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 March 11, 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 March 11, 1994
Table of Contents
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Summary of Fund Expenses 1
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General Information 2
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Investment Information 2
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Investment Objective 2
Investment Policies 2
Asset Allocation 2
Bond Asset Categories 3
U.S. Treasury Securities 3
Mortgage-Backed Securities 4
Investment-Grade Corporate Bonds 4
High Yield Corporate Bonds 4
Foreign Bonds 4
Equity Asset Categories 4
Large Company Stocks 4
Utility Stocks 5
Small Company Stocks 5
Foreign Stocks 5
Cash Reserves Category 5
Acceptable Investments 5
U.S. Treasury and Other U.S.
Government Securities 5
Mortgage-Backed Securities 5
Collateralized Mortgage Obligations
("CMOs") 6
Real Estate Mortgage Investment
Conduits ("REMICS") 6
Characteristics of Mortgage-Backed
Securities 6
Corporate Bonds 7
Investment Risks 8
Equity Securities 8
Foreign Securities 8
Investment Risks 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 10
Currency Risks 10
Forward Foreign Currency Exchange
Contracts 10
Options 11
Futures and Options on Futures 11
Risks 12
Portfolio Turnover 12
Investment Limitations 12
Trust Information 13
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Management of the Trust 13
Board of Trustees 13
Investment Adviser 13
Advisory Fees 13
Adviser's Background 13
Distribution of Institutional Service Shares 15
Administration of the Fund 15
Administrative Services 15
Shareholder Services Plan 15
Custodian 15
Transfer Agent and Dividend
Disbursing Agent 16
Legal Counsel 16
Independent Public Accountants 16
Brokerage Transactions 16
Expenses of the Fund and Institutional
Service Shares 16
Net Asset Value 17
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Investing in Institutional Service Shares 17
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Share Purchases 17
Through a Financial Institution 17
By Wire 17
By Mail 17
Minimum Investment Required 18
What Shares Cost 18
Subaccounting Services 18
Systematic Investment Program 18
Certificates and Confirmations 18
Dividends 19
Capital Gains 19
Redeeming Institutional Service Shares 19
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Through a Financial Institution 19
Telephone Redemption 19
Written Requests 20
Signatures 20
Receiving Payment 20
Systematic Withdrawal Program 20
Accounts with Low Balances 21
Shareholder Information 21
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Voting Rights 21
Massachusetts Partnership Law 21
Tax Information 21
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Federal Income Tax 21
Pennsylvania Corporate and
Personal Property Taxes 22
Performance Information 22
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Other Classes of Shares 22
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Statement of Assets and Liabilities 24
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Report of Independent Public Accountants 25
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Appendix 26
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Addresses Inside Back Cover
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Summary of Fund Expenses
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<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
Contingent Deferred Sales Charge (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)............................................................. 0.23%
12b-1 Fee..................................................................................... None
Total Other Expenses.......................................................................... 0.52%
Shareholder Servicing Fee (2)............................................................. 0.00%
Total Institutional Service Shares Operating Expenses (3)............................ 0.75%
</TABLE>
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(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.75%.
(2) The Institutional Service Shares have no present intention of paying or
accruing the shareholder servicing fee. If Institutional Service Shares were
paying or accruing the shareholder servicing fee, the Institutional Service
Shares would be able to pay up to 0.25% of their average daily net assets
for the shareholder servicing fee.
(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 Institutional Service Shares 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.................................................. $8 $24
</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
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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
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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 primarily invest in two types of assets: bonds
and stocks. Additionally, the Fund may invest in cash reserves. 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, and foreign stocks.
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>
<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. There is no
assurance, however, that the adviser's attempts to pursue this strategy will
result in a benefit to the Fund.
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. [Duration is a commonly used
measure of the potential volatility of the price of a debt security, or the
aggregate market value of a portfolio of debt securities, prior to maturity.
Securities with shorter durations generally have less volatile prices than
securities of comparable quality with longer durations. The Fund should be
expected to maintain a higher average duration during periods of lower expected
market volatility, and a lower average duration during periods of higher
expected market volatility.]
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 (commonly known as junk bonds). The Fund may invest
up to nine percent of its total assets in high yield corporate bonds. There
is no minimal acceptable rating for a security to be purchased or held in
the Fund's portfolio, and the Fund may, from time to time, purchase or hold
securities rated in the lowest rating category. (See "Appendix.") 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 and have a market capitalization of
$500,000,000 or more. However, other factors, such as a company's product
position, market share, current earnings and/or dividend and earnings
growth prospects, 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. Common stocks of utilities are generally
characterized by higher dividend yields and lower growth rates than common
stocks of industrial companies. Under normal market conditions, the higher
income stream from utility stocks tends to make them less volatile than
stocks of industrial companies.
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 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 Category. 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 time 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.
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.
Securities which are rated BBB by Standard & Poor's or Fitch or Baa by
Moody's have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated bonds. If a security's
rating is reduced below the required minimum after the Fund has purchased
it, the Fund is not required to sell the security, but may consider doing
so.
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 (commonly
known as junk bonds). A description of the rating categories is contained
in the Appendix to this prospectus.
Investment Risks. _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.
Investment Risks. 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 apply to
securities issued by foreign corporations and sovereign governments.
These risks 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. If the issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due in accordance with the
terms of such debt, the Fund may have limited legal recourse in the event
of default. 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. To the extent that the Fund invests in
securities issued by other investment companies, the Fund will indirectly bear
its proportionate share of any fees and expenses paid by such companies in
addition to the fees and expenses payable directly by the Fund.
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.
Currency Risks. To the extent that debt securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of the Fund's assets denominated
in that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of the Fund's assets
denominated in that currency will decrease.
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.
Portfolio Turnover. _It is not anticipated that the portfolio trading engaged in
by the Fund will result in its annual rate of portfolio turnover exeeding 100%.
The Fund's investment adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. However, relatively high portfolio turnover
may result in high transaction costs to the Fund.
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
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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. The fee paid
by the Fund, while higher than the advisory fee paid by other mutual funds
in general, is comparable to fees paid by other mutual funds with similar
objectives and policies. 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 is the portfolio manager for the cash reserves asset
category and performs the overall allocation of the assets of the Fund
among the various asset categories. He has performed these duties since
the Fund's inception. In allocating the Fund's assets, Mr. Ritter
evaluates the market environment and economic outlook, utilizing the
services of the investment adviser's economist and strategist. 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.
The portfolio managers for each of the individual asset categories are as
follows:
Susan M. Nason and Gary J. Madich are co-portfolio managers for the U.S.
Treasury securities asset category. They have performed these duties since
the Fund's inception. Ms. Nason joined Federated Investors in 1987 and has
been a Vice President of the Fund's investment adviser since 1993. Ms.
Nason served as an Assistant Vice President of the investment adviser from
1990 until 1992, and from 1987 until 1990 she acted as an investment
analyst. Ms. Nason is a Chartered Financial Analyst and received her M.B.A.
in Finance from Carnegie Mellon University. Mr. Madich joined Federated
Investors in 1984 and has been a Senior Vice President of the Fund's
investment adviser since 1993. Mr. Madich served as Vice President of the
Fund's investment adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance from the
University of Pittsburgh.
Kathleen M. Foody-Malus and Gary J. Madich are co-portfolio managers for
the mortgage-backed securities asset category. They have performed these
duties since the Fund's inception. Ms. Foody-Malus joined Federated
Investors in 1983 and has been a Vice President of the Fund's investment
adviser since 1993. Ms. Foody-Malus served as an Assistant Vice President
of the investment adviser from 1990 until 1992, and from 1986 until 1989
she acted as an investment analyst. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.
Joseph M. Balestrino and Susan M. Nason are co-portfolio managers for the
investment-grade corporate bonds asset category. They have performed these
duties since the Fund's inception. Mr. Balestrino joined Federated
Investors in 1986 and has been an Assistant Vice President of the Fund's
investment adviser since 1991. Mr. Balestrino served as an investment
analyst of the investment adviser from 1989 until 1991, and from 1986 until
1989 he acted as Project Manager in the Product Development Department. Mr.
Balestrino is a Chartered Financial Analyst and received his M.A. in Urban
and Regional Planning from the University of Pittsburgh.
Mark E. Durbiano is the portfolio manager for the high yield corporate
bonds asset category. He has performed these duties since the Fund's
inception. Mr. Durbiano joined Federated Investors in 1982 and has been a
Vice President of the Fund's investment adviser since 1988. Mr. Durbiano is
a Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.
Randall S. Bauer is the portfolio manager for the foreign stocks and
foreign bonds asset categories. He has performed these duties since the
Fund's inception. Mr. Bauer joined Federated Investors in 1989 as an
Assistant Vice President of the Fund's investment adviser. Mr. Bauer was an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a Chartered
Financial Analyst and received his M.B.A. in Finance from Pennsylvania
State University.
Peter R. Anderson is the portfolio manager for the domestic large company
stocks asset category. He has been one of the Fund's portfolio managers
since its inception. Mr. Anderson joined Federated Investors in 1972 and is
presently a Senior Vice President of the Fund's investment adviser. Mr.
Anderson is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Wisconsin.
Christopher H. Wiles is the portfolio manager for the utility stocks asset
category, and has been one of the Fund's portfolio managers since its
inception. Mr. Wiles joined Federated Investors in 1990 and has been a Vice
President of the Fund's investment adviser since 1992. Mr. Wiles served as
Assistant Vice President of the Fund's investment adviser from 1990 until
1992. Mr. Wiles was a portfolio manager at Mellon Bank from 1986 until
1990. Mr. Wiles is a Chartered Financial Analyst and received his M.B.A. in
Finance from Cleveland State University.
Gregory M. Melvin is the portfolio manager for the domestic small company
stocks asset category. He has served in this category since the Fund's
inception. Mr. Melvin joined Federated Investors in 1980 and has been a
Vice President of the Fund's investment adviser since 1984. Mr. Melvin is a
Chartered Financial Analyst and received his M.B.A. in Finance from Harvard
Business School.
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. The Fund has adopted a Shareholder Services Plan
(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 Public Accountants. The independent public accountants 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
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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
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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 Federated Services Company,
c/o 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 monthly 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, provided the Fund or its agents have received
payment for Shares from the shareholder.
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 financial publications 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.
Federated Managed Income Fund
(A Portfolio of Managed Series Trust)
Statement of Assets and Liabilities
January 18, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
- -----------------------------------------------------------------------------------------------------
Cash $ 100,000
- ----------------------------------------------------------------------------------------------------- -----------
Liabilities: --
- ----------------------------------------------------------------------------------------------------- -----------
Net Assets for 10,000 shares of capital stock outstanding $ 100,000
- ----------------------------------------------------------------------------------------------------- -----------
Net Asset Value, Offering Price, and Redemption Price Per Share
($100,000/10,000 shares of capital stock outstanding) $ 10.00
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
Notes:
(1) Managed Series Trust (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated November 15, 1993, and
has had no operations since that date other than those relating to
organizational matters, including the issuance on January 18, 1994 of
10,000 shares of the Federated Managed Income Fund at $10.00 per share to
Federated Management, the investment adviser to the Fund. Expenses of
organization incurred by the Trust, estimated at $33,100, were borne
initially by Federated Administrative Services, Inc., the Administrator to
the Fund. The Trust has agreed to reimburse the Administrator for
organizational expenses initially borne by the Administrator during the
five-year period following the date the Trust's registration first became
effective.
(2) Reference is made to "Management of the Trust," "Administration of the
Fund," and "Tax Information" in this prospectus for a description of the
investment advisory fee, administrative and other services and federal tax
aspects of the Fund.
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholder of
FEDERATED MANAGED INCOME FUND (A Portfolio of Managed Series Trust):
We have audited the accompanying statement of assets and liabilities of the
Federated Managed Income Fund (a portfolio of Managed Series Trust, a
Massachusetts business trust) as of January 18, 1994. This financial statement
is the responsibility of the Trust's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned financial statement presents fairly, in all
material respects, the financial position of the Federated Managed Income Fund
(a portfolio of Managed Series Trust) as of January 18, 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
January 21, 1994
Appendix
- --------------------------------------------------------------------------------
Standard and Poor's Corporation Long-Term Debt Ratings
AAA--Debt rated AAA has the highest rating assigned by S&P. 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--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
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 Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
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 March 11, 1994
3122013A-ISS (3/94)
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 March 11, 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 March 11, 1994
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 4
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 5
Foreign Stocks 5
Cash Reserves Category 5
Acceptable Investments 5
U.S. Treasury and Other
U.S. Government Securities 5
Mortgage-Backed Securities 5
Collateralized Mortgage Obligations
("CMOs") 6
Real Estate Mortgage Investment
Conduits ("REMICS") 6
Characteristics of Mortgage-
Backed Securities 6
Corporate Bonds 7
Investment Risks 8
Equity Securities 8
Foreign Securities 8
Investment Risks 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 10
Foreign Currency Transactions 10
Currency Risks 10
Forward Foreign Currency
Exchange Contracts 10
Options 11
Futures and Options on Futures 11
Risks 12
Portfolio Turnover 12
Investment Limitations 12
Trust Information 13
- ------------------------------------------------------
Management of the Trust 13
Board of Trustees 13
Investment Adviser 13
Advisory Fees 13
Adviser's Background 13
Distribution of Select Shares 15
Distribution Plan 15
Administration of the Fund 16
Administrative Services 16
Shareholder Services Plan 16
Custodian 16
Transfer Agent and Dividend
Disbursing Agent 16
Legal Counsel 16
Independent Public Accountants 17
Brokerage Transactions 17
Expenses of the Fund and Select Shares 17
Net Asset Value 17
- ------------------------------------------------------
Investing in Select Shares 18
- ------------------------------------------------------
Share Purchases 18
Through a Financial Institution 18
By Wire 18
By Mail 18
Minimum Investment Required 18
What Shares Cost 18
Subaccounting Services 19
Systematic Investment Program 19
Certificates and Confirmations 19
Dividends 19
Capital Gains 19
Redeeming Select Shares 20
- ------------------------------------------------------
Through a Financial Institution 20
Telephone Redemption 20
Written Requests 20
Signatures 20
Receiving Payment 21
Systematic Withdrawal Program 21
Accounts with Low Balances 21
Shareholder Information 22
- ------------------------------------------------------
Voting Rights 22
Massachusetts Partnership Law 22
Tax Information 22
- ------------------------------------------------------
Federal Income Tax 22
Pennsylvania Corporate and
Personal Property Taxes 22
Performance Information 23
- ------------------------------------------------------
Other Classes of Shares 23
- ------------------------------------------------------
Statement of Assets and Liabilities 24
- ------------------------------------------------------
Report of Independent Public
Accountants 25
- ------------------------------------------------------
Appendix 26
- ------------------------------------------------------
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
Contingent Deferred Sales Charge (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).............................................................. 0.23%
12b-1 Fee (after waiver) (2)................................................................... 0.50%
Total Other Expenses........................................................................... 0.77%
Shareholder Servicing Fee.................................................................. 0.25%
Total Select Shares Operating Expenses (3)............................................ 1.50%
</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 Select Shares 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.................................................. $15 $47
</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. 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 primarily invest in two types of assets: bonds
and stocks. Additionally, the Fund may invest in cash reserves. 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, and
foreign stocks.
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>
<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. There is no
assurance, however, that the adviser's attempts to pursue this strategy will
result in a benefit to the Fund.
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. [Duration is a commonly used
measure of the potential volatility of the price of a debt security, or the
aggregate market value of a portfolio of debt securities, prior to maturity.
Securities with shorter durations generally have less volatile prices than
securities of comparable quality with longer durations. The Fund should be
expected to maintain a higher average duration during periods of lower expected
market volatility, and a lower average duration during periods of higher
expected market volatility.]
