. When the adviser believes that a temporary defensive
position is available, the Fund may invest in cash reserves. Cash reserves
will consist of U.S. and foreign short-term money market instruments,
including interest-bearing call deposits with banks, government
obligations, certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate debt securities, and repurchase agreements. The
Fund may invest up to 12 percent of its total assets in cash reserves.
ACCEPTABLE INVESTMENTS
U.S. TREASURY AND OTHER U.S. GOVERNMENT SECURITIES. The U.S. Treasury and
other U.S. government securities in which the Fund invests are either
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The U.S. government securities in which the Fund may
invest are limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
obligations issued by U.S. government agencies or instrumentalities,
including securities that are supported by the full faith and credit of
the U.S. Treasury (such as GNMA certificates); securities that are
supported by the right of the issuer to borrow from the U.S. Treasury
(such as securities of Federal Home Loan Banks); and securities that are
supported by the credit of the agency or instrumentality (such as FNMA
and FHLMC bonds).
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities
collateralized by residential mortgages. The mortgage-backed securities in
which the Fund may invest may be:
issued by an agency of the U.S. government, typically GNMA, FNMA or
FHLMC;
privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government;
privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by
the issuer and such guarantee is collateralized by U.S. government
securities; and
other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal
and interest are supported by the credit of an agency or instrumentality
of the U.S. government.
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. Most of the CMOs in which the
Fund would invest use the same basic structure:
Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities. The first three (A, B, and C bonds) pay
interest at their stated rates beginning with the issue date; the
final class (or Z bond) typically receives the residual income from
the underlying investments after payments are made to the other
classes.
The cash flows from the underlying mortgages are applied first to
pay interest and then to retire securities.
The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A
bonds). When those securities are completely retired, all principal
payments are then directed to the next-shortest maturity security
(or B bond). This process continues until all of the classes have
been paid off.
Because the cash flow is distributed sequentially instead of pro rata
as with pass-through securities, the cash flows and average lives of
CMOs are more predictable, and there is a period of time during which
the investors in the longer-maturity classes receive no principal
paydowns. The interest portion of these payments is distributed by the
Fund as income and the capital portion is reinvested.
The Fund will invest only in CMOs which are rated AAA by an NRSRO.
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 a segregated
pool 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, and a single class of "residual interests." To qualify as a
REMIC, substantially all of the assets of the entity must be in assets
directly or indirectly secured principally by real property.
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed
securities have yield and maturity characteristics corresponding to the
underlying mortgages. Distributions to holders of mortgage-backed
securities include both interest and principal payments. Principal
payments represent the amortization of the principal of the underlying
mortgages and any prepayments of principal due to prepayment,
refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective
maturities of mortgage-backed securities. Due to these features,
mortgage-backed securities are less effective as a means of "locking
in" attractive long-term interest rates than fixed-income securities
which pay only a stated amount of interest until maturity, when the
entire principal amount is returned. This is caused by the need to
reinvest at lower interest rates both distributions of principal
generally and significant prepayments which become more likely
as mortgage interest rates decline. Since comparatively high interest
rates cannot be effectively "locked in," mortgage-backed securities may
have less potential for capital appreciation during periods of
declining interest rates than other non-callable, fixed-income
government securities of comparable stated maturities. However,
mortgage-backed securities may experience less pronounced declines in
value during periods of rising interest rates.
In addition, some of the CMOs purchased by the Fund may represent an
interest solely in the principal repayments or solely in the interest
payments on mortgage-backed securities (stripped mortgage-backed
securities or "SMBSs"). Due to the possibility of prepayments on the
underlying mortgages, SMBSs may be more interest-rate sensitive than
other securities purchased by the Fund. If prevailing interest rates
fall below the level at which SMBSs were issued, there may be
substantial prepayments on the underlying mortgages, leading to the
relatively early prepayments of principal-only SMBSs and a reduction in
the amount of payments made to holders of interest-only SMBSs. It is
possible that the Fund might not recover its original investment in
interest-only SMBSs if there are substantial prepayments on the
underlying mortgages. Therefore, interest-only SMBSs generally increase
in value as interest rates rise and decrease in value as interest rates
fall, counter to changes in value experienced by most fixed-income
securities. The Fund's adviser intends to use this characteristic of
interest-only SMBSs to reduce the effects of interest rate changes on
the value of the Fund's portfolio, while continuing to pursue the
Fund's investment objective.
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 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
security (i.e., same type, coupon and maturity) 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 sale 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.
CORPORATE BONDS. The investment-grade corporate bonds in which the Fund
invests are:
rated within the four highest ratings for corporate bonds by Moody's
Investors Service, Inc. (Aaa, Aa, A, or Baa) ("Moody's"), Standard &
Poor's Corporation (AAA, AA, A, or BBB) ("Standard & Poor's"), or Fitch
Investors Service, Inc. (AAA, AA, A, or BBB) ("Fitch");
unrated if other long-term debt securities of that issuer are rated, at
the time of purchase, Baa or better by Moody's or BBB or better by
Standard & Poor's or Fitch; or
unrated if determined to be of equivalent quality to one of the foregoing
rating categories by the Fund's adviser.
The high yield corporate bonds in which the Fund invests are rated Ba or
lower by Moody's or BB or lower by Standard & Poor's or Fitch. A
description of the rating categories is contained in the Appendix to this
prospectus.
Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments.
This is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher-rated securities which
react primarily to fluctuations in the general level of interest rates.
Short-term corporate and market developments affecting the price or
liquidity of lower-rated securities could include adverse news affecting
major issuers, underwriters, or dealers of lower-rated corporate debt
obligations. In addition, since there are fewer investors in lower-rated
securities, it may be harder to sell the securities at an optimum time. As
a result of these factors, lower-rated securities tend to have more price
volatility and carry more risk to principal than higher-rated securities.
Many corporate debt obligations, including many lower-rated bonds, permit
the issuers to call the security and thereby redeem their obligations
earlier than the stated maturity dates. Issuers are more likely to call
bonds during periods of declining interest rates. In these cases, if the
Fund owns a bond which is called, the Fund will receive its return of
principal earlier than expected and would likely be required to reinvest
the proceeds at lower interest rates, thus reducing income to the Fund.
EQUITY SECURITIES. Common stocks represent ownership interest in a
corporation. Unlike bonds, which are debt securities, common stocks have
neither fixed maturity dates nor fixed schedules of promised payments.
Utility stocks are common stocks of utility companies, including water
companies, companies that produce, transmit, or distribute gas and electric
energy and those companies that provide communications facilities, such as
telephone and telegraph companies. Foreign stocks are equity securities of
foreign issuers.
FOREIGN SECURITIES. The foreign bonds in which the Fund invests are rated
within the four highest ratings for bonds by Moody's (Aaa, Aa, A or Baa) or
by Standard & Poor's (AAA, AA, A or BBB) or are unrated if determined to be
of equivalent quality by the Fund's adviser.
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 taxation, currency fluctuations,
withholding taxes on interest, limitations on the use or transfer of Fund
assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual
obligations or obtain court judgments abroad than would be the case in the
United States because of differences in the legal systems. 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.
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 issuers; 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.
CASH RESERVES. The Fund's cash reserves may be cash received from the sale
of Fund shares, reserves for temporary defensive purposes or to take
advantage of market opportunities.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3
percent of the total outstanding voting stock of any such investment company,
invest more than 5 percent of its total assets in any one such investment
company, or invest more than 10 percent of its total assets in such other
investment companies in general.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, over-the-counter
options, and repurchase agreements providing for settlement in more than seven
days after notice, to 15 percent of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or 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 adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100 percent of the value of the securities loaned.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). The period between trade date and settlement date will vary
between 24 hours and 30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the adviser
will consider the likelihood of changes in currency values when making
investment decisions, the adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency.
OPTIONS. The Fund may deal in options on foreign currencies, foreign currency
futures, securities, and securities indices, which options may be listed for
trading on a national securities exchange or traded over-the-counter. The Fund
will use options only to manage interest rate and currency risks. The Fund may
write covered call options to generate income. The Fund may write covered call
options and secured put options on up to 25 percent of its net assets and may
purchase put and call options provided that no more than 5 percent of the fair
market value of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Fund may
be required to take delivery of the underlying asset at a disadvantageous
price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets and with a wider range of expiration
dates and exercise prices, than are exchange traded options.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to accommodate cash flows into and out of the Fund's portfolio and to
hedge against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions. Futures contracts
call for the delivery of particular 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.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the firms included in the indexes. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect its portfolio securities 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 margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5
percent of the market value of the Fund's total assets. When the Fund purchases
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contracts are unleveraged. When the Fund sells
futures contracts, it will either own or have the right to receive the
underlying future or security or will make deposits to collateralize the
position as discussed above.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the investment adviser could be incorrect in
its expectations about the direction or extent of market factors such as
stock price movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements 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 percent of
the value of those assets to secure such borrowings;
lend any securities except for portfolio securities; or
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.
The above investment limitations cannot be changed without shareholder approval.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to.75 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for voluntary reimbursement of expenses
by the adviser, the adviser may voluntarily waive some or all of its fee.
This does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The
adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, 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 Management 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.
Charles A. Ritter has been the Fund's portfolio manager since the Fund's
inception. Mr. Ritter joined Federated Investors in 1983 and has been a
Vice President of the Fund's investment adviser since 1992. From 1988 until
1991, Mr. Ritter acted as an Assistant Vice President. Mr. Ritter is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Chicago and his M.S. in Economics from Carnegie Mellon
University.
DISTRIBUTION OF SELECT SHARES
Federated Securities Corp. is the principal distributor for Shares. 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.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with Investment Company Act Rule 12b-1 (the "Plan"), the Fund will
pay to the distributor an amount computed at an annual rate of .75 of 1% of the
average daily net asset value of the Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the Plan.
The distributor may from time to time and for such periods as its deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the Shares exceed such lower expense limitation as
the distributor may, by notice to the Fund, voluntarily declare to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide sales and/or administrative services as agents for their clients or
customers who beneficially own Shares of the Fund. Administrative services may
include, but are not limited to, the following functions: providing office
space, equipment, telephone facilities, and various clerical, supervisory,
computer and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Fund reasonably requests for Shares.
Financial institutions will receive fees from the distributor based upon Shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts
expended by the distributor in excess of amounts received by it from the Fund,
interest, carrying or other financing charges in connection with excess amounts
expended, or the distributor's overhead expenses. However, the distributor may
be able to recover such amounts or may earn a profit from future payments made
by the Fund under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., 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 .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 are not limited to, the provision of
personal service and maintenance of shareholder accounts.
In addition to receiving the payments under the Services Plan, financial
institutions may be compensated by the distributor, who may be reimbursed by the
adviser, or affiliates thereof, for providing administrative support services to
holders of Shares. These payments will be made directly by the distributor, and
will not be made from the assets of the Fund.
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.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro and Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Arthur Andersen
& Co., Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND AND SELECT SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, the only expenses allocated to the Shares as a class are expenses
under the Fund's 12b-1 Plan. However, the Trustees reserves the right to
allocate certain other expenses to holders of Shares as it deems appropriate
("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; fees under the Fund's Shareholder Services
Plan, if any; printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxies to
current shareholders; registration fees paid to the Securities and Exchange
Commission and registration fees paid to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Shares; legal fees relating solely to Shares; and Trustees' fees incurred as
a result of issues relating solely to Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Service Shares may exceed that of Select Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
INVESTING IN SELECT SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased through a financial institution which has a
sales agreement with the distributor or by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Fund reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Texas residents may purchase Shares through a broker registered with the State
of Texas or through Federated Securities Corp. at 1-800-358-2801. Orders through
a financial institution are considered received when the Fund is notified of the
purchase order. Purchase orders through a registered broker/dealer must be
received by the broker before 4:00 p.m. (Eastern time) and must be transmitted
by the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. Purchase orders through other financial
institutions must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be purchased at
that day's price. It is the financial institution's responsibility to transmit
orders promptly.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated Managed Income Fund--Select
Shares; Fund Number (this number can be found on the account statement or by
contacting the Fund); Group Number or Wire Order Number; Nominee or Institution
Name; and ABA Number 011000028.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Managed Income Fund--Select Shares to State Street Bank and Trust Company, P.O.
Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered
received after payment by check is converted by State Street Bank into federal
funds. This is normally the next business day after State Street Bank receives
the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,500. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities such 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.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding Shares in a fiduciary, agency, custodial, or similar capacity may charge
or pass through subaccounting fees as part of or in addition to normal trust or
agency account fees. They may also charge fees for other services provided which
may be related to the ownership of Shares. This prospectus should, therefore, be
read together with any agreement between the customer and the institution with
regard to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the Fund. A
shareholder may apply for participation in this program through Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
the quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Unless shareholders request cash payments by writing
the Fund, dividends are automatically reinvested in additional Shares of the
Fund on payment dates at the ex-dividend date net asset value without a sales
charge.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
REDEEMING SELECT SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
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, by telephone
request or by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares 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 through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern 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.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). All proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System. If
at any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. 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 written requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares
name, his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $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");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("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. 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.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, 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.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Shares,
and the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually use up, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in the Fund. To
be eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through Federated Securities Corp.
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 $1,500. This requirement
does not apply, however, if the balance falls below $1,500 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.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or the Fund's operation and for the election
of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect the
shareholders of the Fund, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX 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.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
Fund shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
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 for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Select Shares and
Institutional Service Shares. Because Select Shares are subject to 12b-1 fees,
the total return and yield for Institutional Service Shares, for the same
period, will exceed that of Select Shares.
From time to time the Fund may advertise its the performance of Select Shares
using certain reporting services and/or compare the performance of Select Shares
to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Service Shares are sold to institutions and individuals and to
accounts for which financial institutions act in a fiduciary or agency capacity.
Institutional Service Shares are sold at net asset value. Investments in
Institutional Service Shares are subject to a minimum initial investment of
$25,000. Institutional Service Shares are distributed without a 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Fund is sold.
The amount of dividends payable to Institutional Service Shares will generally
exceed that of Select Shares by the difference between Class Expenses and
distribution expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, AND CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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 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.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus or minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Managed Income Fund
Select Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Arthur Andersen & Co. 2000 PNC Bank Building
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
FEDERATED MANAGED
INCOME FUND
SELECT SHARES
PROSPECTUS
A Diversified Portfolio of
Managed Series Trust, an Open-End
Management Investment Company
Prospectus dated , 1994
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3122012A-SS (1/94)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 19, 1994
FEDERATED MANAGED GROWTH AND INCOME FUND
(A PORTFOLIO OF MANAGED SERIES TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Federated Managed Growth and Income
Fund (the "Fund") offered by this prospectus represent interests in the
Fund, which is a diversified investment portfolio of Managed Series Trust
(the "Trust"). The Trust is an open-end management investment company (a
mutual fund).
The investment objective of the Fund is to seek current income and
capital appreciation. The Fund invests in both bonds and stocks.
Institutional Service Shares are sold at net asset value.
THE INSTITUTIONAL SERVICE 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 INSTITUTIONAL SERVICE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in Institutional Service Shares of the Fund. Keep this
prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information
for Institutional Service Shares and Select Shares of all portfolios of
the Trust dated , 1994, with the Securities and Exchange
Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this prospectus.
You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the
address listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated , 1994
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Asset Allocation 2
Bond Asset Categories 3
U.S. Treasury Securities 3
Mortgaged-Backed Securities 3
Investment-Grade Corporate Bonds 4
High Yield Corporate Bonds 4
Foreign Bonds 4
Equity Asset Categories 4
Large Company Stocks 4
Utility Stocks 4
Small Company Stocks 4
Foreign Stocks 5
Cash Reserves 5
Acceptable Investments 5
U.S. Treasury and Other U.S. Government
Securities 5
Mortgage-Backed Securities 5
Collateralized Mortgage Obligations
("CMOs") 5
Real Estate Mortgage Investment
Conduits ("REMICs") 6
Characteristics of Mortgage-
Backed Securities 6
Dollar Roll Transactions 7
Corporate Bonds 7
Equity Securities 8
Foreign Securities 8
Cash Reserves 9
Repurchase Agreements 9
Investing in Securities of
Other Investment Companies 9
Restricted and Illiquid Securities 9
When-Issued and Delayed
Delivery Transactions 9
Lending of Portfolio Securities 9
Foreign Currency Transactions 9
Forward Foreign Currency
Exchange Contracts 10
Options 10
Futures and Options on Futures 11
Risks 11
Investment Limitations 12
TRUST INFORMATION 12
- ------------------------------------------------------
Management of the Trust 12
Board of Trustees 12
Investment Adviser 12
Advisory Fees 12
Adviser's Background 12
Distribution of Institutional Service Shares 13
Administration of the Fund 13
Administrative Services 13
Shareholder Services Plan 13
Custodian 13
Transfer Agent and Dividend
Disbursing Agent 13
Legal Counsel 13
Independent Auditors 14
Brokerage Transactions 14
Expenses of the Fund and Institutional
Service Shares 14
NET ASSET VALUE 14
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 15
- ------------------------------------------------------
Share Purchases 15
Through a Financial Institution 15
By Wire 15
By Mail 15
Minimum Investment Required 15
What Shares Cost 16
Subaccounting Services 16
Systematic Investment Program 16
Certificates and Confirmations 16
Dividends 16
Capital Gains 17
REDEEMING INSTITUTIONAL SERVICE SHARES 17
- ------------------------------------------------------
Through a Financial Institution 17
Telephone Redemption 17
Written Requests 17
Signatures 18
Receiving Payment 18
Redemption Before Purchase
Instruments Clear 18
Systematic Withdrawal Program 18
Accounts with Low Balances 18
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
Massachusetts Partnership Law 19
TAX INFORMATION 19
- ------------------------------------------------------
Federal Income Tax 19
Pennsylvania Corporate and
Personal Property Taxes 19
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
OTHER CLASSES OF SHARES 20
- ------------------------------------------------------
APPENDIX 21
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
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 INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1).............................................................. 0.48%
12b-1 Fee...................................................................................... None
Other Expenses................................................................................. 0.52%
Shareholder Servicing Fee (2).............................................................. 0.00%
Total Institutional Service Shares Operating Expenses (3)............................. 1.00%
</TABLE>
- ------------
(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 the voluntary waiver at any time as its sole discretion. The
maximum management fee is 0.75%.
(2) The maximum shareholder servicing fee is 0.25%.
(3) The Total Institutional Service Share Operating Expenses are anticipated to
be 1.27% absent the anticipated voluntary waiver of a portion of the
management fee.
* Total Operating Expenses are based on average expenses expected to be
incurred during the period ending January 31, 1995. 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 INSTITUTIONAL SERVICE
SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND
"INVESTING IN INSTITUTIONAL SERVICE SHARES." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fee for Institutional Service Shares................................................ $10 $32
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING JANUARY 31,
1995.
The information set forth in the foregoing table and example relates only to
Institutional Service Shares of the Fund. The Fund also offers another class of
shares called Select Shares. Institutional Service Shares and Select Shares are
subject to certain of the same expenses; however, Select Shares are subject to a
12b-1 fee of up to 0.75%. See "Other Classes of Shares."
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 15, 1993. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Institutional Service Shares and Select Shares. This prospectus relates only
to Institutional Service Shares.
Institutional Service Shares ("Shares") of the Fund are designed to give
institutions, individuals, and financial institutions acting in a fiduciary or
agency capacity a convenient means of accumulating an interest in a
professionally managed, diversified investment portfolio. A minimum initial
investment of $25,000 over a 90-day period is required.
Shares are currently 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 seek current income and capital
appreciation. The Fund will attempt to minimize investment risk by allocating
its assets across various stock and bond categories. There can be, of course, no
assurance that the Fund will achieve its investment objective. The Fund's
investment objective cannot be changed without the approval of shareholders.
Unless otherwise noted, the Fund's investment policies may be changed by the
Trustees without shareholder approval.
INVESTMENT POLICIES
ASSET ALLOCATION. The Fund will invest in two types of assets: bonds and
stocks. The Fund's investment approach is based on the conviction that, over
time, the choice of investment asset categories and their relative long-term
weightings within the portfolio will have the primary impact on its investment
performance. Of secondary importance to the Fund's performance are the shifting
of money among asset categories and the selection of securities within asset
categories. Therefore, the Fund will pursue its investment objective in the
following manner: (1) by setting long-term ranges for each asset category; (2)
by moving money among asset categories within those defined ranges; and (3) by
actively selecting securities within each of the asset categories. The Fund
attempts to minimize risk by allocating its assets in such a fashion.
Within each of these types of investments, the Fund has designated asset
categories. As a matter of investment policy, ranges have been set for each
asset category's portfolio commitment.
The Fund will invest between 50 and 70 percent of its assets in bonds. The bond
asset categories are U.S. Treasury securities, mortgage-backed securities,
investment-grade corporate bonds, high yield corporate bonds and foreign bonds.
The Fund will invest between 30 and 50 percent of its assets in stocks. The
stock asset categories are large company stocks, utility stocks, small company
stocks, foreign stocks and cash reserves.
