1933 Act File No. 33-51247
1940 Act File No. 811-7129
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. .......................
Post-Effective Amendment No. 9 ...................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 10 .................................... X
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MANAGED SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
__ on ____________________ pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a) (i) on pursuant to paragraph
(a) (i) 75 days after filing pursuant to paragraph (a)(ii) on
_______________ pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L. Street, N.W.
Washington, DC 20037
PROSPECTUS
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 SHARES
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary What are the Funds' Fees
and Expenses? What are the Funds' Investment
Strategies?
What are the Principal Securities in Which
the Funds Invests? What are the Specific
Risks of Investing in the Funds?
What do Shares Cost?
How are the Funds Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Funds?
Financial Information
JANUARY 31, 1998
<PAGE>
5
RISK/RETURN SUMMARY
WHAT IS EACH FUND'S INVESTMENT OBJECTIVE?
The objective of Federated Managed Income Fund is to seek current income. The
objective of Federated Managed Growth and Income Fund is to seek current income
and capital appreciation. The objective of Federated Managed Growth Fund is to
seek capital appreciation. The objective of Federated Managed Aggressive Growth
Fund is to seek capital appreciation. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following the
investment strategies and policies described in this prospectus. WHAT ARE THE
FUNDS' MAIN INVESTMENT STRATEGIES? The Funds invest in diversified portfolios
which are allocated among several categories of equity and fixed income
securities. The adviser manages the Funds based on the view that the investment
performance of each Fund's portfolio over the long term depends primarily on the
fact that the portfolio consists of securities from multiple categories. Of
secondary importance to each Fund's performance is allocation of the portfolio
among asset categories in response to market conditions and the selection of
securities within asset categories. Therefore, each Fund pursues its investment
objective in the following manner:
by setting long-term ranges for each Fund's portfolio investments in each
asset category; by allocating each Fund's portfolio among asset categories
within those defined ranges; and by actively selecting securities within
each of the asset categories.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Funds. The primary factors that may reduce the Funds'
returns include:
a general rise in interest rates;
fluctuations in the value of equity securities; and
fluctuations in the exchange rate between the U.S. dollar and foreign
currencies.
The Funds may also invest in fixed income securities rated below investment
grade, also known as junk bonds, that generally entail greater risks than
investment grade fixed income securities. An investment in the Funds involves
additional risks such as call and prepayment risks, liquidity risks, sector
risks and risks of foreign investing.RISK RETURN BAR CHARTS AND TABLES INCOME
FUND The graphic presentations displayed here consists of a bar charts
representing the returns of institutional shares of the Fund as of the calendar
year-end for of 1995, 1996 and 1997.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 2 up to 16.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1997. The light gray shaded chart features three distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Shares for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1995
through 1997 are 15.69%, 5.56% and 10.49%, respectively. The total returns
displayed for the Fund do not reflect the payment of recurring shareholder
account fees. If these charges or fees had been included, the returns shown
would have been lower. The Fund's total return from January 1, 1998 to September
30, 1998 was 6.54%. Within the period shown in the Chart, the Fund's highest
quarterly return was 5.24%. Its lowest quarterly return was -0.27%.
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
Average Annual Return for the Fund's Institutional Shares, compared to the S&P
500 Index (S&P 500), the Lehman Brothers Government/Corporate Bond
Index (LBGCBI), and the Lipper Balanced Funds Average (LBFA). TO COME
1 Year 5 Years 10 Years
Institutional Shares 10.49% % %
S&P 500 % % %
LBGCBI % % %
LBFA % % %
The table shows the Fund's Institutional Class Shares' average annual total
returns compared to the S&P 500 and LBGCBI, which are broad-based market
indexes, and the LBFA, an average of the fund's with similar investment
objectives. Past performance does not necessarily predict future performance.
This information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards. GROWTH AND INCOME FUND The graphic presentations displayed
here consists of a bar charts representing the returns of institutional shares
of the Fund as of the calendar year-end for of 1995, 1996 and 1997. The `y' axis
reflects the "% Total Return" beginning with "0" and increasing in increments of
2 up to 20. The `x' axis represents calculation periods from the earliest
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1997. The light gray shaded chart features three distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Institutional Shares for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1995 through 1997 are 19.79%, 6.34% and 12.99%, respectively. The
total returns displayed for the Fund do not reflect the payment of recurring
shareholder account fees. If these charges or fees had been included, the
returns shown would have been lower. The Fund's total return from January 1,
1998 to September 30, 1998 was 4.91%. Within the period shown in the Chart, the
Fund's highest quarterly return was 6.06%. Its lowest quarterly return was
- -2.14%.
AVERAGE ANNUAL TOTAL RETURN
Average Annual Return for the Fund's Institutional Shares, compared to the S&P
500 Index (S&P 500), the Lehman Brothers Government/Corporate Bond
Index (LBGCBI), and the Lipper Balanced Funds Average (LBFA). TO COME
1 Year 5 Years 10 Years
Institutional Shares 12.99% % %
S&P 500 % % %
LBGCBI % % %
LBFA % % %
The table shows the Fund's Institutional Class Shares' average annual total
returns compared to the S&P 500 and LBGCBI, which are broad-based market
indexes, and the LBFA, an average of the fund's with similar investment
objectives. Past performance does not necessarily predict future performance.
This information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards. GROWTH FUND The graphic presentations displayed here consists
of a bar charts representing the returns of institutional shares of the Fund as
of the calendar year-end for of 1995, 1996 and 1997. The `y' axis reflects the
"% Total Return" beginning with "0" and increasing in increments of 5 up to 25.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1997. The light gray shaded chart features three distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Shares for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1995
through 1997 are 22.26%, 10.50% and 14.29%, respectively. The total returns
displayed for the Fund do not reflect the payment of recurring shareholder
account fees. If these charges or fees had been included, the returns shown
would have been lower. The Fund's total return from January 1, 1998 to September
30, 1998 was 1.56%. Within the period shown in the Chart, the Fund's highest
quarterly return was 8.41%. Its lowest quarterly return was -7.13%.
AVERAGE ANNUAL TOTAL RETURN
Average Annual Return for the Fund's Institutional Shares, compared to the S&P
500 Index (S&P 500), the Lehman Brothers Government/Corporate Bond
Index (LBGCBI), and the Lipper Balanced Funds Average (LBFA). TO COME
1 Year 5 Years 10 Years
Institutional Shares 14.29% % %
S&P 500 33.36% % %
LBGCBI % % %
LBFA % % %
The table shows the Fund's Institutional Shares' average annual total returns
compared to the S&P 500 and LBGCBI, which are broad-based market indexes, and
the LBFA, an average of the fund's with similar investment objectives. Past
performance does not necessarily predict future performance. This information
provides you with historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
AGGRESSIVE GROWTH FUND The graphic presentations displayed here consists of a
bar charts representing the returns of institutional shares of the Fund as of
the calendar year-end for of 1995, 1996 and 1997. The `y' axis reflects the "%
Total Return" beginning with "0" and increasing in increments of 5 up to 25. The
`x' axis represents calculation periods from the earliest calendar year end of
the Fund's start of business through the calendar year ended December 30, 1997.
The light gray shaded chart features three distinct vertical bars, each shaded
in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Shares for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1995
through 1997 are 22.25%, 12.35% and 14.90%, respectively. The total returns
displayed for the Fund do not reflect the payment of recurring shareholder
account fees. If these charges or fees had been included, the returns shown
would have been lower. The Fund's total return from January 1, 1998 to September
30, 1998 was 6.54%. Within the period shown in the Chart, the Fund's highest
quarterly return was 5.24%. Its lowest quarterly return was -0.27%.
AVERAGE ANNUAL TOTAL RETURN
Average Annual Return for the Fund's Institutional Shares, compared to the S&P
500 Index (S&P 500), the Lehman Brothers Government/Corporate Bond
Index (LBGCBI), and the Lipper Balanced Funds Average (LBFA). TO COME
1 Year 5 Years 10 Years
Institutional Shares 14.90% % %
S&P 500 33.36% % %
LBGCBI % % %
LBFA % % %
The table shows the Fund's Institutional Class Shares' average annual total
returns compared to the S&P 500 and LBGCBI, which are broad-based market
indexes, and the LBFA, an average of the fund's with similar investment
objectives. Past performance does not necessarily predict future performance.
This information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.
WHAT ARE THE FUNDS' FEES AND EXPENSES?
INCOME FUND
This table describes the fees and expenses that you may pay if you buy and hold
Institutional Shares of the Income Fund.
INSTITUTIONAL
SHAREHOLDER FEES SHARES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee 0.75%
Distribution (12b-1) Fee None
Other Expenses 0.54
Shareholder Services Fee 0.25%
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS)* 1.54% *ALTHOUGH NOT
CONTRACTUALLY OBLIGATED, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED CERTAIN
AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND ACTUALLY
PAID FOR THE
FISCAL YEAR ENDED NOVEMBER 30, 1998.
Waiver of Fund Expenses (1) (2) 0.62%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.92%
1 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) for the Institutional Shares was 0.33% for the
year ended November 30, 1998. 2 The adviser has voluntarily waived a portion of
the Institutional Shares shareholder services fee. This voluntary waiver can be
terminated at any time. The shareholder services fees paid by the Fund (after
voluntary waiver) for the Institutional Shares was 0.05% for the year ended
November 30, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Institutional Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are BEFORE
WAIVERS as estimated above and remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 YEAR3 YEARS5 10 YEARS
YEARS
Expenses assuming no $157 $486 $839 $1,834
redemption
<PAGE>
GROWTH AND INCOME FUND
This table describes the fees and expenses that you may pay if you buy and hold
Institutional Shares of the Growth and Income Fund.
INSTITUTIONAL
SHAREHOLDER FEES SHARES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee 0.75%
Distribution (12b-1) Fee None
Other Expenses 0.38%
Shareholder Services Fee 0.25%
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS)* 1.38% *ALTHOUGH NOT
CONTRACTUALLY OBLIGATED, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED CERTAIN
AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND ACTUALLY
PAID FOR THE
FISCAL YEAR ENDED NOVEMBER 30, 1998.
Waiver of Fund Expenses (1) 0.20%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.18%
1 The adviser has voluntarily waived a portion of the Institutional Shares
shareholder services fee. This voluntary waiver can be terminated at any time.
The shareholder services fees paid by the Fund (after voluntary waiver) for the
Institutional Shares was 0.05% for the year ended November 30, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Institutional Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are BEFORE
WAIVERS as estimated above and remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 YEAR3 YEARS5 10 YEARS
YEARS
Expenses assuming no $141 $437 $755 $1,657
redemption
<PAGE>
GROWTH FUND
This table describes the fees and expenses that you may pay if you buy and hold
Institutional Shares of the Growth Fund.
INSTITUTIONAL
SHAREHOLDER FEES SHARES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee 0.75%
Distribution (12b-1) Fee None
Other Expenses 0.32%
Shareholder Services Fee 0.25%
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS)* 1.32% *ALTHOUGH NOT
CONTRACTUALLY OBLIGATED, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED CERTAIN
AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND ACTUALLY
PAID FOR THE
FISCAL YEAR ENDED NOVEMBER 30, 1998.
Waiver of Fund Expenses (1) 0.20%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.12%
1 The adviser has voluntarily waived a portion of the Institutional Shares
shareholder services fee. This voluntary waiver can be terminated at any time.
The shareholder services fees paid by the Fund (after voluntary waiver) for the
Institutional Shares was 0.05% for the year ended November 30, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Institutional Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are BEFORE
WAIVERS as estimated above and remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 YEAR3 YEARS5 10 YEARS
YEARS
Expenses assuming no $134 $418 $723 $1,590
redemption
<PAGE>
AGGRESSIVE GROWTH FUND
This table describes the fees and expenses that you may pay if you buy and hold
Institutional Shares of the Aggressive Growth Fund.
INSTITUTIONAL
SHAREHOLDER FEES SHARES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee 0.75%
Distribution (12b-1) Fee None
Other Expenses 0.49%
Shareholder Services Fee 0.25%
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS)* 1.49% *ALTHOUGH NOT
CONTRACTUALLY OBLIGATED, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED CERTAIN
AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND ACTUALLY
PAID FOR THE
FISCAL YEAR ENDED NOVEMBER 30, 1998.
Waiver of Fund Expenses (1) (2) 0.33%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.16%
1 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) for the Institutional Shares was 0.62% for the
year ended November 30, 1998. 2 The adviser has voluntarily waived a portion of
the Institutional Shares shareholder services fee. This voluntary waiver can be
terminated at any time. The shareholder services fees paid by the Fund (after
voluntary waiver) for the Institutional Shares was 0.05% for the year ended
November 30, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Institutional Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are BEFORE
WAIVERS as estimated above and remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 YEAR3 YEARS5 10 YEARS
YEARS
Expenses assuming no $152 $471 $813 $1,779
redemption
<PAGE>
WHAT ARE THE FUNDS' INVESTMENT STRATEGIES?
Each Fund will primarily invest in two types of assets: equities and fixed
income securities. The Funds have divided each type into several asset
categories. The adviser manages the Funds based on the view that the investment
performance of each Fund's portfolio over the long term depends primarily on the
fact that the portfolio consists of securities from multiple asset categories.
Of secondary importance to each Fund's performance is allocation of the
portfolio among asset categories in response to market conditions and the
selection of securities within asset categories.
Therefore, each Fund pursues its investment objective in the following manner:
by setting long-term ranges for each Fund's portfolio investments
in each asset category; by allocating each Fund's portfolio among
asset categories within those defined ranges; and by actively
selecting securities within each of the asset categories.