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 (commonly known as junk bonds). The Fund may invest
up to nine percent of its total assets in high yield corporate bonds. There
is no minimal acceptable rating for a security to be purchased or held in
the Fund's portfolio, and the Fund may, from time to time, purchase or hold
securities rated in the lowest rating category. (See "Appendix.") 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 and have a market capitalization of
$500,000,000 or more. However, other factors, such as a company's product
position, market share, current earnings and/or dividend and earnings
growth prospects, 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. Common stocks of
utilities are generally characterized by higher dividend yields and lower
growth rates than common stocks of industrial companies. Under normal
market conditions, the higher income stream from utility stocks tends to
make them less volatile than stocks of industrial companies.
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 Category. 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 time 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.
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.
Securities which are rated BBB by Standard & Poor's or Fitch or Baa by
Moody's have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher rated
bonds. If a security's rating is reduced below the required minimum after
the Fund has purchased it, the Fund is not required to sell the security,
but may consider doing so.
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 (commonly
known as junk bonds). A description of the rating categories is contained
in the Appendix to this prospectus.
Investment Risks. _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.
Investment Risks. 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
apply to securities issued by foreign corporations and sovereign
governments. These risks 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. If the issuer of
the debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal or interest when
due in accordance with the terms of such debt, the Fund may have
limited legal recourse in the event of default. 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. To the extent that the Fund invests in
securities issued by other investment companies, the Fund will indirectly bear
its proportionate share of any fees and expenses paid by such companies in
addition to the fees and expenses payable directly by the Fund.
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.
Currency Risks. To the extent that debt securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of the Fund's assets denominated
in that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of the Fund's assets
denominated in that currency will decrease.
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.
Portfolio Turnover. _It is not anticipated that the portfolio trading engaged in
by the Fund will result in its annual rate of portfolio turnover exceeding 100%.
The Fund's investment adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. However, relatively high portfolio turnover
may result in high transaction costs to the Fund.
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. The fee paid
by the Fund, while higher than the advisory fee paid by other mutual funds
in general, is comparable to fees paid by other mutual funds with similar
objectives and policies. 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 is the portfolio manager for the cash reserves asset
category and performs the overall allocation of the assets of the Fund
among the various asset categories. He has performed these duties since the
Fund's inception. In allocating the Fund's assets, Mr. Ritter evaluates the
market environment and economic outlook, utilizing the services of the
investment adviser's economist and strategist. 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.
The portfolio managers for each of the individual asset categories are as
follows:
Susan M. Nason and Gary J. Madich are co-portfolio managers for the U.S.
Treasury securities asset category. They have performed these duties since
the Fund's inception. Ms. Nason joined Federated Investors in 1987 and has
been a Vice President of the Fund's investment adviser since 1993. Ms.
Nason served as an Assistant Vice President of the investment adviser from
1990 until 1992, and from 1987 until 1990 she acted as an investment
analyst. Ms. Nason is a Chartered Financial Analyst and received her M.B.A.
in Finance from Carnegie Mellon University. Mr. Madich joined Federated
Investors in 1984 and has been a Senior Vice President of the Fund's
investment adviser since 1993. Mr. Madich served as a Vice President of the
Fund's investment adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance from the
University of Pittsburgh.
Kathleen M. Foody-Malus and Gary J. Madich are co-portfolio managers for
the mortgage-backed securities asset category. They have performed these
duties since the Fund's inception. Ms. Foody-Malus joined Federated
Investors in 1983 and has been a Vice President of the Fund's investment
adviser since 1993. Ms. Foody-Malus served as an Assistant Vice President
of the investment adviser from 1990 until 1992, and from 1986 until 1989
she acted as an investment analyst. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.
Joseph M. Balestrino and Susan M. Nason are co-portfolio managers for the
investment-grade corporate bonds asset category. They have performed these
duties since the Fund's inception. Mr. Balestrino joined Federated
Investors in 1986 and has been an Assistant Vice President of the Fund's
investment adviser since 1991. Mr. Balestrino served as an investment
analyst of the investment adviser from 1989 until 1991, and from 1986 until
1989 he acted as Project Manager in the Product Development Department. Mr.
Balestrino is a Chartered Financial Analyst and received his M.A. in Urban
and Regional Planning from the University of Pittsburgh.
Mark E. Durbiano is the portfolio manager for the high yield corporate
bonds asset category. He has performed these duties since the Fund's
inception. Mr. Durbiano joined Federated Investors in 1982 and has been a
Vice President of the Fund's investment adviser since 1988. Mr. Durbiano is
a Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.
Randall S. Bauer is the portfolio manager for the foreign stocks and
foreign bonds asset categories. He has performed these duties since the
Fund's inception. Mr. Bauer joined Federated Investors in 1989 as an
Assistant Vice President of the Fund's investment adviser. Mr. Bauer was an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a Chartered
Financial Analyst and received his M.B.A. in Finance from Pennsylvania
State University.
Peter R. Anderson is the portfolio manager for the domestic large company
stocks asset category. He has been one of the Fund's portfolio managers
since its inception. Mr. Anderson joined Federated Investors in 1972 and is
presently a Senior Vice President of the Fund's investment adviser. Mr.
Anderson is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Wisconsin.
Christopher H. Wiles is the portfolio manager for the utility stocks asset
category, and has been one of the Fund's portfolio managers since its
inception. Mr. Wiles joined Federated Investors in 1990 and has been a Vice
President of the Fund's investment adviser since 1992. Mr. Wiles served as
Assistant Vice President of the Fund's investment adviser from 1990 until
1992. Mr. Wiles was a portfolio manager at Mellon Bank from 1986 until
1990. Mr. Wiles is a Chartered Financial Analyst and received his M.B.A. in
Finance from Cleveland State University.
Gregory M. Melvin is the portfolio manager for the domestic small company
stocks asset category. He has served in this capacity since the Fund's
inception. Mr. Melvin joined Federated Investors in 1980 and has been a
Vice President of the Fund's investment adviser since 1984. Mr. Melvin is a
Chartered Financial Analyst and received his M.B.A. in Finance from Harvard
Business School.
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 Public Accountants. The independent public accountants 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 Federated Services Company, c/o 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 monthly 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, provided the Fund or its agents have received
payment for Shares from the shareholder.
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 financial publications 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.
Federated Managed Income Fund
(A Portfolio of Managed Series Trust)
Statement of Assets and Liabilities
January 18, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
- -----------------------------------------------------------------------------------------------------
Cash $ 100,000
- ----------------------------------------------------------------------------------------------------- -----------
Liabilities: --
- ----------------------------------------------------------------------------------------------------- -----------
Net Assets for 10,000 shares of capital stock outstanding $ 100,000
- ----------------------------------------------------------------------------------------------------- -----------
Net Asset Value, Offering Price, and Redemption Price Per Share
($100,000/10,000 shares of capital stock outstanding) $ 10.00
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
Notes:
(1) Managed Series Trust (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated November 15, 1993, and
has had no operations since that date other than those relating to
organizational matters, including the issuance on January 18, 1994 of
10,000 shares of the Federated Managed Income Fund at $10.00 per share to
Federated Management, the investment adviser to the Fund. Expenses of
organization incurred by the Trust, estimated at $33,100, were borne
initially by Federated Administrative Services, Inc., the Administrator to
the Fund. The Trust has agreed to reimburse the Administrator for
organizational expenses initially borne by the Administrator during the
five-year period following the date the Trust's registration first became
effective.
(2) Reference is made to "Management of the Trust," "Administration of the
Fund," and "Tax Information" in this prospectus for a description of the
investment advisory fee, administrative and other services and federal tax
aspects of the Fund.
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholder of
FEDERATED MANAGED INCOME FUND (A Portfolio of Managed Series Trust):
We have audited the accompanying statement of assets and liabilities of the
Federated Managed Income Fund (a portfolio of Managed Series Trust, a
Massachusetts business trust) as of January 18, 1994. This financial statement
is the responsibility of the Trust's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned financial statement presents fairly, in all
material respects, the financial position of the Federated Managed Income Fund
(a portfolio of Managed Series Trust) as of January 18, 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
January 21, 1994
Appendix
- --------------------------------------------------------------------------------
Standard and Poor's Corporation Long-Term Debt Ratings
AAA--Debt rated AAA has the highest rating assigned by S&P. 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--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
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 Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
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 March 11, 1994
3122012A-SEL (3/94)
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 March 11, 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 March 11, 1994
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 4
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 5
Foreign Stocks 5
Cash Reserves Category 5
Acceptable Investments 5
U.S. Treasury and Other U.S. Government
Securities 5
Mortgage-Backed Securities 6
Collateralized Mortgage Obligations
("CMOs") 6
Real Estate Mortgage Investment
Conduits ("REMICs") 6
Characteristics of Mortgage-
Backed Securities 7
Corporate Bonds 7
Investment Risks 8
Equity Securities 8
Foreign Securities 8
Investment Risks 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 10
Foreign Currency Transactions 10
Currency Risks 10
Forward Foreign Currency
Exchange Contracts 10
Options 11
Futures and Options on Futures 11
Risks 12
Portfolio Turnover 12
Investment Limitations 12
Trust Information 13
- ------------------------------------------------------
Management of the Trust 13
Board of Trustees 13
Investment Adviser 13
Advisory Fees 13
Adviser's Background 13
Distribution of Institutional Service Shares 15
Administration of the Fund 15
Administrative Services 15
Shareholder Services Plan 15
Custodian 15
Transfer Agent and Dividend
Disbursing Agent 16
Legal Counsel 16
Independent Public Accountants 16
Brokerage Transactions 16
Expenses of the Fund and Institutional
Service Shares 16
Net Asset Value 17
- ------------------------------------------------------
Investing in Institutional Service Shares 17
- ------------------------------------------------------
Share Purchases 17
Through a Financial Institution 17
By Wire 17
By Mail 17
Minimum Investment Required 18
What Shares Cost 18
Subaccounting Services 18
Systematic Investment Program 18
Certificates and Confirmations 18
Dividends 19
Capital Gains 19
Redeeming Institutional Service Shares 19
- ------------------------------------------------------
Through a Financial Institution 19
Telephone Redemption 19
Written Requests 20
Signatures 20
Receiving Payment 20
Systematic Withdrawal Program 20
Accounts with Low Balances 21
Shareholder Information 21
- ------------------------------------------------------
Voting Rights 21
Massachusetts Partnership Law 21
Tax Information 21
- ------------------------------------------------------
Federal Income Tax 21
Pennsylvania Corporate and
Personal Property Taxes 22
Performance Information 22
- ------------------------------------------------------
Other Classes of Shares 22
- ------------------------------------------------------
Appendix 24
- ------------------------------------------------------
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
Contingent Deferred Sales Charge (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
Total 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 Institutional Service Shares have no present intention of paying or
accruing the shareholder servicing fee. If Institutional Service Shares were
paying or accruing the shareholder servicing fee, the Institutional Service
Shares would be able to pay up to 0.25% of their average daily net assets
for the shareholder servicing fee.
(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 Institutional Service Shares 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.................................................. $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 primarily invest in two types of assets: bonds
and stocks. Additionally, the Fund may invest in cash reserves. 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, and foreign stocks.
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. There is no assurance,
however, that the adviser's attempts to pursue this strategy will result in a
benefit to the Fund.
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. [Duration is a commonly used
measure of the potential volatility of the price of a debt security, or the
aggregate market value of a portfolio of debt securities, prior to maturity.
Securities with shorter durations generally have less volatile prices than
securities of comparable quality with longer durations. The Fund should be
expected to maintain a higher average duration during periods of lower expected
market volatility, and a lower average duration during periods of higher
expected market volatility.]
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 (commonly known as junk bonds). The Fund may invest
up to 7 percent of its total assets in high yield corporate bonds. There is
no minimal acceptable rating for a security to be purchased or held in the
Fund's portfolio, and the Fund may, from time to time, purchase or hold
securities rated in the lowest rating category. (See "Appendix.") 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 and have a market capitalization of
$500,000,000 or more. However, other factors, such as a company's product
position, market share, current earnings and/or dividend and earnings
growth prospects, 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. Common stocks of
utilities are generally characterized by higher dividend yields and lower
growth rates than common stocks of industrial companies. Under normal
market conditions, the higher income stream from utility stocks tends to
make them less volatile than stocks of industrial companies.
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 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.
Stocks in the small capitalization sector of the United States equity
market have historically been more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500
Index. This is because, among other things, small companies have less
certain growth prospects than larger companies; have a lower degree of
liquidity in the equity market; and tend to have a greater sensitivity to
changing economic conditions. Further, in addition to exhibiting greater
volatility, the stocks of small companies may, to some degree, fluctuate
independently of the stocks of large companies; that is, the stocks of
small companies may decline in price as the price of large company stocks
rises or vice versa.
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 Category. 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 time 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.
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.
Securities which are rated BBB by Standard & Poor's or Fitch or Baa by
Moody's have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated bonds. If a security's
rating is reduced below the required minimum after the Fund has purchased
it, the Fund is not required to sell the security, but may consider doing
so.
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 (commonly
known as junk bonds). A description of the rating categories is contained
in the Appendix to this prospectus.
Investment Risks. 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.
Investment Risks. _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
apply to securities issued by foreign corporations and sovereign
governments. These risks 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. If the issuer of the debt or the
governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt, the Fund may have limited legal
recourse in the event of default. 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. To the extent that the Fund invests in
securities issued by other investment companies, the Fund will indirectly bear
its proportionate share of any fees and expenses paid by such companies in
addition to the fees and expenses payable directly by the Fund.
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.
Currency Risks. To the extent that debt securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of the Fund's assets denominated
in that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of the Fund's assets
denominated in that currency will decrease.
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.
Portfolio Turnover. _It is not anticipated that the portfolio trading engaged in
by the Fund will result in its annual rate of portfolio turnover exceeding 100%.
The Fund's investment adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. However, relatively high portfolio turnover
may result in high transaction costs to the Fund.
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
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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. The fee paid
by the Fund, while higher than the advisory fee paid by other mutual funds
in general, is comparable to fees paid by other mutual funds with similar
objectives and policies. 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 is the portfolio manager for the cash reserves asset
category and performs the overall allocation of the assets of the Fund
among the various asset categories. He has performed these duties since the
Fund's inception. In allocating the Fund's assets, Mr. Ritter evaluates the
market environment and economic outlook, utilizing the services of the
investment adviser's economist and strategist. 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.
The portfolio managers for each of the individual asset categories are as
follows:
Susan M. Nason and Gary J. Madich are co-portfolio managers for the U.S.
Treasury securities asset category. They have performed these duties since
the Fund's inception. Ms. Nason joined Federated Investors in 1987 and has
been a Vice President of the Fund's investment adviser since 1993. Ms.
Nason served as an Assistant Vice President of the investment adviser from
1990 until 1992, and from 1987 until 1990 she acted as an investment
analyst. Ms. Nason is a Chartered Financial Analyst and received her M.B.A.
in Finance from Carnegie Mellon University. Mr. Madich joined Federated
Investors in 1984 and has been a Senior Vice President of the Fund's
investment adviser since 1993. Mr. Madich served as a Vice President of the
Fund's investment adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance from the
University of Pittsburgh.
Kathleen M. Foody-Malus and Gary J. Madich are co-portfolio managers for
the mortgage-backed securities asset category. They have performed these
duties since the Fund's inception. Ms. Foody-Malus joined Federated
Investors in 1983 and has been a Vice President of the Fund's investment
adviser since 1993. Ms. Foody-Malus served as an Assistant Vice President
of the investment adviser from 1990 until 1992, and from 1986 until 1989
she acted as an investment analyst. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.
Joseph M. Balestrino and Susan M. Nason are co-portfolio managers for the
investment-grade corporate bonds asset category. They have performed these
duties since the Fund's inception. Mr. Balestrino joined Federated
Investors in 1986 and has been an Assistant Vice President of the Fund's
investment adviser since 1991. Mr. Balestrino served as an investment
analyst of the investment adviser from 1989 until 1991, and from 1986 until
1989 he acted as Project Manager in the Product Development Department. Mr.