The following is a summary of the asset categories and the amount of the Fund's
total assets which may be invested in each asset category:
<TABLE>
<CAPTION>
ASSET CATEGORY RANGE
<S> <C>
BONDS 50-70%
U.S. Treasury Securities 0-70%
Mortgage-Backed Securities 0-35%
Investment Grade Corporate Bonds 0-35%
High Yield Corporate Bonds 0-7%
Foreign Bonds 0-7%
STOCKS 30-50%
Large Company Stocks 0-50%
Utility Stocks 0-20%
Small Company Stocks 0-7.5%
Foreign Stocks 0-7.5%
Cash Reserves 0-15%
</TABLE>
The Fund's adviser will regularly review the Fund's allocation among the asset
categories and make any changes, within the ranges established for each asset
category, that it believes will provide the most favorable outlook for achieving
the Fund's investment objective. The Fund's adviser will attempt to exploit
inefficiencies among the various asset categories. If, for example, large
company stocks are judged to be unusually attractive relative to other asset
categories, the allocation for large company stocks may be moved to its upper
limit. At other times when large company stocks appear to be overvalued, the
commitment may be moved down to a lesser allocation.
Each asset category within the Fund will be a managed portfolio. The Fund will
seek superior investment performance through security selection in addition to
determining the percentage of its assets to allocate to each of the asset
categories.
BOND ASSET CATEGORIES. The portion of the Fund's assets which is invested in
bonds ("Bond Assets") will be allocated among the following asset categories
within the ranges specified. The average duration of the Fund's Bond Assets will
be not less than three nor more than five years.
U.S. TREASURY SECURITIES. U.S. Treasury securities are direct obligations
of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds. The
Fund may invest up to 70 percent of its total assets in U.S. Treasury
securities. The Fund may invest in other U.S. government securities if, in
the judgment of the adviser, other U.S. government securities are more
attractive than U.S. Treasury securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
undivided interest in a pool of residential mortgages or may be
collateralized by a pool of residential mortgages. Mortgage-backed
securities are generally either issued or guaranteed by the Government
National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") or
other U.S. government agencies or instrumentalities. Mortgage-backed
securities may also be issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government agencies,
investment bankers, or companies related to the construction industry. The
Fund may invest up to 35 percent of its total assets in mortgage-backed
securities.
INVESTMENT-GRADE CORPORATE BONDS. Investment-grade corporate bonds are
corporate debt obligations having fixed or floating rates of interest and
which are rated BBB or higher by a nationally recognized statistical rating
organization ("NRSRO"). The Fund may invest up to 35 percent of its total
assets in investment-grade corporate bonds. 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 the
investment-grade bonds described above.
HIGH YIELD CORPORATE BONDS. High yield corporate bonds are corporate debt
obligations having fixed or floating rates of interest and which are rated
BB or lower by NRSROs. The Fund may invest up to 7 percent of its total
assets in high yield corporate bonds. 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 the high yield bonds
described above.
FOREIGN BONDS. Foreign bonds are high-quality debt securities of nations
other than the United States. The Fund's portfolio of foreign bonds will be
comprised mainly of foreign government, foreign governmental agency or
supranational institution bonds. The Fund will also invest in high-quality
debt securities issued by corporations nations other than the United States
and subject to the Fund's credit limitations for foreign bonds. The Fund
may invest up to 7 percent of its total assets in foreign bonds.
EQUITY ASSET CATEGORIES. The portion of the Fund's assets which is invested in
stocks will be allocated among the following asset categories within the ranges
specified:
LARGE COMPANY STOCKS. Large company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of high-quality companies selected by the Fund's
adviser. Ordinarily, these companies will be in the top 25 percent of their
industries with regard to revenues. However, other factors, such as product
position or market share, will be considered by the Fund's adviser and may
outweigh revenues. The Fund may invest up to 50 percent of its total assets
in large company stocks.
UTILITY STOCKS. Utility stocks are common stocks and securities
convertible into or exchangeable for common stocks, such as rights and
warrants, of utility companies. The Fund may invest up to 20 percent of its
total assets in utility stocks.
SMALL COMPANY STOCKS. Small company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of companies with a market capitalization (market
price a number of shares outstanding) below the top 1,000 stocks that
comprise the large and mid-range capitalization sector of the United States
equity market. These stocks are comparable to, but not limited to, the
stocks comprising the Russell 2000 Index, an index of small capitalization
stocks. The Fund may invest up to 7.5 percent of its total assets in small
company stocks.
FOREIGN STOCKS. Foreign stocks are equity securities of established
companies in economically developed countries other than the United States.
These securities may be either dollar-denominated or denominated in foreign
currencies. The Fund may invest up to 7.5 percent of its total assets in
foreign stocks.
CASH RESERVES. When the adviser believes that a temporary defensive
position is desirable, the Fund may invest in cash reserves. Cash reserves
will consist of U.S. and foreign short-term money market instruments,
including interest-bearing call deposits with banks, government
obligations, certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate debt securities, and repurchase agreements. The
Fund may invest up to 15 percent of its total assets in cash reserves.
ACCEPTABLE INVESTMENTS
U.S. TREASURY AND OTHER U.S. GOVERNMENT SECURITIES. The U.S. Treasury and
other U.S. government securities in which the Fund invests are either
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The U.S. government securities in which the Fund may
invest are limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
obligations issued by U.S. government agencies or instrumentalities,
including securities that are supported by the full faith and credit of
the U.S. Treasury (such as GNMA certificates); securities that are
supported by the right of the issuer to borrow from the U.S. Treasury
(such as securities of Federal Home Loan Banks); and securities that are
supported by the credit of the agency or instrumentality (such as FNMA
and FHLMC bonds).
MORTGAGE-BACKED SECURITIES. Mortgaged-backed securities are securities
collateralized by residential mortgages. The mortgage-backed securities in
which the Fund may invest may be:
issued by an agency of the U.S. government, typically GNMA, FNMA or
FHLMC;
privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government;
privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by
the issuer and such guarantee is collateralized by U.S. government
securities; and
other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal
and interest are supported by the credit of an agency or instrumentality
of the U.S. government.
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. Most of the CMOs in which the
Fund would invest use the same basic structure:
Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities. The first three (A, B, and C bonds) pay interest at
their stated rates beginning with the issue date; the final class
(or Z bond) typically receives the residual income from the
underlying investments after payments are made to the other
classes.
The cash flows from the underlying mortgages are applied first to
pay interest and then to retire securities.
The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A
bonds). When those securities are completely retired, all principal
payments are then directed to the next-shortest maturity security
(or B bond). This process continues until all of the classes have
been paid off.
Because the cash flow is distributed sequentially instead of pro
rata as with pass-through securities, the cash flows and average
lives of CMOs are more predictable, and there is a period of time
during which the investors in the longer-maturity classes receive
no principal paydowns. The interest portion of these payments is
distributed by the Fund as income and the capital portion is
reinvested.
The Fund will invest only in CMOs which are rated AAA by an NRSRO.
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 a segregated
pool 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, and a single class of "residual interests." To qualify as a
REMIC, substantially all of the assets of the entity must be in assets
directly or indirectly secured principally by real property.
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed
securities have yield and maturity characteristics corresponding to the
underlying mortgages. Distributions to holders of mortgage-backed
securities include both interest and principal payments. Principal
payments represent the amortization of the principal of the underlying
mortgages and any prepayments of principal due to prepayment,
refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective
maturities of mortgage-backed securities. Due to these features,
mortgage-backed securities are less effective as a means of "locking
in" attractive long-term interest rates than fixed-income securities
which pay only a stated amount of interest until maturity, when the
entire principal amount is returned. This is caused by the need to
reinvest at lower interest rates both distributions of principal
generally and significant prepayments which become more likely as
mortgage interest rates decline. Since comparatively high interest
rates cannot be effectively "locked in," mortgage-backed securities may
have less potential for capital appreciation during periods of
declining interest rates than other non-callable, fixed-income
government securities of comparable stated maturities. However,
mortgage-backed securities may experience less pronounced declines in
value during periods of rising interest rates.
In addition, some of the CMOs purchased by the Fund may represent an
interest solely in the principal repayments or solely in the interest
payments on mortgage-backed securities (stripped mortgage-backed
securities or "SMBSs"). Due to the possibility of prepayments on the
underlying mortgages, SMBSs may be more interest-rate sensitive than
other securities purchased by the Fund. If prevailing interest rates
fall below the level at which SMBSs were issued, there may be
substantial prepayments on the underlying mortgages, leading to the
relatively early prepayments of principal-only SMBSs and a reduction in
the amount of payments made to holders of interest-only SMBSs. It is
possible that the Fund might not recover its original investment in
interest-only SMBSs if there are substantial prepayments on the
underlying mortgages. Therefore, interest-only SMBSs generally increase
in value as interest rates rise and decrease in value as interest rates
fall, counter to changes in value experienced by most fixed-income
securities. The Fund's adviser intends to use this characteristic of
interest-only SMBSs to reduce the effects of interest rate changes on
the value of the Fund's portfolio, while continuing to pursue the
Fund's investment objective.
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 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
security (i.e., same type, coupon and maturity) 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 sale 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.
CORPORATE BONDS. The investment-grade corporate bonds in which the Fund
invests are:
rated within the four highest ratings for corporate bonds by Moody's
Investors Service, Inc. (Aaa, Aa, A, or Baa) ("Moody's"), Standard &
Poor's Corporation (AAA, AA, A, or BBB) ("Standard & Poor's"), or Fitch
Investors Service, Inc. (AAA, AA, A, or BBB) ("Fitch");
unrated if other long-term debt securities of that issuer are rated, at
the time of purchase, Baa or better by Moody's or BBB or better by
Standard & Poor's or Fitch; or
unrated if determined to be of equivalent quality to one of the foregoing
rating categories by the Fund's adviser.
The high yield corporate bonds in which the Fund invests are rated Ba or
lower by Moody's or BB or lower by Standard & Poor's or Fitch. A
description of the rating categories is contained in the Appendix to this
prospectus.
Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments.
This is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher-rated securities which
react primarily to fluctuations in the general level of interest rates.
Short-term corporate and market developments affecting the price or
liquidity of lower-rated securities could include adverse news affecting
major issuers, underwriters, or dealers of lower-rated corporate debt
obligations. In addition, since there are fewer investors in lower-rated
securities, it may be harder to sell the securities at an optimum time. As
a result of these factors, lower-rated securities tend to have more price
volatility and carry more risk to principal than higher-rated securities.
Many corporate debt obligations, including many lower-rated bonds, permit
the issuers to call the security and thereby redeem their obligations
earlier than the stated maturity dates. Issuers are more likely to call
bonds during periods of declining interest rates. In these cases, if the
Fund owns a bond which is called, the Fund will receive its return of
principal earlier than expected and would likely be required to reinvest
the proceeds at lower interest rates, thus reducing income to the Fund.
EQUITY SECURITIES. Common stocks represent ownership interest in a
corporation. Unlike bonds, which are debt securities, common stocks have
neither fixed maturity dates nor fixed schedules of promised payments.
Utility stocks are common stocks of utility companies, including water
companies, companies that produce, transmit, or distribute gas and electric
energy and those companies that provide communications facilities, such as
telephone and telegraph companies. Foreign stocks are equity securities of
foreign issuers.
FOREIGN SECURITIES. The foreign bonds in which the Fund invests are rated
within the four highest ratings for bonds by Moody's (Aaa, Aa, A or Baa) or
by Standard & Poor's (AAA, AA, A or BBB) or are unrated if determined to be
of equivalent quality by the Fund's adviser.
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 taxation, currency fluctuations,
withholding taxes on interest, limitations on the use or transfer of Fund
assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual
obligations or obtain court judgments abroad than would be the case in the
United States because of differences in the legal systems. 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.
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 issuers; 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.
CASH RESERVES. The Fund's cash reserves may be cash received from the sale
of Fund shares, reserves for temporary defensive purposes or to take
advantage of market opportunities.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3
percent of the total outstanding voting stock of any such investment company,
invest more than 5 percent of its total assets in any one such investment
company, or invest more than 10 percent of its total assets in such other
investment companies in general.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, over-the-counter
options, and repurchase agreements providing for settlement in more than seven
days after notice, to 15 percent of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or 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 adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100 percent of the value of the securities loaned.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). The period between trade date and settlement date will vary
between 24 hours and 30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the adviser
will consider the likelihood of changes in currency values when making
investment decisions, the adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency.
OPTIONS. The Fund may deal in options on foreign currencies, foreign currency
futures, securities, and securities indices, which options may be listed for
trading on a national securities exchange or traded over-the-counter. The Fund
will use options only to manage interest rate and currency risks. The Fund may
write covered call options to generate income. The Fund may write covered call
options and secured put options on up to 25 percent of its net assets and may
purchase put and call options provided that no more than 5 percent of the fair
market value of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by
the dealer. OTC options, which may not be continuously liquid, are available for
a greater variety of assets and with a wider range of expiration dates and
exercise prices, than are exchange traded options.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to accommodate cash flows into and out of the Fund's portfolio and to
hedge against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions. Futures contracts
call for the delivery of particular 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.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the firms included in the indexes. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect its portfolio securities 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 margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5
percent of the market value of the Fund's total assets. When the Fund purchases
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contracts are unleveraged. When the Fund sells
futures contracts, it will either own or have the right to receive the
underlying future or security or will make deposits to collateralize the
position as discussed above.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the investment adviser could be incorrect in
its expectations about the direction or extent of market factors such as
stock price movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements 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 percent of
the value of those assets to secure such borrowings;
lend any securities except for portfolio securities; or
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.
The above investment limitations cannot be changed without shareholder approval.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .75 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for voluntary reimbursement of expenses
by the adviser, the adviser may voluntarily waive some or all of its fee.
This does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The
adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, 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 Management 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.
Charles A. Ritter has been the Fund's portfolio manager since the Fund's
inception. Mr. Ritter joined Federated Investors in 1983 and has been a
Vice President of the Fund's investment adviser since 1992. From 1988 until
1991, Mr. Ritter acted as an Assistant Vice President. Mr. Ritter is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Chicago and his M.S. in Economics from Carnegie Mellon
University.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Shares. 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., 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. Management of the Fund intends to propose to the
Trustees that a Shareholder Services Plan be adopted with respect to the Shares
(the "Services Plan"). Under the Services Plan, financial institutions would
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 would receive payments from the Fund
at a rate not exceeding .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 would include, but not be limited to, the provision of
personal service and maintenance of shareholder accounts.
In addition to receiving the payments under the Services Plan, financial
institutions could be compensated by the distributor, who could be reimbursed by
the adviser, or affiliates thereof, for providing administrative support
services to holders of Shares. These payments would be made directly by the
distributor, and will not be made from the assets of the Fund.
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.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro and Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Arthur Andersen
& Co., Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND AND INSTITUTIONAL SERVICE SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, no expenses are allocated to the Shares as a class. However, the
Trustees reserves the right to allocate certain other expenses to holders of
Shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses
would be limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Shares; fees under the Fund's
Shareholder Services Plan, if any; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; registration fees paid to the Securities
and Exchange Commission and registration fees paid to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Shares; legal fees relating solely to Shares; and
Trustees' fees incurred as a result of issues relating solely to Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Service Shares may exceed that of Select Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased through a financial institution which has a
sales agreement with the distribution or by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Fund reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Texas residents must purchase Shares through a broker registered with the State
of Texas or through Federated Securities Corp. at 1-800-358-2801. Orders through
a financial institution are considered received when the Fund is notified of the
purchase order. Purchase orders through a registered broker/dealer must be
received by the broker before 4:00 p.m. (Eastern time) and must be transmitted
by the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. Purchase orders through other financial
institutions must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be purchased at
that day's price. It is the financial institution's responsibility to transmit
orders promptly.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated Managed Growth and Income
Fund--Institutional Service Shares; Fund Number (this number can be found on the
account statement or by contacting the Fund); Group Number or Wire Order Number;
Nominee or Institution Name; and ABA Number 011000028.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Managed Growth and Income Fund--Institutional Service Shares to State Street
Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders
by mail are considered received after payment by check is converted by State
Street Bank into federal funds. This is normally the next business day after
State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities such 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.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding Shares in a fiduciary, agency, custodial, or similar capacity may charge
or pass through subaccounting fees as part of or in addition to normal trust or
agency account fees. They may also charge fees for other services provided which
may be related to the ownership of Shares. This prospectus should, therefore, be
read together with any agreement between the customer and the institution with
regard to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account had been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the Fund. A
shareholder may apply for participation in this program through Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
that quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Unless shareholders request cash payments by writing
the Fund, dividends are automatically reinvested in additional Shares of the
Fund on payment dates at the ex-dividend date net asset value without a sales
charge.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
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, by telephone
request or by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares 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 through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern 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.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). All proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System. If
at any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. 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 written requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares
name, his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $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");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("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. 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.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, 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.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Shares,
and the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually use up, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in the Fund. To
be eligible to participate in this program, a shareholder must have an account
value of at least $25,000. A shareholder may apply for participation in this
program through Federated Securities Corp.
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 $25,000. This
requirement does not apply, however, if the balance falls below $25,000 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.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or the Fund's operation and for the election
of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect the
shareholders of the Fund, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX 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.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
Fund shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
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 for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Service
Shares and Select Shares. Because Select Shares are subject to 12b-1 fees, the
total return and yield for Institutional Service Shares, for the same period,
will exceed that of Select Shares.
From time to time the Fund may advertise the performance of Institutional
Service Shares using certain reporting services and/or compare the performance
of Institutional Service Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Select Shares are sold primarily to retail and private banking customers of
financial institutions. Select Shares are sold at net asset value. Investments
in Select Shares are subject to a minimum initial investment of $1,500.
Select Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust
whereby the distributor is paid a fee of .75 of 1% of the Select Shares' average
daily net assets. Select Shares are also subject to a Shareholder Services Plan
fee of .25 of 1%.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Fund is sold.
The amount of dividends payable to Institutional Service Shares will exceed that
of Select Shares by the difference between Class Expenses and distribution
expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, AND CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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 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.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus or minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Managed Growth and Income Fund
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Arthur Andersen & Co. 2000 PNC Bank Building
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
FEDERATED MANAGED
GROWTH AND INCOME FUND
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Diversified Portfolio
of Managed Series Trust,
an Open-End Management
Investment Company
Prospectus dated , 1994
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3122007A-ISS (1/94)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 19, 1994
FEDERATED MANAGED GROWTH AND INCOME FUND
(A PORTFOLIO OF MANAGED SERIES TRUST)
SELECT SHARES
PROSPECTUS
The Select Shares of Federated Managed Growth and Income Fund (the
"Fund") offered by this prospectus represent interests in the Fund, which
is a diversified investment portfolio of Managed Series Trust (the
"Trust"). The Trust is an open-end management investment company (a
mutual fund).
The investment objective of the Fund is to seek current income and
capital appreciation. The Fund invests in both bonds and stocks. Select
Shares are sold at net asset value.
THE SELECT 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 SELECT
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in Select Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information
for Select Shares and Institutional Service Shares of all portfolios of
the Trust dated , 1994, with the Securities and Exchange
Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this prospectus.
You may request
a copy of the Combined Statement of Additional Information free of charge
by calling
1-800-235-4669. To obtain other information or to make inquiries about
the Fund, contact the Fund at the address listed in the back of this
prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated , 1994
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Asset Allocation 2
Bond Asset Categories 3
U.S. Treasury Securities 3
Mortgage-Backed Securities 3
Investment-Grade Corporate Bonds 4
High Yield Corporate Bonds 4
Foreign Bonds 4
Equity Asset Categories 4
Large Company Stocks 4
Utility Stocks 4
Small Company Stocks 4
Foreign Stocks 5
Cash Reserves 5
Acceptable Investments 5
U.S. Treasury and Other U.S.