The following is a summary of the asset categories and the percentage of each
Fund's total assets which may be invested in each asset category:
FMAGF FMGF FMGIF FMIF
ASSET CATEGORY RANGE RANGE RANGE RANGE
EQUITIES 70-90% 50-70% 30-50% 10-30%
Large Company Stocks 40-60% 30-50% 22.5-37.5% 7.5-22.5%
Small Company Stocks 10-20% 5-15% 0-5% 0
Foreign Stocks 10-20% 5-15% 0-5% 0
UTILITY STOCKS 0 0 2.5-7.5% 2.5-7.5%
FIXED INCOME SECURITIES 10-30% 30-50% 50-70% 70-90%
U.S. Government Securities 0-20% 0-40% 0-56% 0-72%
Mortgage-Backed Securities 0-10% 0-15% 0-35% 0-45%
Investment-Grade Corporate 0-10% 0-15% 0-35% 0-45%
Debt
Non-Investment-Grade 0-10% 0-15% 0-10% 0-10%
Corporate Debt
Foreign Fixed Income 0-10% 0-15% 0-10% 0-10%
Securities
The Funds' adviser will regularly review each Fund's allocation among the asset
categories. The adviser will attempt to exploit price inefficiencies among the
various asset categories. For example, the adviser may move an asset category to
its upper limit if the adviser expects it to offer superior returns relative to
the other asset categories. Likewise, the adviser may move an asset category to
its lower limit if the adviser believes it is overvalued relative to the other
asset categories. The selection of portfolio securities involves an approach
that is specific to each asset category. The approach for each category is
summarized below. LARGE COMPANY STOCKS. With regard to the portion of each
Fund's portfolio allocated to large company stocks, each Fund pursues its
investment objective by investing in common stock of companies with large market
capitalizations. Large market capitalization companies are those which are the
1,000 companies with the largest market capitalization. The adviser invests in
companies that offer growth prospects or in companies whose stock is
undervalued. Using its own quantitative process, the adviser rates the future
performance potential of companies, selecting the most promising companies for
the Fund's portfolio. SMALL COMPANY STOCKS. With regard to the portion of each
Fund's portfolio allocated to small company stocks, each Fund pursues its
investment objective by investing at least 65% of the allocation in equity
securities of companies that fall within the market capitalization range of the
S&P 600 Small Cap Index (Index). As of October 21, 1998, this range was $18.5
million to $3.2 billion. Market capitalization is determined by multiplying the
number of outstanding shares by the current market price per share. The adviser
invests in companies that offer growth prospects or in companies whose stock is
undervalued. Using its own quantitative process, the adviser rates the future
performance potential of companies, selecting the most promising companies for
the Fund's portfolio. Companies with similar characteristics may be grouped
together in broad categories called sectors. In determining the amount to invest
in a security, the adviser limits the Fund's exposure to each business sector
that comprises the Index. The Fund's allocation to a sector will not be less
than 50% or more than 200% of the Index's allocation to that sector. The Fund
ordinarily will hold between 100 and 350 companies in the portfolio. The Fund
will buy securities in initial public offerings. The Fund will participate in
such offerings without regard to the issuer's market capitalization. The adviser
will select initial public offerings based solely on its fundamental analysis of
the issuer. FOREIGN STOCKS. With regard to the portion of each Fund's portfolio
allocated to foreign stocks, the Fund pursues its investment objective by
investing the allocation in equity securities of companies based outside the
U.S. The adviser manages the Fund based on the view that international equity
markets are inefficient at pricing securities and that careful security
selection offers the best potential for superior long-term investment returns.
Selection of industry and country are secondary considerations. Using its own
quantitative process, the adviser ranks the future performance potential of
companies. The adviser evaluates each company's earnings potential in light of
its current valuation to narrow the list of attractive companies. The adviser
then evaluates management quality and may meet with company representatives,
company suppliers, customers, or competitors The adviser also reviews the
company's financial statements and forecasts of earnings. Based on this
information, the adviser evaluates the sustainability of the company's current
growth trends and potential catalysts for increased growth. Using this type of
fundamental analysis, the adviser selects the most promising companies for the
Funds' portfolios. U.S. GOVERNMENT SECURITIES. The adviser invests the U.S.
government securities portion of the Funds' portfolios by setting an average
duration target for the fixed income portion of each Fund. The adviser selects
securities which match the targeted average duration.
MORTGAGE BACKED SECURITIES. In selecting mortgage backed securities, the
analysis focuses on the expected cash flows from the pool of mortgage
obligations supporting the security. To assess the relative returns and risks of
these securities, the adviser analyzes how the timing, amount and division of
cash flows from the pool might change in response to changing economic and
market conditions.
INVESTMENT GRADE CORPORATE DEBT. With regard to the allocation in domestic
corporate fixed income securities, the adviser allocates investments among
industries and adjusts the credit quality of the portfolio by analyzing current
economic and securities market conditions, particularly changes in interest
rates and expected trends in corporate earnings. These factors also guide the
selection of maturity and duration of portfolio securities. Duration measures
the price sensitivity of a fixed income security to changes in interest rates.
In selecting a portfolio security, the adviser analyzes the business,
competitive position, and financial condition of the issuer to assess whether
the security's risk is commensurate with its potential return. NON-INVESTMENT
GRADE CORPORATE DEBT. The Funds will invest in noninvestment grade securities
primarily by investing in another mutual fund advised by an affiliate of the
adviser. The other mutual fund is managed independently of the Fund and may
incur additional expenses. The Funds may also invest directly in noninvestment
grade securities. Although the selection of noninvestment grade domestic
corporate securities involves the same factors as investment grade securities,
the adviser gives greater emphasis to its analysis of the issuer. FOREIGN FIXED
INCOME SECURITIES. With regard to the allocation to foreign fixed income
securities, the Fund pursues its objective by investing primarily in fixed
income securities of foreign governments and their agencies which are members of
the Organization for Economic Cooperation and Development.
The adviser manages the foreign fixed income allocation to maintain an average
AA rating of its portfolio securities. The adviser uses the J.P. Morgan Global
Traded Index Excluding U.S. Index (Global Index) as a benchmark for managing the
foreign fixed income allocation. The adviser looks for opportunities to enhance
the Fund's performance by diverging from the Global Index. Such opportunities
may cause the adviser to weight the portfolio differently than the Global Index
or to buy securities not represented in the Index. Under ordinary market
conditions, however, the duration of the portfolio securities does not deviate
more than 25% from the duration of the Global Index. No more than 25% of the
foreign fixed income allocation will be invested in any one country. The Funds
also intend to invest at least 50% of the foreign fixed income allocation in
securities that have received ratings in the two highest rating categories or
unrated securities that the adviser considers of comparable quality.
The adviser weighs several factors in selecting investments for the foreign
fixed income portfolio. First, the adviser analyzes a country's general economic
condition and outlook, including its interest rates, foreign exchange rates and
trade balance. The adviser then analyzes the country's financial condition,
including its credit ratings, government budget, tax base, outstanding public
debt and the amount of public debt held outside the country. In connection with
this analysis, the adviser also considers how developments in other countries in
the region or the world might affect these factors.
Using its analysis, the adviser tries to identify countries with favorable
characteristics, such as a strengthening economy, favorable inflation rate,
sound budget policy or strong public commitment to repay government debt. The
adviser then evaluates available foreign fixed income investments in these
countries based upon its outlook for interest and foreign exchange rates. The
adviser tries to select securities that offer the best potential returns
consistent with its general portfolio strategy.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUNDS INVEST?
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Funds cannot predict the income they will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the type of equity securitY in which the Funds principally
invest.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. The
following describes the typeS of fixed income securitIES in which the Funds
principally invest.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
credit risks. AGENCY SECURITIES Agency securities are issued or guaranteed by
a federal agency or other government sponsored entity acting under federal
authority (a GSE). The United States supports some GSEs with its full, faith
and credit. Other GSEs receive support through federal subsidies, loans or
other benefits. A few GSEs have no explicit financial support, but are
regarded as having implied support because the federal government sponsors
their activities. Investors regard agency securities as having low credit
risks, but not as low as treasury securities. The Fund treats mortgage backed
securities guaranteed by GSEs as agency securities. Although a GSE guarantee
protects against credit risks, it does not reduce the MARKET AND PREPAYMENT
RISKS of these mortgage backed securities. CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans
to companies. The CREDIT RISKS of corporate debt securities vary widely
amount issuers. The credit risk of an issuer's debt security may also vary
based on its priority for repayment. MORTGAGE BACKED SECURITIES Mortgage
backed securities represent interests in pools of mortgages. The mortgages
that comprise a pool normally have similar interest rates, maturities and
other terms. Mortgages may have fixed or adjustable interest rates. Interests
in pools of adjustable rate mortgages are know as ARMs. Mortgage backed
securities come in a variety of forms. Many have extremely complicated terms.
The simplest form of mortgage backed securities are pass-through
certificates. An issuer of pass-through certificates gathers monthly payments
from an underlying pool of mortgages. Then, the issuer deducts its fees and
expenses and passes the balance of the payments onto the certificate holders
once a month. Holders of pass-through certificates receive a pro rata share
of all payments and pre-payments from the underlying mortgages. As a result,
the holders assume all the PREPAYMENT RISKS of the underlying mortgages.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Funds consider an issuer to be based outside the United States if: it is
organized under the laws of, or has a principal office located in, another
country; the principal trading market for its securities is in another
country; or it (or its subsidiaries) derived in its most current fiscal year
at least 50% of its total assets, capitalization, gross revenue or profit
from
goods produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along
with the risks normally associated with domestic securities of the same type,
foreign securities are subject to CURRENCY RISKS AND RISKS OF FOREIGN
INVESTING.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUNDS?
STOCK MARKET RISKS
The value of equity securities in each Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. A Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, a Fund's share price may
decline and you could lose money.
The Adviser attempts to manage market risk by limiting the amount each Fund
invests in each company. However, diversification will not protect a Fund
against widespread or prolonged declines in the stock market.
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Funds will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Funds must rely entirely upon the Adviser's credit
assessment.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security's rating is lowered, or
the security is perceived to have an increased credit risk. An increase in
the spread will cause the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving
the Funds will fail to meet its obligations. This could cause the Funds to
lose the benefit of the transaction or prevent the Funds from selling or
buying other securities to implement its investment strategy.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
The adviser attempts to manage currency risk by limiting the amount the
Funds invest in securities denominated in a particular currency. However,
diversification will not protect the Funds against a general increase in the
value of the U.S. dollar relative to other currencies.
EURO RISKS
On January 1, 1999, the European Monetary Union (EMU) plans to introduce a new
single currency, the Euro, which will replace the national currency for
participating member countries. The countries participating in the EMU are
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain. If a Fund holds investments in countries with
currencies replaced by the Euro, the investment process, including trading,
foreign exchange, payments, settlements, cash accounts, custody and accounting
will be impacted. The process to establish the Euro may result in market
volatility. The possible impact of the Euro on the business or financial
condition of European issuers or on a Fund cannot be determined with certainty
at this time. The transition and the elimination of currency risk among EMU
countries may change the economic environment and behavior of investors,
particularly in European markets. To the extent the Fund holds non-U.S. dollar
(Euro or other) denominated securities, it will still be exposed to currency
risk due to fluctuations in those currencies versus the U.S. dollar.
The Funds' Adviser and Administrator are taking measures that they believe are
reasonably designed to:
address all Euro-related changes to enable a Fund to process transactions
accurately and completely with minimal disruption to business activities
and
obtain reasonable assurances that comparable steps are being taken by
each of the Funds' other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Funds.
CALL AND PREPAYMENT RISKS
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below it's current market price.
An increase in the likelihood of a call may reduce the security's price.
Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates.
As a result, increases in prepayments of high interest rate mortgage backed
securities, or decreases in prepayments of lower interest rate mortgage
backed securities, may reduce their yield and price. This relationship
between interest rates and mortgage prepayments makes the price of mortgage
backed securities more volatile than most other types of fixed income
securities with comparable credit risks.
If a fixed income security is called or prepaid, the Funds may have to
reinvest the proceeds in other fixed income securities with lower interest
rates, higher credit risks, or other less favorable characteristics.
SECTOR RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or as the market as a whole. As the
Adviser allocates more of a Fund's portfolio holdings to a particular sector,
the Fund's performance will be more susceptible to any economic, business or
other developments which generally affect that sector.
LIQUIDITY RISKS
Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Funds may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Funds' performance. Infrequent trading may also lead to greater price
volatility.
Liquidity risk also refers to the possibility that the Funds may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Funds will be required to continue to hold the security or
keep the position open, and the Funds could incur losses.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.
Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than larger, well capitalized companies.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
LEVERAGE RISKS
Leverage risk is created when an investment exposes a Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify a Fund's risk of loss and potential for gain.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When a Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is the net asset value (NAV). NAV is determined at the
end of regular trading (normally 4 p.m. Eastern time) each day the NYSE is open.
The minimum initial investment in for each Fund is $25,000. An account may be
opened with a smaller amount as long as the minimum is reached within 90 days.
Accounts established through an investment professional may be subject to a
smaller minimum amount. Keep in mind that investment professionals may charge
you fees for their services in connection with your Share transactions.
HOW ARE THE FUNDS SOLD?
The Funds offer two share classes: Institutional Shares and Select Shares each
representing interests in a single portfolio of securities. This prospectus
relates only to Institutional Shares. Each share class has different expenses,
which affect their performance. Contact your investment professional or call
1-800-341-7400 for more information concerning the other class.
The Funds' Distributor markets the Shares described in this prospectus to
individuals and financial institutions. When the Distributor receives marketing
fees, it may pay some or all of them to investment professionals. The
Distributor and its affiliates may pay out of their assets other amounts
(including items of material value) to investment professionals for marketing
and servicing Shares. The Distributor is a subsidiary of Federated Investors,
Inc. (Federated).
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Funds. The Funds reserve the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund
on the same day and the Fund receives payment within three business days. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUNDS
Establish your account with a Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the NAV on
the day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling a Fund and
the Shares will be priced at the NAV on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600.
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Funds
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Funds or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Funds if you purchased Shares
directly from the Funds.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional.
DIRECTLY FROM THE FUNDS
BY TELEPHONE
You may redeem Shares by calling the Funds once you have completed the
appropriate authorization form for telephone transactions. If you call before
the end of regular trading on the NYSE (normally 4 p.m. Eastern time) you will
receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem Shares by mailing a written request to a Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Funds if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, BUT NOT BY A NOTARY
PUBLIC.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although each Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts a Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from a Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Funds. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Funds will record your telephone instructions. If the Funds do not follow
reasonable procedures, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Funds no longer issues share certificates. If you are redeeming or
exchanging Shares represented by certificates previously issued by the Funds,
you must return the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do not
endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
Each Fund (except the Income Fund) declares and pays any dividends quarterly to
shareholders. The Income Fund declares and pays any dividends monthly to
shareholders. Dividends are paid to all shareholders invested in a Fund on the
record date. The record date is the date on which a shareholder must officially
own shares in order to earn a dividend.
In addition, the Funds pay any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares unless you elect cash payments. If you elect cash payments and the
payment is returned as undeliverable, your cash payment will be reinvested in
Shares and your distribution option will convert to automatic reinvestment. If
any distribution check remains uncashed for six months the check will no longer
be honored, the check amount will be reinvested in Shares, and you will not
accrue any interest or dividends on this amount prior to the reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before a Fund declares a dividend or
capital gain. Contact your investment professional or the Funds for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions cause the account balance to fall below
the minimum initial investment amount. Before an account is closed, the
shareholder will be notified and allowed 30 days to purchase additional Shares
to meet the minimum.
TAX INFORMATION
The Funds send an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Funds. Dividend and capital gains distributions are taxable at
different rates depending upon the length of time a Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
WHO MANAGES THE FUNDS?
The Board of Trustees governs the Funds. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Funds' assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser has delegated daily management of some Fund assets to the
Sub-Adviser, Federated Global Research Corp., who is paid by the Adviser and not
by the Funds based on the portion of foreign securities the Sub-Adviser manages.