Balestrino is a Chartered Financial Analyst and received his M.A. in Urban
and Regional Planning from the University of Pittsburgh.
Mark E. Durbiano is the portfolio manager for the high yield corporate
bonds asset category. He has performed these duties since the Fund's
inception. Mr. Durbiano joined Federated Investors in 1982 and has been a
Vice President of the Fund's investment adviser since 1988. Mr. Durbiano is
a Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.
Randall S. Bauer is the portfolio manager for the foreign stocks and
foreign bonds asset categories. He has performed these duties since the
Fund's inception. Mr. Bauer joined Federated Investors in 1989 as an
Assistant Vice President of the Fund's investment adviser. Mr. Bauer was an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a Chartered
Financial Analyst and received his M.B.A. in Finance from Pennsylvania
State University.
Peter R. Anderson is the portfolio manager for the domestic large company
stocks asset category. He has been one of the Fund's portfolio managers
since its inception. Mr. Anderson joined Federated Investors in 1972 and is
presently a Senior Vice President of the Fund's investment adviser. Mr.
Anderson is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Wisconsin.
Christopher H. Wiles is the portfolio manager for the utility stocks asset
category, and has been one of the Fund's portfolio managers since its
inception. Mr. Wiles joined Federated Investors in 1990 and has been a Vice
President of the Fund's investment adviser since 1992. Mr. Wiles served as
Assistant Vice President of the Fund's investment adviser from 1990 until
1992. Mr. Wiles was a portfolio manager at Mellon Bank from 1986 until
1990. Mr. Wiles is a Chartered Financial Analyst and received his M.B.A. in
Finance from Cleveland State University.
Gregory M. Melvin is the portfolio manager for the domestic small company
stocks asset category. He has served in this category since the Fund's
inception. Mr. Melvin joined Federated Investors in 1980 and has been a
Vice President of the Fund's investment adviser since 1984. Mr. Melvin is a
Chartered Financial Analyst and received his M.B.A. in Finance from Harvard
Business School.
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. The Fund has adopted a Shareholder Services Plan
(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 Public Accountants. The independent public accountants 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
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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
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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--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 Federated
Services Company, c/o 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, provided the Fund or its agents have received
payment for Shares from the shareholder.
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 financial publications 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 and Poor's Corporation Long-Term Debt Ratings
AAA--Debt rated AAA has the highest rating assigned by S&P. 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--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
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 Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
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 March 11, 1994
3122007A-ISS (3/94)
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 March 11, 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 March 11, 1994
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 4
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 5
Foreign Stocks 5
Cash Reserves Category 5
Acceptable Investments 5
U.S. Treasury and Other U.S.
Government Securities 5
Mortgage-Backed Securities 6
Collateralized Mortgage
Obligations ("CMOs") 6
Real Estate Mortgage Investment
Conduits ("REMICS") 6
Characteristics of Mortgage-Backed
Securities 7
Corporate Bonds 7
Investment Risks 8
Equity Securities 8
Foreign Securities 8
Investment Risks 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 10
Lending of Portfolio Securities 10
Foreign Currency Transactions 10
Currency Risks 10
Forward Foreign Currency Exchange
Contracts 10
Options 11
Futures and Options on Futures 11
Risks 12
Portfolio Turnover 12
Investment Limitations 12
Trust Information 13
- ------------------------------------------------------
Management of the Trust 13
Board of Trustees 13
Investment Adviser 13
Advisory Fees 13
Adviser's Background 13
Distribution of Select Shares 15
Distribution Plan 15
Administration of the Fund 16
Administrative Services 16
Shareholder Services Plan 16
Custodian 16
Transfer Agent and Dividend
Disbursing Agent 16
Legal Counsel 17
Independent Public Accountants 17
Brokerage Transactions 17
Expenses of the Fund and Select Shares 17
Net Asset Value 18
- ------------------------------------------------------
Investing in Select Shares 18
- ------------------------------------------------------
Share Purchases 18
Through a Financial Institution 18
By Wire 18
By Mail 18
Minimum Investment Required 19
What Shares Cost 19
Subaccounting Services 19
Systematic Investment Program 19
Certificates and Confirmations 19
Dividends 20
Capital Gains 20
Redeeming Select Shares 20
- ------------------------------------------------------
Through a Financial Institution 20
Telephone Redemption 20
Written Requests 21
Signatures 21
Receiving Payment 21
Systematic Withdrawal Program 21
Accounts with Low Balances 21
Shareholder Information 22
- ------------------------------------------------------
Voting Rights 22
Massachusetts Partnership Law 22
Tax Information 22
- ------------------------------------------------------
Federal Income Tax 22
Pennsylvania Corporate and
Personal Property Taxes 23
Performance Information 23
- ------------------------------------------------------
Other Classes of Shares 23
- ------------------------------------------------------
Appendix 25
- ------------------------------------------------------
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
Contingent Deferred Sales Charge (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%
Total 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 Select Shares 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.................................................. $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 primarily invest in two types of assets: bonds
and stocks. Additionally, the Fund may invest in cash reserves. 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, and foreign stocks.
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. There is no assurance,
however, that the adviser's attempts to pursue this strategy will result in a
benefit to the Fund.
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. [Duration is a commonly used
measure of the potential volatility of the price of a debt security, or the
aggregate market value of a portfolio of debt securities, prior to maturity.
Securities with shorter durations generally have less volatile prices than
securities of comparable quality with longer durations. The Fund should be
expected to maintain a higher average duration during periods of lower expected
market volatility, and a lower average duration during periods of higher
expected market volatility.]
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 (commonly known as junk bonds). The Fund may invest
up to 7 percent of its total assets in high yield corporate bonds. There is
no minimal acceptable rating for a security to be purchased or held in the
Fund's portfolio, and the Fund may, from time to time, purchase or hold
securities rated in the lowest rating category. (See "Appendix.") 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 and have a market capitalization of
$500,000,000 or more. However, other factors, such as a company's product
position, market share, current earnings and/or dividend and earnings
growth prospects, 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. Common stocks of
utilities are generally characterized by higher dividend yields and lower
growth rates than common stocks of industrial companies. Under normal
market conditions, the higher income stream from utility stocks tends to
make them less volatile than stocks of industrial companies.
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.
Stocks in the small capitalization sector of the United States equity
market have historically been more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500
Index. This is because, among other things, small companies have less
certain growth prospects than larger companies; have a lower degree of
liquidity in the equity market; and tend to have a greater sensitivity to
changing economic conditions. Further, in addition to exhibiting greater
volatility, the stocks of small companies may, to some degree, fluctuate
independently of the stocks of large companies; that is, the stocks of
small companies may decline in price as the price of large company stocks
rises or vice versa.
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 Category. 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 time 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.
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.
Securities which are rated BBB by Standard & Poor's or Fitch or Baa by
Moody's have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated bonds. If a security's
rating is reduced below the required minimum after the Fund has purchased
it, the Fund is not required to sell the security, but may consider doing
so.
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 (commonly
known as junk bonds). A description of the rating categories is contained
in the Appendix to this prospectus.
Investment Risks. _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.
Investment Risks. _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
apply to securities issued by foreign corporations and sovereign
governments. These risks 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. If
the issuer of the debt or the governmental authorities that control
the repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of such
debt, the Fund may have limited legal recourse in the event of
default. 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. To the extent that the Fund invests in
securities issued by other investment companies, the Fund will indirectly bear
its proportionate share of any fees and expenses paid by such companies in
addition to the fees and expenses payable directly by the Fund.
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.
Currency Risks. To the extent that debt securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of the Fund's assets denominated
in that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of the Fund's assets
denominated in that currency will decrease.
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.
Portfolio Turnover. _It is not anticipated that the portfolio trading engaged in
by the Fund will result in its annual rate of portfolio turnover exceeding 100%.
The Fund's investment adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. However, relatively high portfolio turnover
may result in high transaction costs to the Fund.
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
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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. The fee paid
by the Fund, while higher than the advisory fee paid by other mutual funds
in general, is comparable to fees paid by other mutual funds with similar
objectives and policies. 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 is the portfolio manager for the cash reserves asset
category and performs the overall allocation of the assets of the Fund
among the various asset categories. He has performed these duties since the
Fund's inception. In allocating the Fund's assets, Mr. Ritter evaluates the
market environment and economic outlook, utilizing the services of the
investment adviser's economist and strategist. 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.
The portfolio managers for each of the individual asset categories are as
follows:
Susan M. Nason and Gary J. Madich are co-portfolio managers for the U.S.
Treasury securities asset category. They have performed these duties since
the Fund's inception. Ms. Nason joined Federated Investors in 1987 and has
been a Vice President of the Fund's investment adviser since 1993. Ms.
Nason served as an Assistant Vice President of the investment adviser from
1990 until 1992, and from 1987 until 1990 she acted as an investment
analyst. Ms. Nason is a Chartered Financial Analyst and received her M.B.A.
in Finance from Carnegie Mellon University. Mr. Madich joined Federated
Investors in 1984 and has been a Senior Vice President of the Fund's
investment adviser since 1993. Mr. Madich served as a Vice President of the
Fund's investment adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance from the
University of Pittsburgh.
Kathleen M. Foody-Malus and Gary J. Madich are co-portfolio managers for
the mortgage-backed securities asset category. They have performed these
duties since the Fund's inception. Ms. Foody-Malus joined Federated
Investors in 1983 and has been a Vice President of the Fund's investment
adviser since 1993. Ms. Foody-Malus served as an Assistant Vice President
of the investment adviser from 1990 until 1992, and from 1986 until 1989
she acted as an investment analyst. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.
Joseph M. Balestrino and Susan M. Nason are co-portfolio managers for the
investment-grade corporate bonds asset category. They have performed these
duties since the Fund's inception. Mr. Balestrino joined Federated
Investors in 1986 and has been an Assistant Vice President of the Fund's
investment adviser since 1991. Mr. Balestrino served as an investment
analyst of the investment adviser from 1989 until 1991, and from 1986 until
1989 he acted as Project Manager in the Product Development Department. Mr.
Balestrino is a Chartered Financial Analyst and received his M.A. in Urban
and Regional Planning from the University of Pittsburgh.
Mark E. Durbiano is the portfolio manager for the high yield corporate
bonds asset category. He has performed these duties since the Fund's
inception. Mr. Durbiano joined Federated Investors in 1982 and has been a
Vice President of the Fund's investment adviser since 1988. Mr. Durbiano is
a Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.
Randall S. Bauer is the portfolio manager for the foreign stocks and
foreign bonds asset categories. He has performed these duties since the
Fund's inception. Mr. Bauer joined Federated Investors in
1989 as an Assistant Vice President of the Fund's investment adviser. Mr.
Bauer was an Assistant Vice President of the International Banking Division
at Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a Chartered
Financial Analyst and received his M.B.A. in Finance from Pennsylvania
State University.
Peter R. Anderson is the portfolio manager for the domestic large company
stocks asset category. He has been one of the Fund's portfolio managers
since its inception. Mr. Anderson joined Federated Investors in 1972 and is
presently a Senior Vice President of the Fund's investment adviser. Mr.
Anderson is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Wisconsin.
Christopher H. Wiles is the portfolio manager for the utility stocks asset
category, and has been one of the Fund's portfolio managers since its
inception. Mr. Wiles joined Federated Investors in 1990 and has been a Vice
President of the Fund's investment adviser since 1992. Mr. Wiles served as
Assistant Vice President of the Fund's investment adviser from 1990 until
1992. Mr. Wiles was a portfolio manager at Mellon Bank from 1986 until
1990. Mr. Wiles is a Chartered Financial Analyst and received his M.B.A. in
Finance from Cleveland State University.
Gregory M. Melvin is the portfolio manager for the domestic small company
stocks asset category. He has served in this capacity since the Fund's
inception. Mr. Melvin joined Federated Investors in 1980 and has been a
Vice President of the Fund's investment adviser since 1984. Mr. Melvin is a
Chartered Financial Analyst and received his M.B.A. in Finance from Harvard
Business School.
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 Public Accountants. The independent public accountants 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
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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
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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 Federated Services Company, c/o
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
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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, provided the Fund or its agents have received
payment for Shares from the shareholder.
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
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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
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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
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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 financial publications and/or compare the performance of Select Shares
to certain indices.
Other Classes of Shares
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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
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Standard and Poor's Corporation Long-Term Debt Ratings
AAA--Debt rated AAA has the highest rating assigned by S&P. 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--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
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 Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
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 March 11, 1994
3122006A-SEL (3/94)
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 March 11, 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 March 11, 1994
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 4
Small Company Stocks 4
Foreign Stocks 4
Cash Reserves Category 4
Bond Asset Categories 4
U.S. Treasury Securities 5
Mortgaged-Backed Securities 5
Investment-Grade Corporate Bonds 5
High Yield Corporate Bonds 5
Foreign Bonds 5
Acceptable Investments 6
Equity Securities 6
Foreign Securities 6
Investment Risks 6
Cash Reserves 6
Repurchase Agreements 6
U.S. Treasury and Other U.S.
Government Securities 7
Mortgage-Backed Securities 7
Collateralized Mortgage Obligations
("CMOs") 7
Real Estate Mortgage Investment
Conduits ("REMICs") 8
Characteristics of Mortgage-Backed
Securities 8
Corporate Bonds 9
Investment Risks 9
Investing in Securities of Other
Investment Companies 9
Restricted and Illiquid Securities 10
When-Issued and Delayed Delivery
Transactions 10
Lending of Portfolio Securities 10
Foreign Currency Transactions 10
Currency Risks 10
Forward Foreign Currency Exchange
Contracts 11
Options 11
Futures and Options on Futures 12
Risks 12
Portfolio Turnover 13
Investment Limitations 13
Trust Information 13
- ------------------------------------------------------
Management of the Trust 13
Board of Trustees 13
Investment Adviser 13
Advisory Fees 13
Adviser's Background 13
Distribution of Institutional Service Shares 15
Administration of the Fund 15
Administrative Services 15
Shareholder Services Plan 16
Custodian 16
Transfer Agent and Dividend
Disbursing Agent 16
Legal Counsel 16
Independent Public Accountants 16
Brokerage Transactions 16
Expenses of the Fund and Institutional
Service Shares 16
Net Asset Value 17
- ------------------------------------------------------
Investing in Institutional Service Shares 17
- ------------------------------------------------------
Share Purchases 17
Through a Financial Institution 17
By Wire 18
By Mail 18
Minimum Investment Required 18
What Shares Cost 18
Subaccounting Services 18
Systematic Investment Program 19
Certificates and Confirmations 19
Dividends 19
Capital Gains 19
Redeeming Institutional Service Shares 19
- ------------------------------------------------------
Through a Financial Institution 19
Telephone Redemption 20
Written Requests 20
Signatures 20
Receiving Payment 20
Systematic Withdrawal Program 21
Accounts with Low Balances 21
Shareholder Information 21
- ------------------------------------------------------
Voting Rights 21
Massachusetts Partnership Law 21
Tax Information 22
- ------------------------------------------------------
Federal Income Tax 22
Pennsylvania Corporate and
Personal Property Taxes 22
Performance Information 22
- ------------------------------------------------------
Other Classes of Shares 23
- ------------------------------------------------------
Appendix 24
- ------------------------------------------------------
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
Contingent Deferred Sales Charge (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
Total 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 Institutional Service Shares have no present intention of paying or
accruing the shareholder servicing fee. If Institutional Service Shares were
paying or accruing the shareholder servicing fee, the Institutional Service
Shares would be able to pay up to 0.25% of their average daily net assets
for the shareholder servicing fee.
(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 Institutional Service Shares 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.................................................. $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 primarily invest in two types of assets: stocks
and bonds. Additionally, the Fund may invest in cash reserves. 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, and foreign stocks.