Government Securities 5
Mortgage-Backed Securities 5
Collateralized Mortgage
Obligations ("CMOs") 5
Real Estate Mortgage Investment
Conduits ("REMICS") 6
Characteristics of Mortgage-Backed
Securities 6
Dollar Roll Transactions 7
Corporate Bonds 7
Equity Securities 8
Foreign Securities 8
Cash Reserves 9
Repurchase Agreements 9
Investing in Securities of Other
Investment Companies 9
Restricted and Illiquid Securities 9
When-Issued and Delayed
Delivery Transactions 9
Lending of Portfolio Securities 9
Foreign Currency Transactions 9
Forward Foreign Currency Exchange
Contracts 10
Options 10
Futures and Options on Futures 11
Risks 11
Investment Limitations 12
TRUST INFORMATION 12
- ------------------------------------------------------
Management of the Trust 12
Board of Trustees 12
Investment Adviser 12
Advisory Fees 12
Adviser's Background 12
Distribution of Select Shares 13
Distribution Plan 13
Administration of the Fund 14
Administrative Services 14
Shareholder Services Plan 14
Custodian 14
Transfer Agent and Dividend
Disbursing Agent 14
Legal Counsel 14
Independent Auditors 14
Brokerage Transactions 15
Expenses of the Fund and Select Shares 15
NET ASSET VALUE 15
- ------------------------------------------------------
INVESTING IN SELECT SHARES 16
- ------------------------------------------------------
Share Purchases 16
Through a Financial Institution 16
By Wire 16
By Mail 16
Minimum Investment Required 16
What Shares Cost 16
Subaccounting Services 17
Systematic Investment Program 17
Certificates and Confirmations 17
Dividends 17
Capital Gains 17
REDEEMING SELECT SHARES 18
- ------------------------------------------------------
Through a Financial Institution 18
Telephone Redemption 18
Written Requests 18
Signatures 18
Receiving Payment 19
Redemption Before Purchase Instruments Clear 19
Systematic Withdrawal Program 19
Accounts with Low Balances 19
SHAREHOLDER INFORMATION 20
- ------------------------------------------------------
Voting Rights 20
Massachusetts Partnership Law 20
TAX INFORMATION 20
- ------------------------------------------------------
Federal Income Tax 20
Pennsylvania Corporate and
Personal Property Taxes 20
PERFORMANCE INFORMATION 21
- ------------------------------------------------------
OTHER CLASSES OF SHARES 21
- ------------------------------------------------------
APPENDIX 22
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SELECT SHARES
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 SELECT SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1)............................................................. 0.48%
12b-1 Fee (after waiver) (2).................................................................. 0.50%
Other Expenses................................................................................ 0.77%
Shareholder Servicing Fee................................................................. 0.25%
Total Select Shares Operating Expenses (3)........................................... 1.75%
</TABLE>
- ------------
(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 the voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.75%.
(2) The maximum 12b-1 fee is 0.75%.
(3) The Total Select Shares Operating Expenses are estimated to be 2.27% absent
the anticipated voluntary waivers of a portion of the management fee and a
portion of the 12b-1 fee.
* Total Operating Expenses are based on average expenses expected to be incurred
during the period ending January 31, 1995. 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 SELECT SHARES OF THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND "INVESTING IN SELECT
SHARES." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fee for Select Shares............................................................... $18 $55
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING JANUARY 31,
1995.
The information set forth in the foregoing table and example relates only to
Select Shares of the Fund. The Fund also offers another class of shares called
Institutional Service Shares. Select Shares and Institutional Service Shares are
subject to certain of the same expenses; however, Institutional Service Shares
are not subject to a 12b-1 fee. See "Other Classes of Shares."
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 15, 1993. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Select Shares and Institutional Service Shares. This prospectus relates only
to Select Shares.
Select Shares ("Shares") of the Fund are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
bonds and stocks. A minimum initial investment of $1,500 is required.
Shares are currently 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 seek current income and capital
appreciation. The Fund will attempt to minimize investment risk by allocating
its assets across various stock and bond categories. There can be, of course, no
assurance that the Fund will achieve its investment objective. The Fund's
investment objective cannot be changed without the approval of shareholders.
Unless otherwise noted, the Fund's investment policies may be changed by the
Trustees without shareholder approval.
INVESTMENT POLICIES
ASSET ALLOCATION. The Fund will invest in two types of assets: bonds and
stocks. The Fund's investment approach is based on the conviction that, over
time, the choice of investment asset categories and their relative long-term
weightings within the portfolio will have the primary impact on its investment
performance. Of secondary importance to the Fund's performance are the shifting
of money among asset categories and the selection of securities within asset
categories. Therefore, the Fund will pursue its investment objective in the
following manner: (1) by setting long-term ranges for each asset category; (2)
by moving money among asset categories within those defined ranges; and (3) by
actively selecting securities within each of the asset categories. The Fund
attempts to minimize risk by allocating its assets in such a fashion.
Within each of these types of investments, the Fund has designated asset
categories. As a matter of investment policy, ranges have been set for each
asset category's portfolio commitment.
The Fund will invest between 50 and 70 percent of its assets in bonds. The bond
asset categories are U.S. Treasury securities, mortgage-backed securities,
investment-grade corporate bonds, high yield corporate bonds and foreign bonds.
The Fund will invest between 30 and 50 percent of its assets in stocks. The
stock asset categories are large company stocks, utility stocks, small company
stocks, foreign stocks and cash reserves.
The following is a summary of the asset categories and the amount of the Fund's
total assets which may be invested in each asset category:
<TABLE>
<CAPTION>
ASSET CATEGORY RANGE
<S> <C>
BONDS 50-70%
U.S. Treasury Securities 0-70%
Mortgage-Backed Securities 0-35%
Investment-Grade Corporate Bonds 0-35%
High Yield Corporate Bonds 0-7%
Foreign Bonds 0-7%
STOCKS 30-50%
Large Company Stocks 0-50%
Utility Stocks 0-20%
Small Company Stocks 0-7.5%
Foreign Stocks 0-7.5%
Cash Reserves 0-15%
</TABLE>
The Fund's adviser will regularly review the Fund's allocation among the asset
categories and make any changes, within the ranges established for each asset
category, that it believes will provide the most favorable outlook for achieving
the Fund's investment objective. The Fund's adviser will attempt to exploit
inefficiencies among the various asset categories. If, for example, large
company stocks are judged to be unusually attractive relative to other asset
categories, the allocation for large company stocks may be moved to its upper
limit. At other times when large company stocks appear to be overvalued, the
commitment may be moved down to a lesser allocation.
Each asset category within the Fund will be a managed portfolio. The Fund will
seek superior investment performance through security selection in addition to
determining the percentage of its assets to allocate to each of the asset
categories.
BOND ASSET CATEGORIES. The portion of the Fund's assets which is invested in
bonds ("Bond Assets") will be allocated among the following asset categories
within the ranges specified. The average duration of the Fund's Bond Assets will
be not less than three nor more than five years.
U.S. TREASURY SECURITIES. U.S. Treasury securities are direct obligations
of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds. The
Fund may invest up to 70 percent of its total assets in U.S. Treasury
securities. The Fund may invest in other U.S. government securities if, in
the judgment of the adviser, other U.S. government securities are more
attractive than U.S. Treasury securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
undivided interest in a pool of residential mortgages or may be
collateralized by a pool of residential mortgages. Mortgage-backed
securities are generally either issued or guaranteed by the Government
National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") or
other U.S. government agencies or instrumentalities. Mortgage-backed
securities may also be issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government agencies,
investment bankers, or companies related to the construction industry. The
Fund may invest up to 35 percent of its total assets in mortgage-backed
securities.
INVESTMENT-GRADE CORPORATE BONDS. Investment-grade corporate bonds are
corporate debt obligations having fixed or floating rates of interest and
which are rated BBB or higher by a nationally recognized statistical rating
organization ("NRSRO"). The Fund may invest up to 35 percent of its total
assets in investment-grade corporate bonds. 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 the
investment-grade bonds described above.
HIGH YIELD CORPORATE BONDS. High yield corporate bonds are corporate debt
obligations having fixed or floating rates of interest and which are rated
BB or lower by NRSROs. The Fund may invest up to 7 percent of its total
assets in high yield corporate bonds. 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 the high yield bonds
described above.
FOREIGN BONDS. Foreign bonds are high-quality debt securities of nations
other than the United States. The Fund's portfolio of foreign bonds will be
comprised mainly of foreign government, foreign governmental agency or
supranational institution bonds. The Fund will also invest in high-quality
debt securities issued by corporations in nations other than the United
States and subject to the Fund's credit limitations for foreign bonds. The
Fund may invest up to 7 percent of its total assets in foreign bonds.
EQUITY ASSET CATEGORIES. The portion of the Fund's assets which is invested in
stocks will be allocated among the following asset categories within the ranges
specified:
LARGE COMPANY STOCKS. Large company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of high-quality companies selected by the Fund's
adviser. Ordinarily, these companies will be in the top 25 percent of their
industries with regard to revenues. However, other factors, such as product
position or market share, will be considered by the Fund's adviser and may
outweigh revenues. The Fund may invest up to 50 percent of its total assets
in large stocks.
UTILITY STOCKS. Utility stocks are common stocks and securities
convertible into or exchangeable for common stocks, such as rights and
warrants, of utility companies. The Fund may invest up to 20 percent of its
total assets in utility stocks.
SMALL COMPANY STOCKS. Small company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of companies with a market capitalization (market
price x number of shares outstanding) below the top 1,000 stocks that
comprise the large and mid-range capitalization sector of the United States
equity market. These stocks are comparable to, but not limited to, the
stocks comprising the Russell 2000 Index, an index of small capitalization
stocks. The Fund may invest up to 7.5 percent of its total assets in small
stocks.
FOREIGN STOCKS. Foreign stocks are equity securities of established
companies in economically developed countries other than the United States.
These securities may be either dollar-denominated or denominated in foreign
currencies. The Fund may invest up to 7.5 percent of its total assets in
foreign stocks.
CASH RESERVES. When the adviser believes that a temporary defensive
position is desirable, the Fund may invest in cash reserves. Cash reserves
will consist of U.S. and foreign short-term money market instruments,
including interest-bearing call deposits with banks, government
obligations, certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate debt securities, and repurchase agreements. The
Fund may invest up to 15 percent of its total assets in cash reserves.
ACCEPTABLE INVESTMENTS
U.S. TREASURY AND OTHER U.S. GOVERNMENT SECURITIES. The U.S. Treasury and
other U.S. government securities in which the Fund invests are either
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The U.S. government securities in which the Fund may
invest are limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
obligations issued by U.S. government agencies or instrumentalities,
including securities that are supported by the full faith and credit of
the U.S. Treasury (such as GNMA certificates); securities that are
supported by the right of the issuer to borrow from the U.S. Treasury
(such as securities of Federal Home Loan Banks); and securities that are
supported by the credit of the agency or instrumentality (such as FNMA
and FHLMC bonds).
MORTGAGE-BACKED SECURITIES. Mortgaged-backed securities are securities
collateralized by residential mortgages. The mortgage-backed securities in
which the Fund may invest may be:
issued by an agency of the U.S. government, typically GNMA, FNMA or
FHLMC;
privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government;
privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by
the issuer and such guarantee is collateralized by U.S. government
securities; and
other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal
and interest are supported by the credit of an agency or instrumentality
of the U.S. government.
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. Most of the CMOs in which the
Fund would invest use the same basic structure:
Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities. The first three (A, B, and C bonds) pay
interest at their stated rates beginning with the issue date; the
final class (or Z bond) typically receives the residual income from
the underlying investments after payments are made to the other
classes.
The cash flows from the underlying mortgages are applied first to
pay interest and then to retire securities.
The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A
bonds). When those securities are completely retired, all principal
payments are then directed to the next-shortest maturity security
(or B bond). This process continues until all of the classes have
been paid off.
Because the cash flow is distributed sequentially instead of pro rata
as with pass-through securities, the cash flows and average lives of
CMOs are more predictable, and there is a period of time during which
the investors in the longer-maturity classes receive no principal
paydowns. The interest portion of these payments is distributed by
the Fund as income and the capital portion is reinvested.
The Fund will invest only in CMOs which are rated AAA by an NRSRO.
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 a segregated
pool 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, and a single class of "residual interests." To qualify as a
REMIC, substantially all of the assets of the entity must be in assets
directly or indirectly secured principally by real property.
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed
securities have yield and maturity characteristics corresponding to the
underlying mortgages. Distributions to holders of mortgage-backed
securities include both interest and principal payments. Principal
payments represent the amortization of the principal of the underlying
mortgages and any prepayments of principal due to prepayment,
refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective
maturities of mortgage-backed securities. Due to these features,
mortgage-backed securities are less effective as a means of "locking
in" attractive long-term interest rates than fixed-income securities
which pay only a stated amount of interest until maturity, when the
entire principal amount is returned. This is caused by the need to
reinvest at lower interest rates both distributions of principal
generally and significant prepayments which become more likely as
mortgage interest rates decline. Since comparatively high interest
rates cannot be effectively "locked in," mortgage-backed securities may
have less potential for capital appreciation during periods of
declining interest rates than other non-callable, fixed-income
government securities of comparable stated maturities. However,
mortgage-backed securities may experience less pronounced declines in
value during periods of rising interest rates.
In addition, some of the CMOs purchased by the Fund may represent an
interest solely in the principal repayments or solely in the interest
payments on mortgage-backed securities (stripped mortgage-backed
securities or "SMBSs"). Due to the possibility of prepayments on the
underlying mortgages, SMBSs may be more interest-rate sensitive than
other securities purchased by the Fund. If prevailing interest rates
fall below the level at which SMBSs were issued, there may be
substantial prepayments on the underlying mortgages, leading to the
relatively early prepayments of principal-only SMBSs and a reduction in
the amount of payments made to holders of interest-only SMBSs. It is
possible that the Fund might not recover its original investment in
interest-only SMBSs if there are substantial prepayments on the
underlying mortgages. Therefore, interest-only SMBSs generally increase
in value as interest rates rise and decrease in value as interest rates
fall, counter to changes in value experienced by most fixed-income
securities. The Fund's adviser intends to use this characteristic of
interest-only SMBSs to reduce the effects of interest rate changes on
the value of the Fund's portfolio, while continuing to pursue the
Fund's investment objective.
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 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
security (i.e., same type, coupon and maturity) 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 sale 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.
CORPORATE BONDS. The investment-grade corporate bonds in which the Fund
invests are:
rated within the four highest ratings for corporate bonds by Moody's
Investors Service, Inc. (Aaa, Aa, A, or Baa) ("Moody's"), Standard &
Poor's Corporation (AAA, AA, A, or BBB) ("Standard & Poor's"), or Fitch
Investors Service, Inc. (AAA, AA, A, or BBB) ("Fitch");
unrated if other long-term debt securities of that issuer are rated, at
the time of purchase, Baa or better by Moody's or BBB or better by
Standard & Poor's or Fitch; or
unrated if determined to be of equivalent quality to one of the foregoing
rating categories by the Fund's adviser.
The high yield corporate bonds in which the Fund invests are rated Ba or
lower by Moody's or BB or lower by Standard & Poor's or Fitch. A
description of the rating categories is contained in the Appendix to this
prospectus.
Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments.
This is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher-rated securities which
react primarily to fluctuations in the general level of interest rates.
Short-term corporate and market developments affecting the price or
liquidity of lower-rated securities could include adverse news affecting
major issuers, underwriters, or dealers of lower-rated corporate debt
obligations. In addition, since there are fewer investors in lower-rated
securities, it may be harder to sell the securities at an optimum time. As
a result of these factors, lower-rated securities tend to have more price
volatility and carry more risk to principal than higher-rated securities.
Many corporate debt obligations, including many lower-rated bonds, permit
the issuers to call the security and thereby redeem their obligations
earlier than the stated maturity dates. Issuers are more likely to call
bonds during periods of declining interest rates. In these cases, if the
Fund owns a bond which is called, the Fund will receive its return of
principal earlier than expected and would likely be required to reinvest
the proceeds at lower interest rates, thus reducing income to the Fund.
EQUITY SECURITIES. Common stocks represent ownership interest in a
corporation. Unlike bonds, which are debt securities, common stocks have
neither fixed maturity dates nor fixed schedules of promised payments.
Utility stocks are common stocks of utility companies, including water
companies, companies that produce, transmit, or distribute gas and electric
energy and those companies that provide communications facilities, such as
telephone and telegraph companies. Foreign stocks are equity securities of
foreign issuers.
FOREIGN SECURITIES. The foreign bonds in which the Fund invests are rated
within the four highest ratings for bonds by Moody's (Aaa, Aa, A or Baa) or
by Standard & Poor's (AAA, AA, A or BBB) or are unrated if determined to be
of equivalent quality by the Fund's adviser.
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 taxation, currency fluctuations,
withholding taxes on interest, limitations on the use or transfer of Fund
assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual
obligations or obtain court judgments abroad than would be the case in the
United States because of differences in the legal systems. 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.
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 issuers; 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.
CASH RESERVES. The Fund's cash reserves may be cash received from the sale
of Fund shares, reserves for temporary defensive purposes or to take
advantage of market opportunities.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3
percent of the total outstanding voting stock of any such investment company,
invest more than 5 percent of its total assets in any one such investment
company, or invest more than 10 percent of its total assets in such other
investment companies in general.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, over-the-counter
options, and repurchase agreements providing for settlement in more than seven
days after notice, to 15 percent of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or 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 adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100 percent of the value of the securities loaned.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as
foreign securities or funds deposited in foreign banks, as measured in U.S.
dollars. Although foreign currency exchanges may be used by the Fund to protect
against a decline in the value of one or more currencies, such efforts may also
limit any potential gain that might result from a relative increase in the value
of such currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). The period between trade date and settlement date will vary
between 24 hours and 30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the adviser
will consider the likelihood of changes in currency values when making
investment decisions, the adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency.
OPTIONS. The Fund may deal in options on foreign currencies, foreign currency
futures, securities, and securities indices, which options may be listed for
trading on a national securities exchange or traded over-the-counter. The Fund
will use options only to manage interest rate and currency risks. The Fund may
write covered call options to generate income. The Fund may write covered call
options and secured put options on up to 25 percent of its net assets and may
purchase put and call options provided that no more than 5 percent of the fair
market value of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets and with a wider range of expiration
dates and exercise prices, than are exchange traded options.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to accommodate cash flows into and out of the Fund's portfolio and to
hedge against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions. Futures contracts
call for the delivery of particular 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.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the firms included in the indexes. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect its portfolio securities 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 margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5
percent of the market value of the Fund's total assets. When the Fund purchases
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contracts are unleveraged. When the Fund sells
futures contracts, it will either own or have the right to receive the
underlying future or security or will make deposits to collateralize the
position as discussed above.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the investment adviser could be incorrect in
its expectations about the direction or extent of market factors such as
stock price movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these
transactions, there is no assurance that a liquid secondary market on an
exchange or otherwise will exist for any particular futures contract or
option at any particular time. The Fund's ability to establish and close
out futures and options positions depends on this secondary market.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements 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 percent of
the value of those assets to secure such borrowings;
lend any securities except for portfolio securities; or
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.
The above investment limitations cannot be changed without shareholder approval.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .75 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for voluntary reimbursement of expenses
by the adviser, the adviser may voluntarily waive some or all of its fee.
This does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The
adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, 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 Management 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.
Charles A. Ritter has been the Fund's portfolio manager since the Fund's
inception. Mr. Ritter joined Federated Investors in 1983 and has been a
Vice President of the Fund's investment adviser since 1992. From 1988 until
1991, Mr. Ritter acted as an Assistant Vice President. Mr. Ritter is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Chicago and his M.S. in Economics from Carnegie Mellon
University.
DISTRIBUTION OF SELECT SHARES
Federated Securities Corp. is the principal distributor for Shares. 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.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with Investment Company Act Rule 12b-1 (the "Plan"), the Fund will
pay to the distributor an amount computed at an annual rate of .75 of 1% of the
average daily net asset value of the Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the Plan.
The distributor may from time to time and for such periods as its deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the Shares exceed such lower expense limitation as
the distributor may, by notice to the Fund, voluntarily declare to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide sales and/or administrative services as agents for their clients or
customers who beneficially own Shares of the Fund. Administrative services may
include, but are not limited to, the following functions: providing office
space, equipment, telephone facilities, and various clerical, supervisory,
computer and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Fund reasonably requests for Shares.
Financial institutions will receive fees from the distributor based upon Shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the
Fund, interest, carrying or other financing charges in connection with excess
amounts expended, or the distributor's overhead expenses. However, the
distributor may be able to recover such amounts or may earn a profit from future
payments made by the Fund under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., 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 percent 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 are not limited to, the provision of
personal service and maintenance of shareholder accounts.
In addition to receiving the payments under the Services Plan, financial
institutions may be compensated by the distributor, who may be reimbursed by the
adviser, or affiliates thereof, for providing administrative support services to
holders of Shares. These payments will be made directly by the distributor, and
will not be made from the assets of the Fund.
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.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro and Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Arthur Andersen
& Co., Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND AND SELECT SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, the only expenses allocated to the Shares as a class are expenses
under the Fund's 12b-1 Plan. However, the Trustees reserves the right to
allocate certain other expenses to holders of Shares as it deems appropriate
("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; fees under the Fund's Shareholder Services
Plan, if any; printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxies to
current shareholders; registration fees paid to the Securities and Exchange
Commission and registration fees paid to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Shares; legal fees relating solely to Shares; and Trustees' fees incurred as
a result of issues relating solely to Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Service Shares may exceed that of Select Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
INVESTING IN SELECT SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased through a financial institution which has a
sales agreement with the distributor or by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Fund reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Texas residents must purchase Shares through a broker registered with the State
of Texas or through Federated Securities Corp. at 1-800-358-2801. Orders through
a financial institution are considered received when the Fund is notified of the
purchase order. Purchase orders through a registered broker/dealer must be
received by the broker before 4:00 p.m. (Eastern time) and must be transmitted
by the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. Purchase orders through other financial
institutions must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be purchased at
that day's price. It is the financial institution's responsibility to transmit
orders promptly.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated Managed Growth and Income
Fund--Select Shares; Fund Number (this number can be found on the account
statement or by contacting the Fund); Group Number or Wire Order Number; Nominee
or Institution Name; and ABA Number 011000028.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Managed Growth and Income Fund--Select Shares to State Street Bank and Trust
Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are
considered received after payment by check is converted by State Street Bank
into federal funds. This is normally the next business day after State Street
Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,500. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities such 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.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding Shares in a fiduciary, agency, custodial, or similar capacity may charge
or pass through subaccounting fees as part of or in addition to normal trust or
agency account fees. They may also charge fees for other services provided which
may be related to the ownership of Shares. This prospectus should, therefore, be
read together with any agreement between the customer and the institution with
regard to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the Fund. A
shareholder may apply for participation in this program through Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
the quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Unless shareholders request cash payments by writing
the Fund, dividends are automatically reinvested in additional Shares of the
Fund on payment dates at the ex-dividend date net asset value without a sales
charge.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
REDEEMING SELECT SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
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, by telephone
request or by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares 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 through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern 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 instructions to the Fund. The financial institution may
charge customary fees and commissions for this service.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). All proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System. If
at any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. 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 written requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares
name, his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $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");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("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. 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.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, 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.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Shares,
and the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually use up, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in the Fund. To
be eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through Federated Securities Corp.