<TABLE>
<CAPTION>
PORTFOLIO MANAGERS
NAME ASSET CATEGORY BIOGRAPHY
(Portfolio Manager MANAGED
since)
<S> <C> <C>
Charles A. Ritter Overall Mr. Ritter joined Federated in 1983 and has
Allocation and been a Vice President of the Funds' Adviser and
(Inception) Domestic Large Federated Research Corp. since 1992. From 1988
Company Stocks until 1991, Mr. Ritter acted as an Assistant
Vice President of the Funds' Adviser and
Federated Research Corp. 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.
Susan M. Nason U.S. Treasury Ms. Nason joined Federated in 1987 and has been
Securities a Senior Vice President of the Funds' Adviser
(Inception) and Federated Research Corp. since April 1997.
Ms. Nason served as a Vice President of the
Funds' Adviser and Federated Research Corp.
from 1993 to 1997, and as an Assistant Vice
President of the Adviser and Federated Research
Corp. from 1990 until 1992. Ms. Nason is a
Chartered Financial Analyst and received her
M.S.I.A. concentrating in Finance from Carnegie
Mellon University.
Joseph M. U.S. Treasury Mr. Balestrino joined Federated in 1986 and has
Balestrino Securities and been Vice President of the Funds' Adviser and
Investment-Grade Federated Research Corp. since 1995. Mr.
(March 1995) Corporate Bonds Balestrino served as an Assistant Vice
President of the Funds' Adviser and Federated
Research Corp. from 1991 until 1995. Mr.
Balestrino is a Chartered Financial Analyst and
received his M.A. in Urban and Regional
Planning from the University of Pittsburgh.
Kathleen M. Mortgage-Backed Ms. Foody-Malus joined Federated in 1983 and
Foody-Malus Securities has been a Vice President of the Funds' Adviser
and Federated Research Corp. since 1993. Ms.
(Inception) Foody-Malus served as an Assistant Vice
President of the Adviser and Federated Research
Corp. from 1990 until 1992. Ms. Foody-Malus
received her M.B.A. in Accounting/Finance from
the University of Pittsburgh.
Robert E. Cauley Mortgage-Backed Mr. Cauley joined Federated in 1996 as an
Securities Assistant Vice President of the Funds' Adviser
(July 1997) and Federated Research Corp. Mr. Cauley served
as an Associate in the Asset-Backed Securities
Group at Lehman Brothers Holding, Inc. from
1994 to 1996. From 1992 to 1994, Mr. Cauley
served as a Senior Associate/Corporate Finance
at Barclays Bank, PLC. Mr. Cauley earned his
M.S.I.A., concentrating in Finance and
Economics, from Carnegie Mellon University.
John T. Gentry Investment Mr. Gentry joined Federated in 1995 as an
Grade Corporate Investment Analyst and has been an Assistant
(July 1997) Bonds Vice President of the Funds' Adviser and
Federated Research Corp. since April 1997. Mr.
Gentry served as a Senior Treasury Analyst at
Sun Company, Inc. from 1991 to 1995. Mr. Gentry
is a Chartered Financial Analyst and earned his
M.B.A., with concentrations in Finance and
Accounting, from Cornell University.
Mark. E Durbiano High Yield Mr. Durbiano joined Federated in 1982 and has
Corporate Bonds been a Senior Vice President of the Funds'
(Inception) Adviser and Federated Research Corp. since
January 1996. From 1988 through 1995, Mr.
Durbiano was a Vice President of the Funds'
Adviser and Federated Research Corp. Mr.
Durbiano is a Chartered Financial Analyst and
received his M.B.A. in Finance from the
University of Pittsburgh.
Henry A. Frantzen Foreign Bonds Mr. Frantzen joined Federated in 1995 as an
and Executive Vice President of the Funds'
(November 1995) Foreign Stocks Sub-Adviser and Federated Research Corp. Mr.
Frantzen served as Chief Investment Officer of
international equities at Brown Brothers
Harriman & Co. from 1992 to 1995.
Drew J. Collins Foreign Bonds Mr. Collins joined Federated in 1995 as a
and Senior Vice President of the Funds' Sub-Adviser
(November 1995) Foreign Stocks and Federated Research Corp. Mr. Collins served
as a Vice President/Portfolio Manager of
international equity portfolios at Arnhold and
Bleichroeder, Inc. from 1994 to 1995. He served
as an Assistant Vice President/Portfolio
Manager for international equities at the
College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial
Analyst and received his M.B.A. in finance from
the Wharton School of The University of
Pennsylvania.
Robert M. Kowit Foreign Bonds Robert M. Kowit joined Federated in 1995 as a
Vice President of the Funds' Sub-Adviser and
(November 1995) Federated Research Corp. Mr. Kowit served as a
Managing Partner of Copernicus Global Asset
Management from January 1995 through October
1995. From 1990 to 1994, he served as Senior
Vice President of International Fixed Income
and Foreign Exchange for John Hancock Advisers.
Mr. Kowit received his M.B.A. from Iona College
with a concentration in finance.
<PAGE>
Michael W. Casey, Foreign Bonds Mr. Casey joined Federated in 1996 as an
Ph. D. Assistant Vice President of the Funds'
Sub-Adviser and Federated Research Corp. Mr.
(January 1997) Casey served as an International Economist and
Portfolio Strategist for Maria Fiorini Ramirez
Inc. from 1990 to 1996. Mr. Casey earned a
Ph.D. concentrating in economics from The New
School for Social Research and a M.Sc. from the
London School of Economics.
John Harris Domestic Large
Company Stocks
(Date)
Linda A. Duessel Utility Stocks Ms. Duessel joined Federated in 1991 and has
been a Vice President of the Funds' Adviser and
(February 1997) Federated Research Corp. since 1995. Ms.
Duessel was an Assistant Vice President of the
Funds' Adviser and Federated Research Corp.
from 1991 until 1995. Ms. Duessel is a
Chartered Financial Analyst and received her
M.S. in Industrial Administration from Carnegie
Mellon University.
Steven J. Lehman Utility Stocks Mr. Lehman joined Federated in May 1997 as a
Vice President. From 1986 to May 1997,
(December 1995) Mr. Lehman served as a Portfolio Manager, then
Vice President/Senior Portfolio Manager, at
First Chicago NBD Investment Management
Company. Mr. Lehman is a Chartered Financial
Analyst; he received his M.A. from the
University of Chicago.
Aash M. Shah Domestic Small Mr. Shah joined Federated in 1993 and has been
Company Stocks a Vice President of the Funds Adviser and
(June 1997) Federated Research Corp. since January 1997.
Mr. Shah served as an Assistant Vice President
of the Adviser from 1995 to 1996, and as an
Investment Analyst from 1993 to 1995. Mr. Shah
was employed at Westinghouse Credit Corp. from
1990 to 1993 as an Investment Analyst. Mr. Shah
received his Masters in Industrial
Administration from Carnegie Mellon University
with a concentration in finance and accounting.
Mr. Shah is a Chartered Financial Analyst.
Keith J. Sabol Domestic Small Mr. Sabol joined Federated in 1994 and has been
Company Stocks an Assistant Vice President of the Funds'
(June 1997) Adviser and Federated Research Corp. since
January 1997. Mr. Sabol was an Investment
Analyst, and then Equity Research Coordinator
for the Funds' Adviser from 1994 to 1996.
During 1992 and 1993, Mr. Sabol earned his M.S.
in Industrial Administration from Carnegie
Mellon University.
Alexandre de Foreign Stocks Mr. de Bethmann joined Federated in 1995 as a
Bethmann Vice President of the Funds' Sub-Adviser and
Federated Research Corp. Mr. de Bethmann served
(November 1995) as Assistant Vice President/Portfolio Manager
for Japanese and Korean equities at the College
Retirement Equities Fund from 1994 to 1995. He
served as an International Equities Analyst and
then as an Assistant Portfolio Manager at the
College Retirement Equities Fund between 1987
and 1994. Mr. de Bethmann received his M.B.A.
in Finance from Duke University.
Frank Semack Foreign Stocks Mr. Semack joined Federated in 1995 as a Vice
President of the Funds' Sub-Adviser and
(November 1995) Federated Research Corp. Mr. Semack served as
an Investment Analyst at Omega Advisers, Inc.
from 1993 to 1994. He served as a Portfolio
Manager/Associate Director of Wardley
Investment Services, Ltd. from 1980 to 1993.
Mr. Semack received his M.Sc. in economics from
the London School of Economics.
</TABLE>
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.75% of each Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse a Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Funds.
While it is impossible to determine in advance all of the risks to the Funds,
the Funds could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Funds' service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Funds' investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Funds
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand each Fund's
financial performance for its past five fiscal years, or since inception, if the
life of a Fund is shorter. Some of the information is presented on a per share
basis. Total returns represent the rate an investor would have earned (or lost)
on an investment in a Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Arthur Andersen LLP, whose report, along
with the Funds' audited financial statements, is included in the Annual Report.
TO COME
<PAGE>
FEDERATED MANAGED INCOME FUND
FEDERATED MANAGED GROWTH AND INCOME FUND
FEDERATED MANAGED GROWTH FUND
FEDERATED MANAGED AGGRESSIVE GROWTH FUND
Portfolios of Managed Series Trust
INSTIUTIONAL SHARES
A Statement of Additional Information (SAI) is incorporated by reference into
this prospectus. Additional information about the Funds' investments is
available in the Funds' annual report to shareholders. The annual report
discusses market conditions and investment strategies that significantly
affected each Fund's performance during its last fiscal year. To obtain the SAI
and the annual report and other information without charge call your investment
professional or the Funds at 1-800-341-7400.
You can obtain information about the Funds by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
INVESTMENT COMPANY ACT FILE NO. 811-7129
CUSIP 56166K 107
CUSIP56166K 305
CUSIP 56166K 503
CUSIP 56166K 701
000000-00 (1/99)
PROSPECTUS
FEDERATED MANAGED INCOME FUND
FEDERATED MANAGED GROWTH AND INCOME FUND
FEDERATED MANAGED GROWTH FUND
FEDERATED MANAGED AGGRESSIVE GROWTH FUND
Portfolios of Managed Series Trust
SELECT SHARES
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary What are the Funds' Fees
and Expenses? What are the Funds' Investment
Strategies?
What are the Principal Securities in Which
the Funds Invests? What are the Specific
Risks of Investing in the Funds?
What do Shares Cost?
How are the Funds Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Funds?
Financial Information
PROSPECTUS DATED JANUARY 31, 1998
<PAGE>
14
WHAT IS EACH FUND'S INVESTMENT OBJECTIVE?
The objective of Federated Managed Income Fund is to seek current income. The
objective of Federated Managed Growth and Income Fund is to seek current income
and capital appreciation. The objective of Federated Managed Growth Fund is to
seek capital appreciation. The objective of Federated Managed Aggressive Growth
Fund is to seek capital appreciation. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following the
investment strategies and policies described in this prospectus. WHAT ARE THE
FUNDS' MAIN INVESTMENT STRATEGIES? The Funds invest in diversified portfolios
which are allocated among several categories of equity and fixed income
securities. The adviser manages the Funds based on the view that the investment
performance of each Fund's portfolio over the long term depends primarily on the
fact that the portfolio consists of securities from multiple categories. Of
secondary importance to each Fund's performance is allocation of the portfolio
among asset categories in response to market conditions and the selection of
securities within asset categories. Therefore, each Fund pursues its investment
objective in the following manner:
by setting long-term ranges for each Fund's portfolio investments in each
asset category; by allocating each Fund's portfolio among asset categories
within those defined ranges; and by actively selecting securities within
each of the asset categories.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Funds. The primary factors that may reduce the Funds'
returns include:
a general rise in interest rates;
fluctuations in the value of equity securities; and
fluctuations in the exchange rate between the U.S. dollar and foreign
currencies.
The Funds may also invest in fixed income securities rated below investment
grade, also known as junk bonds, that generally entail greater risks than
investment grade fixed income securities. An investment in the Funds involves
additional risks such as call and prepayment risks, liquidity risks, sector
risks and risks of foreign investing.RISK RETURN BAR CHARTS AND TABLES INCOME
FUND The graphic presentations displayed here consists of a bar charts
representing the returns of Select shares of the Fund as of the calendar
year-end
for of 1995, 1996 and 1997.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 2 up to 16.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1997. The light gray shaded chart features three distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Select Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1995 through
1997 are 14.83%, 4.72% and 9.84%, respectively. The total returns displayed for
the Fund do not reflect the payment of recurring shareholder account fees. If
these charges or fees had been included, the returns shown would have been
lower. The Fund's total return from January 1, 1998 to September 30, 1998 was
5.98%. Within the period shown in the Chart, the Fund's highest quarterly return
was 5.04%. Its lowest quarterly return was -0.46%.
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
Average Annual Return for the Fund's Select Shares, compared to the S&P 500
Index (S&P 500), the Lehman Brothers Government/Corporate Bond Index
(LBGCBI), and the Lipper Balanced Funds Average (LBFA). TO COME
1 Year 5 Years 10 Years
Select Shares 9.84% % %
S&P 500 % % %
LBGCBI % % %
LBFA % % %
The table shows the Fund's Select Class Shares' average annual total returns
compared to the S&P 500 and LBGCBI, which are broad-based market indexes, and
the LBFA, an average of the fund's with similar investment objectives. Past
performance does not necessarily predict future performance. This information
provides you with historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
GROWTH AND INCOME FUND The graphic presentations displayed here consists of a
bar charts representing the returns of Select shares of the Fund as of the
calendar year-end for of 1995, 1996 and 1997. The `y' axis reflects the "% Total
Return" beginning with "0" and increasing in increments of 2 up to 20. The `x'
axis represents calculation periods from the earliest calendar year end of the
Fund's start of business through the calendar year ended December 31, 1997. The
light gray shaded chart features three distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Select Shares for each calendar year is stated directly at
the top of each respective bar, for the calendar years 1995 through 1997 are
19.05%, 5.72% and 12.21%, respectively. The total returns displayed for the Fund
do not reflect the payment of recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower. The
Fund's total return from January 1, 1998 to September 30, 1998 was 4.73%. Within
the period shown in the Chart, the Fund's highest quarterly return was 5.89%.
Its lowest quarterly return was -2.23%.
AVERAGE ANNUAL TOTAL RETURN
Average Annual Return for the Fund's Select Shares, compared to the S&P 500
Index (S&P 500), the Lehman Brothers Government/Corporate Bond Index
(LBGCBI), and the Lipper Balanced Funds Average (LBFA). TO COME
1 Year 5 Years 10 Years
Select Shares 12.21% % %
S&P 500 % % %
LBGCBI % % %
LBFA % % %
The table shows the Fund's Select Class Shares' average annual total returns
compared to the S&P 500 and LBGCBI, which are broad-based market indexes, and
the LBFA, an average of the fund's with similar investment objectives. Past
performance does not necessarily predict future performance. This information
provides you with historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
GROWTH FUND The graphic presentations displayed here consists of a bar charts
representing the returns of Select shares of the Fund as of the calendar
year-end for of 1995, 1996 and 1997. The `y' axis reflects the "% Total Return"
beginning with "0" and increasing in increments of 5 up to 25. The `x' axis
represents calculation periods from the earliest calendar year end of the Fund's
start of business through the calendar year ended December 31, 1997. The light
gray shaded chart features three distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Select Shares for each calendar year is stated directly at
the top of each respective bar, for the calendar years 1995 through 1997 are
21.42%, 9.75% and 13.44%, respectively. The total returns displayed for the Fund
do not reflect the payment of recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower. The
Fund's total return from January 1, 1998 to September 30, 1998 was 1.03%. Within
the period shown in the Chart, the Fund's highest quarterly return was 8.34%.