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. There is no assurance, however, that the adviser's
attempts to pursue this strategy will result in a benefit to the Fund.
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 and have a market capitalization of
$500,000,000 or more. However, other factors, such as a company's product
position, market share, current earnings and/or dividend and earnings
growth prospects, 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. Common stocks of utilities are
generally characterized by higher dividend yields and lower growth rates
than common stocks of industrial companies. Under normal market conditions,
the higher income stream from utility stocks tends to make them less
volatile than stocks of industrial companies.
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 21 percent of its total assets in small
company stocks.
Stocks in the small capitalization sector of the United States equity
market have historically been more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500
Index. This is because, among other things, small companies have less
certain growth prospects than larger companies; have a lower degree of
liquidity in the equity market; and tend to have a greater sensitivity to
changing economic conditions. Further, in addition to exhibiting greater
volatility, the stocks of small companies may, to some degree, fluctuate
independently of the stocks of large companies; that is, the stocks of
small companies may decline in price as the price of large company stocks
rises or vice versa.
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 Category. 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 time 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, such as
improvement in credit quality due to company fundamentals or economic conditions
or assumptions on changes in trends in prepayment rates with respect to
mortgage-backed securites. The average duration of the Fund's Bond Assets will
be not less than three nor more than seven years. [Duration is a commonly used
measure of the potential volatility of the price of a debt security, or the
aggregate market value of a portfolio of debt securities, prior to maturity.
Securities with shorter durations generally have less volatile prices than
securities of comparable quality with longer durations. The Fund should be
expected to maintain a higher average duration during periods of lower expected
market volatility, and a lower average duration during periods of higher
expected market volatility.]
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 (commonly known as junk bonds). The Fund may invest
up to 15 percent of its total assets in high yield corporate bonds. There
is no minimal acceptable rating for a security to be purchased or held in
the Fund's portfolio, and the Fund may, from time to time, purchase or hold
securities rated in the lowest rating category. (See "Appendix.") 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.
Investment Risks. 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
apply to securities issued by foreign corporations and sovereign
governments. These risks 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. If the
issuer of the debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or
interest when due in accordance with the terms of such debt, the Fund
may have limited legal recourse in the event of default. 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.
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.
Securities which are rated BBB by Standard & Poor's or Fitch or Baa by
Moody's have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated bonds. If a security's
rating is reduced below the required minimum after the Fund has purchased
it, the Fund is not required to sell the security, but may consider doing
so.
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 (commonly
known as junk bonds). A description of the rating categories is contained
in the Appendix to this prospectus.
Investment Risks. 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. To the extent that the Fund invests in
securities issued by other investment companies, the Fund will indirectly bear
its proportionate share of any fees and expenses paid by such companies in
addition to the fees and expenses payable directly by the Fund.
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.
Currency Risks. To the extent that debt securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of the Fund's assets denominated
in that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of the Fund's assets
denominated in that currency will decrease.
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.
Portfolio Turnover. _It is not anticipated that the portfolio trading engaged in
by the Fund will result in its annual rate of portfolio turnover exceeding 100%.
The Fund's investment adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. However, relatively high portfolio turnover
may result in high transaction costs to the Fund.
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
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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. The fee paid
by the Fund, while higher than the advisory fee paid by other mutual funds
in general, is comparable to fees paid by other mutual funds with similar
objectives and policies. 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 is the portfolio manager for the cash reserves asset
category and performs the overall allocation of the assets of the Fund
among the various asset categories. He has performed these duties since the
Fund's inception. In allocating the Fund's assets, Mr. Ritter evaluates the
market environment and economic outlook, utilizing the services of the
investment adviser's economist and strategist. 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.
The portfolio managers for each of the individual asset categories are as
follows:
Peter R. Anderson is the portfolio manager for the domestic large company
stocks asset category. He has been one of the Fund's portfolio managers
since its inception. Mr. Anderson joined Federated Investors in 1972 and is
presently a Senior Vice President of the Fund's investment adviser. Mr.
Anderson is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Wisconsin.
Christopher H. Wiles is the portfolio manager for the utility stocks asset
category, and has been one of the Fund's portfolio managers since its
inception. Mr. Wiles joined Federated Investors in 1990 and has been a Vice
President of the Fund's investment adviser since 1992. Mr. Wiles served as
Assistant Vice President of the Fund's investment adviser from 1990 until
1992. Mr. Wiles was a portfolio manager at Mellon Bank from 1986 until
1990. Mr. Wiles is a Chartered Financial Analyst and received his M.B.A. in
Finance from Cleveland State University.
Gregory M. Melvin is the portfolio manager for the domestic small company
stocks asset category. He has served in this capacity since the Fund's
inception. Mr. Melvin joined Federated Investors in 1980 and has been a
Vice President of the Fund's investment adviser since 1984. Mr. Melvin is a
Chartered Financial Analyst and received his M.B.A. in Finance from Harvard
Business School.
Randall S. Bauer is the portfolio manager for the foreign stocks and
foreign bonds asset categories. He has performed these duties since the
Fund's inception. Mr. Bauer joined Federated Investors in 1989 as an
Assistant Vice President of the Fund's investment adviser. Mr. Bauer was an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until
1989. Mr. Bauer is a Chartered Financial Analyst and received his M.B.A. in
Finance from Pennsylvania State University.
Susan M. Nason and Gary J. Madich are co-portfolio managers for the U.S.
Treasury securities asset category. They have performed these duties since
the Fund's inception. Ms. Nason joined Federated Investors in 1987 and has
been a Vice President of the Fund's investment adviser since 1993. Ms.
Nason served as an Assistant Vice President of the investment adviser from
1990 until 1992, and from 1987 until 1990 she acted as an investment
analyst. Ms. Nason is a Chartered Financial Analyst and received her M.B.A.
in Finance from Carnegie Mellon University. Mr. Madich joined Federated
Investors in 1984 and has been a Senior Vice President of the Fund's
investment adviser since 1993. Mr. Madich served as a Vice President of the
Fund's investment adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance from the
University of Pittsburgh.
Kathleen M. Foody-Malus and Gary J. Madich are co-portfolio managers for
the mortgage-backed securities asset category. They have performed these
duties since the Fund's inception. Ms. Foody-Malus joined Federated
Investors in 1983 and has been a Vice President of the Fund's investment
adviser since 1993. Ms. Foody-Malus served as an Assistant Vice President
of the investment adviser from 1990 until 1992, and from 1986 until 1989
she acted as an investment analyst. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.
Joseph M. Balestrino and Susan M. Nason are co-portfolio managers for the
investment-grade corporate bonds asset category. They have performed these
duties since the Fund's inception. Mr. Balestrino joined Federated
Investors in 1986 and has been an Assistant Vice President of the Fund's
investment adviser since 1991. Mr. Balestrino served as an investment
analyst of the investment adviser from 1989 until 1991, and from 1986 until
1989 he acted as Project Manager in the Product Development Department. Mr.
Balestrino is a Chartered Financial Analyst and received his M.A. in Urban
and Regional Planning from the University of Pittsburgh.
Mark E. Durbiano is the portfolio manager for the high yield corporate
bonds asset category. He has performed these duties since the Fund's
inception. Mr. Durbiano joined Federated Investors in 1982 and has been a
Vice President of the Fund's investment adviser since 1988. Mr. Durbiano is
a Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.
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. The Fund has adopted a Shareholder Services Plan
(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 Public Accountants. The independent public accountants 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
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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
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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--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 Federated Services Company,
c/o 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, provided the Fund or its agents have received
payment for Shares from the shareholder.
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 financial publications 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 and Poor's Corporation Long-Term Debt Ratings
AAA--Debt rated AAA has the highest rating assigned by S&P. 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--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
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 Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
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 March 11, 1994
3122010A-ISS (3/94)
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 March 11, 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 March 11, 1994
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 Category 4
Bond Asset Categories 4
U.S. Treasury Securities 5
Mortgage-Backed Securities 5
Investment-Grade Corporate Bonds 5
High Yield Corporate Bonds 5
Foreign Bonds 5
Acceptable Investments 5
Equity Securities 5
Foreign Securities 6
Investment Risks 6
Cash Reserves 6
Repurchase Agreements 6
U.S. Treasury and Other U.S.
Government Securities 6
Mortgage-Backed Securities 7
Collateralized Mortgage Obligations
("CMOs") 7
Real Estate Mortgage Investment
Conduits ("REMICS") 8
Characteristics of Mortgage-Backed
Securities 8
Corporate Bonds 9
Investment Risks 9
Investing in Securities of Other
Investment Companies 9
Restricted and Illiquid Securities 10
When-Issued and Delayed Delivery
Transactions 10
Lending of Portfolio Securities 10
Foreign Currency Transactions 10
Currency Risks 10
Forward Foreign Currency Exchange
Contracts 11
Options 11
Futures and Options on Futures 12
Risks 12
Portfolio Turnover 13
Investment Limitations 13
Trust Information 13
- ------------------------------------------------------
Management of the Trust 13
Board of Trustees 13
Investment Adviser 13
Advisory Fees 13
Adviser's Background 13
Distribution of Select Shares 15
Distribution Plan 15
Administration of the Fund 16
Administrative Services 16
Shareholder Services Plan 16
Custodian 17
Transfer Agent and Dividend Disbursing
Agent 17
Legal Counsel 17
Independent Public Accountants 17
Brokerage Transactions 17
Expenses of the Fund and Select Shares 17
Net Asset Value 18
- ------------------------------------------------------
Investing in Select Shares 18
- ------------------------------------------------------
Share Purchases 18
Through a Financial Institution 18
By Wire 18
By Mail 19
Minimum Investment Required 19
What Shares Cost 19
Subaccounting Services 19
Systematic Investment Program 19
Certificates and Confirmations 20
Dividends 20
Capital Gains 20
Redeeming Select Shares 20
- ------------------------------------------------------
Through a Financial Institution 20
Telephone Redemption 20
Written Requests 21
Signatures 21
Receiving Payment 21
Systematic Withdrawal Program 21
Accounts with Low Balances 22
Shareholder Information 22
- ------------------------------------------------------
Voting Rights 22
Massachusetts Partnership Law 22
Tax Information 23
- ------------------------------------------------------
Federal Income Tax 23
Pennsylvania Corporate and
Personal Property Taxes 23
Performance Information 23
- ------------------------------------------------------
Other Classes of Shares 24
- ------------------------------------------------------
Appendix 25
- ------------------------------------------------------
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
Contingent Deferred Sales Charge (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%
Total 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 Select Shares 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.................................................. $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 primarily invest in two types of assets: stocks
and bonds. Additionally, the Fund may invest in cash reserves. 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, and foreign stocks.
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. There is no assurance, however, that the adviser's
attempts to pursue this strategy will result in a benefit to the Fund.
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 and have a market capitalization of
$500,000,000 or more. However, other factors, such as a company's product
position, market share, current earnings and/or dividend and earnings
growth prospects, 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. Common stocks of
utilities are generally characterized by higher dividend yields and lower
growth rates than common stocks of industrial companies. Under normal
market conditions, the higher income stream from utility stocks tends to
make them less volatile than stocks of industrial companies.
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.
Stocks in the small capitalization sector of the United States equity
market have historically been more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500
Index. This is because, among other things, small companies have less
certain growth prospects than larger companies; have a lower degree of
liquidity in the equity market; and tend to have a greater sensitivity to
changing economic conditions. Further, in addition to exhibiting greater
volatility, the stocks of small companies may, to some degree, fluctuate
independently of the stocks of large companies; that is, the stocks of
small companies may decline in price as the price of large company stocks
rises or vice versa.
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 Category. 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 time 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, such as
improvement in credit quality due to company fundamentals or economic conditions
or assumptions on changes in trends in prepayment rates with respect to
mortgage-backed securites. The average duration of the Fund's Bond Assets will
be not less than three nor more than seven years. [Duration is a commonly used
measure of the potential volatility of the price of a debt security, or the
aggregate market value of a portfolio of debt securities, prior to maturity.
Securities with shorter durations generally have less volatile prices than
securities of comparable quality with longer durations. The Fund should be
expected to maintain a higher average duration during periods of lower
expected market volatility, and a lower average duration during periods of
higher expected market volatility.]
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 (commonly known as junk bonds). The Fund may invest
up to 15 percent of its total assets in high yield corporate bonds. There
is no minimal acceptable rating for a security to be purchased or held in
the Fund's portfolio, and the Fund may, from time to time, purchase or hold
securities rated in the lowest rating category. (See "Appendix.") 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.
Investment Risks. 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
apply to securities issued by foreign corporations and sovereign
governments. These risks 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. If the
issuer of the debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or
interest when due in accordance with the terms of such debt, the Fund
may have limited legal recourse in the event of default. 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.
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.
Securities which are rated BBB by Standard & Poor's or Fitch or Baa by
Moody's have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated bonds. If a security's
rating is reduced below the required minimum after the Fund has purchased
it, the Fund is not required to sell the security, but may consider doing
so.
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 (commonly
known as junk bonds). A description of the rating categories is contained
in the Appendix to this prospectus.
Investment Risks. 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. To the extent that the Fund invests in
securities issued by other investment companies, the Fund will indirectly bear
its proportionate share of any fees and expenses paid by such companies in
addition to the fees and expenses payable directly by the Fund.
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.
Currency Risks. To the extent that debt securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of the Fund's assets denominated
in that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of the Fund's assets
denominated in that currency will decrease.
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.
Portfolio Turnover. _It is not anticipated that the portfolio trading engaged in
by the Fund will result in its annual rate of portfolio turnover exceeding 100%.
The Fund's investment adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. However, relatively high portfolio turnover
may result in high transaction costs to the Fund.
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
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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. The fee paid
by the Fund, while higher than the advisory fee paid by other mutual funds
in general, is comparable to fees paid by other mutual funds with similar
objectives and policies. 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 is the portfolio manager for the cash reserves asset
category and performs the overall allocation of the assets of the Fund
among the various asset categories. He has performed these duties since the
Fund's inception. In allocating the Fund's assets, Mr. Ritter evaluates the
market environment and economic outlook, utilizing the services of the
investment adviser's economist and strategist. 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.
The portfolio managers for each of the individual asset categories are as
follows:
Peter R. Anderson is the portfolio manager for the domestic large company
stocks asset category. He has been one of the Fund's portfolio managers
since its inception. Mr. Anderson joined Federated Investors in 1972 and is
presently a Senior Vice President of the Fund's investment adviser. Mr.
Anderson is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Wisconsin.
Christopher H. Wiles is the portfolio manager for the utility stocks asset
category, and has been one of the Fund's portfolio managers since its
inception. Mr. Wiles joined Federated Investors in 1990 and has been a Vice
President of the Fund's investment adviser since 1992. Mr. Wiles served as
Assistant Vice President of the Fund's investment adviser from 1990 until
1992. Mr. Wiles was a portfolio manager at Mellon Bank from 1986 until
1990. Mr. Wiles is a Chartered Financial Analyst and received his M.B.A. in
Finance from Cleveland State University.
Gregory M. Melvin is the portfolio manager for the domestic small company
stocks asset category. He has served in this category since the Fund's
inception. Mr. Melvin joined Federated Investors in 1980 and has been a
Vice President of the Fund's investment adviser since 1984. Mr. Melvin is a
Chartered Financial Analyst and received his M.B.A. in Finance from Harvard
Business School.
Randall S. Bauer is the portfolio manager for the foreign stocks and
foreign bonds asset categories. He has performed these duties since the
Fund's inception. Mr. Bauer joined Federated Investors in 1989 as an
Assistant Vice President of the Fund's investment adviser. Mr. Bauer was an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a Chartered
Financial Analyst and received his M.B.A. in Finance from Pennsylvania
State University.
Susan M. Nason and Gary J. Madich are co-portfolio managers for the U.S.