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 $1,500. This requirement
does not apply, however, if the balance falls below $1,500 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.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or the Fund's operation and for the election
of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect the
shareholders of the Fund, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX 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.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
Fund shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
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 for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Select Shares and
Institutional Service Shares. Because Select Shares are subject to 12b-1 fees,
the total return and yield for Institutional Service Shares, for the same
period, will exceed that of Select Shares.
From time to time the Fund may advertise the performance of Select Shares using
certain reporting services and/or compare the performance of Select Shares to
certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Service Shares are sold to institutions and individuals and to
accounts for which financial institutions act in a fiduciary or agency capacity.
Institutional Service Shares are sold at net asset value. Investments in
Institutional Service Shares are subject to a minimum initial investment of
$25,000. Institutional Service Shares are distributed without a 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Fund is sold.
The amount of dividends payable to Institutional Service Shares will generally
exceed that of Select Shares by the difference between Class Expenses and
distribution expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, AND CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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 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.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus or minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Managed Growth and Income Fund
Select Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Arthur Andersen & Co. 2000 PNC Bank Building
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
FEDERATED MANAGED GROWTH
AND INCOME FUND
SELECT SHARES
PROSPECTUS
A Diversified Portfolio
of Managed Series Trust,
an Open-End Management
Investment Company
Prospectus dated , 1994
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3122006A-SS (1/94)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 19, 1994
FEDERATED MANAGED GROWTH FUND
(A PORTFOLIO OF MANAGED SERIES TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Federated Managed Growth Fund (the
"Fund") offered by this prospectus represent interests in the Fund, which
is a diversified investment portfolio of Managed Series Trust (the
"Trust"). The Trust is an open-end management investment company (a
mutual fund).
The investment objective of the Fund is to seek capital appreciation. In
pursuing its objective, the Fund will consider the current income of the
investments it selects. The Fund invests in both bonds and stocks.
Institutional Service Shares are sold at net asset value.
THE INSTITUTIONAL SERVICE 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 INSTITUTIONAL SERVICE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in Institutional Service Shares of the Fund. Keep this
prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information
for Institutional Service Shares and Select Shares of all portfolios of
the Trust dated , 1994, with the Securities and Exchange
Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this prospectus.
You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the
address listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated , 1994
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Asset Allocation 2
Equity Asset Categories 3
Large Company Stocks 3
Utility Stocks 3
Small Company Stocks 4
Foreign Stocks 4
Cash Reserves 4
Bond Asset Categories 4
U.S. Treasury Securities 4
Mortgaged-Backed Securities 4
Investment-Grade Corporate Bonds 4
High Yield Corporate Bonds 5
Foreign Bonds 5
Acceptable Investments 5
Equity Securities 5
Foreign Securities 5
Cash Reserves 6
Repurchase Agreements 6
U.S. Treasury and Other U.S.
Government Securities 6
Mortgage-Backed Securities 6
Collateralized Mortgage Obligations
("CMOs") 6
Real Estate Mortgage Investment
Conduits ("REMICs") 7
Characteristics of Mortgage-Backed
Securities 7
Dollar Roll Transactions 8
Corporate Bonds 8
Investing in Securities of Other
Investment Companies 9
Restricted and Illiquid Securities 9
When-Issued and Delayed Delivery
Transactions 9
Lending of Portfolio Securities 9
Foreign Currency Transactions 9
Forward Foreign Currency Exchange
Contracts 10
Options 10
Futures and Options on Futures 11
Risks 11
Investment Limitations 12
TRUST INFORMATION 12
- ------------------------------------------------------
Management of the Trust 12
Board of Trustees 12
Investment Adviser 12
Advisory Fees 12
Adviser's Background 12
Distribution of Institutional Service Shares 13
Administration of the Fund 13
Administrative Services 13
Shareholder Services Plan 13
Custodian 14
Transfer Agent and Dividend
Disbursing Agent 14
Legal Counsel 14
Independent Auditors 14
Brokerage Transactions 14
Expenses of the Fund and Institutional
Service Shares 14
NET ASSET VALUE 15
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 15
- ------------------------------------------------------
Share Purchases 15
Through a Financial Institution 15
By Wire 15
By Mail 15
Minimum Investment Required 16
What Shares Cost 16
Subaccounting Services 16
Systematic Investment Program 16
Certificates and Confirmations 16
Dividends 17
Capital Gains 17
REDEEMING INSTITUTIONAL SERVICE SHARES 17
- ------------------------------------------------------
Through a Financial Institution 17
Telephone Redemption 17
Written Requests 18
Signatures 18
Receiving Payment 18
Redemption Before Purchase Instruments
Clear 18
Systematic Withdrawal Program 18
Accounts with Low Balances 19
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
Massachusetts Partnership Law 19
TAX INFORMATION 20
- ------------------------------------------------------
Federal Income Tax 20
Pennsylvania Corporate and
Personal Property Taxes 20
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
OTHER CLASSES OF SHARES 21
- ------------------------------------------------------
APPENDIX 22
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
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 INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1).............................................................. 0.48%
12b-1 Fee...................................................................................... None
Other Expenses................................................................................. 0.52%
Shareholder Servicing Fee (2).............................................................. 0.00%
Total Institutional Service Shares Operating Expenses (3)............................. 1.00%
</TABLE>
- ------------
(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 the voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.75%.
(2) The maximum shareholder servicing fee is 0.25%.
(3) The Total Institutional Service Shares Operating Expenses are estimated to
be 1.27% absent the anticipated voluntary waiver of a portion of the
management fee.
* Total Operating Expenses are based on average expenses expected to be incurred
during the period ended January 31, 1995. 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 INSTITUTIONAL SERVICE
SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND
"INVESTING IN INSTITUTIONAL SERVICE SHARES." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fee for Institutional Service Shares................................................ $10 $32
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE
IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING JANUARY 31, 1995.
The information set forth in the foregoing table and example relates only to
Institutional Service Shares of the Fund. The Fund also offers another class of
shares called Select Shares. Institutional Service Shares and Select Shares are
subject to certain of the same expenses; however, Select Shares are subject to a
12b-1 fee of up to 0.75%. See "Other Classes of Shares."
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 15, 1993. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interest in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Institutional Service Shares and Select Shares. This prospectus relates only
to Institutional Service Shares.
Institutional Service Shares ("Shares") of the Fund are designed to give
institutions, individuals, and financial institutions acting in a fiduciary or
agency capacity a convenient means of accumulating an interest in a
professionally managed, diversified investment portfolio. A minimum initial
investment of $25,000 over a 90-day period is required.
Shares are currently 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 seek capital appreciation. In
pursuing its objective, the Fund will consider the current income of the
investments it selects. There can be, of course, no assurance that the Fund will
achieve its investment objective. The Fund's investment objective cannot be
changed without the approval of shareholders. Unless otherwise noted, the Fund's
investment policies may be changed by the Trustees without shareholder approval.
INVESTMENT POLICIES
ASSET ALLOCATION. The Fund will invest in two types of assets: stocks and
bonds. The Fund's investment approach is based on the conviction that, over
time, the choice of investment asset categories and their relative long-term
weightings within the portfolio will have the primary impact on its investment
performance. Of secondary importance to the Fund's performance are the shifting
of money among asset categories and the selection of securities within asset
categories. Therefore, the Fund will pursue its investment objective in the
following manner: (1) by setting long-term ranges for each asset category; (2)
by moving money among asset categories within those defined ranges; and (3) by
actively selecting securities within each of the asset categories. The Fund
attempts to minimize risk by allocating its assets in such a fashion.
Within each of these types of investments, the Fund has designated asset
categories. As a matter of investment policy, ranges have been set for each
asset category's portfolio commitment.
The Fund will invest between 50 and 70 percent of its assets in stocks. The
stock asset categories are large company stocks, utility stocks, small company
stocks, foreign stocks and cash reserves.
The Fund will invest between 30 and 50 percent of its assets in bonds. The
Fund's adviser believes that bonds offer opportunities for growth of capital or
otherwise may be desirable under prevailing market
or economic conditions. The bond asset categories are U.S. Treasury securities,
mortgage-backed securities, investment-grade corporate bonds, high yield
corporate bonds and foreign bonds.
The following is a summary of the asset categories and the amount of the Fund's
total assets which may be invested in each asset category:
<TABLE>
<CAPTION>
ASSET CATEGORY RANGE
<S> <C>
STOCKS 50-70%
Large Company Stocks 0-70%
Utility Stocks 0-7%
Small Company Stocks 0-21%
Foreign Stocks 0-21%
Cash Reserves 0-14%
BONDS 30-50%
U.S. Treasury Securities 0-45%
Mortgage-Backed Securities 0-15%
Investment-Grade Corporate Bonds 0-15%
High Yield Corporate Bonds 0-15%
Foreign Bonds 0-15%
</TABLE>
The Fund's adviser will regularly review the Fund's allocation among the asset
categories and make any changes, within the ranges established for each asset
category, that it believes will provide the most favorable outlook for achieving
the Fund's investment objective. The Fund's adviser will attempt to exploit
inefficiencies among the various asset categories. If, for example, foreign
stocks are judged to be unusually attractive relative to other asset categories,
the allocation for foreign stocks may be moved to its upper limit. At other
times when foreign stocks appear to be overvalued, the commitment may be moved
down to a lesser allocation.
Each asset category within the Fund will be a managed portfolio. The Fund will
seek superior investment performance through security selection in addition to
determining the percentage of its assets to allocate to each of the asset
categories.
EQUITY ASSET CATEGORIES. The portion of the Fund's assets which is invested in
stocks will be allocated among the following asset categories within the ranges
specified:
LARGE COMPANY STOCKS. Large company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of high-quality companies selected by the Fund's
adviser. Ordinarily, these companies will be in the top 25 percent of their
industries with regard to revenues. However, other factors, such as product
position or market share, will be considered by the Fund's adviser and may
outweigh revenues. The Fund may invest up to 70 percent of its total assets
in large company stocks.
UTILITY STOCKS. Utility stocks are common stocks and securities
convertible into or exchangeable for common stocks, such as rights and
warrants, of utility companies. The Fund may invest up to seven percent of
its total assets in utility stocks.
SMALL COMPANY STOCKS. Small company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of companies with a market capitalization (market
price anumber of shares outstanding) below the top 1,000 stocks that
comprise the large and mid-range capitalization sector of the United States
equity market. These stocks are comparable to, but not limited to, the
stocks comprising the Russell 2000 Index, an index of small capitalization
stocks. The Fund may invest up to 21 percent of its total assets in small
company stocks.
FOREIGN STOCKS. Foreign stocks are equity securities of established
companies in economically developed countries other than the United States.
These securities may be either dollar-denominated or denominated in foreign
currencies. The Fund may invest up to 21 percent of its total assets in
foreign stocks.
CASH RESERVES. When the adviser believes that a temporary defensive
position is desirable, the Fund may invest in cash reserves. Cash reserves
will consist of U.S. and foreign short-term money market instruments,
including interest-bearing call deposits with banks, government
obligations, certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate debt securities, and repurchase agreements. The
Fund may invest up to 14 percent of its total assets in cash reserves.
BOND ASSET CATEGORIES. The portion of the Fund's assets which is invested in
bonds ("Bond Assets") will be allocated among the following asset categories
within the ranges specified. Generally, the Fund will invest in Bond Assets
which are believed to offer opportunities for growth of capital when the adviser
believes interest rates will decline and, therefore, the value of the debt
securities will increase, or the market value of bonds will increase due to
factors affecting certain types of bonds or particular issuers. The average
duration of the Fund's Bond Assets will be not less than three nor more than
seven years.
U.S. TREASURY SECURITIES. U.S. Treasury securities are direct obligations
of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds. The
Fund may invest up to 45 percent of its total assets in U.S. Treasury
securities. The Fund may invest in other U.S. government securities if, in
the judgment of the adviser, other U.S. government securities are more
attractive than U.S. Treasury securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
undivided interest in a pool of residential mortgages or may be
collateralized by a pool of residential mortgages. Mortgage-backed
securities are generally either issued or guaranteed by the Government
National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") or
other U.S. government agencies or instrumentalities. Mortgage-backed
securities may also be issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government agencies,
investment bankers, or companies related to the construction industry. The
Fund may invest up to 15 percent of its total assets in mortgage-backed
securities.
INVESTMENT-GRADE CORPORATE BONDS. Investment-grade corporate bonds are
corporate debt obligations having fixed or floating rates of interest and
which are rated BBB or higher by a nationally recognized statistical rating
organization ("NRSRO"). The Fund may invest up to 15
percent of its total assets in investment-grade corporate bonds. 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 the investment-grade bonds described above.
HIGH YIELD CORPORATE BONDS. High yield corporate bonds are corporate debt
obligations having fixed or floating rates of interest and which are rated
BB or lower by NRSROs. The Fund may invest up to 15 percent of its total
assets in high yield corporate bonds. 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 the high yield bonds
described above.
FOREIGN BONDS. Foreign bonds are high-quality debt securities of nations
other than the United States. The Fund's portfolio of foreign bonds will be
comprised mainly of foreign government, foreign governmental agency or
supranational institution bonds. The Fund will also invest in high-quality
debt securities issued by corporations in nations other than the United
States and subject to the Fund's credit limitations for foreign bonds. The
Fund may invest up to 15 percent of its total assets in foreign bonds.
ACCEPTABLE INVESTMENTS
EQUITY SECURITIES. Common stocks represent ownership interest in a
corporation. Unlike bonds, which are debt securities, common stocks have
neither fixed maturity dates nor fixed schedules of promised payments.
Utility stocks are common stocks of utility companies, including water
companies, companies that produce, transmit, or distribute gas and electric
energy and those companies that provide communications facilities, such as
telephone and telegraph companies. Foreign stocks are equity securities of
foreign issuers.
FOREIGN SECURITIES. The foreign bonds in which the Fund invests are rated
within the four highest ratings for bonds by Moody's Investors Service,
Inc. (Aaa, Aa, A or Baa) or by Standard & Poor's Corporation (AAA, AA, A or
BBB) or are unrated if determined to be of equivalent quality by the Fund's
adviser.
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 taxation, currency fluctuations,
withholding taxes on interest, limitations on the use or transfer of Fund
assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual
obligations or obtain court judgments abroad than would be the case in the
United States because of differences in the legal systems. 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.
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 issuers; 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.
CASH RESERVES. The Fund's cash reserves may be cash received from the sale
of Fund shares, reserves for temporary defensive purposes or to take
advantage of market opportunities.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.
U.S. TREASURY AND OTHER U.S. GOVERNMENT SECURITIES. The U.S. Treasury and
other U.S. government securities in which the Fund invests are either
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The U.S. government securities in which the Fund may
invest are limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
obligations issued by U.S. government agencies or instrumentalities,
including securities that are supported by the full faith and credit of
the U.S. Treasury (such as GNMA certificates); securities that are
supported by the right of the issuer to borrow from the U.S. Treasury
(such as securities of Federal Home Loan Banks); and securities that are
supported by the credit of the agency or instrumentality (such as FNMA
and FHLMC bonds).
MORTGAGE-BACKED SECURITIES. Mortgaged-backed securities are securities
collateralized by residential mortgages. The mortgage-backed securities in
which the Fund may invest may be:
issued by an agency of the U.S. government, typically GNMA, FNMA or
FHLMC;
privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government;
privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by
the issuer and such guarantee is collateralized by U.S. government
securities; and
other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal
and interest are supported by the credit of an agency or instrumentality
of the U.S. government.
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. Most of the CMOs in which the
Fund would invest use the same basic structure:
Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities. The first three (A, B, and C bonds) pay interest at
their stated rates beginning with the issue date; the final class
(or Z bond) typically receives the residual income from the
underlying investments after payments are made to the other
classes.
The cash flows from the underlying mortgages are applied first to
pay interest and then to retire securities.
The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A
bonds). When those securities are completely retired, all principal
payments are then directed to the next-shortest maturity security
(or B bond). This process continues until all of the classes have
been paid off.
Because the cash flow is distributed sequentially instead of pro rata
as with pass-through securities, the cash flows and average lives of
CMOs are more predictable, and there is a period of time during which
the investors in the longer-maturity classes receive no principal
paydowns. The interest portion of these payments is distributed by the
Fund as income and the capital portion is reinvested.
The Fund will invest only in CMOs which are rated AAA by an NRSRO.
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 a segregated
pool 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, and a single class of "residual interests." To qualify as a
REMIC, substantially all of the assets of the entity must be in assets
directly or indirectly secured principally by real property.
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed
securities have yield and maturity characteristics corresponding to the
underlying mortgages. Distributions to holders of mortgage-backed
securities include both interest and principal payments. Principal
payments represent the amortization of the principal of the underlying
mortgages and any prepayments of principal due to prepayment,
refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective
maturities of mortgage-backed securities. Due to these features,
mortgage-backed securities are less effective as a means of "locking
in" attractive long-term interest rates than fixed-income securities
which pay only a stated amount of interest until maturity, when the
entire principal amount is returned. This is caused by the need to
reinvest at lower interest rates both distributions of principal
generally and significant prepayments which become more likely as
mortgage interest rates decline. Since comparatively high interest
rates cannot be effectively "locked in," mortgage-backed securities may
have less potential for capital appreciation during periods of
declining interest rates than other non-callable, fixed-income
government securities of comparable stated maturities. However,
mortgage-backed securities may experience less pronounced declines in
value during periods of rising interest rates.
In addition, some of the CMOs purchased by the Fund may represent an
interest solely in the principal repayments or solely in the interest
payments on mortgage-backed securities (stripped mortgage-backed
securities or "SMBSs"). Due to the possibility of prepayments on the
underlying mortgages, SMBSs may be more interest-rate sensitive than
other securities purchased by the Fund. If prevailing interest rates
fall below the level at which SMBSs were issued, there may be
substantial prepayments on the underlying mortgages, leading to the
relatively early prepayments of principal-only SMBSs and a reduction in
the amount of payments made to holders of interest-only SMBSs. It is
possible that the Fund might not recover its original investment in
interest-only SMBSs if there are substantial prepayments on the
underlying mortgages. Therefore, interest-only SMBSs generally increase
in value as interest rates rise and decrease in value as interest rates
fall, counter to changes in value experienced by most fixed income
securities. The Fund's adviser intends to use this characteristic of
interest-only SMBSs to reduce the effects of interest rate changes on
the value of the Fund's portfolio, while continuing to pursue the
Fund's investment objective.
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 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
security (i.e., same type, coupon and maturity) 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 sale 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.
CORPORATE BONDS. The investment-grade corporate bonds in which the Fund
invests are:
rated within the four highest ratings for corporate bonds by Moody's
Investors Service, Inc. (Aaa, Aa, A, or Baa) ("Moody's"), Standard &
Poor's Corporation (AAA, AA, A, or BBB) ("Standard & Poor's"), or Fitch
Investors Service, Inc. (AAA, AA, A, or BBB) ("Fitch");
unrated if other long-term debt securities of that issuer are rated, at
the time of purchase, Baa or better by Moody's or BBB or better by
Standard & Poor's or Fitch; or
unrated if determined to be of equivalent quality to one of the foregoing
rating categories by the Fund's adviser.
The high yield corporate bonds in which the Fund invests are rated Ba or
lower by Moody's or BB or lower by Standard & Poor's or Fitch. A
description of the rating categories is contained in the Appendix to this
prospectus.
Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments.
This is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher-rated securities which
react primarily to fluctuations in the general level of interest rates.
Short-term corporate and market developments affecting the price or
liquidity of lower-rated securities could include adverse news affecting
major issuers, underwriters, or dealers of lower-rated corporate debt
obligations. In addition, since there are fewer investors in lower-rated
securities, it may be harder to sell the securities at an optimum time. As
a result of these factors, lower-rated securities tend to have more price
volatility and carry more risk to principal than higher-rated securities.