Its lowest quarterly return was -7.24%.
AVERAGE ANNUAL TOTAL RETURN
Average Annual Return for the Fund's Select Shares, compared to the S&P 500
Index (S&P 500), the Lehman Brothers Government/Corporate Bond Index
(LBGCBI), and the Lipper Balanced Funds Average (LBFA). TO COME
1 Year 5 Years 10 Years
Select Shares 13.44% % %
S&P 500 33.36% % %
LBGCBI % % %
LBFA % % %
The table shows the Fund's Select Shares' average annual total returns compared
to the S&P 500 and LBGCBI, which are broad-based market indexes, and the LBFA,
an average of the fund's with similar investment objectives. Past performance
does not necessarily predict future performance. This information provides you
with historical performance information so that you can analyze whether the
Fund's investment risks are balanced by its potential rewards. AGGRESSIVE GROWTH
FUND The graphic presentations displayed here consists of a bar charts
representing the returns of Select shares of the Fund as of the calendar
year-end for of 1995, 1996 and 1997. The `y' axis reflects the "% Total Return"
beginning with "0" and increasing in increments of 5 up to 25. The `x' axis
represents calculation periods from the earliest calendar year end of the Fund's
start of business through the calendar year ended December 30, 1997. The light
gray shaded chart features three distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Select Shares for each calendar year is stated directly at
the top of each respective bar, for the calendar years 1995 through 1997 are
21.62%, 11.62% and 14.04%, respectively. The total returns displayed for the
Fund do not reflect the payment of recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower. The
Fund's total return from January 1, 1998 to September 30, 1998 was -0.39%.
Within the period shown in the Chart, the Fund's highest quarterly return was
10.19%. Its lowest quarterly return was -10.53%.
AVERAGE ANNUAL TOTAL RETURN
Average Annual Return for the Fund's Select Shares, compared to the S&P 500
Index (S&P 500), the Lehman Brothers Government/Corporate Bond Index
(LBGCBI), and the Lipper Balanced Funds Average (LBFA). TO COME
1 Year 5 Years 10 Years
Select Shares 14.04% % %
S&P 500 33.36% % %
LBGCBI % % %
LBFA % % %
The table shows the Fund's Select Class Shares' average annual total returns
compared to the S&P 500 and LBGCBI, which are broad-based market indexes, and
the LBFA, an average of the fund's with similar investment objectives. Past
performance does not necessarily predict future performance. This information
provides you with historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
WHAT ARE THE FUNDS' FEES AND EXPENSES?
INCOME FUND
This table describes the fees and expenses that you may pay if you buy and hold
Select Shares of the Income Fund.
SELECT
SHAREHOLDER FEES SHARES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee 0.75%
Distribution (12b-1) Fee 0.75%
Other Expenses 0.54%
Shareholder Services Fee 0.25%
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS)* 2.29% *ALTHOUGH NOT
CONTRACTUALLY OBLIGATED, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED CERTAIN
AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND ACTUALLY
PAID FOR THE
FISCAL YEAR ENDED NOVEMBER 30, 1998.
Waiver of Fund Expenses (1) (2) 0.67%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.62%
1 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) for the Select Shares was 0.33% for the year
ended November 30, 1998. 2 The adviser has voluntarily waived a portion of the
Select Shares distribution (12b-1) fee. This voluntary waiver can be terminated
at any time. The distribution (12b-1) fee paid by the Fund (after voluntary
waiver) for the Select Shares was 0.50% for the year ended November 30, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Select Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Select Shares for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's Select Shares operating expenses are BEFORE WAIVERS as
estimated above and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 YEAR3 YEARS5 10 YEARS
YEARS
Expenses assuming no $232 $715 $1,225$2,626
redemption
<PAGE>
GROWTH AND INCOME FUND
This table describes the fees and expenses that you may pay if you buy and hold
Select Shares of the Growth and Income Fund.
SELECT
SHAREHOLDER FEES SHARES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee 0.75%
Distribution (12b-1) Fee 0.75%
Other Expenses 0.38
Shareholder Services Fee 0.25%
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS)* 2.13% *ALTHOUGH NOT
CONTRACTUALLY OBLIGATED, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED CERTAIN
AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND ACTUALLY
PAID FOR THE
FISCAL YEAR ENDED NOVEMBER 30, 1998.
Waiver of Fund Expenses (1) (2) 0.25%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.88%
1 The adviser has voluntarily waived a portion of the Select Shares shareholder
services fee. This voluntary waiver can be terminated at any time. The
shareholder services fees paid by the Fund (after voluntary waiver) for the
Select Shares was 0.05% for the year ended November 30, 1998. 2 The adviser has
voluntarily waived a portion of the Select Shares distribution (12b-1) fee. This
voluntary waiver can be terminated at any time. The distribution (12b-1) fee
paid by the Fund (after voluntary waiver) for the Select Shares was 0.50% for
the year ended November 30, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Select Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Select Shares for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's Select Shares operating expenses are BEFORE WAIVERS as
estimated above and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 YEAR3 YEARS5 10 YEARS
YEARS
Expenses assuming no $216 $667 $1,144$2,462
redemption
<PAGE>
GROWTH FUND
This table describes the fees and expenses that you may pay if you buy and hold
Select Shares of the Growth Fund.
SELECT
SHAREHOLDER FEES SHARES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee 0.75%
Distribution (12b-1) Fee 0.75%
Other Expenses 0.32%
Shareholder Services Fee 0.25%
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS)* 2.07% *ALTHOUGH NOT
CONTRACTUALLY OBLIGATED, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED CERTAIN
AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND ACTUALLY
PAID FOR THE
FISCAL YEAR ENDED NOVEMBER 30, 1998.
Waiver of Fund Expenses (1) 0.25%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.82%
1 The adviser has voluntarily waived a portion of the Select Shares distribution
(12b-1) fee. This voluntary waiver can be terminated at any time. The
distribution (12b-1) fee paid by the Fund (after voluntary waiver) for the
Select Shares was 0.50% for the year ended November 30, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Select Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Select Shares for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's Select Shares operating expenses are BEFORE WAIVERS as
estimated above and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 YEAR3 YEARS5 10 YEARS
YEARS
Expenses assuming no $210 $649 $1,114$2,400
redemption
<PAGE>
AGGRESSIVE GROWTH FUND
This table describes the fees and expenses that you may pay if you buy and hold
Select Shares of the Aggressive Growth Fund.
SELECT
SHAREHOLDER FEES SHARES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee 0.75%
Distribution (12b-1) Fee 0.75%
Other Expenses 0.49
Shareholder Services Fee 0.25%
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS)* 2.24% *ALTHOUGH NOT
CONTRACTUALLY OBLIGATED, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED CERTAIN
AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND ACTUALLY
PAID FOR THE
FISCAL YEAR ENDED NOVEMBER 30, 1998.
Waiver of Fund Expenses (1) (2) 0.38%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.86%
1 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) for the Select Shares was 0.62% for the year
ended November 30, 1998. 2 The adviser has voluntarily waived a portion of the
Select Shares distribution (12b-1) fee. This voluntary waiver can be terminated
at any time. The distribution (12b-1) fee paid by the Fund (after voluntary
waiver) for the Select Shares was 0.50% for the year ended November 30, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Select Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Select Shares for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's Select Shares operating expenses are BEFORE WAIVERS as
estimated above and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 YEAR3 YEARS5 10 YEARS
YEARS
Expenses assuming no $227 $700 $1,200$2,575
redemption
<PAGE>
WHAT ARE THE FUNDS' INVESTMENT STRATEGIES?
Each Fund will primarily invest in two types of assets: equities and fixed
income securities. The Funds have divided each type into several asset
categories. The adviser manages the Funds based on the view that the investment
performance of each Fund's portfolio over the long term depends primarily on the
fact that the portfolio consists of securities from multiple asset categories.
Of secondary importance to each Fund's performance is allocation of the
portfolio among asset categories in response to market conditions and the
selection of securities within asset categories.
Therefore, each Fund pursues its investment objective in the following manner:
by setting long-term ranges for each Fund's portfolio investments
in each asset category; by allocating each Fund's portfolio among
asset categories within those defined ranges; and by actively
selecting securities within each of the asset categories.
The following is a summary of the asset categories and the percentage of each
Fund's total assets which may be invested in each asset category:
FMAGF FMGF FMGIF FMIF
ASSET CATEGORY RANGE RANGE RANGE RANGE
EQUITIES 70-90% 50-70% 30-50% 10-30%
Large Company Stocks 40-60% 30-50% 22.5-37.5% 7.5-22.5%
Small Company Stocks 10-20% 5-15% 0-5% 0
Foreign Stocks 10-20% 5-15% 0-5% 0
UTILITY STOCKS 0 0 2.5-7.5% 2.5-7.5%
FIXED INCOME SECURITIES 10-30% 30-50% 50-70% 70-90%
U.S. Government Securities 0-20% 0-40% 0-56% 0-72%
Mortgage-Backed Securities 0-10% 0-15% 0-35% 0-45%
Investment-Grade Corporate 0-10% 0-15% 0-35% 0-45%
Debt
Non-Investment-Grade 0-10% 0-15% 0-10% 0-10%
Corporate Debt
Foreign Fixed Income 0-10% 0-15% 0-10% 0-10%
Securities
The Funds' adviser will regularly review each Fund's allocation among the asset
categories. The adviser will attempt to exploit price inefficiencies among the
various asset categories. For example, the adviser may move an asset category to
its upper limit if the adviser expects it to offer superior returns relative to
the other asset categories. Likewise, the adviser may move an asset category to
its lower limit if the adviser believes it is overvalued relative to the other
asset categories. The selection of portfolio securities involves an approach
that is specific to each asset category. The approach for each category is
summarized below. LARGE COMPANY STOCKS. With regard to the portion of each
Fund's portfolio allocated to large company stocks, each Fund pursues its
investment objective by investing in common stock of companies with large market
capitalizations. Large market capitalization companies are those which are the
1,000 companies with the largest market capitalization. The adviser invests in
companies that offer growth prospects or in companies whose stock is
undervalued. Using its own quantitative process, the adviser rates the future
performance potential of companies, selecting the most promising companies for
the Fund's portfolio. SMALL COMPANY STOCKS. With regard to the portion of each
Fund's portfolio allocated to small company stocks, each Fund pursues its
investment objective by investing at least 65% of the allocation in equity
securities of companies that fall within the market capitalization range of the
S&P 600 Small Cap Index (Index). As of October 21, 1998, this range was $18.5
million to $3.2 billion. Market capitalization is determined by multiplying the
number of outstanding shares by the current market price per share. The adviser
invests in companies that offer growth prospects or in companies whose stock is
undervalued. Using its own quantitative process, the adviser rates the future
performance potential of companies, selecting the most promising companies for
the Fund's portfolio. Companies with similar characteristics may be grouped
together in broad categories called sectors. In determining the amount to invest
in a security, the adviser limits the Fund's exposure to each business sector
that comprises the Index. The Fund's allocation to a sector will not be less
than 50% or more than 200% of the Index's allocation to that sector. The Fund
ordinarily will hold between 100 and 350 companies in the portfolio. The Fund
will buy securities in initial public offerings. The Fund will participate in
such offerings without regard to the issuer's market capitalization. The adviser
will select initial public offerings based solely on its fundamental analysis of
the issuer. FOREIGN STOCKS. With regard to the portion of each Fund's portfolio
allocated to foreign stocks, the Fund pursues its investment objective by
investing the allocation in equity securities of companies based outside the
U.S. The adviser manages the Fund based on the view that international equity
markets are inefficient at pricing securities and that careful security
selection offers the best potential for superior long-term investment returns.
Selection of industry and country are secondary considerations. Using its own
quantitative process, the adviser ranks the future performance potential of
companies. The adviser evaluates each company's earnings potential in light of
its current valuation to narrow the list of attractive companies. The adviser
then evaluates management quality and may meet with company representatives,
company suppliers, customers, or competitors The adviser also reviews the
company's financial statements and forecasts of earnings. Based on this
information, the adviser evaluates the sustainability of the company's current
growth trends and potential catalysts for increased growth. Using this type of
fundamental analysis, the adviser selects the most promising companies for the
Funds' portfolios. U.S. GOVERNMENT SECURITIES. The adviser invests the U.S.
government securities portion of the Funds' portfolios by setting an average
duration target for the fixed income portion of each Fund. The adviser selects
securities which match the targeted average duration.
MORTGAGE BACKED SECURITIES. In selecting mortgage backed securities, the
analysis focuses on the expected cash flows from the pool of mortgage
obligations supporting the security. To assess the relative returns and risks of
these securities, the adviser analyzes how the timing, amount and division of
cash flows from the pool might change in response to changing economic and
market conditions.
INVESTMENT GRADE CORPORATE DEBT. With regard to the allocation in domestic
corporate fixed income securities, the adviser allocates investments among
industries and adjusts the credit quality of the portfolio by analyzing current
economic and securities market conditions, particularly changes in interest
rates and expected trends in corporate earnings. These factors also guide the
selection of maturity and duration of portfolio securities. Duration measures
the price sensitivity of a fixed income security to changes in interest rates.
In selecting a portfolio security, the adviser analyzes the business,
competitive position, and financial condition of the issuer to assess whether
the security's risk is commensurate with its potential return. NON-INVESTMENT
GRADE CORPORATE DEBT. The Funds will invest in noninvestment grade securities
primarily by investing in another mutual fund advised by an affiliate of the
adviser. The other mutual fund is managed independently of the Fund and may
incur additional expenses. The Funds may also invest directly in noninvestment
grade securities. Although the selection of noninvestment grade domestic
corporate securities involves the same factors as investment grade securities,
the adviser gives greater emphasis to its analysis of the issuer. FOREIGN FIXED
INCOME SECURITIES. With regard to the allocation to foreign fixed income
securities, the Fund pursues its objective by investing primarily in fixed
income securities of foreign governments and their agencies which are members of
the Organization for Economic Cooperation and Development.