Treasury securities asset category. They have performed these duties since
the Fund's inception. Ms. Nason joined Federated Investors in 1987 and has
been a Vice President of the Fund's investment adviser since 1993. Ms.
Nason served as an Assistant Vice President of the investment adviser from
1990 until 1992, and from 1987 until 1990 she acted as an investment
analyst. Ms. Nason is a Chartered Financial Analyst and received her M.B.A.
in Finance from Carnegie Mellon University. Mr. Madich joined Federated
Investors in 1984 and has been a Senior Vice President of the Fund's
investment adviser since 1993. Mr. Madich served as a Vice President of the
Fund's investment adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance from the
University of Pittsburgh.
Kathleen M. Foody-Malus and Gary J. Madich are co-portfolio managers for
the mortgage-backed securities asset category. They have performed these
duties since the Fund's inception. Ms. Foody-Malus joined Federated
Investors in 1983 and has been a Vice President of the Fund's investment
adviser since 1993. Ms. Foody-Malus served as an Assistant Vice President
of the investment adviser from 1990 until 1992, and from 1986 until 1989
she acted as an investment analyst. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.
Joseph M. Balestrino and Susan M. Nason are co-portfolio managers for the
investment-grade corporate bonds asset category. They have performed these
duties since the Fund's inception. Mr. Balestrino joined Federated
Investors in 1986 and has been an Assistant Vice President of the Fund's
investment adviser since 1991. Mr. Balestrino served as an investment
analyst of the investment adviser from 1989 until 1991, and from 1986 until
1989 he acted as Project Manager in the Product Development Department. Mr.
Balestrino is a Chartered Financial Analyst and received his M.A. in Urban
and Regional Planning from the University of Pittsburgh.
Mark E. Durbiano is the portfolio manager for the high yield corporate
bonds asset category. He has performed these duties since the Fund's
inception. Mr. Durbiano joined Federated Investors in 1982 and has been a
Vice President of the Fund's investment adviser since 1988. Mr. Durbiano is
a Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.
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 Public Accountants. The independent public accountants 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 Federated Services Company, c/o 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, provided the Fund or its agents have received
payment for Shares from the shareholder.
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
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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 financial publications 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 and Poor's Corporation Long-Term Debt Ratings
AAA--Debt rated AAA has the highest rating assigned by S&P. 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--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
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 Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
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 March 11, 1994
3122011A-SEL (3/94)
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 March 11, 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 March 11, 1994
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 Category 4
Bond Asset Categories 4
U.S. Treasury Securities 4
Mortgage-Backed Securities 5
Investment-Grade Corporate Bonds 5
High Yield Corporate Bonds 5
Foreign Bonds 5
Acceptable Investments 5
Equity Securities 5
Foreign Securities 5
Investment Risks 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") 7
Real Estate Mortgage Investment Conduits
("REMICs") 7
Characteristics of Mortgage-Backed
Securities 8
Corporate Bonds 8
Investment Risks 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 10
Foreign Currency Transactions 10
Currency Risks 10
Forward Foreign Currency Exchange Contracts 10
Options 11
Futures and Options on Futures 11
Risks 12
Portfolio Turnover 12
Investment Limitations 12
Trust Information 13
- ------------------------------------------------------
Management of the Trust 13
Board of Trustees 13
Investment Adviser 13
Advisory Fees 13
Adviser's Background 13
Distribution of Institutional Service Shares 15
Administration of the Fund 15
Administrative Services 15
Shareholder Services Plan 15
Custodian 15
Transfer Agent and Dividend
Disbursing Agent 15
Legal Counsel 15
Independent Public Accountants 16
Brokerage Transactions 16
Expenses of the Fund and Institutional
Service Shares 16
Net Asset Value 16
- ------------------------------------------------------
Investing in Institutional Service Shares 17
- ------------------------------------------------------
Share Purchases 17
Through a Financial Institution 17
By Wire 17
By Mail 17
Minimum Investment Required 17
What Shares Cost 18
Subaccounting Services 18
Systematic Investment Program 18
Certificates and Confirmations 18
Dividends 18
Capital Gains 19
Redeeming Institutional Service Shares 19
- ------------------------------------------------------
Through a Financial Institution 19
Telephone Redemption 19
Written Requests 19
Signatures 20
Receiving Payment 20
Systematic Withdrawal Program 20
Accounts with Low Balances 20
Shareholder Information 21
- ------------------------------------------------------
Voting Rights 21
Massachusetts Partnership Law 21
Tax Information 21
- ------------------------------------------------------
Federal Income Tax 21
Pennsylvania Corporate and
Personal Property Taxes 21
Performance Information 22
- ------------------------------------------------------
Other Classes of Shares 22
- ------------------------------------------------------
Appendix 23
- ------------------------------------------------------
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
Contingent Deferred Sales Charge (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
Total 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 Institutional Service Shares have no present intention of paying or
accruing the shareholder servicing fee. If Institutional Service Shares were
paying or accruing the shareholder servicing fee, the Institutional Service
Shares would be able to pay up to 0.25% of their average daily net assets
for the shareholder servicing fee.
(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 Institutional Service Shares 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.................................................. $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 primarily invest in two types of assets: stocks
and bonds. Additionally, the Fund may invest in cash reserves. 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, and
foreign stocks.
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. There is no assurance, however, that the adviser's
attempts to pursue this strategy will result in a benefit to the Fund.
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 and have a market capitalization of
$500,000,000 or more. However, other factors, such as a company's product
position, market share, current earnings and/or dividend and earnings
growth prospects, 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.
Stocks in the small capitalization sector of the United States equity
market have historically been more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500
Index. This is because, among other things, small companies have less
certain growth prospects than larger companies; have a lower degree of
liquidity in the equity market; and tend to have a greater sensitivity to
changing economic conditions. Further, in addition to exhibiting greater
volatility, the stocks of small companies may, to some degree, fluctuate
independently of the stocks of large companies; that is, the stocks of
small companies may decline in price as the price of large company stocks
rises or vice versa.
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 Category. 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 time 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, such as
improvement in credit quality due to company fundamentals or economic conditions
or assumptions on changes in trends in prepayment rates with respect to
mortgage-backed securites. The average duration of the Fund's Bond Assets will
be not less than three nor more than nine years. [Duration is a commonly used
measure of the potential volatility of the price of a debt security, or the
aggregate market value of a portfolio of debt securities, prior to maturity.
Securities with shorter durations generally have less volatile prices than
securities of comparable quality with longer durations. The Fund should be
expected to maintain a higher average duration during periods of lower expected
market volatility, and a lower average duration during periods of higher
expected market volatility.]
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 (commonly known as junk bonds). The Fund may invest
up to 16 percent of its total assets in high yield corporate bonds. There
is no minimal acceptable rating for a security to be purchased or held in
the Fund's portfolio, and the Fund may, from time to time, purchase or hold
securities rated in the lowest rating category. (See "Appendix.") 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.
Investment Risks. _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
apply to securities issued by foreign corporations and sovereign
governments. These risks 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. If the
issuer of the debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or
interest when due in accordance with the terms of such debt, the Fund
may have limited legal recourse in the event of default. 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.
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.
Securities which are rated BBB by Standard & Poor's or Fitch or Baa by
Moody's have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher rated
bonds. If a security's rating is reduced below the required minimum after
the Fund has purchased it, the Fund is not required to sell the security,
but may consider doing so.
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 (commonly
known as junk bonds). A description of the rating categories is contained
in the Appendix to this prospectus.
Investment Risks. _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. To the extent that the Fund invests in
securities issued by other investment companies, the Fund will indirectly bear
its proportionate share of any fees and expenses paid by such companies in
addition to the fees and expenses payable directly by the Fund.
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.
Currency Risks. _To the extent that debt securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of the Fund's assets denominated
in that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of the Fund's assets
denominated in that currency will decrease.
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.
Portfolio Turnover. _It is not anticipated that the portfolio trading engaged in
by the Fund will result in its annual rate of portfolio turnover exceeding 100%.
The Fund's investment adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. However, relatively high portfolio turnover
may result in high transaction costs to the Fund.
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
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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. The fee paid
by the Fund, while higher than the advisory fee paid by other mutual funds
in general, is comparable to fees paid by other mutual funds with similar
objectives and policies. 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 is the portfolio manager for the cash reserves asset
category and performs the overall allocation of the assets of the Fund
among the various asset categories. He has performed these duties since the
Fund's inception. In allocating the Fund's assets, Mr. Ritter evaluates the
market environment and economic outlook, utilizing the services of the
investment adviser's economist and strategist. 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.
The portfolio managers for each of the individual asset categories are as
follows:
Peter R. Anderson is the portfolio manager for the domestic large company
stocks asset category. He has been one of the Fund's portfolio managers
since its inception. Mr. Anderson joined Federated Investors in 1972 and is
presently a Senior Vice President of the Fund's investment adviser. Mr.
Anderson is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Wisconsin.
Gregory M. Melvin is the portfolio manager for the domestic small company
stocks asset category. He has served in this category since the Fund's
inception. Mr. Melvin joined Federated Investors in 1980 and has been a
Vice President of the Fund's investment adviser since 1984. Mr. Melvin is a
Chartered Financial Analyst and received his M.B.A. in Finance from Harvard
Business School.
Randall S. Bauer is the portfolio manager for the foreign stocks and
foreign bonds asset categories. He has performed these duties since the
Fund's inception. Mr. Bauer joined Federated Investors in 1989 as an
Assistant Vice President of the Fund's investment adviser. Mr. Bauer was an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a Chartered
Financial Analyst and received his M.B.A. in Finance from Pennsylvania
State University.
Susan M. Nason and Gary J. Madich are co-portfolio managers for the U.S.
Treasury securities asset category. They have performed these duties since
the Fund's inception. Ms. Nason joined Federated Investors in 1987 and has
been a Vice President of the Fund's investment adviser since 1993. Ms.
Nason served as an Assistant Vice President of the investment adviser from
1990 until 1992, and from 1987 until 1990 she acted as an investment
analyst. Ms. Nason is a Chartered Financial Analyst and received her M.B.A.
in Finance from Carnegie Mellon University. Mr. Madich joined Federated
Investors in 1984 and has been a Senior Vice President of the Fund's
investment adviser since 1993. Mr. Madich served as a Vice President of the
Fund's investment adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance from the
University of Pittsburgh.
Kathleen M. Foody-Malus and Gary J. Madich are co-portfolio managers for
the mortgage-backed securities asset category. They have performed these
duties since the Fund's inception. Ms. Foody-Malus joined Federated
Investors in 1983 and has been a Vice President of the Fund's investment
adviser since 1993. Ms. Foody-Malus served as an Assistant Vice President
of the investment adviser from 1990 until 1992, and from 1986 until 1989
she acted as an investment analyst. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.
Joseph M. Balestrino and Susan M. Nason are co-portfolio managers for the
investment-grade corporate bonds asset category. They have performed these
duties since the Fund's inception. Mr. Balestrino joined Federated
Investors in 1986 and has been an Assistant Vice President of the
Fund's investment adviser since 1991. Mr. Balestrino served as an
investment analyst of the investment adviser from 1989 until 1991, and from
1986 until 1989 he acted as Project Manager in the Product Development
Department. Mr. Balestrino is a Chartered Financial Analyst and received
his M.A. in Urban and Regional Planning from the University of Pittsburgh.
Mark E. Durbiano is the portfolio manager for the high yield corporate
bonds asset category. He has performed these duties since the Fund's
inception. Mr. Durbiano joined Federated Investors in 1982 and has been a
Vice President of the Fund's investment adviser since 1988. Mr. Durbiano is
a Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.
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. The Fund has adopted a Shareholder Services Plan
(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 Public Accountants. The independent public accountants 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 Federated
Services Company, c/o 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, provided the Fund or its agents have received
payment for Shares from the shareholder.
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 financial publications 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 and Poor's Corporation Long-Term Debt Ratings
AAA--Debt rated AAA has the highest rating assigned by S&P. 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--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
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 Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
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 March 11, 1994
3122009A-ISS (3/94)
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 March 11, 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 March 11, 1994
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 Category 4
Bond Asset Categories 4
U.S. Treasury Securities 4
Mortgage-Backed Securities 5
Investment-Grade Corporate Bonds 5
High Yield Corporate Bonds 5
Foreign Bonds 5
Acceptable Investments 5
Equity Securities 5
Foreign Securities 5
Investment Risks 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") 7
Real Estate Mortgage Investment
Conduits ("REMICs") 7
Characteristics of Mortgage-Backed
Securities 8
Corporate Bonds 8
Investment Risks 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 10
Foreign Currency Transactions 10
Currency Risks 10
Forward Foreign Currency Exchange Contracts 10
Options 11
Futures and Options on Futures 11
Risks 12
Portfolio Turnover 12
Investment Limitations 12
Trust Information 13
- ------------------------------------------------------
Management of the Trust 13
Board of Trustees 13
Investment Adviser 13
Advisory Fees 13
Adviser's Background 13
Distribution of Select Shares 15
Distribution Plan 15
Administration of the Fund 16
Administrative Services 16
Shareholder Services Plan 16
Custodian 16
Transfer Agent and Dividend Disbursing Agent 16
Legal Counsel 16
Independent Public Accountants 16
Brokerage Transactions 16
Expenses of the Fund and Select Shares 17
Net Asset Value 17
- ------------------------------------------------------
Investing in Select Shares 17
- ------------------------------------------------------
Share Purchases 17
Through a Financial Institution 18
By Wire 18
By Mail 18
Minimum Investment Required 18
What Shares Cost 18
Subaccounting Services 19
Systematic Investment Program 19
Certificates and Confirmations 19
Dividends 19
Capital Gains 19
Redeeming Select Shares 19
- ------------------------------------------------------
Through a Financial Institution 20
Telephone Redemption 20
Written Requests 20
Signatures 20
Receiving Payment 21
Systematic Withdrawal Program 21
Accounts with Low Balances 21
Shareholder Information 21
- ------------------------------------------------------
Voting Rights 21
Massachusetts Partnership Law 22
Tax Information 22
- ------------------------------------------------------
Federal Income Tax 22
Pennsylvania Corporate and
Personal Property Taxes 22
Performance Information 23
- ------------------------------------------------------
Other Classes of Shares 23
- ------------------------------------------------------
Appendix 24
- ------------------------------------------------------
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
Contingent Deferred Sales Charge (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%
Total 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 Select Shares 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.................................................. $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 primarily invest in two types of assets: stocks
and bonds. Additionally, the Fund may invest in cash reserves. 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, and
foreign stocks.
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. There is no assurance, however, that the adviser's
attempts to pursue this strategy will result in a benefit to the Fund.
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 and have a market capitalization of
$500,000,000 or more. However, other factors, such as a company's product
position, market share, current earnings and/or dividend and earnings
growth prospects, 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.
Stocks in the small capitalization sector of the United States equity
market have historically been more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500
Index. This is because, among other things, small companies have less
certain growth prospects than larger companies; have a lower degree of
liquidity in the equity market; and tend to have a greater sensitivity to
changing economic conditions. Further, in addition to exhibiting greater
volatility, the stocks of small companies may, to some degree, fluctuate
independently of the stocks of large companies; that is, the stocks of
small companies may decline in price as the price of large company stocks
rises or vice versa.
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 Category. 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 time 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, such as
improvement in credit quality due to company fundamentals or economic conditions
or assumptions on changes in trends in prepayment rates with respect to
mortgage-backed securities. The average duration of the Fund's Bond Assets will
be not less than three nor more than nine years. [Duration is a commonly used
measure of the potential volatility of the price of a debt security, or the
aggregate market value of a portfolio of debt securities, prior to maturity.
Securities with shorter durations generally have less volatile prices than
securities of comparable quality with longer durations. The Fund should be
expected to maintain a higher average duration during periods of lower expected
market volatility, and a lower average duration during periods of higher
expected market volatility.]