Many corporate debt obligations, including many lower-rated bonds, permit
the issuers to call the security and thereby redeem their obligations
earlier than the stated maturity dates. Issuers are more likely to call
bonds during periods of declining interest rates. In these cases, if the
Fund owns a bond which is called, the Fund will receive its return of
principal earlier than expected and would likely be required to reinvest
the proceeds at lower interest rates, thus reducing income to the Fund.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3
percent of the total outstanding voting stock of any such investment company,
invest more than 5 percent of its total assets in any one such investment
company, or invest more than 10 percent of its total assets in such other
investment companies in general.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, over-the-counter
options, and repurchase agreements providing for settlement in more than seven
days after notice, to 15 percent of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or 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 adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100 percent of the value of the securities loaned.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). The period between trade date and settlement date will vary
between 24 hours and 30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the adviser
will consider the likelihood of changes in currency values when making
investment decisions, the adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency.
OPTIONS. The Fund may deal in options on foreign currencies, foreign currency
futures, securities, and securities indices, which options may be listed for
trading on a national securities exchange or traded over-the-counter. The Fund
will use options only to manage interest rate and currency risks. The Fund may
write covered call options to generate income. The Fund may write covered call
options and secured put options on up to 25 percent of its net assets and may
purchase put and call options provided that no more than 5 percent of the fair
market value of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying
asset over the exercise price plus the premium received. In writing puts, there
is a risk that the Fund may be required to take delivery of the underlying asset
at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets and with a wider range of expiration
dates and exercise prices, than are exchange traded options.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to accommodate cash flows into and out of the Fund's portfolio and to
hedge against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions. Futures contracts
call for the delivery of particular 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.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the firms included in the indexes. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect its portfolio securities 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 margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5
percent of the market value of the Fund's total assets. When the Fund purchases
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contracts are unleveraged. When the Fund sells
futures contracts, it will either own or have the right to receive the
underlying future or security or will make deposits to collateralize the
position as discussed above.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the investment adviser could be incorrect in
its expectations about the direction or extent of market factors such as
stock price movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements 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 percent of
the value of those assets to secure such borrowings;
lend any securities except for portfolio securities; or
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.
The above investment limitations cannot be changed without shareholder approval.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .75 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for voluntary reimbursement of expenses
by the adviser, the adviser may voluntarily waive some or all of its fee.
This does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The
adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, 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 Management 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.
Charles A. Ritter has been the Fund's portfolio manager since the Fund's
inception. Mr. Ritter joined Federated Investors in 1983 and has been a
Vice President of the Fund's investment adviser since 1992. From 1988 until
1991, Mr. Ritter acted as an Assistant Vice President. Mr. Ritter is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Chicago and his M.S. in Economics from Carnegie Mellon
University.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Shares. 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., 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. Management of the Fund intends to propose to the
Trustees that a Shareholder Services Plan be adopted with respect to the Shares
(the "Services Plan"). Under the Services Plan, financial institutions would
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 would receive payments from the Fund
at a rate not exceeding .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 would include, but not be limited to, the provision of
personal service and maintenance of shareholder accounts.
In addition to receiving the payments under the Services Plan, financial
institutions could be compensated by the distributor, who could be reimbursed by
the adviser, or affiliates thereof, for providing administrative support
services to holders of Shares. These payments would be made directly by the
distributor, and will not be made from the assets of the Fund.
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.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro and Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Arthur Andersen
& Co., Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND AND INSTITUTIONAL SERVICE SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, no expenses are allocated to the Shares as a class. However, the
Trustees reserves the right to allocate certain other expenses to holders of
Shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses
would be limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Shares; fees under the Fund's
Shareholder Services Plan, if any; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; registration fees paid to the Securities
and Exchange Commission and registration fees paid to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Shares; legal fees relating solely to Shares; and
Trustees' fees incurred as a result of issues relating solely to Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Service Shares may exceed that of Select Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased through a financial institution which has a
sales agreement with the distribution or by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Fund reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Texas residents must purchase Shares through a broker registered with the State
of Texas or through Federated Securities Corp. at 1-800-358-2801. Orders through
a financial institution are considered received when the Fund is notified of the
purchase order. Purchase orders through a registered broker/dealer must be
received by the broker before 4:00 p.m. (Eastern time) and must be transmitted
by the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. Purchase orders through other financial
institutions must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be purchased at
that day's price. It is the financial institution's responsibility to transmit
orders promptly.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated Managed Growth Fund--Institutional
Service Shares; Fund Number (this number can be found on the account statement
or by contacting the Fund); Group Number or Wire Order Number; Nominee or
Institution Name; and ABA Number 011000028.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Managed Growth Fund--Institutional Service Shares to State Street Bank and Trust
Company, P.O. Box 8602, Boston,
Massachusetts 02266-8602. Orders by mail are considered received after payment
by check is converted by State Street Bank into federal funds. This is normally
the next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities such 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.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding Shares in a fiduciary, agency, custodial, or similar capacity may charge
or pass through subaccounting fees as part of or in addition to normal trust or
agency account fees. They may also charge fees for other services provided which
may be related to the ownership of Shares. This prospectus should, therefore, be
read together with any agreement between the customer and the institution with
regard to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account had been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the Fund. A
shareholder may apply for participation in this program through Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
that quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Unless shareholders request cash payments by writing
the Fund, dividends are automatically reinvested in additional Shares of the
Fund on payment dates at the ex-dividend date net asset value without a sales
charge.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
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, by telephone
request or by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares 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 through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern 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 instructions to the Fund. The financial institution may
charge customary fees and commissions for this service.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). All proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System. If
at any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. 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 written requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares
name, his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $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");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("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. 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.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, 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.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Shares,
and the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually use up, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in the Fund. To
be eligible to participate in this program, a shareholder must have an account
value of
at least $25,000. A shareholder may apply for participation in this program
through Federated Securities Corp.
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 $25,000. This
requirement does not apply, however, if the balance falls below $25,000 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.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or the Fund's operation and for the election
of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect the
shareholders of the Fund, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX 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.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
Fund shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
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 for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Service
Shares and Select Shares. Because Select Shares are subject to 12b-1 fees, the
total return and yield for Institutional Service Shares, for the same period,
will exceed that of Select Shares.
From time to time the Fund may advertise the performance of Institutional
Service Shares using certain reporting services and/or compare the performance
of Institutional Service Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Select Shares are sold primarily to retail and private banking customers of
financial institutions. Select Shares are sold at net asset value. Investments
in Select Shares are subject to a minimum initial investment of $1,500.
Select Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust
whereby the distributor is paid a fee of .75 of 1% of the Select Shares' average
daily net assets. Select Shares are also subject to a Shareholder Services Plan
fee of .25 of 1%.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Fund is sold.
The amount of dividends payable to Institutional Service Shares will exceed that
of Select Shares by the difference between Class Expenses and distribution
expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, AND CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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 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.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus or minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Managed Growth Fund
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Arthur Andersen & Co. 2000 PNC Bank Building
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
FEDERATED MANAGED
GROWTH FUND
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Diversified Portfolio
of Managed Series Trust,
an Open-End Management
Investment Company
Prospectus dated , 1994
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3122010A-ISS (1/94)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 19, 1994
FEDERATED MANAGED GROWTH FUND
(A PORTFOLIO OF MANAGED SERIES TRUST)
SELECT SHARES
PROSPECTUS
The Select Shares of Federated Managed Growth Fund (the "Fund") offered
by this prospectus represent interests in the Fund, which is a
diversified investment portfolio of Managed Series Trust (the "Trust").
The Trust is an open-end management investment company (a mutual fund).
The investment objective of the Fund is to seek capital appreciation. In
pursuing its objective, the Fund will consider the current income of the
investments it selects. The Fund invests in both bonds and stocks. Select
Shares are sold at net asset value.
THE SELECT 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 SELECT
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in Select Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information
for Select Shares and Institutional Service Shares of all portfolios of
the Trust dated , 1994, with the Securities and Exchange
Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this prospectus.
You may request a copy of the Combined Statement of Additional
Information free of charge by calling
1-800-235-4669. To obtain other information or to make inquiries about
the Fund, contact the Fund at the address listed in the back of this
prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated , 1994
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Asset Allocation 2
Equity Asset Categories 3
Large Company Stocks 3
Utility Stocks 3
Small Company Stocks 3
Foreign Stocks 4
Cash Reserves 4
Bond Asset Categories 4
U.S. Treasury Securities 4
Mortgage-Backed Securities 4
Investment-Grade Corporate Bonds 4
High Yield Corporate Bonds 5
Foreign Bonds 5
Acceptable Investments 5
Equity Securities 5
Foreign Securities 5
Cash Reserves 6
Repurchase Agreements 6
U.S. Treasury and Other U.S.
Government Securities 6
Mortgage-Backed Securities 6
Collateralized Mortgage Obligations
("CMOs") 6
Real Estate Mortgage Investment
Conduits ("REMICS") 7
Characteristics of Mortgage-Backed
Securities 7
Dollar Roll Transactions 8
Corporate Bonds 8
Investing in Securities of Other
Investment Companies 9
Restricted and Illiquid Securities 9
When-Issued and Delayed Delivery
Transactions 9
Lending of Portfolio Securities 9
Foreign Currency Transactions 9
Forward Foreign Currency Exchange
Contracts 10
Options 10
Futures and Options on Futures 11
Risks 11
Investment Limitations 12
TRUST INFORMATION 12
- ------------------------------------------------------
Management of the Trust 12
Board of Trustees 12
Investment Adviser 12
Advisory Fees 12
Adviser's Background 12
Distribution of Select Shares 13
Distribution Plan 13
Administration of the Fund 14
Administrative Services 14
Shareholder Services Plan 14
Custodian 14
Transfer Agent and Dividend Disbursing
Agent 14
Legal Counsel 14
Independent Auditors 15
Brokerage Transactions 15
Expenses of the Fund and Select Shares 15
NET ASSET VALUE 15
- ------------------------------------------------------
INVESTING IN SELECT SHARES 16
- ------------------------------------------------------
Share Purchases 16
Through a Financial Institution 16
By Wire 16
By Mail 16
Minimum Investment Required 16
What Shares Cost 16
Subaccounting Services 17
Systematic Investment Program 17
Certificates and Confirmations 17
Dividends 17
Capital Gains 17
REDEEMING SELECT SHARES 18
- ------------------------------------------------------
Through a Financial Institution 18
Telephone Redemption 18
Written Requests 18
Signatures 18
Receiving Payment 19
Redemption Before Purchase Instruments Clear 19
Systematic Withdrawal Program 19
Accounts with Low Balances 19
SHAREHOLDER INFORMATION 20
- ------------------------------------------------------
Voting Rights 20
Massachusetts Partnership Law 20
TAX INFORMATION 20
- ------------------------------------------------------
Federal Income Tax 20
Pennsylvania Corporate and
Personal Property Taxes 20
PERFORMANCE INFORMATION 21
- ------------------------------------------------------
OTHER CLASSES OF SHARES 21
- ------------------------------------------------------
APPENDIX 22
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
SELECT SHARES
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 SELECT SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1)............................................................. 0.48%
12b-1 Fee (after waiver) (2).................................................................. 0.50%
Other Expenses................................................................................ 0.77%
Shareholder Servicing Fee................................................................. 0.25%
Total Select Shares Operating Expenses (3)........................................... 1.75%
</TABLE>
- ------------
(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 the voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.75%.
(2) The maximum 12b-1 fee is 0.75%.
(3) The Total Select Shares Operating Expenses are estimated to be 2.27% absent
the anticipated voluntary waivers of a portion of the management fee and a
portion of the 12b-1 fee.
* Total Operating Expenses are based on average expenses expected to be incurred
during the period ending January 31, 1995. 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 SELECT SHARES OF THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND "INVESTING IN SELECT
SHARES." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fee for Select Shares............................................................... $18 $55
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING JANUARY 31,
1995.
The information set forth in the foregoing table and example relates only to
Select Shares of the Fund. The Fund also offers another class of shares called
Institutional Service Shares. Select Shares and Institutional Service Shares are
subject to certain of the same expenses; however, Institutional Service Shares
are not subject to a 12b-1 fee. See "Other Classes of Shares."
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 15, 1993. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Select Shares and Institutional Service Shares. This prospectus relates only
to Select Shares.
Select Shares ("Shares") of the Fund are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
bonds and stocks. A minimum initial investment of $1,500 is required.
Shares are currently 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 seek capital appreciation. In
pursuing its objective, the Fund will consider the current income of the
investments it selects. There can be, of course, no assurance that the Fund will
achieve its investment objective. The Fund's investment objective cannot be
changed without the approval of shareholders. Unless otherwise noted, the Fund's
investment policies may be changed by the Trustees without shareholder approval.
INVESTMENT POLICIES
ASSET ALLOCATION. The Fund will invest in two types of assets: stocks and
bonds. The Fund's investment approach is based on the conviction that, over
time, the choice of investment asset categories and their relative long-term
weightings within the portfolio will have the primary impact on its investment
performance. Of secondary importance to the Fund's performance are the shifting
of money among asset categories and the selection of securities within asset
categories. Therefore, the Fund will pursue its investment objective in the
following manner: (1) by setting long-term ranges for each asset category; (2)
by moving money among asset categories within those defined ranges; and (3) by
actively selecting securities within each of the asset categories. The Fund
attempts to minimize risk by allocating its assets in such a fashion.
Within each of these types of investments, the Fund has designated asset
categories. As a matter of investment policy, ranges have been set for each
asset category's portfolio commitment.
The Fund will invest between 50 and 70 percent of its assets in stocks. The
stock asset categories are large company stocks, utility stocks, small company
stocks, foreign stocks and cash reserves.
The Fund will invest between 30 and 50 percent of its assets in bonds. The
Fund's adviser believes that bonds offer opportunities for growth of capital or
otherwise may be desirable under prevailing market or economic conditions. The
bond asset categories are U.S. Treasury securities, mortgage-backed securities,
investment-grade corporate bonds, high yield corporate bonds and foreign bonds.
The following is a summary of the asset categories and the amount of the Fund's
total assets which may be invested in each asset category:
<TABLE>
<CAPTION>
ASSET CATEGORY RANGE
<S> <C>
STOCKS 50-70%
Large Company Stocks 0-70%
Utility Stocks 0-7%
Small Company Stocks 0-21%
Foreign Stocks 0-21%
Cash Reserves 0-14%
BONDS 30-50%
U.S. Treasury Securities 0-45%
Mortgage-Backed Securities 0-15%
Investment-Grade Corporate Bonds 0-15%
High Yield Corporate Bonds 0-15%
Foreign Bonds 0-15%
</TABLE>
The Fund's adviser will regularly review the Fund's allocation among the asset
categories and make any changes, within the ranges established for each asset
category, that it believes will provide the most favorable outlook for achieving
the Fund's investment objective. The Fund's adviser will attempt to exploit
inefficiencies among the various asset categories. If, for example, foreign
stocks are judged to be unusually attractive relative to other asset categories,
the allocation for foreign stocks may be moved to its upper limit. At other
times when foreign stocks appear to be overvalued, the commitment may be moved
down to a lesser allocation.
Each asset category within the Fund will be a managed portfolio. The Fund will
seek superior investment performance through security selection in addition to
determining the percentage of its assets to allocate to each of the asset
categories.
EQUITY ASSET CATEGORIES. The portion of the Fund's assets which is invested in
stocks will be allocated among the following asset categories within the ranges
specified:
LARGE COMPANY STOCKS. Large company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of high-quality companies selected by the Fund's
adviser. Ordinarily, these companies will be in the top 25 percent of their
industries with regard to revenues. However, other factors, such as product
position or market share, will be considered by the Fund's adviser and may
outweigh revenues. The Fund may invest up to 70 percent of its total assets
in large company stocks.
UTILITY STOCKS. Utility stocks are common stocks and securities
convertible into or exchangeable for common stocks, such as rights and
warrants, of utility companies. The Fund may invest up to seven percent of
its total assets in utility stocks.
SMALL COMPANY STOCKS. Small company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of companies with a market capitalization (market
price x number of shares outstanding) below the top 1,000 stocks that
comprise the large and mid-range capitalization sector of the United States
equity market. These stocks are comparable to, but not limited to, the
stocks comprising the Russell 2000 Index, an index of small capitalization
stocks. The Fund may invest up to 21 percent of its total assets in small
company stocks.
FOREIGN STOCKS. Foreign stocks are equity securities of established
companies in economically developed countries other than the United States.
These securities may be either dollar-denominated or denominated in foreign
currencies. The Fund may invest up to 21 percent of its total assets in
foreign stocks.
CASH RESERVES. When the adviser believes that a temporary defensive
position is desirable, the Fund may invest in cash reserves. Cash reserves
will consist of U.S. and foreign short-term money market instruments,
including interest-bearing call deposits with banks, government
obligations, certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate debt securities, and repurchase agreements. The
Fund may invest up to 14 percent of its total assets in cash reserves.
BOND ASSET CATEGORIES. The portion of the Fund's assets which is invested in
bonds ("Bond Assets") will be allocated among the following asset categories
within the ranges specified. Generally, the Fund will invest in Bond Assets
which are believed to offer opportunities for growth of capital when the adviser
believes interest rates will decline and, therefore, the value of the debt
securities will increase, or the market value of bonds will increase due to
factors affecting certain types of bonds or particular issuers. The average
duration of the Fund's Bond Assets will be not less than three nor more than
seven years.
U.S. TREASURY SECURITIES. U.S. Treasury securities are direct obligations
of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds. The
Fund may invest up to 45 percent of its total assets in U.S. Treasury
securities. The Fund may invest in other U.S. government securities if, in
the judgment of the adviser, other U.S. government securities are more
attractive than U.S. Treasury securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
undivided interest in a pool of residential mortgages or may be
collateralized by a pool of residential mortgages. Mortgage-backed
securities are generally either issued or guaranteed by the Government
National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") or
other U.S. government agencies or instrumentalities. Mortgage-backed
securities may also be issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government agencies,
investment bankers, or companies related to the construction industry. The
Fund may invest up to 15 percent of its total assets in mortgage-backed
securities.
INVESTMENT-GRADE CORPORATE BONDS. Investment-grade corporate bonds are
corporate debt obligations having fixed or floating rates of interest and
which are rated BBB or higher by a nationally recognized statistical rating
organization ("NRSRO"). The Fund may invest up to 15 percent of its total
assets in investment-grade corporate bonds. 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 the
investment-grade bonds described above.
HIGH YIELD CORPORATE BONDS. High yield corporate bonds are corporate debt
obligations having fixed or floating rates of interest and which are rated
BB or lower by NRSROs. The Fund may invest up to 15 percent of its total
assets in high yield corporate bonds. 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 the high yield bonds
described above.
FOREIGN BONDS. Foreign bonds are high-quality debt securities of nations
other than the United States. The Fund's portfolio of foreign bonds will be
comprised mainly of foreign government, foreign governmental agency or
supranational institution bonds. The Fund will also invest in high-quality
debt securities issued by corporations in nations other than the United
States and subject to the Fund's credit limitations for foreign bonds. The
Fund may invest up to 15 percent of its total assets in foreign bonds.
ACCEPTABLE INVESTMENTS
EQUITY SECURITIES. Common stocks represent ownership interest in a
corporation. Unlike bonds, which are debt securities, common stocks have
neither fixed maturity dates nor fixed schedules of promised payments.
Utility stocks are common stocks of utility companies, including water
companies, companies that produce, transmit, or distribute gas and electric
energy and those companies that provide communications facilities, such as
telephone and telegraph companies. Foreign stocks are equity securities of
foreign issuers.
FOREIGN SECURITIES. The foreign bonds in which the Fund invests are rated
within the four highest ratings for bonds by Moody's Investors Service,
Inc. (Aaa, Aa, A or Baa) or by Standard & Poor's Corporation (AAA, AA, A or
BBB) or are unrated if determined to be of equivalent quality by the Fund's
adviser.
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 taxation, currency fluctuations,
withholding taxes on interest, limitations on the use or transfer of Fund
assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual
obligations or obtain court judgments abroad than would be the case in the
United States because of differences in the legal systems. 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.
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 issuers; 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.
CASH RESERVES. The Fund's cash reserves may be cash received from the sale
of Fund shares, reserves for temporary defensive purposes or to take
advantage of market opportunities.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.
U.S. TREASURY AND OTHER U.S. GOVERNMENT SECURITIES. The U.S. Treasury and
other U.S. government securities in which the Fund invests are either
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The U.S. government securities in which the Fund may
invest are limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
obligations issued by U.S. government agencies or instrumentalities,
including securities that are supported by the full faith and credit of
the U.S. Treasury (such as GNMA certificates); securities that are
supported by the right of the issuer to borrow from the U.S. Treasury
(such as securities of Federal Home Loan Banks); and securities that are
supported by the credit of the agency or instrumentality (such as FNMA
and FHLMC bonds).
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities
collateralized by residential mortgages. The mortgage-backed securities in
which the Fund may invest may be:
issued by an agency of the U.S. government, typically GNMA, FNMA or
FHLMC;
privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government;
privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by
the issuer and such guarantee is collateralized by U.S. government
securities; and
other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal
and interest are supported by the credit of an agency or instrumentality
of the U.S. government.
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. Most of the CMOs in which the
Fund would invest use the same basic structure:
Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities. The first three (A, B, and C bonds) pay interest at
their stated rates beginning with the issue date; the final class
(or Z bond) typically receives the residual income from the
underlying investments after payments are made to the other
classes.