The adviser manages the foreign fixed income allocation to maintain an average
AA rating of its portfolio securities. The adviser uses the J.P. Morgan Global
Traded Index Excluding U.S. Index (Global Index) as a benchmark for managing the
foreign fixed income allocation. The adviser looks for opportunities to enhance
the Fund's performance by diverging from the Global Index. Such opportunities
may cause the adviser to weight the portfolio differently than the Global Index
or to buy securities not represented in the Index. Under ordinary market
conditions, however, the duration of the portfolio securities does not deviate
more than 25% from the duration of the Global Index. No more than 25% of the
foreign fixed income allocation will be invested in any one country. The Funds
also intend to invest at least 50% of the foreign fixed income allocation in
securities that have received ratings in the two highest rating categories or
unrated securities that the adviser considers of comparable quality.
The adviser weighs several factors in selecting investments for the foreign
fixed income portfolio. First, the adviser analyzes a country's general economic
condition and outlook, including its interest rates, foreign exchange rates and
trade balance. The adviser then analyzes the country's financial condition,
including its credit ratings, government budget, tax base, outstanding public
debt and the amount of public debt held outside the country. In connection with
this analysis, the adviser also considers how developments in other countries in
the region or the world might affect these factors.
Using its analysis, the adviser tries to identify countries with favorable
characteristics, such as a strengthening economy, favorable inflation rate,
sound budget policy or strong public commitment to repay government debt. The
adviser then evaluates available foreign fixed income investments in these
countries based upon its outlook for interest and foreign exchange rates. The
adviser tries to select securities that offer the best potential returns
consistent with its general portfolio strategy.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUNDS INVEST?
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Funds cannot predict the income they will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the type of equity securitY in which the Funds principally
invest.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. The
following describes the typeS of fixed income securitIES in which the Funds
principally invest.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
credit risks. AGENCY SECURITIES Agency securities are issued or guaranteed by
a federal agency or other government sponsored entity acting under federal
authority (a GSE). The United States supports some GSEs with its full, faith
and credit. Other GSEs receive support through federal subsidies, loans or
other benefits. A few GSEs have no explicit financial support, but are
regarded as having implied support because the federal government sponsors
their activities. Investors regard agency securities as having low credit
risks, but not as low as treasury securities. The Fund treats mortgage backed
securities guaranteed by GSEs as agency securities. Although a GSE guarantee
protects against credit risks, it does not reduce the MARKET AND PREPAYMENT
RISKS of these mortgage backed securities. CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans
to companies. The CREDIT RISKS of corporate debt securities vary widely
amount issuers. The credit risk of an issuer's debt security may also vary
based on its priority for repayment. MORTGAGE BACKED SECURITIES Mortgage
backed securities represent interests in pools of mortgages. The mortgages
that comprise a pool normally have similar interest rates, maturities and
other terms. Mortgages may have fixed or adjustable interest rates. Interests
in pools of adjustable rate mortgages are know as ARMs. Mortgage backed
securities come in a variety of forms. Many have extremely complicated terms.
The simplest form of mortgage backed securities are pass-through
certificates. An issuer of pass-through certificates gathers monthly payments
from an underlying pool of mortgages. Then, the issuer deducts its fees and
expenses and passes the balance of the payments onto the certificate holders
once a month. Holders of pass-through certificates receive a pro rata share
of all payments and pre-payments from the underlying mortgages. As a result,
the holders assume all the PREPAYMENT RISKS of the underlying mortgages.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Funds consider an issuer to be based outside the United States if: it is
organized under the laws of, or has a principal office located in, another
country; the principal trading market for its securities is in another
country; or it (or its subsidiaries) derived in its most current fiscal year
at least 50% of its total assets, capitalization, gross revenue or profit
from
goods produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along
with the risks normally associated with domestic securities of the same type,
foreign securities are subject to CURRENCY RISKS AND RISKS OF FOREIGN
INVESTING.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUNDS?
STOCK MARKET RISKS
The value of equity securities in each Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. A Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, a Fund's share price may
decline and you could lose money.
The Adviser attempts to manage market risk by limiting the amount each Fund
invests in each company. However, diversification will not protect a Fund
against widespread or prolonged declines in the stock market.
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Funds will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Funds must rely entirely upon the Adviser's credit
assessment.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security's rating is lowered, or
the security is perceived to have an increased credit risk. An increase in
the spread will cause the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving
the Funds will fail to meet its obligations. This could cause the Funds to
lose the benefit of the transaction or prevent the Funds from selling or
buying other securities to implement its investment strategy.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
The adviser attempts to manage currency risk by limiting the amount the
Funds invest in securities denominated in a particular currency. However,
diversification will not protect the Funds against a general increase in the
value of the U.S. dollar relative to other currencies.
EURO RISKS
On January 1, 1999, the European Monetary Union (EMU) plans to introduce a new
single currency, the Euro, which will replace the national currency for
participating member countries. The countries participating in the EMU are
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain. If a Fund holds investments in countries with
currencies replaced by the Euro, the investment process, including trading,
foreign exchange, payments, settlements, cash accounts, custody and accounting
will be impacted. The process to establish the Euro may result in market
volatility. The possible impact of the Euro on the business or financial
condition of European issuers or on a Fund cannot be determined with certainty
at this time. The transition and the elimination of currency risk among EMU
countries may change the economic environment and behavior of investors,
particularly in European markets. To the extent the Fund holds non-U.S. dollar
(Euro or other) denominated securities, it will still be exposed to currency
risk due to fluctuations in those currencies versus the U.S. dollar.
The Funds' Adviser and Administrator are taking measures that they believe are
reasonably designed to:
address all Euro-related changes to enable a Fund to process transactions
accurately and completely with minimal disruption to business activities
and
obtain reasonable assurances that comparable steps are being taken by
each of the Funds' other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Funds.
CALL AND PREPAYMENT RISKS
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below it's current market price.
An increase in the likelihood of a call may reduce the security's price.
Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates.
As a result, increases in prepayments of high interest rate mortgage backed
securities, or decreases in prepayments of lower interest rate mortgage
backed securities, may reduce their yield and price. This relationship
between interest rates and mortgage prepayments makes the price of mortgage
backed securities more volatile than most other types of fixed income
securities with comparable credit risks.
If a fixed income security is called or prepaid, the Funds may have to
reinvest the proceeds in other fixed income securities with lower interest
rates, higher credit risks, or other less favorable characteristics.
SECTOR RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or as the market as a whole. As the
Adviser allocates more of a Fund's portfolio holdings to a particular sector,
the Fund's performance will be more susceptible to any economic, business or
other developments which generally affect that sector.
LIQUIDITY RISKS
Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Funds may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Funds' performance. Infrequent trading may also lead to greater price
volatility.
Liquidity risk also refers to the possibility that the Funds may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Funds will be required to continue to hold the security or
keep the position open, and the Funds could incur losses.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.
Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than larger, well capitalized companies.
<PAGE>
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
LEVERAGE RISKS
Leverage risk is created when an investment exposes a Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify a Fund's risk of loss and potential for gain.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When a Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is the net asset value (NAV). NAV is determined at the
end of regular trading (normally 4 p.m. Eastern time) each day the NYSE is open.
The minimum initial investment in for each Fund is $1,500. Accounts established
through an investment professional may be subject to a smaller minimum amount.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
HOW ARE THE FUNDS SOLD?
The Funds offer two share classes: Select Shares and Institutional Shares each
representing interests in a single portfolio of securities. This prospectus
relates only to Select Shares. Each share class has different expenses, which
affect their performance. Contact your investment professional or call
1-800-341-7400 for more information concerning the other class.
The Funds' Distributor markets the Shares described in this prospectus to retail
and private banking customers of financial institutions. When the Distributor
receives marketing fees, it may pay some or all of them to investment
professionals. The Distributor and its affiliates may pay out of their assets
other amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of Federated
Investors, Inc. (Federated).
RULE 12B-1 PLAN
Each Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees
to the Distributor and investment professionals for the sale, distribution and
customer servicing of a Fund's Select Shares. Because these Shares pay marketing
fees on an ongoing basis, your investment cost may be higher over time than
other shares with different sales charges and marketing fees
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Funds. The Funds reserve the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund
on the same day and the Fund receives payment within [three/one] business
day[s]. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUNDS
Establish your account with a Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the NAV on
the day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling a Fund and
the Shares will be priced at the NAV on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600.
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Funds
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Funds or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Funds if you purchased Shares
directly from the Funds.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional.
DIRECTLY FROM THE FUNDS
BY TELEPHONE
You may redeem Shares by calling the Funds once you have completed the
appropriate authorization form for telephone transactions. If you call before
the end of regular trading on the NYSE (normally 4 p.m. Eastern time) you will
receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem Shares by mailing a written request to a Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Funds if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, BUT NOT BY A NOTARY
PUBLIC.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although each Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts a Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from a Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Funds. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Funds will record your telephone instructions. If the Funds do not follow
reasonable procedures, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Funds no longer issues share certificates. If you are redeeming or
exchanging Shares represented by certificates previously issued by the Funds,
you must return the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do not
endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
Each Fund (except the Income Fund) declares and pays any dividends quarterly to
shareholders. The Income Fund declares and pays any dividends monthly to
shareholders. Dividends are paid to all shareholders invested in a Fund on the
record date. The record date is the date on which a shareholder must officially
own shares in order to earn a dividend.
In addition, the Funds pay any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares unless you elect cash payments. If you elect cash payments and the
payment is returned as undeliverable, your cash payment will be reinvested in
Shares and your distribution option will convert to automatic reinvestment. If
any distribution check remains uncashed for six months the check will no longer
be honored, the check amount will be reinvested in Shares, and you will not
accrue any interest or dividends on this amount prior to the reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before a Fund declares a dividend or
capital gain. Contact your investment professional or the Funds for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions cause the account balance to fall below
the minimum initial investment amount. Before an account is closed, the
shareholder will be notified and allowed 30 days to purchase additional Shares
to meet the minimum.
TAX INFORMATION
The Funds send an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Funds. Dividend and capital gains distributions are taxable at
different rates depending upon the length of time a Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
WHO MANAGES THE FUNDS?
The Board of Trustees governs the Funds. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Funds' assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser has delegated daily management of some Fund assets to the
Sub-Adviser, Federated Global Research Corp., who is paid by the Adviser and not
by the Funds based on the portion of foreign securities the Sub-Adviser manages.
<TABLE>
<CAPTION>
PORTFOLIO MANAGERS
NAME ASSET CATEGORY BIOGRAPHY
(Portfolio Manager MANAGED
since)
<S> <C> <C>
Charles A. Ritter Overall Mr. Ritter joined Federated in 1983 and has
Allocation and been a Vice President of the Funds' Adviser and
(Inception) Domestic Large Federated Research Corp. since 1992. From 1988
Company Stocks until 1991, Mr. Ritter acted as an Assistant
Vice President of the Funds' Adviser and
Federated Research Corp. 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.
Susan M. Nason U.S. Treasury Ms. Nason joined Federated in 1987 and has been
Securities a Senior Vice President of the Funds' Adviser
(Inception) and Federated Research Corp. since April 1997.
Ms. Nason served as a Vice President of the
Funds' Adviser and Federated Research Corp.
from 1993 to 1997, and as an Assistant Vice
President of the Adviser and Federated Research
Corp. from 1990 until 1992. Ms. Nason is a
Chartered Financial Analyst and received her
M.S.I.A. concentrating in Finance from Carnegie
Mellon University.
Joseph M. U.S. Treasury Mr. Balestrino joined Federated in 1986 and has
Balestrino Securities and been Vice President of the Funds' Adviser and
Investment-Grade Federated Research Corp. since 1995. Mr.
(March 1995) Corporate Bonds Balestrino served as an Assistant Vice
President of the Funds' Adviser and Federated
Research Corp. from 1991 until 1995. Mr.
Balestrino is a Chartered Financial Analyst and
received his M.A. in Urban and Regional
Planning from the University of Pittsburgh.
Kathleen M. Mortgage-Backed Ms. Foody-Malus joined Federated in 1983 and
Foody-Malus Securities has been a Vice President of the Funds' Adviser
and Federated Research Corp. since 1993. Ms.
(Inception) Foody-Malus served as an Assistant Vice
President of the Adviser and Federated Research
Corp. from 1990 until 1992. Ms. Foody-Malus
received her M.B.A. in Accounting/Finance from
the University of Pittsburgh.
<PAGE>
Robert E. Cauley Mortgage-Backed Mr. Cauley joined Federated in 1996 as an
Securities Assistant Vice President of the Funds' Adviser
(July 1997) and Federated Research Corp. Mr. Cauley served
as an Associate in the Asset-Backed Securities
Group at Lehman Brothers Holding, Inc. from
1994 to 1996. From 1992 to 1994, Mr. Cauley
served as a Senior Associate/Corporate Finance
at Barclays Bank, PLC. Mr. Cauley earned his
M.S.I.A., concentrating in Finance and
Economics, from Carnegie Mellon University.
John T. Gentry Investment Mr. Gentry joined Federated in 1995 as an
Grade Corporate Investment Analyst and has been an Assistant
(July 1997) Bonds Vice President of the Funds' Adviser and
Federated Research Corp. since April 1997. Mr.
Gentry served as a Senior Treasury Analyst at
Sun Company, Inc. from 1991 to 1995. Mr. Gentry
is a Chartered Financial Analyst and earned his
M.B.A., with concentrations in Finance and
Accounting, from Cornell University.
Mark. E Durbiano High Yield Mr. Durbiano joined Federated in 1982 and has
Corporate Bonds been a Senior Vice President of the Funds'
(Inception) Adviser and Federated Research Corp. since
January 1996. From 1988 through 1995, Mr.
Durbiano was a Vice President of the Funds'
Adviser and Federated Research Corp. Mr.
Durbiano is a Chartered Financial Analyst and
received his M.B.A. in Finance from the
University of Pittsburgh.
Henry A. Frantzen Foreign Bonds Mr. Frantzen joined Federated in 1995 as an
and Executive Vice President of the Funds'
(November 1995) Foreign Stocks Sub-Adviser and Federated Research Corp. Mr.
Frantzen served as Chief Investment Officer of
international equities at Brown Brothers
Harriman & Co. from 1992 to 1995.
Drew J. Collins Foreign Bonds Mr. Collins joined Federated in 1995 as a
and Senior Vice President of the Funds' Sub-Adviser
(November 1995) Foreign Stocks and Federated Research Corp. Mr. Collins served
as a Vice President/Portfolio Manager of
international equity portfolios at Arnhold and
Bleichroeder, Inc. from 1994 to 1995. He served
as an Assistant Vice President/Portfolio
Manager for international equities at the
College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial
Analyst and received his M.B.A. in finance from
the Wharton School of The University of
Pennsylvania.
Robert M. Kowit Foreign Bonds Robert M. Kowit joined Federated in 1995 as a
Vice President of the Funds' Sub-Adviser and
(November 1995) Federated Research Corp. Mr. Kowit served as a
Managing Partner of Copernicus Global Asset
Management from January 1995 through October
1995. From 1990 to 1994, he served as Senior
Vice President of International Fixed Income
and Foreign Exchange for John Hancock Advisers.
Mr. Kowit received his M.B.A. from Iona College
with a concentration in finance.