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 (commonly known as junk bonds). The Fund may invest
up to 16 percent of its total assets in high yield corporate bonds. There
is no minimal acceptable rating for a security to be purchased or held in
the Fund's portfolio, and the Fund may, from time to time, purchase or hold
securities rated in the lowest rating category. (See "Appendix.") 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.
Investment Risks. _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
apply to securities issued by foreign corporations and sovereign
governments. These risks 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. If the
issuer of the debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or
interest when due in accordance with the terms of such debt, the Fund
may have limited legal recourse in the event of default. 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.
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.
Securities which are rated BBB by Standard & Poor's or Fitch or Baa by
Moody's have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated bonds. If a security's
rating is reduced below the required minimum after the Fund has purchased
it, the Fund is not required to sell the security, but may consider doing
so.
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 (commonly
known as junk bonds). A description of the rating categories is contained
in the Appendix to this prospectus.
Investment Risks. _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. To the extent that the Fund invests in
securities issued by other investment companies, the Fund will indirectly bear
its proportionate share of any fees and expenses paid by such companies in
addition to the fees and expenses payable directly by the Fund.
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.
Currency Risks. To the extent that debt securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of the Fund's assets denominated
in that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of the Fund's assets
denominated in that currency will decrease.
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.
Portfolio Turnover. _It is not anticipated that the portfolio trading engaged in
by the Fund will result in its annual rate of portfolio turnover exceeding 100%.
The Fund's investment adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. However, relatively high portfolio turnover
may result in high transaction costs to the Fund.
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
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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. The fee paid
by the Fund, while higher than the advisory fee paid by other mutual funds
in general, is comparable to fees paid by other mutual funds with similar
objectives and policies. 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 is the portfolio manager for the cash reserves asset
category and performs the overall allocation of the assets of the Fund
among the various asset categories. He has performed these duties since the
Fund's inception. In allocating the Fund's assets, Mr. Ritter evaluates the
market environment and economic outlook, utilizing the services of the
investment adviser's economist and strategist. 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.
The portfolio managers for each of the individual asset categories are as
follows:
Peter R. Anderson is the portfolio manager for the domestic large company
stocks asset category. He has been one of the Fund's portfolio managers
since its inception. Mr. Anderson joined Federated Investors in 1972 and is
presently a Senior Vice President of the Fund's investment adviser. Mr.
Anderson is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Wisconsin.
Gregory M. Melvin is the portfolio manager for the domestic small company
stocks asset category. He has served in this capacity since the Fund's
inception. Mr. Melvin joined Federated Investors in 1980 and has been a
Vice President of the Fund's investment adviser since 1984. Mr. Melvin is a
Chartered Financial Analyst and received his M.B.A. in Finance from Harvard
Business School.
Randall S. Bauer is the portfolio manager for the foreign stocks and
foreign bonds asset categories. He has performed these duties since the
Fund's inception. Mr. Bauer joined Federated Investors in 1989 as an
Assistant Vice President of the Fund's investment adviser. Mr. Bauer was an
Assistant Vice President of the International Banking Division at
Pittsburgh National Bank from 1982 until 1989. Mr. Bauer is a Chartered
Financial Analyst and received his M.B.A. in Finance from Pennsylvania
State University.
Susan M. Nason and Gary J. Madich are co-portfolio managers for the U.S.
Treasury securities asset category. They have performed these duties since
the Fund's inception. Ms. Nason joined Federated Investors in 1987 and has
been a Vice President of the Fund's investment adviser since 1993. Ms.
Nason served as an Assistant Vice President of the investment adviser from
1990 until 1992, and from 1987 until 1990 she acted as an investment
analyst. Ms. Nason is a Chartered Financial Analyst and received her M.B.A.
in Finance from Carnegie Mellon University. Mr. Madich joined Federated
Investors in 1984 and has been a Senior Vice President of the Fund's
investment adviser since 1993. Mr. Madich served as a Vice President of the
Fund's investment adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance from the
University of Pittsburgh.
Kathleen M. Foody-Malus and Gary J. Madich are co-portfolio managers for
the mortgage-backed securities asset category. They have performed these
duties since the Fund's inception. Ms. Foody-Malus joined Federated
Investors in 1983 and has been a Vice President of the Fund's investment
adviser since 1993. Ms. Foody-Malus served as an Assistant Vice President
of the investment adviser from 1990 until 1992, and from 1986 until 1989
she acted as an investment analyst. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.
Joseph M. Balestrino and Susan M. Nason are co-portfolio managers for the
investment-grade corporate bonds asset category. They have performed these
duties since the Fund's inception. Mr. Balestrino joined Federated
Investors in 1986 and has been an Assistant Vice President of the Fund's
investment adviser since 1991. Mr. Balestrino served as an investment
analyst of the investment adviser from 1989 until 1991, and from 1986
until 1989 he acted as Project Manager in the Product Development
Department. Mr. Balestrino is a Chartered Financial Analyst and received
his M.A. in Urban and Regional Planning from the University of Pittsburgh.
Mark E. Durbiano is the portfolio manager for the high yield corporate
bonds asset category. He has performed these duties since the Fund's
inception. Mr. Durbiano joined Federated Investors in 1982 and has been a
Vice President of the Fund's investment adviser since 1988. Mr. Durbiano is
a Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.
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 Public Accountants. The independent public accountants 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 Federated Services Company, c/o
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, provided the Fund or its agents have received
payment for Shares from the shareholder.
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 financial publications and/or compare the performance of Select Shares
to certain indices.
Other Classes of Shares
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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
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Standard and Poor's Corporation Long-Term Debt Ratings
AAA--Debt rated AAA has the highest rating assigned by S&P. 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--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
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
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<TABLE>
<S> <C> <C>
Federated Managed Aggressive Growth Fund
Select Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
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Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
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Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
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Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
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</TABLE>
Federated Managed
Aggressive Growth Fund
Select Shares
Prospectus
A Diversified Portfolio of
Managed Series Trust,
an Open-End Management
Investment Company
Prospectus dated March 11, 1994
3122008A-SEL (3/94)
Federated Managed Income Fund
Federated Managed Growth and Income Fund
Federated Managed Growth Fund
Federated Managed Aggressive Growth Fund
(Portfolios of Managed Series Trust)
Institutional Service Shares
Select Shares
Combined Statement of Additional Information
This Combined Statement of Additional Information should be read with
the respective prospectuses for Institutional Service Shares and
Select Shares of Federated Managed Income Fund, Federated Managed
Growth and Income Fund, Federated Managed Growth Fund and Federated
Managed Aggressive Growth Fund, all dated March 11, 1994. This
Statement is not a prospectus itself. To receive a copy of one of the
prospectuses, call or write Managed Series Trust.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated March 11, 1994
FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
Table of Contents
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General Information About the Trust 1
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Investment Objectives and Policies 1
- ---------------------------------------------------------------
Small Company Stocks 1
Mortgage-Backed Securities 1
Corporate Debt Obligations 1
Foreign Debt Obligations 1
Convertible Securities 1
Warrants 2
Futures and Options Transactions 2
Foreign Currency Transactions 4
Repurchase Agreements 6
Reverse Repurchase Agreements 6
When-Issued and Delayed Delivery
Transactions 6
Lending of Portfolio Securities 7
Restricted and Illiquid Securities 7
Weighted Average Portfolio Duration 7
Investment Limitations 8
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Managed Series Trust Management 10
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Officers and Trustees 10
The Funds 12
Trust Ownership 12
Trustee Liability 12
Investment Advisory Services 13
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Adviser to the Trust 13
Advisory Fees 13
Other Related Securities 13
Administrative Services 13
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Brokerage Transactions 14
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Purchasing Shares 14
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Shareholder Servicing Plan 14
Distribution Plan (Select Shares) 14
Conversion to Federal Funds 15
Determining Net Asset Value 15
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Determining Market Value of Securities 15
Trading in Foreign Securities 15
Redeeming Shares 15
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Redemption in Kind 16
Tax Status 16
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The Portfolios' Tax Status 16
Foreign Taxes 16
Shareholders' Tax Status 16
Total Return 16
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Yield 17
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Performance Comparisons 17
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General Information About the Trust
- --------------------------------------------------------------------------------
Managed Series Trust (the "Trust") was established as a Massachusetts business
trust on November 15, 1993. As of the date of this Statement, the Trust consists
of the following four separate portfolios of securities (collectively, the
"Portfolios" and each individually, the "Portfolio"): Federated Managed Income
Fund; Federated Managed Growth and Income Fund; Federated Managed Growth Fund;
and Federated Managed Aggressive Growth Fund. Each Portfolio has two classes of
shares of beneficial interest, Institutional Service Shares and Select Shares.
Investment Objectives and Policies
- --------------------------------------------------------------------------------
The Prospectuses discuss the objectives of the Portfolios and the policies that
each employs to achieve those objectives. The following discussion supplements
the description of the Portfolios' investment policies set forth in the
Prospectuses. The Portfolios' respective investment objectives cannot be changed
without approval of shareholders. Except as noted, the investment policies
described below may be changed by the Board of Trustees ("Trustees") without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
Small Company Stocks
Stocks in the small capitalization sector of the United States equity market
have historically been more volatile in price than larger capitalization stocks,
such as those included in the Standard & Poor's 500 Index. This is because,
among other things, small companies have less certain growth prospects than
larger companies; have a lower degree of liquidity in the equity market; and
tend to have a greater sensitivity to changing economic conditions. Further, in
addition to exhibiting greater volatility, the stocks of small companies may, to
some degree, fluctuate independently of the stocks of large companies; that is,
the stocks of small companies may decline in price as the price of large company
stocks rises or vice versa.
Mortgage-Backed Securities
Privately Issued Mortgage-Related Securities
The privately issued mortgage-related securities purchased by the
Portfolios generally represent an ownership interest in federal agency
mortgage pass-through securities, such as those issued by Government
National Mortgage Association ("GNMA"). The terms and characteristics of
the mortgage instruments may vary among pass-through mortgage loan pools.
Privately issued mortgage-related securities generally pay back principal
and interest over the life of the security. At the time the Portfolios
reinvest the payments and any unscheduled prepayments of principal
received, the Portfolios may receive a rate of interest which is actually
lower than the rate of interest paid on these securities ("prepayment
risks"). Privately issued mortgage-related securities are subject to
higher prepayment risks than most other types of debt instruments with
prepayment risks because the underlying mortgage loans may be prepaid
without penalty or premium. Prepayment risk on privately issued mortgage-
related securities tends to increase during periods of declining mortgage
interest rates because many borrowers refinance their mortgages to take
advantage of the more favorable rates. Prepayments on privately issued
mortgage-related securities are also affected by other factors, such as
the frequency with which people sell their homes or elect to make
unscheduled payments on their mortgages.
The market for privately issued mortgage-related securities has expanded
considerably since its inception. The size of the primary issuance market
and the active participation in the secondary market by securities
dealers and other investors make government-related pools highly liquid.
Corporate Debt Obligations
The corporate debt obligations in which the Portfolios invest may bear fixed,
floating, floating and contingent, or increasing rates of interest. The
Portfolios may invest in investment-grade corporate debt obligations (which are
rated BBB or higher by nationally recognized statistical rating organizations)
or high yield corporate debt obligations (which are rated BB or lower by
nationally recognized statistical rating organizations).
Foreign Debt Obligations
The Portfolios may invest in investment-grade debt securities (which are rated
BBB or higher by nationally recognized statistical rating organizations) of
nations other than the United States.
Convertible Securities
The Portfolios may invest in convertible securities. Convertible securities are
fixed-income securities that may be exchanged or converted into a predetermined
number of shares of the issuer's underlying common stock at the option of the
holder during a specified period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures, units consisting
of "usable" bonds and warrants or a combination of the features of several of
these securities. The investment characteristics of each convertible security
vary widely, which allows convertible securities to be employed for a variety of
investment strategies.
The Portfolios will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of the Portfolios' investment
adviser, the investment characteristics of the underlying common shares will
assist the Portfolios in achieving their investment objectives. The Portfolios
may also elect to hold or trade convertible shares. In selecting convertible
securities, the Portfolios' investment adviser evaluates the investment
characteristics of the convertible security as a fixed-income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Portfolios' investment adviser considers numerous
factors, including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.
Warrants
The Portfolios may invest in warrants. Warrants are basically options to
purchase common stock at a specific price (usually at a premium above the market
value of the optioned common stock at issuance) valid for a specific period of
time. Warrants may have a life ranging from less than one year to twenty years,
or they may be perpetual. However, most warrants have expiration dates after
which they are worthless. In addition, a warrant is worthless if the market
price of the common stock does not exceed the warrant's exercise price during
the life of the warrant. Warrants have no voting rights, pay no dividends, and
have no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock. A Portfolio will not invest more than 5% of the value of
its total assets in warrants. No more than 2% of this 5% may be warrants which
are not listed on the New York or American Stock Exchanges. Warrants acquired in
units or attached to securities may be deemed to be without value for purposes
of this policy.
Futures and Options Transactions
The Portfolios may attempt to hedge all or a portion of its portfolio by buying
and selling futures contracts and options on futures contracts.
Futures Contracts
A futures contract is a firm commitment by two parties, the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future. However, a
stock 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
difference between the value of the index at the close of the last
trading day of the contract and the price at which the index was
originally written. No physical delivery of the underlying security in
the index is made.
The purpose of the acquisition or sale of a futures contact by the
Portfolios is to protect the Portfolios from fluctuations in the value of
their securities caused by anticipated changes in interest rates or
market conditions. For example, in the fixed-income securities market,
price moves inversely to interest rates. A rise in rates results in a
drop in price. Conversely, a drop in rates results in a rise in price. In
order to hedge its holdings of fixed income securities against a rise in
market interest rates, a Portfolio could enter into contracts to deliver
securities at a predetermined price (i.e., "go short") to protect itself
against the possibility that the prices of its fixed-income securities
may decline during the Portfolio's anticipated holding period. A
Portfolio would agree to purchase securities in the future at a
predetermined price (i.e., "go long") to hedge against a decline in
market interest rates.
Purchasing Put Options on Futures Contracts
The Portfolios may purchase listed put options or over-the-counter put
options on futures contracts. Unlike entering directly into a futures
contract, which requires the purchaser to buy a financial instrument on a
set date at a specified price, the purchase of a put option on a futures
contract entitles (but does not obligate) its purchaser to decide on or
before a future date whether to assume a short position at the specified
price. A Portfolio would purchase put options on futures contracts to
protect its portfolio securities against decreases in value resulting
from market factors such as an anticipated increase in interest rates.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, a
Portfolio will normally close out its option by selling an identical
option. If the hedge is successful, the proceeds received by a Portfolio
upon the sale of the second option may be large enough to offset both the
premium paid by the Portfolio for the original option plus the decrease
in value of the hedged securities.
Alternatively, a Portfolio may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Portfolio would then deliver
the futures contract in return for payment of the strike price. If a
Portfolio neither closes out nor exercises an option, the option will
expire on the date provided in the option contract, and only the premium
paid for the contract will be lost.
Writing Put Options on Futures Contracts
The Portfolios may write listed put options on financial futures
contracts to hedge its portfolio against a decrease in market interest
rates. When a Portfolio writes a put option on a futures contract, it
receives a premium for undertaking the obligation to assume a long
futures position (buying a futures contract) at a fixed price at any time
during the life of the option. As market interest rates decrease, the
market price of the underlying futures contract normally increases.
As the market value of the underlying futures contract increases, the
buyer of the put option has less reason to exercise the put because the
buyer can sell the same futures contract at a higher price in the market.
The premium received by a Portfolio can then be used to offset the higher
prices of portfolio securities to be purchased in the future due to the
decrease in market interest rates.
Prior to the expiration of the put option, or its exercise by the buyer,
a Portfolio may close out the option by buying an identical option. If
the hedge is successful, the cost of buying the second option will be
less than the premium received by a Portfolio for the initial option.