The cash flows from the underlying mortgages are applied first to
pay interest and then to retire securities.
The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A
bonds). When those securities are completely retired, all principal
payments are then directed to the next-shortest maturity security
(or B bond). This process continues until all of the classes have
been paid off.
Because the cash flow is distributed sequentially instead of pro rata
as with pass-through securities, the cash flows and average lives of
CMOs are more predictable, and there is a period of time during which
the investors in the longer-maturity classes receive no principal
paydowns. The interest portion of these payments is distributed by the
Fund as income and the capital portion is reinvested.
The Fund will invest only in CMOs which are rated AAA by an NRSRO.
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 a segregated
pool 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, and a single class of "residual interests." To qualify as a
REMIC, substantially all of the assets of the entity must be in assets
directly or indirectly secured principally by real property.
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed
securities have yield and maturity characteristics corresponding to the
underlying mortgages. Distributions to holders of mortgage-backed
securities include both interest and principal payments. Principal
payments represent the amortization of the principal of the underlying
mortgages and any prepayments of principal due to prepayment,
refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective
maturities of mortgage-backed securities. Due to these features,
mortgage-backed securities are less effective as a means of "locking
in" attractive long-term interest rates than fixed-income securities
which pay only a stated amount of interest until maturity, when the
entire principal amount is returned. This is caused by the need to
reinvest at lower interest rates both distributions of principal
generally and significant prepayments which become more likely as
mortgage interest rates decline. Since comparatively high interest
rates cannot be effectively "locked in," mortgage-backed securities may
have less potential for capital appreciation during periods of
declining interest rates than other non-callable, fixed-income
government securities of comparable stated maturities. However,
mortgage-backed securities may experience less pronounced declines in
value during periods of rising interest rates.
In addition, some of the CMOs purchased by the Fund may represent an
interest solely in the principal repayments or solely in the interest
payments on mortgage-backed securities
(stripped mortgage-backed securities or "SMBSs"). Due to the
possibility of prepayments on the underlying mortgages, SMBSs may be
more interest-rate sensitive than other securities purchased by the
Fund. If prevailing interest rates fall below the level at which SMBSs
were issued, there may be substantial prepayments on the underlying
mortgages, leading to the relatively early prepayments of
principal-only SMBSs and a reduction in the amount of payments made to
holders of interest-only SMBSs. It is possible that the Fund might not
recover its original investment in interest-only SMBSs if there are
substantial prepayments on the underlying mortgages. Therefore,
interest-only SMBSs generally increase in value as interest rates rise
and decrease in value as interest rates fall, counter to changes in
value experienced by most fixed income securities. The Fund's adviser
intends to use this characteristic of interest-only SMBSs to reduce the
effects of interest rate changes on the value of the Fund's portfolio,
while continuing to pursue the Fund's investment objective.
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 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
security (i.e., same type, coupon and maturity) 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 sale 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.
CORPORATE BONDS. The investment-grade corporate bonds in which the Fund
invests are:
rated within the four highest ratings for corporate bonds by Moody's
Investors Service, Inc. (Aaa, Aa, A, or Baa) ("Moody's"), Standard &
Poor's Corporation (AAA, AA, A, or BBB) ("Standard & Poor's"), or Fitch
Investors Service, Inc. (AAA, AA, A, or BBB) ("Fitch");
unrated if other long-term debt securities of that issuer are rated, at
the time of purchase, Baa or better by Moody's or BBB or better by
Standard & Poor's or Fitch; or
unrated if determined to be of equivalent quality to one of the foregoing
rating categories by the Fund's adviser.
The high yield corporate bonds in which the Fund invests are rated Ba or
lower by Moody's or BB or lower by Standard & Poor's or Fitch. A
description of the rating categories is contained in the Appendix to this
prospectus.
Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments.
This is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher-rated securities which
react primarily to fluctuations in the general level of interest rates.
Short-term corporate and market developments affecting the price or
liquidity of lower-rated securities could include adverse news affecting
major issuers, underwriters, or dealers of lower-rated corporate debt
obligations. In addition, since there are fewer investors in lower-rated
securities, it may be harder to sell the securities at an optimum time. As
a result of these factors, lower-rated securities tend to have more price
volatility and carry more risk to principal than higher-rated securities.
Many corporate debt obligations, including many lower-rated bonds, permit
the issuers to call the security and thereby redeem their obligations
earlier than the stated maturity dates. Issuers are more likely to call
bonds during periods of declining interest rates. In these cases, if the
Fund owns a bond which is called, the Fund will receive its return of
principal earlier than expected and would likely be required to reinvest
the proceeds at lower interest rates, thus reducing income to the Fund.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3
percent of the total outstanding voting stock of any such investment company,
invest more than 5 percent of its total assets in any one such investment
company, or invest more than 10 percent of its total assets in such other
investment companies in general.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, over-the-counter
options, and repurchase agreements providing for settlement in more than seven
days after notice, to 15 percent of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or 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 adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100 percent of the value of the securities loaned.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). The period between trade date and settlement date will vary
between 24 hours and 30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the adviser
will consider the likelihood of changes in currency values when making
investment decisions, the adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency.
OPTIONS. The Fund may deal in options on foreign currencies, foreign currency
futures, securities, and securities indices, which options may be listed for
trading on a national securities exchange or traded over-the-counter. The Fund
will use options only to manage interest rate and currency risks. The Fund may
write covered call options to generate income. The Fund may write covered call
options and secured put options on up to 25 percent of its net assets and may
purchase put and call options provided that no more than 5 percent of the fair
market value of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying
asset over the exercise price plus the premium received. In writing puts, there
is a risk that the Fund may be required to take delivery of the underlying asset
at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets and with a wider range of expiration
dates and exercise prices, than are exchange traded options.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to accommodate cash flows into and out of the Fund's portfolio and to
hedge against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions. Futures contracts
call for the delivery of particular 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.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the firms included in the indexes. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect its portfolio securities 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 margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5
percent of the market value of the Fund's total assets. When the Fund purchases
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contracts are unleveraged. When the Fund sells
futures contracts, it will either own or have the right to receive the
underlying future or security or will make deposits to collateralize the
position as discussed above.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to
the futures contracts may not correlate perfectly with the prices of
the securities in the Fund's portfolio. This may cause the futures
contract and any related options to react differently than the
portfolio securities to market changes. In addition, the investment
adviser could be incorrect in its expectations about the direction or
extent of market factors such as stock price movements. In these
events, the Fund may lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the
investment adviser will consider liquidity before entering into these
transactions, there is no assurance that a liquid secondary market on
an exchange or otherwise will exist for any particular futures contract
or option at any particular time. The Fund's ability to establish and
close out futures and options positions depends on this secondary
market.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements 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 percent of
the value of those assets to secure such borrowings;
lend any securities except for portfolio securities; or
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.
The above investment limitations cannot be changed without shareholder approval.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .75 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for voluntary reimbursement of expenses
by the adviser, the adviser may voluntarily waive some or all of its fee.
This does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The
adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, 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 Management 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.
Charles A. Ritter has been the Fund's portfolio manager since the Fund's
inception. Mr. Ritter joined Federated Investors in 1983 and has been a
Vice President of the Fund's investment adviser since 1992. From 1988 until
1991, Mr. Ritter acted as an Assistant Vice President.
Mr. Ritter is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Chicago and his M.S. in Economics from
Carnegie Mellon University.
DISTRIBUTION OF SELECT SHARES
Federated Securities Corp. is the principal distributor for Shares. 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.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with Investment Company Act Rule 12b-1 (the "Plan"), the Fund will
pay to the distributor an amount computed at an annual rate of .75 of 1% of the
average daily net asset value of the Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the Plan.
The distributor may from time to time and for such periods as its deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the Shares exceed such lower expense limitation as
the distributor may, by notice to the Fund, voluntarily declare to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide sales and/or administrative services as agents for their clients or
customers who beneficially own Shares of the Fund. Administrative services may
include, but are not limited to, the following functions: providing office
space, equipment, telephone facilities, and various clerical, supervisory,
computer and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Fund reasonably requests for Shares.
Financial institutions will receive fees from the distributor based upon Shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., 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 .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 are not limited to, the provision of
personal service and maintenance of shareholder accounts.
In addition to receiving the payments under the Services Plan, financial
institutions may be compensated by the distributor, who may be reimbursed by the
adviser, or affiliates thereof, for providing administrative support services to
holders of Shares. These payments will be made directly by the distributor, and
will not be made from the assets of the Fund.
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.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro and Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Arthur Andersen
& Co., Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND AND SELECT SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, the only expenses allocated to the Shares as a class are expenses
under the Fund's 12b-1 Plan. However, the Trustees reserves the right to
allocate certain other expenses to holders of Shares as it deems appropriate
("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; fees under the Fund's Shareholder Services
Plan, if any; printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxies to
current shareholders; registration fees paid to the Securities and Exchange
Commission and registration fees paid to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Shares; legal fees relating solely to Shares; and Trustees' fees incurred as
a result of issues relating solely to Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Service Shares may exceed that of Select Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
INVESTING IN SELECT SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased through a financial institution which has a
sales agreement with the distributor or by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Fund reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Texas residents must purchase Shares through a broker registered with the State
of Texas or through Federated Securities Corp. at 1-800-358-2801. Orders through
a financial institution are considered received when the Fund is notified of the
purchase order. Purchase orders through a registered broker/dealer must be
received by the broker before 4:00 p.m. (Eastern time) and must be transmitted
by the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. Purchase orders through other financial
institutions must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be purchased at
that day's price. It is the financial institution's responsibility to transmit
orders promptly.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated Managed Growth Fund--Select
Shares; Fund Number (this number can be found on the account statement or by
contacting the Fund); Group Number or Wire Order Number; Nominee or Institution
Name; and ABA Number 011000028.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Managed Growth Fund--Select Shares to State Street Bank and Trust Company, P.O.
Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered
received after payment by check is converted by State Street Bank into federal
funds. This is normally the next business day after State Street Bank receives
the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,500. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities such 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.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding Shares in a fiduciary, agency, custodial, or similar capacity may charge
or pass through subaccounting fees as part of or in addition to normal trust or
agency account fees. They may also charge fees for other services provided which
may be related to the ownership of Shares. This prospectus should, therefore, be
read together with any agreement between the customer and the institution with
regard to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the Fund. A
shareholder may apply for participation in this program through Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
the quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Unless shareholders request cash payments by writing
the Fund, dividends are automatically reinvested in additional Shares of the
Fund on payment dates at the ex-dividend date net asset value without a sales
charge.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
REDEEMING SELECT SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
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, by telephone
request or by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares 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 through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern 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 instructions to the Fund. The financial institution may
charge customary fees and commissions for this service.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). All proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System. If
at any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. 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 written requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares
name, his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $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");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("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. 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.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, 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.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Shares,
and the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually use up, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in the Fund. To
be eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through Federated Securities Corp.
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 $1,500. This requirement
does not apply, however, if the balance falls below $1,500 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.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or the Fund's operation and for the election
of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect the
shareholders of the Fund, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX 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.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
Fund shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
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 for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Select Shares and
Institutional Service Shares. Because Select Shares are subject to 12b-1 fees,
the total return and yield for Institutional Service Shares, for the same
period, will exceed that of Select Shares.
From time to time the Fund may advertise the performance of Select Shares using
certain reporting services and/or compare the performance of Select Shares to
certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Service Shares are sold to institutions and individuals and
accounts for which financial institutions act in a fiduciary or agency capacity.
Institutional Service Shares are sold at net asset value. Investments in
Institutional Service Shares are subject to a minimum initial investment of
$25,000. Institutional Service Shares are distributed without a 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Fund is sold.
The amount of dividends payable to Institutional Service Shares will generally
exceed that of Select Shares by the difference between Class Expenses and
distribution expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, AND CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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 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.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus or minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Managed Growth Fund
Select Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Arthur Andersen & Co. 2000 PNC Bank Building
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
FEDERATED MANAGED
GROWTH FUND
SELECT SHARES
PROSPECTUS
A Diversified Portfolio
of Managed Series Trust,
an Open-End Management
Investment Company
Prospectus dated , 1994
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3122011A-SS (1/94)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 19, 1994
FEDERATED MANAGED AGGRESSIVE GROWTH FUND
(A PORTFOLIO OF MANAGED SERIES TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Federated Managed Aggressive Growth
Fund (the "Fund") offered by this prospectus represent interests in the
Fund, which is a diversified investment portfolio of Managed Series Trust
(the "Trust"). The Trust is an open-end management investment company (a
mutual fund).
The investment objective of the Fund is to seek capital appreciation. The
Fund invests in both bonds and stocks. Institutional Service Shares are
sold at net asset value.
THE INSTITUTIONAL SERVICE 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 INSTITUTIONAL SERVICE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in Institutional Service Shares of the Fund. Keep this
prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information
for Institutional Service Shares and Select Shares of all portfolios of
the Trust dated , 1994, with the Securities and
Exchange Commission. The information contained in the Combined Statement
of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of
Additional Information free of charge by calling 1-800-235-4669. To
obtain other information or to make inquiries about the Fund, contact the
Fund at the address listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated , 1994
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Asset Allocation 2
Equity Asset Categories 3
Large Company Stocks 3
Small Company Stocks 3
Foreign Stocks 4
Cash Reserves 4
Bond Asset Categories 4
U.S. Treasury Securities 4
Mortgaged-Backed Securities 4
Investment-Grade Corporate Bonds 4
High Yield Corporate Bonds 4
Foreign Bonds 5
Acceptable Investments 5
Equity Securities 5
Foreign Securities 5
Cash Reserves 5
Repurchase Agreements 5
U.S. Treasury and Other U.S.
Government Securities 6
Mortgage-Backed Securities 6
Collateralized Mortgage Obligations ("CMOs") 6
Real Estate Mortgage Investment Conduits
("REMICs") 7
Characteristics of Mortgage-Backed
Securities 7
Dollar Roll Transactions 8
Corporate Bonds 8
Investing in Securities of Other
Investment Companies 9
Restricted and Illiquid Securities 9
When-Issued and Delayed Delivery
Transactions 9
Lending of Portfolio Securities 9
Foreign Currency Transactions 9
Forward Foreign Currency Exchange Contracts 10
Options 10
Futures and Options on Futures 11
Risks 11
Investment Limitations 12
TRUST INFORMATION 12
- ------------------------------------------------------
Management of the Trust 12
Board of Trustees 12
Investment Adviser 12
Advisory Fees 12
Adviser's Background 12
Distribution of Institutional Service Shares 13
Administration of the Fund 13
Administrative Services 13
Shareholder Services Plan 13
Custodian 13
Transfer Agent and Dividend
Disbursing Agent 13
Legal Counsel 13
Independent Auditors 14
Brokerage Transactions 14
Expenses of the Fund and Institutional
Service Shares 14
NET ASSET VALUE 14
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 15
- ------------------------------------------------------
Share Purchases 15
Through a Financial Institution
By Wire 15
By Mail 15
Minimum Investment Required 15
What Shares Cost 16
Subaccounting Services 16
Systematic Investment Program
Certificates and Confirmations 16
Dividends 16
Capital Gains 17
REDEEMING INSTITUTIONAL SERVICE SHARES 17
- ------------------------------------------------------
Through a Financial Institution
Telephone Redemption 17
Written Requests 17
Signatures 18
Receiving Payment 18
Redemption Before Purchase
Instruments Clear 18
Systematic Withdrawal Program
Accounts with Low Balances 18
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
Massachusetts Partnership Law 19
TAX INFORMATION 19
- ------------------------------------------------------
Federal Income Tax 19
Pennsylvania Corporate and
Personal Property Taxes 19
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
OTHER CLASSES OF SHARES 20
- ------------------------------------------------------
APPENDIX 21
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
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 INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1).............................................................. 0.48%
12b-1 Fee...................................................................................... None
Other Expenses................................................................................. 0.52%
Shareholder Servicing Fee (2).............................................................. 0.00%
Total Institutional Service Shares Operating Expenses (3)............................. 1.00%
</TABLE>
- ------------
(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 the voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.75%.
(2) The maximum shareholder servicing fee is 0.25%.
(3) The Total Institutional Service Shares Operating Expenses are estimated to
be 1.27% absent the anticipated voluntary waiver of a portion of the
management fee.
* Total Operating Expenses are based on average expenses expected to be
incurred during the period ended January 31, 1995. 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 INSTITUTIONAL SERVICE
SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND
"INVESTING IN INSTITUTIONAL SERVICE SHARES." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fee for Institutional Service Shares................................................ $10 $32
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING JANUARY 31,
1995.
The information set forth in the foregoing table and example relates only to
Institutional Service Shares of the Fund. The Fund also offers another class of
shares called Select Shares. Institutional Service Shares and Select Shares are
subject to certain of the same expenses; however, Select Shares are subject to a
12b-1 fee of up to 0.75%. See "Other Classes of Shares."
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 15, 1993. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interest in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Institutional Service Shares and Select Shares. This prospectus relates only
to Institutional Service Shares.
Institutional Service Shares ("Shares") of the Fund are designed to give
institutions, individuals, and financial institutions acting in a fiduciary or
agency capacity a convenient means of accumulating an interest in a
professionally managed, diversified investment portfolio. A minimum initial
investment of $25,000 over a 90-day period is required.
Shares are currently 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 seek capital appreciation. There can
be, of course, no assurance that the Fund will achieve its investment objective.
The Fund's investment objective cannot be changed without the approval of
shareholders. Unless otherwise noted, the Fund's investment policies may be
changed by the Trustees without shareholder approval.
INVESTMENT POLICIES
ASSET ALLOCATION. The Fund will invest in two types of assets: stocks and
bonds. The Fund's investment approach is based on the conviction that, over
time, the choice of investment asset categories and their relative long-term
weightings within the portfolio will have the primary impact on its investment
performance. Of secondary importance to the Fund's performance are the shifting
of money among asset categories and the selection of securities within asset
categories. Therefore, the Fund will pursue its investment objective in the
following manner: (1) by setting long-term ranges for each asset category; (2)
by moving money among asset categories within those defined ranges; and (3) by
actively selecting securities within each of the asset categories. The Fund
attempts to minimize risk by allocating its assets in such a fashion.
Within each of these types of investments, the Fund has designated asset
categories. As a matter of investment policy, ranges have been set for each
asset category's portfolio commitment.
The Fund will invest between 60 and 100 percent of its assets in stocks. The
stock asset categories are large company stocks, small company stocks, foreign
stocks and cash reserves.
The Fund will invest between 0 and 40 percent of its assets in bonds. The Fund's
adviser believes that bonds offer opportunities for growth of capital or
otherwise may be desirable under prevailing market or economic conditions. The
bond asset categories are U.S. Treasury securities, mortgage-backed securities,
investment-grade corporate bonds, high yield corporate bonds and foreign bonds.
The following is a summary of the asset categories and the amount of the Fund's
total assets which may be invested in each asset category:
<TABLE>
<CAPTION>
ASSET CATEGORY RANGE
<S> <C>
STOCKS 60-100%
Large Company Stocks 0-100%
Small Company Stocks 0-40%
Foreign Stocks 0-40%
Cash Reserves 0-20%
BONDS 0-40%
U.S. Treasury Securities 0-32%
Mortgage-Backed Securities 0-12%
Investment-Grade Corporate Bonds 0-12%
High Yield Corporate Bonds 0-16%
Foreign Bonds 0-16%
</TABLE>
The Fund's adviser will regularly review the Fund's allocation among the asset
categories and make any changes, within the ranges established for each asset
category, that it believes will provide the most favorable outlook for achieving
the Fund's investment objective. The Fund's adviser will attempt to exploit
inefficiencies among the various asset categories. If, for example, foreign
stocks are judged to be unusually attractive relative to other asset categories,
the allocation for foreign stocks may be moved to its upper limit. At other
times when foreign stocks appear to be overvalued, the commitment may be moved
down to a lesser allocation.
Each asset category within the Fund will be a managed portfolio. The Fund will
seek superior investment performance through security selection in addition to
determining the percentage of its assets to allocate to each of the asset
categories.
EQUITY ASSET CATEGORIES. The portion of the Fund's assets which is invested in
stocks will be allocated among the following asset categories within the ranges
specified:
LARGE COMPANY STOCKS. Large company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of high-quality companies selected by the Fund's
adviser. Ordinarily, these companies will be in the top 25 percent of their
industries with regard to revenues. However, other factors, such as product
position or market share, will be considered by the Fund's adviser and may
outweigh revenues. The Fund may invest up to 100 percent of its total
assets in large company stocks.
SMALL COMPANY STOCKS. Small company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of companies with a market capitalization (market
price x number of shares outstanding) below the top 1,000 stocks that
comprise the large and mid-range capitalization sector of the United States
equity market. These stocks are comparable to, but not limited to, the
stocks comprising the Russell 2000 Index, an index of small capitalization
stocks. The Fund may invest up to 40 percent of its total assets in small
company stocks.
FOREIGN STOCKS. Foreign stocks are equity securities of established
companies in economically developed countries other than the United States.