<PAGE>
Michael W. Casey, Foreign Bonds Mr. Casey joined Federated in 1996 as an
Ph. D. Assistant Vice President of the Funds'
Sub-Adviser and Federated Research Corp. Mr.
(January 1997) Casey served as an International Economist and
Portfolio Strategist for Maria Fiorini Ramirez
Inc. from 1990 to 1996. Mr. Casey earned a
Ph.D. concentrating in economics from The New
School for Social Research and a M.Sc. from the
London School of Economics.
John Harris Domestic Large
Company Stocks
(date)
<PAGE>
Linda A. Duessel Utility Stocks Ms. Duessel joined Federated in 1991 and has
been a Vice President of the Funds' Adviser and
(February 1997) Federated Research Corp. since 1995. Ms.
Duessel was an Assistant Vice President of the
Funds' Adviser and Federated Research Corp.
from 1991 until 1995. Ms. Duessel is a
Chartered Financial Analyst and received her
M.S. in Industrial Administration from Carnegie
Mellon University.
Steven J. Lehman Utility Stocks Mr. Lehman joined Federated in May 1997 as a
Vice President. From 1986 to May 1997,
(December 1995) Mr. Lehman served as a Portfolio Manager, then
Vice President/Senior Portfolio Manager, at
First Chicago NBD Investment Management
Company. Mr. Lehman is a Chartered Financial
Analyst; he received his M.A. from the
University of Chicago.
Aash M. Shah Domestic Small Mr. Shah joined Federated in 1993 and has been
Company Stocks a Vice President of the Funds Adviser and
(June 1997) Federated Research Corp. since January 1997.
Mr. Shah served as an Assistant Vice President
of the Adviser from 1995 to 1996, and as an
Investment Analyst from 1993 to 1995. Mr. Shah
was employed at Westinghouse Credit Corp. from
1990 to 1993 as an Investment Analyst. Mr. Shah
received his Masters in Industrial
Administration from Carnegie Mellon University
with a concentration in finance and accounting.
Mr. Shah is a Chartered Financial Analyst.
Keith J. Sabol Domestic Small Mr. Sabol joined Federated in 1994 and has been
Company Stocks an Assistant Vice President of the Funds'
(June 1997) Adviser and Federated Research Corp. since
January 1997. Mr. Sabol was an Investment
Analyst, and then Equity Research Coordinator
for the Funds' Adviser from 1994 to 1996.
During 1992 and 1993, Mr. Sabol earned his M.S.
in Industrial Administration from Carnegie
Mellon University.
Alexandre de Foreign Stocks Mr. de Bethmann joined Federated in 1995 as a
Bethmann Vice President of the Funds' Sub-Adviser and
Federated Research Corp. Mr. de Bethmann served
(November 1995) as Assistant Vice President/Portfolio Manager
for Japanese and Korean equities at the College
Retirement Equities Fund from 1994 to 1995. He
served as an International Equities Analyst and
then as an Assistant Portfolio Manager at the
College Retirement Equities Fund between 1987
and 1994. Mr. de Bethmann received his M.B.A.
in Finance from Duke University.
Frank Semack Foreign Stocks Mr. Semack joined Federated in 1995 as a Vice
President of the Funds' Sub-Adviser and
(November 1995) Federated Research Corp. Mr. Semack served as
an Investment Analyst at Omega Advisers, Inc.
from 1993 to 1994. He served as a Portfolio
Manager/Associate Director of Wardley
Investment Services, Ltd. from 1980 to 1993.
Mr. Semack received his M.Sc. in economics from
the London School of Economics.
</TABLE>
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.75% of each Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse a Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Funds.
While it is impossible to determine in advance all of the risks to the Funds,
the Funds could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Funds' service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Funds' investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Funds
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand each Fund's
financial performance for its past five fiscal years, or since inception, if the
life of a Fund is shorter. Some of the information is presented on a per share
basis. Total returns represent the rate an investor would have earned (or lost)
on an investment in a Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Arthur Andersen LLP, whose report, along
with the Funds' audited financial statements, is included in the Annual
Report. TO COME
<PAGE>
FEDERATED MANAGED INCOME FUND
FEDERATED MANAGED GROWTH AND INCOME FUND
FEDERATED MANAGED GROWTH FUND
FEDERATED MANAGED AGGRESSIVE GROWTH FUND
Portfolios of Managed Series Trust
SELECT SHARES
A Statement of Additional Information (SAI) is incorporated by reference into
this prospectus. Additional information about the Funds' investments is
available in the Funds' annual and semi-annual reports to shareholders. The
annual report discusses market conditions and investment strategies that
significantly affected each Fund's performance during its last fiscal year. To
obtain the SAI, the annual and semi-annual reports and other information without
charge call your investment professional or the Funds at 1-800-341-7400.
You can obtain information about the Funds by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
INVESTMENT COMPANY ACT FILE NO. 811-7129
CUSIP 56166K 206
CUSIP56166K404
CUSIP 56166K 602
CUSIP 56166K 800
000000-00 (1/99)
STATEMENT OF ADDITIONAL INFORMATION
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 SHARES
SELECT SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for the Funds, dated January 31, 1999.
The SAI incorporates by reference the Funds' Annual Report. Obtain a prospectus
or the Annual Report without charge by calling 1-800-341-7400.
JANUARY 31, 1999
CONTENTS
How are the Funds Organized?
Securities in Which the Funds Invest
What do Shares Cost?
How are the Funds Sold?
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Funds?
How Do the Funds Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
CUSIP 56166K800 CUSIP 56166K 701 CUSIP 56166K 404 CUSIP 56166K 305 CUSIP 56166K
602 CUSIP 56166K 503 CUSIP 56166K 206 CUSIP 56166K 107
00000000 (1/99)
<PAGE>
16
HOW ARE THE FUNDS ORGANIZED?
Each Fund is a diversified portfolio of Managed Series Trust (the Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on November 15, 1993 The Trust may
offer separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established two classes of shares of each
Fund, known as Institutional Shares and Select Shares (Shares). This SAI relates
to both classes of Shares.
SECURITIES IN WHICH THE FUNDS INVEST
In pursuing its investment strategy, a Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
Following is a table that indicates which types of securities are a:
P = PRINCIPAL investment of a Fund; (shaded in chart) A = ACCEPTABLE (but
not principal) investment of a Fund; or N = NOT AN ACCEPTABLE investment
of a Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
SECURITIES INCOME FUND GROWTH AND GROWTH FUND AGGRESSIVE
INCOME FUND GROWTH FUND
- ----------------------------------------------------------------------------------------
COMMON STOCK A A A A
- ------------------------------- ----------------------------
- ----------------------------------------------------------------------------------------
CONVERTIBLE SECURITIES A A A A
- -------------------------------
- ----------------------------------------------------------------------------------------
FOREIGN CURRENCY A A A A
TRANSACTIONS11
- ------------------------------------------------------------
- ----------------------------------------------------------------------------------------
FOREIGN DEBT SECURITIES P P P P
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
FOREIGN STOCK9 N A P P
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
FUTURES AND OPTIONS A A A A
TRANSACTIONS
- -------------------------------
- ----------------------------------------------------------------------------------------
HIGH-YIELD CORPORATE BONDS4 P P P P
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
INVESTMENT GRADE CORPORATE P P P P
BONDS3
- ------------------------------- ----------------------------
- ------------------------------------------------------------
LARGE COMPANY STOCKS6 P P P P
---------------------------------------------------------
- -------------------------------
LENDING OF PORTFOLIO A A A A
SECURITIES
- ----------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES2 P P A A
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS A A A A
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
RESTRICTED AND ILLIQUID A A A A
SECURITIES10
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
REVERSE REPURCHASE AGREEMENTS A A A A
- -------------------------------
- ----------------------------------------------------------------------------------------
SECURITIES OF OTHER A A A A
INVESTMENT COMPANIES
- -------------------------------
- ----------------------------------------------------------------------------------------
SMALL COMPANY STOCKS8 N A P P
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES A A A A
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES1 P P P P
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
UTILITY STOCKS7 A A N N
---------------------------------------------------------
- ----------------------------------------------------------------------------------------
WARRANTS A A A A
- ----------------------------------------------------------------------------------------
---------------------------------------------------------
WHEN-ISSUED TRANSACTIONS12 A A A A
- ----------------------------------------------------------------------------------------
</TABLE>
1. Each Fund may invest up to 72%, 56%, 40%, and 20%, respectively, of its total
assets in such securities. 2. Each Fund may invest up to 45%, 35%, 15%, and 10%,
respectively, of its total assets in such securities. 3. Each Fund may invest up
to 45%, 35%, 15%, and 10%, respectively, of its total assets in such securities.
4. Each Fund may invest up to 10%, 10%, 15%, and 10%, respectively, of its total
assets in such securities. 5. The Income Fund and the Growth and Income Fund may
each invest up to 10% of its total assets in such securities. 6. Each Fund may
invest up to 22.5%, 37.5%, 50%, and 60%, respectively, of its total assets in
such securities. 7. The Income Fund and the Growth and Income Fund may each
invest up to 7.5% of its total assets in such securities.
8. The Growth and Income Fund, Growth Fund and Aggressive Growth Fund may each
invest up to 5%, 15%, and 20%, respectively, of its total assets in such
securities.
9. The Growth and Income Fund, Growth Fund and Aggressive Growth Fund may each
invest up to 5%, 15%, and 20%, respectively, of its total assets in such
securities.
10.Each Fund will limit its purchase of restricted securities not determined to
be liquid together with other illiquid securities including over-the-counter
options, and repurchases agreements providing for settlement in more than
seven days after notice to 15% of its net assets.
11. Each Fund will not invest more than 3%, 5%, 15%, and 20%, respectively, in
forward foreign currency exchange contracts.
12.The Funds do not intend to engage in such transactions to an extent that
would cause the segregation of more than 20% of the total value of a Fund's
assets.
SECURITIES DESCRIPTIONS AND TECHNIQUES
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Funds cannot predict the income they will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the additional types of equity securities in which the Funds
invest.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
INTERESTS IN OTHER LIMITED LIABILITY COMPANIES
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
REAL ESTATE INVESTMENT TRUSTS (REITS)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
WARRANTS
Warrants give the Funds the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Funds may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the MARKET RISKS of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Funds
invest.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
credit risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The
United States supports some GSEs with its full, faith and credit. Other GSEs
receive support through federal subsidies, loans or other benefits. A few
GSEs have no explicit financial support, but are regarded as having implied
support because the federal government sponsors their activities.
Investors regard agency securities as having low credit risks, but not as low
as treasury securities.
The Funds treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the MARKET and PREPAYMENT RISKS of these mortgage backed
securities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Funds may also purchase interests in bank
loans to companies. The CREDIT RISKS of corporate debt securities vary widely
amount issuers. The credit risk of an issuer's debt security may also vary
based on its priority for repayment. For example, higher ranking (senior)
debt securities have a higher priority than lower ranking (subordinated)
securities. This means that the issuer might not make payments on
subordinated securities while continuing to make payments on senior
securities. In addition, in the event of bankruptcy, holders of senior
securities may receive amounts otherwise payable to the holders of
subordinated securities. Some subordinated securities, such as trust
preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer
any payment that would reduce its capital below regulatory requirements.
MORTGAGE BACKED SECURITIES
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates,
maturities and other terms. Mortgages may have fixed or adjustable interest
rates. Interests in pools of adjustable rate mortgages are know as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer
deducts its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates
receive a pro rata share of all payments and pre-payments from the underlying
mortgages. As a result, the holders assume all the PREPAYMENT RISKS of the
underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying pass-through
certificate among holders of different classes of mortgage backed securities.
This creates different PREPAYMENT and MARKET RISKS for each CMO class. For
example, in a sequential pay CMO, one class of CMOs receives all principal
payments and prepayments. The next class of CMOs receives all principal
payments after the first class is paid off. This process repeats for each
sequential class of CMO. As a result, each class of sequential pay CMOs
reduces the prepayment risks of subsequent classes.
More sophisticated CMOs include planned amortization classes (PACs) and
targeted amortization classes (TACs). PACs and TACs are issued with companion
classes. PACs and TACs receive principal payments and prepayments at a
specified rate. The companion classes receive principal payments and
prepayments in excess of the specified rate. In addition, PACs will receive
the companion classes' share of principal payments, if necessary, to cover a
shortfall in the prepayment rate. This helps PACs and TACs to control
prepayment risks by increasing the risks to their companion classes.
CMOs may allocate interest payments to one class (Interest Only or IOs) and
principal payments to another class (Principal Only or POs). POs increase in
value when prepayment rates increase. In contrast, IOs decrease in value when
prepayments increase, because the underlying mortgages generate less interest
payments. However, IOs tend to increase in value when interest rates rise
(and prepayments decrease), making IOs a useful hedge against market risks.
Another variant allocates interest payments between two classes of CMOs. One
class (Floaters) receives a share of interest payments based upon a market
index such as LIBOR. The other class (Inverse Floaters) receives any
remaining interest payments from the underlying mortgages. Floater classes
receive more interest (and Inverse Floater classes receive correspondingly
less interest) as interest rates rise. This shifts prepayment and market
risks from the Floater to the Inverse Floater class, reducing the price
volatility of the Floater class and increasing the price volatility of the
Inverse Floater class.
CMOs must allocate all payments received from the underlying mortgages to
some class. To capture any unallocated payments, CMOs generally have an
accrual (Z) class. Z classes do not receive any payments from the underlying
mortgages until all other CMO classes have been paid off. Once this happens,
holders of Z class CMOs receive all payments and prepayments. Similarly,
REMICs have residual interests that receive any mortgage payments not
allocated to another REMIC class.
The degree of increased or decreased prepayment risks depends upon the
structure of the CMOs. Z classes, IOs, POs, and Inverse Floaters are among
the most volatile investment grade fixed income securities currently traded
in the United States. However, the actual returns on any type of mortgage
backed security depend upon the performance of the underlying pool of
mortgages, which no one can predict and will vary among pools.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred
to as a coupon payment). Investors buy zero coupon securities at a price
below the amount payable at maturity. The difference between the purchase
price and the amount paid at maturity represents interest on the zero coupon
security. An investor must wait until maturity to receive interest and
principal, which increases the MARKET and CREDIT RISKS of a zero coupon
security.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs
are the most common forms of stripped zero coupon securities. In addition,
some securities give the issuer the option to deliver additional securities
in place of cash interest payments, thereby increasing the amount payable at
maturity. These are referred to as pay-in-kind or PIK securities.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security after the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly to
the security holders and receives reimbursement from the issuer. Normally,
the credit enhancer has greater financial resources and liquidity than the
issuer. For this reason, the Adviser may evaluate the credit risk of a fixed
income security based solely upon its credit enhancement.