Purchasing Call Options on Futures Contracts
An additional way in which the Portfolios may hedge against decreases in
market interest rates is to buy a listed call option on a financial
futures contract. When a Portfolio purchases a call option on a futures
contract, it is purchasing the right (not the obligation) to assume a
long futures position (buy a futures contract) at a fixed price at any
time during the life of the option. As market interest rates fall, the
value of the underlying futures contract will normally increase,
resulting in an increase in value of a Portfolio's option position. When
the market price of the underlying futures contract increases above the
strike price plus premium paid, a Portfolio could exercise its option and
buy the futures contract below market price.
Prior to the exercise or expiration of the call option, a Portfolio could
sell an identical call option and close out its position. If the premium
received upon selling the offsetting call is greater than the premium
originally paid, a Portfolio has completed a successful hedge.
Writing Call Options on Futures Contracts
The Portfolios may write listed call options or over-the-counter call
options on futures contracts to hedge against, for example, an increase
in market interest rates. When a Portfolio writes a call option on a
futures contract, it is undertaking the obligation of assuming a short
futures position (selling a futures contract) at the strike price at any
time during the life of the option if the option is exercised. As market
interest rates rise or as stock prices fall, causing the prices of
futures to go down, a Portfolio's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the
value of a Portfolio's call option position to increase.
In other words, as the underlying future's price falls below the strike
price, the buyer of the option has no reason to exercise the call, so
that a Portfolio keeps the premium received for the option. This premium
can help substantially to offset the drop in value of a Portfolio's
portfolio securities.
Prior to the expiration of a call written by a Portfolio, or exercise of
it by the buyer, a Portfolio may close out the option by buying an
identical option. If the hedge is successful, the cost of the second
option will be less than the premium received by a Portfolio for the
initial option. The net premium income of a Portfolio will then
substantially offset the decrease in value of the hedged securities.
Limitation on Open Futures Positions
A Portfolio will not maintain open positions in futures contracts it has
sold or options it has written on futures contracts if, in the aggregate,
the value of the option positions (marked to market) exceeds the current
market value of its securities portfolio plus or minus the unrealized
gain or loss on those open positions, adjusted for the correlation of
volatility between the hedged securities and the futures contracts. If
this limitation is exceeded at any time, a Portfolio will take prompt
action to close out a sufficient number of open contracts to bring its
open futures and options positions within this limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Portfolios do not pay or
receive money upon the purchase or sale of a futures contract. Rather, a
Portfolio is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with the custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contracts initial margin does not involve a borrowing by a Portfolio to
finance the transactions. Initial margin is in the nature of a
performance bond or good-faith deposit on the contract which is returned
to a Portfolio upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by a Portfolio is valued daily at the official
settlement price of the exchange on which it is traded. Each day a
Portfolio pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by a Portfolio but is instead settlement between a Portfolio and the
broker of an amount one would owe the other if the futures contract
expired. In computing its daily net asset value, a Portfolio will mark to
market its open futures positions.
The Portfolios are also required to deposit and maintain margin when they
write call options on futures contracts.
Purchasing and Writing Over-the-Counter Options
The Portfolios may purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the buyers or
writers of the options for those options on portfolio securities held by
a Portfolio and not traded on an exchange.
Over-the-counter options are two-party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third-party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options
may not.
Foreign Currency Transactions
Currency Risks
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the
Portfolios value their assets daily in U.S. dollars, the Portfolios may
not convert their holdings of foreign currencies to U.S. dollars daily.
The Portfolios may incur conversion costs when they convert their
holdings to another currency. Foreign exchange dealers may realize a
profit on the difference between the price at which the Portfolios buy
and sell currencies.
The Portfolios will engage in foreign currency exchange transactions in
connection with their investments in the securities. The Portfolios will
conduct their foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or through forward contracts to purchase or sell foreign
currencies.
Forward Foreign Currency Exchange Contracts
The Portfolios may enter into forward foreign currency exchange contracts
in order to protect themselves against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and a foreign
currency involved in an underlying transaction. However, forward foreign
currency exchange contracts may limit potential gains which could result
from a positive change in such currency relationships. The Portfolios'
investment adviser believes that it is important to have the flexibility
to enter into forward foreign currency exchange contracts whenever it
determines that it is in the Portfolios' best interest to do so. The
Portfolios will not speculate in foreign currency exchange.
The Portfolios will not enter into forward foreign currency exchange
contracts or maintain a net exposure in such contracts when they would be
obligated to deliver an amount of foreign currency in excess of the value
of their portfolio securities or other assets denominated in that
currency or, in the case of a "cross-hedge" denominated in a currency or
currencies that the Portfolios' investment adviser believes will tend to
be closely correlated with that currency with regard to price movements.
Generally, the Portfolios will not enter into a forward foreign currency
exchange contract with a term longer than one year.
Foreign Currency Options
A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option
has the right, but not the obligation, to buy the currency. Conversely,
the owner of a put option has the right, but not the obligation, to sell
the currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position
during the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally falls in value if the underlying currency depreciates
in value. Although purchasing a foreign currency option can protect a
Portfolio against an adverse movement in the value of a foreign currency,
the option will not limit the movement in the value of such currency. For
example, if a Portfolio were holding securities denominated in a foreign
currency that was appreciating and had purchased a foreign currency put
to hedge against a decline in the value of the currency, the Portfolio
would not have to exercise their put option. Likewise, if a Portfolio
were to enter into a contract to purchase a security denominated in
foreign currency and, in conjunction with that purchase, were to purchase
a foreign currency call option to hedge against a rise in value of the
currency, and if the value of the currency instead depreciated between
the date of purchase and the settlement date, the Portfolio would not
have to exercise its call. Instead, the Portfolio could acquire in the
spot market the amount of foreign currency needed for settlement.
Special Risks Associated with Foreign Currency Options
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain
additional risks associated with foreign currency options. The markets in
foreign currency options are relatively new, and the Portfolios' ability
to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Portfolios will
not purchase or write such options unless and until, in the opinion of
the Portfolios' investment adviser, the market for them has developed
sufficiently to ensure that the risks in connection with such options are
not greater than the risks in connection with the underlying currency,
there can be no assurance that a liquid secondary market will exist for a
particular option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or
both currencies and may have no relationship to the investment merits of
a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that
may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying
foreign currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely
basis. Available quotation information is generally representative of
very large transactions in the interbank market and thus may not reflect
relatively smaller transactions (i.e., less than $1 million) where rates
may be less favorable. The interbank market in foreign currencies is a
global, around-the-clock market. To the extent that the U.S. option
markets are closed while the markets for the underlying currencies remain
open, significant price and rate movements may take place in the
underlying markets that cannot be reflected in the options markets until
they reopen.
Foreign Currency Futures Transactions
By using foreign currency futures contracts and options on such
contracts, the Portfolios may be able to achieve many of the same
objectives as they would through the use of forward foreign currency
exchange contracts. The Portfolios may be able to achieve these
objectives possibly more effectively and at a lower cost by using futures
transactions instead of forward foreign currency exchange contracts.
Special Risks Associated with Foreign Currency Futures Contracts and
Related Options
Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition,
there are risks assocated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
futures currencies, as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency foreign currency
futures contracts is relatively new. The ability to establish and close
out positions on such options is subject to the maintenance of a liquid
secondary market. To reduce this risk, the Portfolios will not purchase
or write options on foreign currency futures contracts unless and until,
in the opinion of the Portfolios' investment adviser, the market for such
options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with transactions in
the underlying foreign currency futures contracts. Compared to the
purchase or sale of foreign currency futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to
the Fund because the maximum amount at risk is the premium paid for the
option (plus transaction costs). However, there may be circumstances when
the purchase of a call or put option on a futures contract would result
in a loss, such as when there is no movement in the price of the
underlying currency or futures contract.
Repurchase Agreements
The Portfolios or their custodian will take possession of the securities subject
to repurchase agreements and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Portfolio, the Portfolio could receive less than the repurchase price in any
sale of such securities. In the event that a defaulting seller files for
bankruptcy or becomes insolvent, disposition of such securities by a Portfolio
might be delayed pending court action. The Portfolios believe that under the
regular procedures normally in effect for custody of a Portfolio's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of a Portfolio and allow retention or disposition of such
securities. The Portfolios will only enter into repurchase agreements with banks
and other recognized financial institutions such as broker/dealers which are
deemed by the Portfolios' investment adviser to be creditworthy pursuant to
guidelines established by the Trustees.
Reverse Repurchase Agreements
The Portfolios may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement, a
Portfolio transfers possession of a portfolio instrument to another person, such
as a financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Portfolio will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable a Portfolio to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but the
ability to enter into reverse repurchase agreements does not ensure that a
Portfolio will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Portfolio, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
When-Issued and Delayed Delivery Transactions
The Portfolios may engage in when-issued and delayed delivery transactions.
These transactions are arrangements in which a Portfolio purchases securities
with payment and delivery scheduled for a future time. A Portfolio engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with its investment objective and policies, and
not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price or yield for the Portfolios. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Portfolios sufficient to make payment for the
securities to be purchased are segregated at the trade date. These securities
are marked to market daily and are maintained until the transaction is settled.
The Portfolios may engage in these transactions to an extent that would cause
the segregation of an amount up to 20% of the total value of their respective
assets.
Lending of Portfolio Securities
The collateral received when the Portfolios lend portfolio securities must be
valued daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the particular Portfolio. During
the time portfolio securities are on loan, the borrower pays the Portfolios any
dividends or interest paid on such securities. Loans are subject to termination
at the option of the Portfolios or the borrower. The Portfolios may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker.
Restricted and Illiquid Securities
The Portfolios may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law and is generally sold to institutional investors, such as
the Portfolios, who agree that they are purchasing paper for investment purposes
and not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) commercial paper is normally resold to
other institutional investors like the Portfolios through or with the assistance
of the issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Portfolios believe that Section 4(2)
commercial paper and possibly certain other restricted securities which meet the
criteria for liquidity established by the Trustees are quite liquid. The
Portfolios intend, therefore, to treat the restricted securities which meet the
criteria for liquidity established by the Trustees, including Section 4(2)
commercial paper, as determined by the Portfolios' investment adviser, as liquid
and not subject to the investment limitation applicable to illiquid securities.
In addition, because Section 4(2) commercial paper is liquid, the Portfolios
intend to not subject such paper to the limitation applicable to restricted
securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange commission ("SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Portfolios believe that the Staff of the SEC has left the question of
determining the liquidity of all restricted securities to the Trustees. The
Trustees consider the following criteria in determining the liquidity of certain
restricted securities:
the frequency of trades and quotes for the security;
the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
dealer undertakings to make a market in the security; and
the nature of the security and the nature of the marketplace trades.
Weighted Average Portfolio Duration
Duration is a commonly used measure of the potential volatility of the price of
a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Duration measures the magnitude of the change in
the price of a debt security relative to a given change in the market rate of
interest. The duration of a debt security depends on three primary variables:
the security's coupon rate, maturity date, and level of market interest rates
for similar debt securities. Generally, debt securities with lower coupons or
longer maturities will have a longer duration than securities with higher
coupons or shorter maturities.
Duration is calculated by dividing the sum of the time-weighted values of cash
flows of a security or portfolio of securities, including principal and interest
payments, by the sum of the present values of the cash flows. Certain debt
securities, such as asset-backed securities, may be subject to prepayment at
irregular intervals. The duration of these instruments will be calculated based
upon assumptions established by the investment adviser as to the probable amount
and sequence of principal prepayments.
Mathematically, duration is measured as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PVCF1(1) PVCF2(2) PVCF3(3) PVCFn(n)
Duration p ---------- + ---------- + ---------- + . . . + -----------
PVTCF PVTCF PVTCF PVTCF
</TABLE>
where
<TABLE>
<C> <C> <S>
PVCFt p the present value of the cash flow in period t discounted at the prevailing yield-to-maturity
t p the period when the cash flow is received
n p remaining number of periods until maturity
total present value of the cash flow from the bond where the present value is determined using the
PVTCF p prevailing yield-to-maturity
</TABLE>
Investment Limitations
- --------------------------------------------------------------------------------
Issuing Senior Securities and Borrowing Money
A Portfolio will not issue senior securities, except that it may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount
borrowed, and except to the extent that a Portfolio may enter into
futures contracts.
A Portfolio will not borrow money or engage in reverse repurchase
agreements except as a temporary, extraordinary, or emergency measure or
to facilitate management of the Portfolio by enabling it to meet
redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. A Portfolio will not
purchase any securities while any borrowings in excess of 5% of its total
assets are outstanding.
Investing in Commodities
The Portfolios will not invest in commodities, except that the Portfolios
reserve the right to engage in transactions involving financial futures
contracts, options, and forward contracts with respect to foreign
securities or currencies.
Investing in Real Estate
The Portfolios will not purchase or sell real estate, including limited
partnership interests, although the Portfolios may invest in securities
of issuers whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or which represent
interests in real estate.
Concentration of Investments
A Portfolio will not invest 25% or more of the value of its total assets
in any one industry (other than securities issued by the U.S. government,
its agencies, or instrumentalities).
Underwriting
A Portfolio will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities which the Portfolio may purchase
in accordance with its investment objective, policies, and limitations.
Selling Short and Buying on Margin
The Portfolios will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of portfolio securities. A
deposit or payment by a Portfolio of initial or variation margin in
connection with financial futures contracts or related options
transactions is not considered the purchase of a security on margin.
Diversification of Investments
With respect to securities comprising 75% of the value of its total
assets, a Portfolio will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if as a result
more than 5% of the value of its total assets would be invested in the
securities of that issuer or if it would own more than 10% of the
outstanding voting securities of such issuer. (For purposes of this
limitation a Portfolio considers instruments issued by a U.S. branch of a
domestic bank having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items").
Pledging Assets
The Portfolios will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In those cases, a Portfolio may
pledge assets having a market value not exceeding the lesser of the
dollar amounts borrowed or 15% of the value of total assets at the time
of the pledge. For purposes of this limitation, the following are not
deemed to be pledges: margin deposits for the purchase and sale of
financial futures contracts and related options; and segregation of
collateral arrangements made in connection with options activities or the
purchase of securities on a when-issued basis.
Lending Cash or Securities
A Portfolio will not lend any of its assets except portfolio securities.
This shall not prevent the purchase or holding of U.S. government
obligations, corporate bonds, debentures, notes, certificates of
indebtedness, or other debt securities of any issuer, repurchase
agreements, or other transactions which are permitted by the Portfolios'
respective investment objectives, policies, or Declaration of Trust.
The above investment limitations cannot be changed with respect to a Portfolio
without approval of that Portfolio's shareholders. The following limitations may
be changed by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.
Investing in Restricted Securities
A Portfolio will not invest more than 10% of its total assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Trustees. In order to
comply with registration requirements of a certain state, each Portfolio
has agreed to limit its investment in restricted securities to 5% of its
total assets. If state requirements change, this policy may be changed
without notice to shareholders.
Investing in Illiquid Securities
A Portfolio will not invest more than 15% of the value of its net assets
in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter
options, and certain securities not determined by the Trustees to be
liquid.
Investing in Minerals
The Portfolios will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except they may purchase
the securities of issuers which invest in or sponsor such programs.
Investing in Warrants
A Portfolio will not invest more than 5% of its net assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, each Portfolio will limit its
investments in such warrants not listed on the New York or American Stock
Exchanges to 2% of its net assets. (If state restrictions change, this
latter restriction may be revised without notice to shareholder.) For
purposes of this investment restriction, warrants will be valued at the
lower of cost or market, except that warrants acquired by a Portfolio in
units with or attached to securities may be deemed to be without value.
Investing in Put Options
A Portfolio will not purchase put options on securities, unless the
securities are held in the Portfolio's portfolio or unless the Portfolio
is entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.