These securities may be either dollar-denominated or denominated in foreign
currencies. The Fund may invest up to 40 percent of its total assets in
foreign stocks.
CASH RESERVES. When the adviser believes that a temporary defensive
position is desirable, the Fund may invest in cash reserves. Cash reserves
will consist of U.S. and foreign short-term money market instruments,
including interest-bearing call deposits with banks, government
obligations, certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate debt securities, and repurchase agreements. The
Fund may invest up to 20 percent of its total assets in cash reserves.
BOND ASSET CATEGORIES. The portion of the Fund's assets which is invested in
bonds ("Bond Assets") will be allocated among the following asset categories
within the ranges specified. Generally, the Fund will invest in Bond Assets
which are believed to offer opportunities for growth of capital when the adviser
believes interest rates will decline and, therefore, the value of the debt
securities will increase, or the market value of bonds will increase due to
factors affecting certain types of bonds or particular issuers. The average
duration of the Fund's Bond Assets will be not less than three nor more than
nine years.
U.S. TREASURY SECURITIES. U.S. Treasury securities are direct obligations
of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds. The
Fund may invest up to 32 percent of its total assets in U.S. Treasury
securities. The Fund may invest in other U.S. government securities if, in
the judgment of the adviser, other U.S. government securities are more
attractive than U.S. Treasury securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
undivided interest in a pool of residential mortgages or may be
collateralized by a pool of residential mortgages. Mortgage-backed
securities are generally either issued or guaranteed by the Government
National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") or
other U.S. government agencies or instrumentalities. Mortgage-backed
securities may also be issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government agencies,
investment bankers, or companies related to the construction industry. The
Fund may invest up to 12 percent of its total assets in mortgage-backed
securities.
INVESTMENT-GRADE CORPORATE BONDS. Investment-grade corporate bonds are
corporate debt obligations having fixed or floating rates of interest and
which are rated BBB or higher by a nationally recognized statistical rating
organization ("NRSRO"). The Fund may invest up to 12 percent of its total
assets in investment-grade corporate bonds. 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 the
investment-grade bonds described above.
HIGH YIELD CORPORATE BONDS. High yield corporate bonds are corporate debt
obligations having fixed or floating rates of interest and which are rated
BB or lower by NRSROs. The Fund may invest up to 16 percent of its total
assets in high yield corporate bonds. 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 the
high yield bonds described above.
FOREIGN BONDS. Foreign bonds are high-quality debt securities of nations
other than the United States. The Fund's portfolio of foreign bonds will be
comprised mainly of foreign government, foreign governmental agency or
supranational institution bonds. The Fund will also invest in high-quality
debt securities issued by corporations in nations other than the United
States and subject to the Fund's credit limitations for foreign bonds. The
Fund may invest up to 16 percent of its total assets in foreign bonds.
ACCEPTABLE INVESTMENTS
EQUITY SECURITIES. Common stocks represent ownership interest in a
corporation. Unlike bonds, which are debt securities, common stocks have
neither fixed maturity dates nor fixed schedules of promised payments.
Foreign stocks are equity securities of foreign issuers.
FOREIGN SECURITIES. The foreign bonds in which the Fund invests are rated
within the four highest ratings for bonds by Moody's Investors Service,
Inc. (Aaa, Aa, A or Baa) or by Standard & Poor's Corporation (AAA, AA, A or
BBB) or are unrated if determined to be of equivalent quality by the Fund's
adviser.
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 taxation, currency fluctuations,
withholding taxes on interest, limitations on the use or transfer of Fund
assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual
obligations or obtain court judgments abroad than would be the case in the
United States because of differences in the legal systems. 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.
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 issuers; 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.
CASH RESERVES. The Fund's cash reserves may be cash received from the sale
of Fund shares, reserves for temporary defensive purposes or to take
advantage of market opportunities.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price. To the
extent that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price on any
sale of such securities.
U.S. TREASURY AND OTHER U.S. GOVERNMENT SECURITIES. The U.S. Treasury and
other U.S. government securities in which the Fund invests are either
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The U.S. government securities in which the Fund may
invest are limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
obligations issued by U.S. government agencies or instrumentalities,
including securities that are supported by the full faith and credit of
the U.S. Treasury (such as GNMA certificates); securities that are
supported by the right of the issuer to borrow from the U.S. Treasury
(such as securities of Federal Home Loan Banks); and securities that are
supported by the credit of the agency or instrumentality (such as FNMA
and FHLMC bonds).
MORTGAGE-BACKED SECURITIES. Mortgaged-backed securities are securities
collateralized by residential mortgages. The mortgage-backed securities in
which the Fund may invest may be:
issued by an agency of the U.S. government, typically GNMA, FNMA or
FHLMC;
privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government;
privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by
the issuer and such guarantee is collateralized by U.S. government
securities; and
other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal
and interest are supported by the credit of an agency or instrumentality
of the U.S. government.
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. Most of the CMOs in which the
Fund would invest use the same basic structure:
Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities. The first three (A, B, and C bonds) pay interest at
their stated rates beginning with the issue date; the final class
(or Z bond) typically receives the residual income from the
underlying investments after payments are made to the other
classes.
The cash flows from the underlying mortgages are applied first to
pay interest and then to retire securities.
The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A
bonds). When those securities are completely retired, all principal
payments are then directed to the next-shortest maturity security
(or B bond). This process continues until all of the classes have
been paid off.
Because the cash flow is distributed sequentially instead of pro
rata as with pass-through securities, the cash flows and average
lives of CMOs are more predictable, and there is a period of time
during which the investors in the longer-maturity classes receive
no principal paydowns. The interest portion of these payments is
distributed by the Fund as income and the capital portion is
reinvested.
The Fund will invest only in CMOs which are rated AAA by an NRSRO.
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 a segregated
pool 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, and a single class of "residual interests." To qualify as a
REMIC, substantially all of the assets of the entity must be in assets
directly or indirectly secured principally by real property.
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed
securities have yield and maturity characteristics corresponding to the
underlying mortgages. Distributions to holders of mortgage-backed
securities include both interest and principal payments. Principal
payments represent the amortization of the principal of the underlying
mortgages and any prepayments of principal due to prepayment,
refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective
maturities of mortgage-backed securities. Due to these features,
mortgage-backed securities are less effective as a means of "locking
in" attractive long-term interest rates than fixed-income securities
which pay only a stated amount of interest until maturity, when the
entire principal amount is returned. This is caused by the need to
reinvest at lower interest rates both distributions of principal
generally and significant prepayments which become more likely as
mortgage interest rates decline. Since comparatively high interest
rates cannot be effectively "locked in," mortgage-backed securities may
have less potential for capital appreciation during periods of
declining interest rates than other non-callable, fixed-income
government securities of comparable stated maturities. However,
mortgage-backed securities may experience less pronounced declines in
value during periods of rising interest rates.
In addition, some of the CMOs purchased by the Fund may represent an
interest solely in the principal repayments or solely in the interest
payments on mortgage-backed securities (stripped mortgage-backed
securities or "SMBSs"). Due to the possibility of prepayments on the
underlying mortgages, SMBSs may be more interest-rate sensitive than
other securities purchased by the Fund. If prevailing interest rates
fall below the level at which SMBSs were issued, there may be
substantial prepayments on the underlying mortgages, leading to the
relatively early prepayments of principal-only SMBSs and a reduction in
the amount of payments made to holders of interest-only SMBSs. It is
possible that the Fund might not recover its original investment in
interest-only SMBSs if there are substantial prepayments
on the underlying mortgages. Therefore, interest-only SMBSs generally
increase in value as interest rates rise and decrease in value as
interest rates fall, counter to changes in value experienced by most
fixed-income securities. The Fund's adviser intends to use this
characteristic of interest-only SMBSs to reduce the effects of interest
rate changes on the value of the Fund's portfolio, while continuing to
pursue the Fund's investment objective.
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 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
security (i.e., same type, coupon and maturity) 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 sale 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.
CORPORATE BONDS. The investment-grade corporate bonds in which the Fund
invests are:
rated within the four highest ratings for corporate bonds by Moody's
Investors Service, Inc. (Aaa, Aa, A, or Baa) ("Moody's"), Standard &
Poor's Corporation (AAA, AA, A, or BBB) ("Standard & Poor's"), or Fitch
Investors Service, Inc. (AAA, AA, A, or BBB) ("Fitch");
unrated if other long-term debt securities of that issuer are rated, at
the time of purchase, Baa or better by Moody's or BBB or better by
Standard & Poor's or Fitch; or
unrated if determined to be of equivalent quality to one of the foregoing
rating categories by the Fund's adviser.
The high yield corporate bonds in which the Fund invests are rated Ba or
lower by Moody's or BB or lower by Standard & Poor's or Fitch. A
description of the rating categories is contained in the Appendix to this
prospectus.
Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments.
This is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher-rated securities which
react primarily to fluctuations in the general level of interest rates.
Short-term corporate and market developments affecting the price or
liquidity of lower-rated securities could include adverse news affecting
major issuers, underwriters, or dealers of lower-rated corporate debt
obligations. In addition, since there are fewer investors in lower-rated
securities, it may be harder to sell the securities at an optimum
time. As a result of these factors, lower-rated securities tend to have
more price volatility and carry more risk to principal than higher-rated
securities.
Many corporate debt obligations, including many lower-rated bonds, permit
the issuers to call the security and thereby redeem their obligations
earlier than the stated maturity dates. Issuers are more likely to call
bonds during periods of declining interest rates. In these cases, if the
Fund owns a bond which is called, the Fund will receive its return of
principal earlier than expected and would likely be required to reinvest
the proceeds at lower interest rates, thus reducing income to the Fund.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3
percent of the total outstanding voting stock of any such investment company,
invest more than 5 percent of its total assets in any one such investment
company, or invest more than 10 percent of its total assets in such other
investment companies in general.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, over-the-counter
options, and repurchase agreements providing for settlement in more than seven
days after notice, to 15 percent of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or 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 adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100 percent of the value of the securities loaned.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). The period between trade date and settlement date will vary
between 24 hours and 30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the adviser
will consider the likelihood of changes in currency values when making
investment decisions, the adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency.
OPTIONS. The Fund may deal in options on foreign currencies, foreign currency
futures, securities, and securities indices, which options may be listed for
trading on a national securities exchange or traded over-the-counter. The Fund
will use options only to manage interest rate and currency risks. The Fund may
write covered call options to generate income. The Fund may write covered call
options and secured put options on up to 25 percent of its net assets and may
purchase put and call options provided that no more than 5 percent of the fair
market value of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by
the dealer. OTC options, which may not be continuously liquid, are available for
a greater variety of assets and with a wider range of expiration dates and
exercise prices, than are exchange traded options.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to accommodate cash flows into and out of the Fund's portfolio and to
hedge against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions. Futures contracts
call for the delivery of particular 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.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the firms included in the indexes. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect its portfolio securities 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 margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5
percent of the market value of the Fund's total assets. When the Fund purchases
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contracts are unleveraged. When the Fund sells
futures contracts, it will either own or have the right to receive the
underlying future or security or will make deposits to collateralize the
position as discussed above.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the investment adviser could be incorrect in
its expectations about the direction or extent of market factors such as
stock price movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements 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 percent of
the value of those assets to secure such borrowings;
lend any securities except for portfolio securities; or
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.
The above investment limitations cannot be changed without shareholder approval.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .75 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for voluntary reimbursement of expenses
by the adviser, the adviser may voluntarily waive some or all of its fee.
This does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The
adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, 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 Management 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.
Charles A. Ritter has been the Fund's portfolio manager since the Fund's
inception. Mr. Ritter joined Federated Investors in 1983 and has been a
Vice President of the Fund's investment adviser since 1992. From 1988 until
1991, Mr. Ritter acted as an Assistant Vice President. Mr. Ritter is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Chicago and his M.S. in Economics from Carnegie Mellon
University.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Shares. 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., 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. Management of the Fund intends to propose to the
Trustees that a Shareholder Services Plan be adopted with respect to the Shares
(the "Services Plan"). Under the Services Plan, financial institutions would
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 would receive payments from the Fund
at a rate not exceeding .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 would include, but not be limited to, the provision of
personal service and maintenance of shareholder accounts.
In addition to receiving the payments under the Services Plan, financial
institutions could be compensated by the distributor, who could be reimbursed by
the adviser, or affiliates thereof, for providing administrative support
services to holders of Shares. These payments would be made directly by the
distributor, and will not be made from the assets of the Fund.
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.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro and Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Arthur Andersen
& Co., Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND AND INSTITUTIONAL SERVICE SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, no expenses are allocated to the Shares as a class. However, the
Trustees reserves the right to allocate certain other expenses to holders of
Shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses
would be limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Shares; fees under the Fund's
Shareholder Services Plan, if any; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; registration fees paid to the Securities
and Exchange Commission and registration fees paid to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Shares; legal fees relating solely to Shares; and
Trustees' fees incurred as a result of issues relating solely to Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Service Shares may exceed that of Select Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased through a financial institution which has a
sales agreement with the distributor or by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Fund reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Texas residents must purchase Shares through a broker registered with the State
of Texas or through Federated Securities Corp. at 1-800-358-2801. Orders through
a financial institution are considered received when the Fund is notified of the
purchase order. Purchase orders through a registered broker/dealer must be
received by the broker before 4:00 p.m. (Eastern time) and must be transmitted
by the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. Purchase orders through other financial
institutions must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be purchased at
that day's price. It is the financial institution's responsibility to transmit
orders promptly.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated Managed Aggressive Growth
Fund--Institutional Service Shares; Fund Number (this number can be found on the
account statement or by contacting the Fund); Group Number or Wire Order Number;
Nominee or Institution Name; and ABA Number 011000028.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Managed Aggressive Growth Fund--Institutional Service Shares to State Street
Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders
by mail are considered received after payment by check is converted by State
Street Bank into federal funds. This is normally the next business day after
State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities such 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.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding Shares in a fiduciary, agency, custodial, or similar capacity may charge
or pass through subaccounting fees as part of or in addition to normal trust or
agency account fees. They may also charge fees for other services provided which
may be related to the ownership of Shares. This prospectus should, therefore, be
read together with any agreement between the customer and the institution with
regard to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account had been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the Fund. A
shareholder may apply for participation in this program through Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
that quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Unless shareholders request cash payments by writing
the Fund, dividends are automatically reinvested in additional Shares of the
Fund on payment dates at the ex-dividend date net asset value without a sales
charge.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
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, by telephone
request or by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares 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 through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern 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.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). All proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System. If
at any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. 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 written requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares
name, his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $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");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("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. 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.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, 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.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Shares,
and the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually use up, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in the Fund. To
be eligible to participate in this program, a shareholder must have an account
value of at least $25,000. A shareholder may apply for participation in this
program through Federated Securities Corp.
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 $25,000. This
requirement does not apply, however, if the balance falls below $25,000 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.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or the Fund's operation and for the election
of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect the
shareholders of the Fund, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX 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.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
Fund shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
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 for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Service
Shares and Select Shares. Because Select Shares are subject to 12b-1 fees, the
total return and yield for Institutional Service Shares, for the same period,
will exceed that of Select Shares.
From time to time the Fund may advertise the performance of Institutional
Service Shares using certain reporting services and/or compare the performance
of Institutional Service Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Select Shares are sold primarily to retail and private banking customers of
financial institutions. Select Shares are sold at net asset value. Investments
in Select Shares are subject to a minimum initial investment of $1,500.
Select Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust
whereby the distributor is paid a fee of .75 of 1% of the Select Shares' average
daily net assets. Select Shares are also subject to a Shareholder Services Plan
fee of .25 of 1%.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Fund is sold.
The amount of dividends payable to Institutional Service Shares will exceed that
of Select Shares by the difference between Class Expenses and distribution
expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, AND CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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 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.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--BONDS ARE MINIMALLY PROTECTED. DEFAULT IN PAYMENT OF INTEREST AND/OR
PRINCIPAL SEEMS PROBABLE OVER TIME.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus or minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Managed Aggressive Growth Fund
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Arthur Andersen & Co. 2000 PNC Bank Building
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
FEDERATED MANAGED
AGGRESSIVE GROWTH FUND
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Diversified Portfolio of
Managed Series Trust,
an Open-End Management
Investment Company
Prospectus dated , 1994
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3122009A-ISS (1/94)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 19, 1994
FEDERATED MANAGED AGGRESSIVE GROWTH FUND
(A PORTFOLIO OF MANAGED SERIES TRUST)
SELECT SHARES
PROSPECTUS
The Select Shares of Federated Managed Aggressive Growth Fund (the
"Fund") offered by this prospectus represent interests in the Fund, which
is a diversified investment portfolio of Managed Series Trust (the
"Trust"). The Trust is an open-end management investment company (a
mutual fund).
The investment objective of the Fund is to seek capital appreciation. The
Fund invests in both bonds and stocks. Select Shares are sold at net
asset value.
THE SELECT 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 SELECT
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in Select Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information
for Select Shares and Institutional Service Shares of all portfolios of
the Trust dated , 1994, with the Securities and Exchange
Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this prospectus.
You may request a copy of the Combined Statement of Additional
Information free of charge by calling
1-800-235-4669. To obtain other information or to make inquiries about
the Fund, contact the Fund at the address listed in the back of this
prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated , 1994
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Asset Allocation 2
Equity Asset Categories 3
Large Company Stocks 3
Small Company Stocks 3
Foreign Stocks 4
Cash Reserves 4
Bond Asset Categories 4
U.S. Treasury Securities 4
Mortgage-Backed Securities 4
Investment-Grade Corporate Bonds 4
High Yield Corporate Bonds 4
Foreign Bonds 5
Acceptable Investments 5
Equity Securities 5
Foreign Securities 5
Cash Reserves 5
Repurchase Agreements 5
U.S. Treasury and Other U.S.
Government Securities 6
Mortgage-Backed Securities 6
Collateralized Mortgage Obligations ("CMOs") 6
Real Estate Mortgage Investment
Conduits ("REMICs") 7
Characteristics of Mortgage-Backed
Securities 7
Dollar Roll Transactions 8
Corporate Bonds 8
Investing in Securities of Other Investment
Companies 9
Restricted and Illiquid Securities 9
When-Issued and Delayed Delivery
Transactions 9
Lending of Portfolio Securities 9
Foreign Currency Transactions 9
Forward Foreign Currency Exchange Contracts 10
Options 10
Futures and Options on Futures 11
Risks 11
Investment Limitations 12
TRUST INFORMATION 12
- ------------------------------------------------------
Management of the Trust 12
Board of Trustees 12
Investment Adviser 12
Advisory Fees 12
Adviser's Background 12
Distribution of Select Shares 13
Distribution Plan 13
Administration of the Fund 14
Administrative Services 14
Shareholder Services Plan 14
Custodian 14
Transfer Agent and Dividend Disbursing Agent 14
Legal Counsel 14
Independent Auditors 14
Brokerage Transactions 14
Expenses of the Fund and Select Shares 15
NET ASSET VALUE 15
- ------------------------------------------------------
INVESTING IN SELECT SHARES 16
- ------------------------------------------------------
Share Purchases 16
Through a Financial Institution 16
By Wire 16
By Mail 16
Minimum Investment Required 16
What Shares Cost 16
Subaccounting Services 17
Systematic Investment Program 17
Certificates and Confirmations 17
Dividends 17
Capital Gains 17
REDEEMING SELECT SHARES 18
- ------------------------------------------------------
Through a Financial Institution 18
Telephone Redemption 18
Written Requests 18
Signatures 18
Receiving Payment 19
Redemption Before Purchase Instruments Clear 19
Systematic Withdrawal Program 19
Accounts with Low Balances 19
SHAREHOLDER INFORMATION 20
- ------------------------------------------------------
Voting Rights 20
Massachusetts Partnership Law 20
TAX INFORMATION 20
- ------------------------------------------------------
Federal Income Tax 20
Pennsylvania Corporate and
Personal Property Taxes 20
PERFORMANCE INFORMATION 21
- ------------------------------------------------------
OTHER CLASSES OF SHARES 21
- ------------------------------------------------------
APPENDIX 22
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SELECT SHARES
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 SELECT SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1)................................................................ 0.48%
12b-1 Fee (after waiver) (2)..................................................................... 0.50%
Other Expenses................................................................................... 0.77%
Shareholder Servicing Fee.................................................................... 0.25%
Total Select Shares Operating Expenses (3).............................................. 1.75%
</TABLE>
- ------------
(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 the voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.75%.
(2) The maximum 12b-1 fee is 0.75%.
(3) The Total Select Shares Operating Expenses are estimated to be 2.27% absent
the anticipated voluntary waivers of a portion of the management fee and a
portion of the 12b-1 fee.
* Total Operating Expenses are based on average expenses expected to be incurred
during the period ending January 31, 1995. 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 SELECT SHARES OF THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND "INVESTING IN SELECT
SHARES." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fee for Select Shares............................................................... $18 $55
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING JANUARY 31,
1995.