Common types of credit enhancement include guarantees, letters of credit,
bond insurance and surety bonds. Credit enhancement also includes
arrangements where securities or other liquid assets secure payment of a
fixed income security. Following a default, these assets may be sold and the
proceeds paid to security's holders. Either form of credit enhancement
reduces credit risks by providing another source of payment for a fixed
income security.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities that the Funds have the
option to exchange for equity securities at a specified conversion price. The
option allows the Funds to realize additional returns if the market price of the
equity securities exceeds the conversion price. For example, a Fund may hold
fixed income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Funds to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
The Funds treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Funds consider an issuer to be based outside the United States if:
it is organized under the laws of, or has a principal office located in,
another country;
the principal trading market for its securities is in another country; or
it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to CURRENCY RISKS and RISKS OF FOREIGN INVESTING. Trading
in certain foreign markets is also subject to LIQUIDITY RISKS.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in
overseas markets. ADRs are also traded in U.S. dollars, eliminating the need
for foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary Receipts involve many of the same risks of
investing directly in foreign securities, including CURRENCY RISKS and RISKS
OF FOREIGN INVESTING.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In
a spot trade, a Fund agrees to exchange one currency for another at the
current exchange rate. A Fund may also enter into derivative contracts in
which a foreign currency is an underlying asset. The exchange rate for
currency derivative contracts may be higher or lower than the spot exchange
rate. Use of these derivative contracts may increase or decrease the Fund's
exposure to CURRENCY RISKS.
FOREIGN GOVERNMENT SECURITIES
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and credit.
Further, foreign government securities include mortgage-related securities
issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, a Fund could close out an open contract to buy an asset at a future
date by entering into an offsetting contract to sell the same asset on the same
date. If the offsetting sale price is more than the original purchase price, a
Fund realizes a gain; if it is less, a Fund realizes a loss. Exchanges may limit
the amount of open contracts permitted at any one time. Such limits may prevent
a Fund from closing out a position. If this happens, a Fund will be required to
keep the contract open (even if it is losing money on the contract), and to make
any payments required under the contract (even if it has to sell portfolio
securities at unfavorable prices to do so). Inability to close out a contract
could also harm a Fund by preventing it from disposing of or trading any assets
it has been using to secure its obligations under the contract.
The Funds may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between a Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Funds use derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease a Fund's exposure to market and
CURRENCY RISKS, and may also expose a Fund to LIQUIDITY and LEVERAGE risks. OTC
contracts also expose the Funds to CREDIT RISKS in the event that a counterparty
defaults on the contract.
The Funds may trade in the following types of derivative contracts.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures CONTRACTS are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The Funds may buy or sell forward foreign currency exchange contracts,
interest rate futures contracts and stock index futures to accommodate cash
flows and to hedge against the effects of changes in the value of portfolio
securities due to anticipated changes in interest rates and market
conditions.
OPTIONS
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from
the seller (writer) of the option. A put option gives the holder the right to
sell the underlying asset to the writer of the option. The writer of the
option receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Funds may buy and sell options on foreign currencies, foreign currency
futures, securities and securities indexes to manage interest rate and
currency risks. The Funds may write call options on securities which they own
to generate income.
HYBRID INSTRUMENTS
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference
to changes in the price of an underlying asset or by reference to another
benchmark (such as interest rates, currency exchange rates or indices).
Hybrid instruments also include convertible securities with conversion terms
related to an underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks in addition to those associated with traditional
fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater MARKET RISKS than traditional
instruments. Moreover, depending on the structure of the particular hybrid,
it may expose the Funds to LEVERAGE RISKS or carry LIQUIDITY RISKS.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Funds buy a security from
a dealer or bank and agree to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price, reflecting
the Funds' return on the transaction. This return is unrelated to the
interest rate on the underlying security. The Funds will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the Adviser.
The Funds' custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor
the value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to CREDIT RISKS.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Funds
are the sellers (rather than the buyers) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by the Funds. Reverse
repurchase agreements are subject to CREDIT RISKS. In addition, reverse
repurchase agreements create LEVERAGE RISKS because the Funds must repurchase
the underlying security at a higher price, regardless of the market value of
the security at the time of repurchase.
WHEN ISSUED TRANSACTIONS
When issued transactions are arrangements in which the Funds buy securities
for a set price, with payment and delivery of the securities scheduled for a
future time. During the period between purchase and settlement, no payment is
made by the Funds to the issuer and no interest accrues to the Funds. The
Funds record the transaction when they agree to buy the securities and
reflect their value in determining the price of its shares. Settlement dates
may be a month or more after entering into these transactions SO THAT the
market values of the securities bought may vary from the purchase prices.
Therefore, when issued transactions create MARKET RISKS for the Funds. When
issued transactions also involve CREDIT RISKS in the event of a counterparty
default.
TO BE ANNOUNCED SECURITIES (TBAS)
As with other when issued transactions, a seller agrees to issue a TBA
security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, the Funds agree to accept
any security that meets specified terms. For example, in a TBA mortgage
backed transaction, the Funds and the seller would agree upon the issuer,
interest rate and terms of the underlying mortgages. However, the seller
would not identify the specific underlying mortgages until it issues the
security. TBA mortgage backed securities increase MARKET RISKS because the
underlying mortgages may be less favorable than anticipated by the Funds.
Dollar rolls are transactions where the Funds sell mortgage-backed securities
with a commitment to buy similar, but not identical, mortgage-backed
securities on a future date at a lower price. Normally, one or both
securities involved are TBA mortgage backed securities. Dollar rolls are
subject to MARKET RISKS AND CREDIT RISKS.
SECURITIES LENDING
The Funds may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Funds receive cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if
the market value of the loaned securities increases. Also, the borrower must
pay the Funds the equivalent of any dividends or interest received on the
loaned securities.
The Funds will reinvest cash collateral in securities that qualify as an
acceptable investment for the Funds. However, the Funds must pay interest to
the borrower for the use of cash collateral.
Loans are subject to termination at the option of the Funds or the borrower.
The Funds will not have the right to vote on securities while they are on
loan, but it will terminate a loan in anticipation of any important vote. The
Funds may pay administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash collateral to
a securities lending agent or broker.
Securities lending activities are subject to MARKET RISKS AND CREDIT RISKS.
SECURITIES OF OTHER INVESTMENT COMPANIES
Each Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its univested cash. It
should be noted that investment companies incur certain expenses, such as
management fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
INVESTMENT RISKS
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Funds will either own the underlying assets, enter
into an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Funds' obligations. Unless the Funds have other
readily marketable assets to set aside, they cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Funds to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
STOCK MARKET RISKS
The value of equity securities in each Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. A Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, a Fund's share price may
decline and you could lose money.
The Adviser attempts to manage market risk by limiting the amount each Fund
invests in each company. However, diversification will not protect a Fund
against widespread or prolonged declines in the stock market.
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Funds will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Funds must rely entirely upon the Adviser's credit
assessment.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security's rating is lowered, or
the security is perceived to have an increased credit risk. An increase in
the spread will cause the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving
the Funds will fail to meet its obligations. This could cause the Funds to
lose the benefit of the transaction or prevent the Funds from selling or
buying other securities to implement its investment strategy.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
The adviser attempts to manage currency risk by limiting the amount the
Funds invest in securities denominated in a particular currency. However,
diversification will not protect the Funds against a general increase in the
value of the U.S. dollar relative to other currencies.
CALL AND PREPAYMENT RISKS
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below it's current market price.
An increase in the likelihood of a call may reduce the security's price.
Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates.
As a result, increases in prepayments of high interest rate mortgage backed
securities, or decreases in prepayments of lower interest rate mortgage
backed securities, may reduce their yield and price. This relationship
between interest rates and mortgage prepayments makes the price of mortgage
backed securities more volatile than most other types of fixed income
securities with comparable credit risks.
If a fixed income security is called or prepaid, the Funds may have to
reinvest the proceeds in other fixed income securities with lower interest
rates, higher credit risks, or other less favorable characteristics.
SECTOR RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or as the market as a whole. As the
Adviser allocates more of a Fund's portfolio holdings to a particular sector,
the Fund's performance will be more susceptible to any economic, business or
other developments which generally affect that sector.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.
Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than larger, well capitalized companies.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
LEVERAGE RISKS
Leverage risk is created when an investment exposes a Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify a Fund's risk of loss and potential for gain.
<PAGE>
LIQUIDITY RISKS
Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Funds may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Funds' performance. Infrequent trading may also lead to greater price
volatility.
Liquidity risk also refers to the possibility that the Funds may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Funds will be required to continue to hold the security or
keep the position open, and the Funds could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
A Fund 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 Fund may enter into futures contracts.
A Fund will not borrow money or engage in reverse repurchase agreements
except as a temporary, extraordinary, or emergency measure or to
facilitate management of the Fund by enabling it to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. A Fund will not purchase any securities
while any borrowings in excess of 5% of its total assets are outstanding.
INVESTING IN COMMODITIES
The Funds will not invest in commodities, except that the Funds 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 Funds will not purchase or sell real estate, including limited
partnership interests, although the Funds 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 Fund 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 Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities which the Fund may purchase in accordance with
its investment objective, policies, and limitations.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities. A deposit or
payment by a Fund 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 Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if as a result
more than 5% of the value of its total assets would be invested in the
securities of that issuer or if it would own more than 10% of the
outstanding voting securities of such issuer.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, a Fund 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 Fund 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 Funds' respective investment
objectives, policies, or Declaration of Trust.
The above limitations cannot be changed unless authorized by the vote of a
majority of its outstanding voting securities. The following limitations,
however, may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material change in these limitations
becomes effective.
INVESTING IN ILLIQUID SECURITIES
A Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter options,
and certain securities not determined by the Trustees to be liquid.
INVESTING IN PUT OPTIONS
A Fund will not purchase put options on securities, unless the securities
are held in the Fund's portfolio or unless the Fund 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 Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment.
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 Fund expects to borrow money in excess of 5% of the value of its net assets
during the coming fiscal year.
For purposes of its policies and limitations, the Funds consider certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
DETERMINING MARKET VALUE OF SECURITIES
Market values of a Fund'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, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and
for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Funds value futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments 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 (NYSE). In computing its net asset value,
the Funds value foreign securities at the latest closing price on the exchange
on which they are traded immediately prior to the closing of the NYSE. Certain
foreign currency exchange rates may also be determined at the latest rate prior
to the closing of the NYSE. 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 NYSE. 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 Funds' Board, although the actual
calculation may be done by others.
WHAT DO SHARES COST?
Each Fund's net asset value (NAV) per Share fluctuates and is based on the
market value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ 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.
HOW ARE THE FUNDS SOLD?
Under the Distributor's Contract with the Funds, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN-SELECT SHARES
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of bank, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Select Shares so that overall Fund assets are maintained or increased.
This helps the Funds achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Select Share redemptions.
Also, the Funds' service providers that receive asset-based fees also benefit
from stable or increasing Fund assets.
The Funds may compensate the Distributor more or less than its actual marketing
expenses. In no event will a Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES
The Funds may pay Federated Shareholder Services, a subsidiary of Federated, for
providing shareholder services and maintaining shareholder accounts. Federated
Shareholder Services may select others to perform these services for their
customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related
services or shareholder services such as sponsoring sales, providing sales
literature, conducting training seminars for employees, and engineering
sales-related computer software programs and systems. Also, investment
professional may be paid cash or promotional incentives, such as reimbursement
of certain expenses of qualified employees and their spouses to attend
informational meetings about the Funds or other special events at
recreational-type facilities, or items of material value. These payments will be
based upon the amount of Shares the investment professional sells or may sell
and/or upon the type and nature of sales or marketing support furnished by the
investment professional.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals 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. Investment professional 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 they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although each Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Funds have elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Funds are obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Funds' Board determines that payment should be in kind. In such a
case, the Funds will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as each Fund determines its NAV.
The portfolio securities will be selected in a manner that the Funds' Board
deems fair and equitable and, to the extent available, such securities will be
readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust 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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of 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.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of the Trust's outstanding
shares of all series entitled to vote.
As of [a DATE not more than 30 days before filing], the following shareholders
owned of record, beneficially, or both, 5% or more of outstanding Shares: [Name
& Address of Shareholder, % and Name of Share Class Owned] TO COME.
Shareholders owning 25% or more of outstanding Shares may be in control and
be able to affect the outcome of certain matters presented for a vote of
shareholders. TO COME.
TAX INFORMATION
FEDERAL INCOME TAX
The Funds will pay no federal income tax because they expect to meet
requirements of Subchapter M of the Internal Revenue Code (Code) applicable to
regulated investment companies and to receive the special tax treatment afforded
such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Funds.
FOREIGN INVESTMENTS
If a Fund purchases foreign securities, their investment income 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 Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Funds intend to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If a Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of a Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
WHO MANAGES AND PROVIDES SERVICES TO THE FUNDS?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of four funds and the Federated Fund
Complex is comprised of 56 investment companies, whose investment advisers are
affiliated with the Funds' Adviser.
As of December 1, 1998 the Funds' Board and Officers as a group owned less than
1% of the Funds' outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex.
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
JOHN T. CONROY, JR.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
Director or Trustee of the Federated Fund Complex; President, Investment
Properties Corporation; Senior Vice President, John R. Wood and Associates,
Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest
Florida; formerly: President, Naples Property Management, Inc. and Northgate
Village Development Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
NICHOLAS CONSTANTAKIS
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Partner,
Andersen Worldwide SC.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; Director and Member of the
Executive Committee, Michael Baker, Inc.; formerly: Vice Chairman and Director,
PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly: National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
GLEN R. JOHNSON*
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
J. CHRISTOPHER DONAHUE*
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated
Shareholder Services; Director, Federated Services Company. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
<PAGE>
Compensation from Trust $0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES*
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; Trustee, Federated Advisers,
Federated Management, and Federated Research; Director, Federated Research Corp.
and Federated Global Research Corp.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Funds.
The Adviser is a wholly-owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Funds, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
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 Fund Shares offered by the Distributor.
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. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). 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 Funds
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Funds' Board.
RESEARCH SERVICES
Research services 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. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Funds are made independently from those of other
accounts managed by the Adviser. When the Funds and one or more of those
accounts invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Funds and the account(s) in
a manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Funds, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Funds.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Funds. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF THE
ADMINISTRATIVE FEE FEDERATED FUNDS
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Funds for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Funds' portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Funds. Foreign instruments purchased by the Funds are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pay the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Funds.