Writing Covered Call Options
A Portfolio will not write call options on securities unless the
securities are held in the Portfolio's portfolio or unless the Portfolio
is entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.
Investment in Securities of Other Investment Companies
A Portfolio will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, will invest no more than 5% of total assets in any one
investment company, and will invest no more than 10% of its total assets
in investment companies in general. A Portfolio will purchase securities
of closed-end investment companies only in open-market transactions
involving only customary broker's commissions. However, these limitations
are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. It should be
noted that investment companies incur certain expenses such as
management fees, and, therefore, any investment by a Portfolio in
shares of another investment company would be subject to such duplicate
expenses.
Investing in New Issuers
A Portfolio will not invest more than 5% of the value of its total assets
in securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
Investing in Issuers Whose Securities are Owned by Officers and Trustees of
the Trust
A Portfolio will not purchase or retain the securities of any issuer if
the officers and Trustees of the Trust, the investment adviser, or a
sub-adviser owning individually more than 1/2 of 1% of the issuer's
securities, together own more than 5% of the issuer's securities.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
No Portfolio expects to borrow money in excess of 5% of the value of its net
assets during the coming fiscal year.
Managed Series Trust Management
- --------------------------------------------------------------------------------
Officers and Trustees
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, Inc., and the Funds (as defined below).
<TABLE>
<CAPTION>
Positions with Principal Occupations
Name and Address the Trust During Past Five Years
<S> <C> <C>
John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of J. Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or
Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples
3255 Tamiami Trail North Property Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza--23rd Director, Trustee, or Managing General Partner of the Funds; formerly,
Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Pittsburgh, PA Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Boston Financial,
F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer
Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of the
Federated Investors Tower Trustee Funds; staff member, Federated Securities Corp. and Federated
Pittsburgh, PA Administrative Services, Inc.
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Tower Federated Management, and Federated Research; President and Director,
Pittsburgh, PA Federated Administrative Services, Inc.; Trustee, Federated Services
Company; President or Vice President of the Funds; Director, Trustee, or
Managing General Partner of some of the Funds. Mr. Donahue is the son of
John F. Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Trustee, Federated Services Company; Executive Vice
President, Treasurer, and Director, Federated Securities Corp.;
Chairman, Treasurer and Director Federated Administrative Services,
Inc.; Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Director,
Federated Administrative Services, Inc.; Director and Executive Vice
President, Federated Securities Corp.; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Compa-
ny and President of its Federated Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
\Member of the Trust's Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
The Funds
"The Funds" and "Funds" mean the following investment companies: A. T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT
Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insight Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment Series
Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.;
Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.--1999; Liberty
U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash
Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations
Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal
Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage
Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust;
Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II;
Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and
Trust for U.S. Treasury Obligations.
Trust Ownership
Officers and Trustees own less than 1% of the shares of the Trust.
Trustee Liability
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
Investment Advisory Services
- --------------------------------------------------------------------------------
Adviser to the Trust
The Trust's investment adviser is Federated Management (the "Adviser"). It is a
subsidiary of Federated Investors. All of the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue, his
wife, and his son, J. Christopher Donahue. John F. Donahue, Chairman and Trustee
of Federated Management, is Chairman and Trustee, Federated Investors and
Chairman and Trustee of the Trust. John A. Staley, IV, President and Trustee,
Federated Management, is Vice President and Trustee, Federated Investors;
Executive Vice President, Federated Securities Corp.; and Vice President of the
Trust. J. Christopher Donahue, Trustee of Federated Management, is President and
Trustee, Federated Investors; Trustee, Federated Services Company; President and
Director, Federated Administrative Services, Inc.; and Vice President of the
Trust. John W. McGonigle, Vice President, Secretary, and Trustee of Federated
Management, is Trustee, Vice President, Secretary, and General Counsel,
Federated Investors; Trustee, Federated Services Company; Executive Vice
President, Secretary and Director, Federated Administrative Services, Inc.;
Executive Vice President and Director, Federated Securities Corp.; and Vice
President and Secretary of the Trust.
Henry J. Gailliot, Ph.D., is the investment adviser's economist and strategist.
Dr. Gailliot joined Federated Investors in 1972 and is Senior Vice
President-Economist, Federated Research Corp. and Chairman, Federated Investment
Counseling. His responsibilities include the development of Federated's economic
outlook, as well as Federated's investment policy outlook for the equity and
debt markets. Dr. Gailliot graduated with an M.S. in Industrial Administration
from Carnegie Institute of Technology and received a Ph.D. in Economics from
Carnegie Mellon University.
The Adviser shall not be liable to the Trust, the Portfolios, or any shareholder
of the Portfolios for any losses that may be sustained in the purchase, holding,
or sale of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
Advisory Fees
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus of each Portfolio.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If aPortfolio's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the Adviser will reimburse the
Portfolio for its expenses over the limitation.
If the Portfolios' monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of shares of funds offered by Federated Securities Corp.
Administrative Services
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Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Portfolios for a fee as
described in the prospectus of each Portfolio.
John A. Staley, IV, an officer and Trustee of the Trust, and Dr. Henry J.
Gailliot, an officer of the Federated Management, the Adviser to the Trust, hold
approximately 15% and 20%, respectively, of the outstanding common stock and
serve as Directors of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc.
Brokerage Transactions
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When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those that are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers who offer brokerage and research services. These
services may be furnished directly to the Portfolios or to the Adviser and may
include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers that offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
Purchasing Shares
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Shares of the Portfolios are sold at the net asset value on days that the New
York Stock Exchange is open for business. The procedure for purchasing shares of
the Portfolios is explained in each Portfolio's respective prospectus under
"Investing in Institutional Service Shares" or "Investing in Select Shares."
Shareholder Servicing Plan
The Trust has adopted a Shareholder Servicing Plan (the "Services Plan") with
respect to the Institutional Service Shares and Select Shares of each Portfolio.
Pursuant to the Services Plan, financial institutions will enter into
shareholder service agreements with the Portfolios to provide administrative
support services to their customers who from time to time may be owners of
record or beneficial owners of shares of one or more Portfolios. In return for
providing these support services, a financial institution may receive payments
from one or more Portfolios at a rate not exceeding .25% of the average daily
net assets of the Select Shares of the particular Portfolio or Portfolios
beneficially owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship. The Services Plan
is designed to stimulate financial institutions to render administrative support
services to the Portfolios and their shareholders. These administrative support
services include, but are not limited to, the following functions: providing
office space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, 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 Portfolios; assisting clients
in changing dividend options, account designations and addresses; and providing
such other services as the Portfolios reasonably request.
Among the benefits the Trustees expects to achieve in adopting the Services Plan
are the following: (1) an efficient and effective administrative system; (2) a
more efficient use of shareholder assets by having them rapidly invested in the
Portfolios, through an automatic transfer of funds from a demand deposit account
to an investment account, with a minimum of delay and administrative detail; and
(3) an efficient and reliable shareholder records system and prompt responses to
shareholder requests and inquiries concerning their accounts.
In addition to receiving payments under the Services Plan, financial
institutions may be compensated by the Adviser, the administrator, or affiliates
thereof for providing administrative support services to holders of Select
Shares of the Portfolios. These payments will be made directly by the Adviser or
administrator and will not be made from the assets of any of the Portfolios.
Distribution Plan (Select Shares)
With respect to the Select Shares of the Portfolios, the Trust has adopted a
Plan pursuant to Rule 12b-1, which was promulgated by the SEC under the
Investment Company Act of 1940. The Plan provides for payment of fees to the
distributor to finance any activity that is principally intended to result in
the sale of Select Shares of the Portfolios. Such activities may include the
advertising and marketing of Select Shares; preparing, printing and distributing
prospectuses and sales literature to prospective shareholders, brokers or
administrators; and implementing and operating the Plan. Pursuant to the Plan,
the distributor may pay fees to brokers for distribution services as to Select
Shares.
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of Select Shares of the Portfolios as to allow each Portfolio
to achieve economic viability. It is also anticipated that an increase in the
size of each Portfolio will facilitate more efficient portfolio management and
assist each Portfolio in seeking to achieve its investment objective.
Conversion to Federal Funds
It is each Portfolio's policy to be as fully invested as possible so that
maximum income may be earned. To this end, all payments from shareholders must
be in federal funds or be converted into federal funds. State Street Bank and
Trust Company acts as the shareholder's agent in depositing checks and
converting them to federal funds.
Determining Net Asset Value
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Net asset value generally changes each day. The days on which net asset value is
calculated by each Portfolio are described in the prospectus. Net asset value
will not be calculated on days on which the New York Stock Exchange is closed.
Determining Market Value of Securities
Market values of each Portfolio's portfolio securities are determined as
follows:
for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
for bonds and other fixed-income securities, as determined by an independent
pricing service;
for short-term obligations, according to the prices as furnished by an
independent pricing service;
for short-term obligations with maturities of less than 60 days, at amortized
cost, or at fair value as determined in good faith by the Trustees; and
for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider yield, quality, coupon
rate, maturity, type of issue, trading characteristics, and other market data.
The Portfolios will value futures contracts, options, and put options on futures
at their market values established by the exchanges at the close of option
trading on such exchanges unless the Trustees determines in good faith that
another method of valuing option positions is necessary to appraise their fair
market value.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
Portfolios value foreign securities at the latest closing price on the exchange
on which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Trustees, although the actual calculation may be done by
others.
Redeeming Shares
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The Portfolios redeem shares at the next computed net asset value after the
particular Portfolio receives the redemption request. Redemption procedures are
explained in the prospectus under the section entitled "Redeeming Shares."
Because portfolio securities of the Portfolios may be traded on foreign
exchanges which trade on Saturdays or on holidays on which the Portfolios will
not make redemptions, the net asset value of Shares of the Portfolios may be
significantly affected on days when shareholders do not have an opportunity to
redeem their Shares.
Redemption in Kind
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Portfolio's investment portfolio.
To the extent available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner that the Trustees determine to be fair and
equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940, under which, with respect to each Portfolio, the Trust is obligated to
redeem shares for any one shareholder in cash only up to the lesser of $250,000
or 1% of the respective class's net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
Tax Status
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The Portfolios' Tax Status
The Portfolios expect to pay no federal income tax because they expect to meet
the requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, each
Portfolio must, among other requirements:
derive at least 90% of its gross income from dividends, interest and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
However, the Portfolios may invest in the stock of certain foreign corporations
which would constitute a Passive Foreign Investment Company (PFIC). Federal
income taxes may be imposed on the Portfolios upon disposition of PFIC
investments.
Each Portfolio will be treated as a single, separate entity for federal income
tax purposes so that income and losses (including capital gains and losses)
realized by a Portfolio will not be combined for tax purposes with income and
losses realized by any of the other Portfolios.
Foreign Taxes
Investment income on certain foreign securities in which the Portfolios may
invest may be subject to foreign withholding or other taxes that could reduce
the return on these securities. Tax treaties between the United States and
foreign countries, however, may reduce or eliminate the amount of foreign taxes
to which the Portfolios would be subject.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to a particular fund if that fund were a regular corporation and to
the extent designed by a fund as so qualifying. These dividends, and any
short-term capital gains, are taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax on long-term capital gains distributed
to them regardless of how long they have held the shares of the
particular Portfolio.
Total Return
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The average annual total return for the Portfolios is the average compounded
rate of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable value
is compounded by multiplying the number of shares owned at the end of the period
by the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, adjusted over the period by any additional
shares, assuming the monthly reinvestment of all dividends and distributions.
Yield
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The yield for both classes of each Portfolio is determined by dividing the net
investment income per share (as defined by the SEC) earned by the particular
Portfolio over a thirty-day period by the maximum offering price per share of
the particular Portfolio on the last day of the period. This value is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a twelve month period and is reinvested every six months. The yield does
not necessarily reflect income actually earned by the particular Portfolio
because of certain adjustments required by the SEC and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions charge fees in connection with
services provided in conjunction with an investment in a Portfolio, the
performance will be reduced for those shareholders paying those fees.
Performance Comparisons
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Each Portfolio's performance of both classes of shares depends upon such
variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the particular Portfolio is invested;
changes in the expenses of the Trust, the particular Portfolio or either class
of shares; and
various other factors.
Each Portfolio's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return for each class of the Portfolios.
Investors may use financial publications and/or indices to obtain a more
complete view of a Portfolio's performance of either class of shares. When
comparing performance of either class of shares, investors should consider all
relevant factors such as the composition of any index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which a Portfolio uses in advertising may include:
Lipper Analytical Services, Inc., ranks funds in various fund categories by
making competitive calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
From time to time, a Portfolio will quote its Lipper ranking in advertising and
sales literature.
Standard & Poor's Utility Index is an unmanaged index of common stocks from
forty different utilities. This index indicates daily changes in the price of
the stocks. The index also provides figures for changes in price from the
beginning of the year to date and for a twelve-month period.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a composite
index of common stocks in industry, transportation, and financial and public
utility companies, can be used to compare to the total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the Standard &
Poor's index assumes reinvestments of all dividends paid by stocks listed on
its index. Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in the Standard & Poor's figures.
Standard & Poor's Small Stock Index, an index which is expected to be formally
launched at the end of the first quarter of 1994, will probably be market
weighted and consist of 600 hundred stocks of companies having between $100
million and $1 billion in market capitalization.
Europe, Australia, and Far East (EAFE) is a market capitalization weighted
foreign securities index, which is widely used to measure the performance of
European, Australian, New Zealand and Far Eastern stock markets. The index
covers approximately 1,020 companies drawn from 18 countries in the above
regions. The index values its securities daily in both U.S. dollars and local
currency and calculates total returns monthly. EAFE U.S. dollar total return is
a net dividend figure less Luxembourg withholding tax. The EAFE is monitored by
Capital International, S.A., Geneva, Switzerland.
Russell 2000 Index is a broadly diversified index consisting of approximately
2,000 small capitalization common stocks that can be used to compare to the
total returns of funds whose portfolios are invested primarily in small
capitalization common stocks.
Lehman Brothers Treasury Intermediate Bond Index (U.S. Dollars) is an index
composed of all bonds covered by the Lehman Brothers Treasury Bond Index with
maturities between one and 9.9 years. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indexes are rebalanced monthly by market capitalization.
Lehman Brothers Treasury Long-Term Bond Index (U.S. Dollars) is an index
composed of all bonds covered by the Lehman Brothers Treasury Bond Index with
maturities of 10 years or greater. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indexes are rebalanced monthly by market capitalization.
J.P. Morgan Global Non-U.S. Government Bond Index is a total return, market
capitalization weighted index, rebalanced monthly consisting of the following
countries: Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan,
Netherlands, Spain, Sweden and United Kingdom.
Lehman Brothers Corporate Intermediate Bond Index (U.S. Dollars) is a subset of
the Lehman Brothers Corporate Bond Index covering all corporate, publicly
issued, fixed-rate, nonconvertible U.S. debt issues rated at least Baa with at
least $50 million principal outstanding and maturity less than 10 years.
Lehman Brothers Corporate B Index is an index composed of all bonds covered by
Lehman Brothers High Yield Index rated "B" by Moody's Investors Service. Bonds
have a minimum amount outstanding of $100 million and at least one year to
maturity. Total return comprises price appreciation/depreciation and income as
a percentage of the original investment. Indexes are rebalanced monthly by
market capitalization.
Lehman Brothers Mortgage-Backed Securities Index includes 15-and 30-year
fixed-rate securities backed by mortgage pools of the Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC),
and Federal National Mortgage Corporation (FNMA). Graduated payment mortgages
(GPMs) and balloons are included in the index.
Advertisements and other sales literature for both classes of shares of the
Portfolios may quote total returns which are calculated on non-standardized base
periods. The total returns represent the historic change in the value of an
investment in either class of shares of the Portfolios based on monthly or
quarterly, as applicable, reinvestment of dividends over a specified period of
time.
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