The information set forth in the foregoing table and example relates only to
Select Shares of the Fund. The Fund also offers another class of shares called
Institutional Service Shares. Select Shares and Institutional Service Shares are
subject to certain of the same expenses; however, Institutional Service Shares
are not subject to a 12b-1 fee. See "Other Classes of Shares."
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 15, 1993. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Select Shares and Institutional Service Shares. This prospectus relates only
to Select Shares.
Select Shares ("Shares") of the Fund are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
bonds and stocks. A minimum initial investment of $1,500 is required.
Shares are currently 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 seek capital appreciation. There can
be, of course, no assurance that the Fund will achieve its investment objective.
The Fund's investment objective cannot be changed without the approval of
shareholders. Unless otherwise noted, the Fund's investment policies may be
changed by the Trustees without shareholder approval.
INVESTMENT POLICIES
ASSET ALLOCATION. The Fund will invest in two types of assets: stocks and
bonds. The Fund's investment approach is based on the conviction that, over
time, the choice of investment asset categories and their relative long-term
weightings within the portfolio will have the primary impact on its investment
performance. Of secondary importance to the Fund's performance are the shifting
of money among asset categories and the selection of securities within asset
categories. Therefore, the Fund will pursue its investment objective in the
following manner: (1) by setting long-term ranges for each asset category; (2)
by moving money among asset categories within those defined ranges; and (3) by
actively selecting securities within each of the asset categories. The Fund
attempts to minimize risk by allocating its assets in such a fashion.
Within each of these types of investments, the Fund has designated asset
categories. As a matter of investment policy, ranges have been set for each
asset category's portfolio commitment.
The Fund will invest between 60 and 100 percent of its assets in stocks. The
stock asset categories are large company stocks, small company stocks, foreign
stocks and cash reserves.
The Fund will invest between 0 and 40 percent of its assets in bonds. The Fund's
adviser believes that bonds offer opportunities for growth of capital or
otherwise may be desirable under prevailing market or economic conditions. The
bond asset categories are U.S. Treasury securities, mortgage-backed securities,
investment-grade corporate bonds, high yield corporate bonds and foreign bonds.
The following is a summary of the asset categories and the amount of the Fund's
total assets which may be invested in each asset category:
<TABLE>
<CAPTION>
ASSET CATEGORY RANGE
<S> <C>
STOCKS 60-100%
Large Company Stocks 0-100%
Small Company Stocks 0-40%
Foreign Stocks 0-40%
Cash Reserves 0-20%
BONDS 0-40%
U.S. Treasury Securities 0-32%
Mortgage-Backed Securities 0-12%
Investment-Grade Corporate Bonds 0-12%
High Yield Corporate Bonds 0-16%
Foreign Bonds 0-16%
</TABLE>
The Fund's adviser will regularly review the Fund's allocation among the asset
categories and make any changes, within the ranges established for each asset
category, that it believes will provide the most favorable outlook for achieving
the Fund's investment objective. The Fund's adviser will attempt to exploit
inefficiencies among the various asset categories. If, for example, foreign
stocks are judged to be unusually attractive relative to other asset categories,
the allocation for foreign stocks may be moved to its upper limit. At other
times when foreign stocks appear to be overvalued, the commitment may be moved
down to a lesser allocation.
Each asset category within the Fund will be a managed portfolio. The Fund will
seek superior investment performance through security selection in addition to
determining the percentage of its assets to allocate to each of the asset
categories.
EQUITY ASSET CATEGORIES. The portion of the Fund's assets which is invested in
stocks will be allocated among the following asset categories within the ranges
specified:
LARGE COMPANY STOCKS. Large company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of high-quality companies selected by the Fund's
adviser. Ordinarily, these companies will be in the top 25 percent of their
industries with regard to revenues. However, other factors, such as product
position or market share, will be considered by the Fund's adviser and may
outweigh revenues. The Fund may invest up to 100 percent of its total
assets in large company stocks.
SMALL COMPANY STOCKS. Small company stocks are common stocks and
securities convertible into or exchangeable for common stocks, such as
rights and warrants, of companies with a market capitalization (market
price x number of shares outstanding) below the top 1,000 stocks that
comprise the large and mid-range capitalization sector of the United States
equity market. These stocks are comparable to, but not limited to, the
stocks comprising the Russell 2000 Index, an index of small capitalization
stocks. The Fund may invest up to 40 percent of its total assets in small
company stocks.
FOREIGN STOCKS. Foreign stocks are equity securities of established
companies in economically developed countries other than the United States.
These securities may be either dollar-denominated or denominated in foreign
currencies. The Fund may invest up to 40 percent of its total assets in
foreign stocks.
CASH RESERVES. When the adviser believes that a temporary defensive
position is desirable, the Fund may invest in cash reserves. Cash reserves
will consist of U.S. and foreign short-term money market instruments,
including interest-bearing call deposits with banks, government
obligations, certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate debt securities, and repurchase agreements. The
Fund may invest up to 20 percent of its total assets in cash reserves.
BOND ASSET CATEGORIES. The portion of the Fund's assets which is invested in
bonds ("Bond Assets") will be allocated among the following asset categories
within the ranges specified. Generally, the Fund will invest in Bond Assets
which are believed to offer opportunities for growth of capital when the adviser
believes interest rates will decline and, therefore, the value of the debt
securities will increase, or the market value of bonds will increase due to
factors affecting certain types of bonds or particular issuers. The average
duration of the Fund's Bond Assets will be not less than three nor more than
nine years.
U.S. TREASURY SECURITIES. U.S. Treasury securities are direct obligations
of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds. The
Fund may invest up to 32 percent of its total assets in U.S. Treasury
securities. The Fund may invest in other U.S. government securities if, in
the judgment of the adviser, other U.S. government securities are more
attractive than U.S. Treasury securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
undivided interest in a pool of residential mortgages or may be
collateralized by a pool of residential mortgages. Mortgage-backed
securities are generally either issued or guaranteed by the Government
National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") or
other U.S. government agencies or instrumentalities. Mortgage-backed
securities may also be issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government agencies,
investment bankers, or companies related to the construction industry. The
Fund may invest up to 12 percent of its total assets in mortgage-backed
securities.
INVESTMENT-GRADE CORPORATE BONDS. Investment-grade corporate bonds are
corporate debt obligations having fixed or floating rates of interest and
which are rated BBB or higher by a nationally recognized statistical rating
organization ("NRSRO"). The Fund may invest up to 12 percent of its total
assets in investment-grade corporate bonds. 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 the
investment-grade bonds described above.
HIGH YIELD CORPORATE BONDS. High yield corporate bonds are corporate debt
obligations having fixed or floating rates of interest and which are rated
BB or lower by NRSROs. The Fund may invest up to 16 percent of its total
assets in high yield corporate bonds. 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 the
high yield bonds described above.
FOREIGN BONDS. Foreign bonds are high-quality debt securities of nations
other than the United States. The Fund's portfolio of foreign bonds will be
comprised mainly of foreign government, foreign governmental agency or
supranational institution bonds. The Fund will also invest in high-quality
debt securities issued by corporations in nations other than the United
States and subject to the Fund's credit limitations for foreign bonds. The
Fund may invest up to 16 percent of its total assets in foreign bonds.
ACCEPTABLE INVESTMENTS
EQUITY SECURITIES. Common stocks represent ownership interest in a
corporation. Unlike bonds, which are debt securities, common stocks have
neither fixed maturity dates nor fixed schedules of promised payments.
Foreign stocks are equity securities of foreign issuers.
FOREIGN SECURITIES. The foreign bonds in which the Fund invests are rated
within the four highest ratings for bonds by Moody's Investors Service,
Inc. (Aaa, Aa, A or Baa) or by Standard & Poor's Corporation (AAA, AA, A or
BBB) or are unrated if determined to be of equivalent quality by the Fund's
adviser.
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 taxation, currency fluctuations,
withholding taxes on interest, limitations on the use or transfer of Fund
assets, political or social instability and adverse diplomatic
developments. It may also be more difficult to enforce contractual
obligations or obtain court judgments abroad than would be the case in the
United States because of differences in the legal systems. 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.
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 issuers; 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.
CASH RESERVES. The Fund's cash reserves may be cash received from the sale
of Fund shares, reserves for temporary defensive purposes or to take
advantage of market opportunities.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price. To the
extent that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price on any
sale of such securities.
U.S. TREASURY AND OTHER U.S. GOVERNMENT SECURITIES. The U.S. Treasury and
other U.S. government securities in which the Fund invests are either
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The U.S. government securities in which the Fund may
invest are limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
obligations issued by U.S. government agencies or instrumentalities,
including securities that are supported by the full faith and credit of
the U.S. Treasury (such as GNMA certificates); securities that are
supported by the right of the issuer to borrow from the U.S. Treasury
(such as securities of Federal Home Loan Banks); and securities that are
supported by the credit of the agency or instrumentality (such as FNMA
and FHLMC bonds).
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities
collateralized by residential mortgages. The mortgage-backed securities in
which the Fund may invest may be:
issued by an agency of the U.S. government, typically GNMA, FNMA or
FHLMC;
privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government;
privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by
the issuer and such guarantee is collateralized by U.S. government
securities; and
other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal
and interest are supported by the credit of an agency or instrumentality
of the U.S. government.
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. Most of the CMOs in which the
Fund would invest use the same basic structure:
Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities. The first three (A, B, and C bonds) pay interest at
their stated rates beginning with the issue date; the final class
(or Z bond) typically receives the residual income from the
underlying investments after payments are made to the other
classes.
The cash flows from the underlying mortgages are applied first to
pay interest and then to retire securities.
The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A
bonds). When those securities are completely retired, all principal
payments are then directed to the next-shortest maturity security
(or B bond). This process continues until all of the classes have
been paid off.
Because the cash flow is distributed sequentially instead of pro rata
as with pass-through securities, the cash flows and average lives of
CMOs are more predictable, and there is a period of time during which
the investors in the longer-maturity classes receive no principal
paydowns. The interest portion of these payments is distributed by the
Fund as income and the capital portion is reinvested.
The Fund will invest only in CMOs which are rated AAA by an NRSRO.
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 a segregated
pool 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, and a single class of "residual interests." To qualify as a
REMIC, substantially all of the assets of the entity must be in assets
directly or indirectly secured principally by real property.
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed
securities have yield and maturity characteristics corresponding to the
underlying mortgages. Distributions to holders of mortgage-backed
securities include both interest and principal payments. Principal
payments represent the amortization of the principal of the underlying
mortgages and any prepayments of principal due to prepayment,
refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective
maturities of mortgage-backed securities. Due to these features,
mortgage-backed securities are less effective as a means of "locking
in" attractive long-term interest rates than fixed-income securities
which pay only a stated amount of interest until maturity, when the
entire principal amount is returned. This is caused by the need to
reinvest at lower interest rates both distributions of principal
generally and significant prepayments which become more likely as
mortgage interest rates decline. Since comparatively high interest
rates cannot be effectively "locked in," mortgage-backed securities may
have less potential for capital appreciation during periods of
declining interest rates than other non-callable, fixed-income
government securities of comparable stated maturities. However,
mortgage-backed securities may experience less pronounced declines in
value during periods of rising interest rates.
In addition, some of the CMOs purchased by the Fund may represent an
interest solely in the principal repayments or solely in the interest
payments on mortgage-backed securities (stripped mortgage-backed
securities or "SMBSs"). Due to the possibility of prepayments on the
underlying mortgages, SMBSs may be more interest-rate sensitive than
other securities purchased by the Fund. If prevailing interest rates
fall below the level at which SMBSs were issued, there may be
substantial prepayments on the underlying mortgages, leading to the
relatively early prepayments of principal-only SMBSs and a reduction in
the amount of payments made to holders of interest-only SMBSs. It is
possible that the Fund might not recover its original investment in
interest-only SMBSs if there are substantial prepayments
on the underlying mortgages. Therefore, interest-only SMBSs generally
increase in value as interest rates rise and decrease in value as
interest rates fall, counter to changes in value experienced by most
fixed-income securities. The Fund's adviser intends to use this
characteristic of interest-only SMBSs to reduce the effects of interest
rate changes on the value of the Fund's portfolio, while continuing to
pursue the Fund's investment objective.
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 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
security (i.e., same type, coupon and maturity) 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 sale 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.
CORPORATE BONDS. The investment-grade corporate bonds in which the Fund
invests are:
rated within the four highest ratings for corporate bonds by Moody's
Investors Service, Inc. (Aaa, Aa, A, or Baa) ("Moody's"), Standard &
Poor's Corporation (AAA, AA, A, or BBB) ("Standard & Poor's"), or Fitch
Investors Service, Inc. (AAA, AA, A, or BBB) ("Fitch");
unrated if other long-term debt securities of that issuer are rated, at
the time of purchase, Baa or better by Moody's or BBB or better by
Standard & Poor's or Fitch; or
unrated if determined to be of equivalent quality to one of the foregoing
rating categories by the Fund's adviser.
The high yield corporate bonds in which the Fund invests are rated Ba or
lower by Moody's or BB or lower by Standard & Poor's or Fitch. A
description of the rating categories is contained in the Appendix to this
prospectus.
Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments.
This is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher-rated securities which
react primarily to fluctuations in the general level of interest rates.
Short-term corporate and market developments affecting the price or
liquidity of lower-rated securities could include adverse news affecting
major issuers, underwriters, or dealers of lower-rated corporate debt
obligations. In addition, since there are fewer investors in lower-rated
securities, it may be harder to sell the securities at an optimum
time. As a result of these factors, lower-rated securities tend to have
more price volatility and carry more risk to principal than higher-rated
securities.
Many corporate debt obligations, including many lower-rated bonds, permit
the issuers to call the security and thereby redeem their obligations
earlier than the stated maturity dates. Issuers are more likely to call
bonds during periods of declining interest rates. In these cases, if the
Fund owns a bond which is called, the Fund will receive its return of
principal earlier than expected and would likely be required to reinvest
the proceeds at lower interest rates, thus reducing income to the Fund.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3
percent of the total outstanding voting stock of any such investment company,
invest more than 5 percent of its total assets in any one such investment
company, or invest more than 10 percent of its total assets in such other
investment companies in general.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, over-the-counter
options, and repurchase agreements providing for settlement in more than seven
days after notice, to 15 percent of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or 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 adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100 percent of the value of the securities loaned.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). The period between trade date and settlement date will vary
between 24 hours and 30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the adviser
will consider the likelihood of changes in currency values when making
investment decisions, the adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency.
OPTIONS. The Fund may deal in options on foreign currencies, foreign currency
futures, securities, and securities indices, which options may be listed for
trading on a national securities exchange or traded over-the-counter. The Fund
will use options only to manage interest rate and currency risks. The Fund may
write covered call options to generate income. The Fund may write covered call
options and secured put options on up to 25 percent of its net assets and may
purchase put and call options provided that no more than 5 percent of the fair
market value of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by
the dealer. OTC options, which may not be continuously liquid, are available for
a greater variety of assets and with a wider range of expiration dates and
exercise prices, than are exchange traded options.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to accommodate cash flows into and out of the Fund's portfolio and to
hedge against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions. Futures contracts
call for the delivery of particular 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.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the firms included in the indexes. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect its portfolio securities 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 margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5
percent of the market value of the Fund's total assets. When the Fund purchases
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contracts are unleveraged. When the Fund sells
futures contracts, it will either own or have the right to receive the
underlying future or security or will make deposits to collateralize the
position as discussed above.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the investment adviser could be incorrect in
its expectations about the direction or extent of market factors such as
stock price movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements 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 percent of
the value of those assets to secure such borrowings;
lend any securities except for portfolio securities; or
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.
The above investment limitations cannot be changed without shareholder approval.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .75 of 1% of the Fund's average daily net assets. Under the
advisory contract, which provides for voluntary reimbursement of expenses
by the adviser, the adviser may voluntarily waive some or all of its fee.
This does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The
adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, 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 Management 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.
Charles A. Ritter has been the Fund's portfolio manager since the Fund's
inception. Mr. Ritter joined Federated Investors in 1983 and has been a
Vice President of the Fund's investment adviser since 1992. From 1988 until
1991, Mr. Ritter acted as an Assistant Vice President. Mr. Ritter is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Chicago and his M.S. in Economics from Carnegie Mellon
University.
DISTRIBUTION OF SELECT SHARES
Federated Securities Corp. is the principal distributor for Shares. 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.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with Investment Company Act Rule 12b-1 (the "Plan"), the Fund will
pay to the distributor an amount computed at an annual rate of .75 of 1% of the
average daily net asset value of the Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the Plan.
The distributor may from time to time and for such periods as its deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the Shares exceed such lower expense limitation as
the distributor may, by notice to the Fund, voluntarily declare to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide sales and/or administrative services as agents for their clients or
customers who beneficially own Shares of the Fund. Administrative services may
include, but are not limited to, the following functions: providing office
space, equipment, telephone facilities, and various clerical, supervisory,
computer and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Fund reasonably requests for Shares.
Financial institutions will receive fees from the distributor based upon Shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., 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 .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 are not limited to, the provision of
personal service and maintenance of shareholder accounts.
In addition to receiving the payments under the Services Plan, financial
institutions may be compensated by the distributor, who may be reimbursed by the
adviser, or affiliates thereof, for providing administrative support services to
holders of Shares. These payments will be made directly by the distributor, and
will not be made from the assets of the Fund.
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.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro and Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Arthur Andersen
& Co., Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. In
selecting among firms believed to meet these criteria, the adviser may give
consideration to those firms which have sold or are selling shares of the Fund
and other funds distributed by Federated Securities Corp. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
EXPENSES OF THE FUND AND SELECT SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, the only expenses allocated to the Shares as a class are expenses
under the Fund's 12b-1 Plan. However, the Trustees reserves the right to
allocate certain other expenses to holders of Shares as it deems appropriate
("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; fees under the Fund's Shareholder Services
Plan, if any; printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxies to
current shareholders; registration fees paid to the Securities and Exchange
Commission and registration fees paid to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Shares; legal fees relating solely to Shares; and Trustees' fees incurred as
a result of issues relating solely to Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Service Shares may exceed that of Select Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
INVESTING IN SELECT SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased through a financial institution which has a
sales agreement with the distributor or by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Fund reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Texas residents may purchase Shares through a broker registered with the State
of Texas or through Federated Securities Corp. at 1-800-358-2801. Orders through
a financial institution are considered received when the Fund is notified of the
purchase order. Purchase orders through a registered broker/dealer must be
received by the broker before 4:00 p.m. (Eastern time) and must be transmitted
by the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. Purchase orders through other financial
institutions must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be purchased at
that day's price. It is the financial institution's responsibility to transmit
orders promptly.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated Managed Aggressive Growth
Fund--Select Shares; Fund Number (this number can be found on the account
statement or by contacting the Fund); Group Number or Wire Order Number; Nominee
or Institution Name; and ABA Number 011000028.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Managed Aggressive Growth Fund--Select Shares to State Street Bank and Trust
Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are
considered received after payment by check is converted by State Street Bank
into federal funds. This is normally the next business day after State Street
Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,500. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities such 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.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding Shares in a fiduciary, agency, custodial, or similar capacity may charge
or pass through subaccounting fees as part of or in addition to normal trust or
agency account fees. They may also charge fees for other services provided which
may be related to the ownership of Shares. This prospectus should, therefore, be
read together with any agreement between the customer and the institution with
regard to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the Fund. A
shareholder may apply for participation in this program through Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
the quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Unless shareholders request cash payments by writing
the Fund, dividends are automatically reinvested in additional Shares of the
Fund on payment dates at the ex-dividend date net asset value without a sales
charge.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
REDEEMING SELECT SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
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, by telephone
request or by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares 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 through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern 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.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). All proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System. If
at any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. 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 written requests, should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name and class of shares
name, his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $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");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("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. 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.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, 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.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Shares,
and the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually use up, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in the Fund. To
be eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through Federated Securities Corp.
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 $1,500. This requirement
does not apply, however, if the balance falls below $1,500 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.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or the Fund's operation and for the election
of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect the
shareholders of the Fund, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX 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.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
Fund shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
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 for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Select Shares and
Institutional Service Shares. Because Select Shares are subject to 12b-1 fees,
the total return and yield for Institutional Service Shares, for the same
period, will exceed that of Select Shares.
From time to time the Fund may advertise the performance of Select Shares using
certain reporting services and/or compare the performance of Select Shares to
certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Service Shares are sold to institutions and individuals and to
accounts for which financial institutions act in a fiduciary or agency capacity.
Institutional Service Shares are sold at net asset value. Investments in
Institutional Service Shares are subject to a minimum initial investment of
$25,000. Institutional Service Shares are distributed without a 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Fund is sold.
The amount of dividends payable to Institutional Service Shares will generally
exceed that of Select Shares by the difference between Class Expenses and
distribution expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, AND CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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 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.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus or minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Managed Aggressive Growth Fund
Select Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Arthur Andersen & Co. 2000 PNC Bank Building
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
FEDERATED MANAGED
AGGRESSIVE GROWTH FUND
SELECT SHARES
PROSPECTUS
A Diversified Portfolio of
Managed Series Trust,
an Open-End Management
Investment Company
Prospectus dated , 1994
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3122008A-SS (1/94)