<TABLE>
<CAPTION>
FEES PAID BY THE FUNDS FOR SERVICES [TO COME]
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FUND ADVISORY FEE PAID BROKERAGE COMMISSIONS ADMINISTRATIVE FEE
ADVISORY FEE WAIVED PAID PAID
SUB-ADVISORY FEE PAID
---------------------------------------------
-----------------------------------------------------------------------
FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR FOR THE FISCAL YEAR
NOVEMBER 30, ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
-----------------------------------------------------------------------
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1998 1997 1996 1998 1997 1996 1998 1997 1996
- -----------------
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INCOME FUND $ $696,806 $599,171 $ $18,013 $19,712 $ $154,890$155,001
$ $461,157 $479,814
$ $8,724 $2,837
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
GROWTH AND $ $1,535,95$1,264,93$ $235,841$168,036$ $155,085$155,001
INCOME FUND $ $101,972 $179,385
$ $99,378 $110,351
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
GROWTH FUND $ $1,653,49$1,108,08$ $423,125$291,744$ $166,775$155,001
$ $129,366 $299,180
$ $243,773 $143,091
- ----------------------------------------------------------------------------------------
AGGRESSIVE $ $762,135 $434,558 $ $279,734$163,845$ $154,893$155,001
GROWTH FUND $ $326,658 $393,073
$ $87,324 $12,035
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
SELECT SHARES INSTITUTIONAL SHARES SELECT SHARES
---------------------------------------------------------------------
FIGURES FOR THE 12B-1 FEE 12B-FEE SHAREHOLDER SHAREHOLDERSHAREHOLDER SHAREHOLDER
FISCAL YEAR ENDED PAID WAIVED SERVICING SERVICING SERVICING SERVICING
NOVEMBER 30, 1998 FEE PAID FEE WAIVED FEE PAID FEE WAIVED
- ----------------------------------------------------------------------------------------
INCOME FUND $ $ $ $ $ $
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
GROWTH AND INCOME $ $ $ $ $ $
FUND
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
GROWTH FUND $ $ $ $ $ $
- -------------------
- ----------------------------------------------------------------------------------------
AGGRESSIVE GROWTH $ $ $ $ $ $
FUND
- ----------------------------------------------------------------------------------------
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.
</TABLE>
HOW DO THE FUNDS MEASURE PERFORMANCE?
The Funds may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Funds' or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
- ---------------------------------------------------------------------------------------
FUND AVERAGE ANNUAL TOTAL RETURNS YIELDS
FOR THE PERIODS ENDED NOVEMBER 30, 1998 FOR THE 30-DAY PERIOD
ENDED
-----------------------------------------------
-----------------------------------------------
INSTITUTIONAL SHARES SELECT SHARES NOVEMBER 30, 1998
-----------------------------------------------------------------------
-----------------------------------------------
ONE-YEAR SINCE ONE-YEAR SINCE INSTITUTIONAL SELECT
INCEPTION INCEPTION SHARES SHARES
(5/25/94) (5/25/94)
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
INCOME FUND % % % % % %
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
GROWTH AND % % % % % %
INCOME FUND
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
GROWTH FUND % % % % % %
-----------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
AGGRESSIVE % % % % % %
GROWTH FUND
- ---------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number 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 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares 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 investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
information about the mutual fund industry from sources such as the
Investment Company Institute.
The Funds may compare its performance, or performance for the types of
securities in which it invests, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.
The Funds may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Funds use in advertising may include:
o 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.
o STANDARD & POOR'S RATINGS GROUP 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.
O STANDARD & POOR'S RATINGS GROUP 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.
o STANDARD & POOR'S RATINGS GROUP SMALL STOCK INDEX, is a broadly diversified
index consisting of approximately 600 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.
o 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.
o RUSSELL 1000 INDEX measures the performance of the 1,000 largest companies
in the Russell 3000 Index, which represents approximately 90% of the total
market capitalization of the Russell 3000 Index.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX includes 15- and 30-year
fixed-rate securities backed by mortgage pools of the Government National
Mortgage Association , Federal Home Loan Mortgage Corporation , and Federal
National Mortgage Corporation . Graduated payment mortgages and balloons are
included in theindex.
o LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of
approximately 5,000 issues which include non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed by
the U.S. government and quasi-federal corporations; and publicly issued,
fixed rate, non-convertible domestic bonds of companies in industry, public
utilities and finance. The average maturity of these bonds approximates nine
years. Tracked by Lehman Brothers, Inc., the index calculates total returns
for one month, three month, twelve month and ten year periods and
year-to-date.
o LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an unmanaged
index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years.
Total return is based on price appreciation/depreciation and income as a
percentage of the original investment. Indices are rebalanced monthly by
market capitalization.
o LEHMAN BROTHERS HIGH YIELD INDEX covers the universe of fixed rate, publicly
issued, noninvestment grade debt registered with the SEC. All bonds included
in the High Yield Index must be dollar-denominated and nonconvertible and
have at least one year remaining to maturity and an outstanding par value of
at least $100 million. Generally securities must be rated Ba1 or lower by
Moodys Investors Service, including defaulted issues. If no Moodys rating is
available, bonds must be rated BB+ or lower by S&P; and if no S&P rating is
available, bonds must be rated below investment grade by Fitch Investor's
Service. A small number of unrated bonds is included in the index; to be
eligible they must have previously held a high yield rating or have been
associated with a high yield issuer, and must trade accordingly.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
WHO IS FEDERATED INVESTORS, INC.?
Federated Investors, Inc. is dedicated to meeting investor needs by making
structured, straightforward and consistent investment decisions. Federated
investment products have a history of competitive performance and have gained
the confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/ agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
FINANCIAL INFORMATION
The Financial Statements for the Funds for the fiscal year ended November 30,
1998 are incorporated herein by reference to the Annual Report to Shareholders
of the Funds dated November 30, 1998.
<PAGE>
INVESTMENT RATINGS
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a 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 a 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.
MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
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 IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
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 imminent default in payment of interest or principal.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
Leading market positions in well established industries.
High rates of return on funds employed.
Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
Well established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
<PAGE>
ADDRESSES
FEDERATED MANAGED INCOME FUND
FEDERATED MANAGED GROWTH AND INCOME FUND
FEDERATED MANAGED GROWTH FUND
FEDERATED MANAGED AGGRESSIVE GROWTH FUND
Institutional Shares
Select Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, PA 15222
PART C. OTHER INFORMATION.
Item 23. EXHIBITS:
(a) (i) Conformed copy of Declaration of Trust of the
Registrant (1);
(ii) Conformed copy of Amendment No. 1 to Declaration of
Trust (1);
(iii) Conformed copy of Amendment No. 2 to Declaration of
Trust (2);
(iv) Conformed copy of Amendment No. 4 to Declaration of
Trust (5);
(b) Copy of By-Laws of the Registrant (1);
(ii) Copy of Amendment No. 2 to the By-Laws; +
(iii)Copy of Amendment No. 3 to the By-Laws; +
(iv) Copy of Amendment No. 4 to the By-Laws; +
(c) Copy of Specimen Certificates for Shares of Beneficial Interest
of the Registrant (2); (d) (i) Conformed copy of Investment
Advisory Contract of the Registrant (3);
(ii) Conformed copy of Sub-Advisory Contract (6);
(e) (i) Conformed copy of Distributor's Contract of the
Registrant (3);
(ii) The Registrant hereby incorporates the conformed copy of
the specimen Mutual Funds Sales and Service Agreement; Mutual
Fund Service Agreement, and Plan Trustee/Mutual Funds Service
Agreement from Item 24(b)(6) of the Cash Trust Series II
Registration Statement on Form N-1A, filed with the Commission
on July 24, 1995. (File Numbers 33-38550 and 811-6269);
(f) Not applicable;
(g) (i) Conformed copy of Custodian Agreement of the Registrant
(4); (ii) Conformed copy of Custodian Fee Schedule (7);
-----------------------
+ All exhibits have been filed electronically.
(1) Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed December 2, 1993 (File Nos. 33-51247 and
811-7129).
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed February 11, 1994 (File Nos. 33-51247
and 811-7129).
(3) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A filed March 2, 1994 (File Nos. 33-51247 and
811-7129).
(4) Response is incorporated by reference to Registrant's Post Effective
Amendment No. 1 on Form N-1A filed September 30, 1994 (File Nos. 33-51247
and 811-7129).
(5) Response is incorporated by reference to Registrant's Post Effective
Amendment No. 5 on Form N-1A filed January 29, 1996 (File Nos. 33-51247 and
811-7129).
(6) Response is incorporated by reference to Registrant's Post Effective
Amendment No. 6 on Form N-1A filed January 29, 1997 (File Nos. 33-51247 and
811-7129).
(7) Response is incorporated by reference to Registrant's Post Effective
Amendment No. 7 on Form N-1A filed November 26, 1997 (File Nos. 33-51247
and 811-7129).
<PAGE>
(h) (i) Conformed copy of Agreement for Fund Accounting
Services, Administrative Services, Transfer Agency
Services, and Custody Services Procurement (6);
(ii) Conformed Copy of Amended and Restated Shareholder
Services Agreement (7);
(iii) The Registrant hereby incorporates the conformed copy of
the Shareholder Services Sub-Contract between Fidelity and
Federated Shareholder Services from Item 24(b)(9)(iii) of the
Federated GNMA Trust Registration Statement of Form N-1A,
filed with the Commission on March 25, 1996. (File Nos.
2-75670 and 811-3375); (iv) The response described in Item
23(e) (ii) are hereby incorporated by reference;
(i) Conformed copy of Opinion and Consent of Counsel as to legality
of shares being registered (2); (j) Conformed copy of Consent of
Independent Public Accountants ; (8) (k) Not applicable; (l)
Conformed copy of Initial Capital Understanding (2); (m) (i)
Conformed copy of Distribution Plan (4);
(ii) The responses described in Item 23(e)(ii) are hereby
incorporated by reference; (n) Copy of Financial Data Schedules;(8)
(o) The Registrant hereby incorporates the conformed copy of the
specimen Multiple Class Plan from Item 24(b)(18) of the World
Investment Series, Inc. Registration Statement on Form N-1A, filed
with the Commission on January 26, 1996 (File Nos. 33-52149 and
811-07141); and
(p) Conformed Copy of Power of Attorney (6).
- -----------------------
+ All exhibits have been filed electronically.
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed February 11, 1994 (File Nos. 33-51247
and 811-7129).
(4) Response is incorporated by reference to Registrant's Post Effective
Amendment No. 1 on Form N-1A filed September 30, 1994 (File Nos. 33-51247
and 811-7129).
(6) Response is incorporated by reference to Registrant's Post Effective
Amendment No. 6 on Form N-1A filed January 29, 1997 (File Nos. 33-51247 and
811-7129).
(7) Response is incorporated by reference to Registrant's Post Effective
Amendment No. 7 on Form N-1A filed November 26, 1997 (File Nos. 33-51247
and 811-7129).
(8) Response is incorporated by reference to Registrant's Post Effective
Amendment No. 8 on Form N-1A filed January 29, 1998 (File Nos. 33-51247 and
811-7129).
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT: None.
Item 25. INDEMNIFICATION: (2)
Item 26. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser, see
the section entitled "Who Manages the Funds" in Part A. The
affiliations with the Registrant of four of the Trustees and one of the
Officers of the investment adviser are included in Part B of this
Registration Statement under "Officers and Trustees." The remaining
Trustee of the investment adviser, his position with the investment
adviser, and, in parentheses, his principal occupation is: Mark D.
Olson (Partner, Wilson, Halbrook & Bayard), 107 W. Market Street,
Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
- -----------------------
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed February 11, 1994 (File Nos. 33-51247
and 811-7129).
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Charles A. Ritter
Keith J. Sabol
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Assistant Vice Presidents: Nancy J. Belz
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Michael W. Sirianni
Leonardo A. Vila
Lori A. Wolff
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania 15222-3779. These individuals are also officers of a
majority of the investment advisers to the Funds listed in Part B of
this Registration Statement.
ITEM 27. PRINCIPAL UNDERWRITERS:
(a) Federated Securities Corp. the Distributor for shares of the Registrant,
acts as principal underwriter for the following open-end investment
companies, including the Registrant:
Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; ; Hibernia
Funds; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Obligations Trust II; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Regions Funds; RIGGS Funds; SouthTrust Funds;
Tax-Free Instruments Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal FundsTrust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; High Yield Cash Trust; Investment Series Trust; Peachtree
Funds; Star Funds; Targeted Duration Trust; The Virtus Funds; Trust for
Financial Institutions;
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice
Federated Investors Tower President,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ronald Petnuch Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(c) Not applicable.
<PAGE>
Item 28. LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the Agent
for Service at above address.)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
("Transfer Agent and
Dividend Disbursing Agent")
Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Management Federated Investors Tower
("Adviser") 1001 Liberty Avenue
State Street Bank and Pittsburgh, PA 15222-3779
Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 29. MANAGEMENT SERVICES: Not applicable.
Item 30. UNDERTAKINGS:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, MANAGED SERIES TRUST, has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Pittsburgh and Commonwealth of
Pennsylvania, on the 2nd day of December, 1998.
MANAGED SERIES TRUST
BY: /s/ Karen M. Brownlee
Karen M. Brownlee, Assistant Secretary
Attorney in Fact for John F. Donahue
December 2, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Karen M. Brownlee
Karen M. Brownlee Attorney In Fact December 2, 1998
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Glen R. Johnson* President and Trustee
John W. McGonigle* Executive Vice President,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley * Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
EXHIBIT 23B(I) UNDER FORM N-1A
EXHIBIT 3(B) UNDER ITEM 601/REG. S-K
MANAGED SERIES TRUST
AMENDMENT #2
TO THE BY-LAWS
(EFFECTIVE FEBRUARY 23, 1998)
Delete Sections 1, 2 and 3 of Article I, OFFICERS AND THEIR ELECTION, and
replace with:
Section 1. OFFICERS. The Officers of the Trust shall be a President, one
or more Vice Presidents, a Treasurer, and a Secretary. The Board of
Trustees, in its discretion, may also elect or appoint a Chairman of the
Board of Trustees (who must be a Trustee) and other Officers or agents,
including one or more Assistant Vice Presidents, one or more Assistant
Secretaries, and one or more Assistant Treasurers. A Vice President, the
Secretary or the Treasurer may appoint an Assistant Vice President, an
Assistant Secretary or an Assistant Treasurer, respectively, to serve
until the next election of Officers. Two or more offices may be held by a
single person except the offices of President and Vice President may not
be held by the same person concurrently. It shall not be necessary for any
Trustee or any Officer to be a holder of shares in any Series or Class of
the Trust.
Section 2. ELECTION OF OFFICERS. The Officers shall be elected annually by
the Trustees. Each Officer shall hold office for one year and until the
election and qualification of his successor, or until earlier resignation
or removal. The Chairman of the Board of Trustees, if there is one, shall
be elected annually by and from the Trustees, and serve until a successor
is so elected and qualified, or until earlier resignation or removal.
Section 3. RESIGNATIONS AND REMOVALS AND VACANCIES. Any Officer of the
Trust may resign at any time by filing a written resignation with the
Board of Trustees (or Chairman of the Trustees, if there is one), with the
President, or with the Secretary. Any such resignation shall take effect
at the time specified therein or, if no time is specified, at the time of
receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Any Officer
elected by the Board of Trustees or whose appointment has been ratified by
the Board of Trustees may be removed with or without cause at any time by
a majority vote of all of the Trustees. Any other employee of the Trust
may be removed or dismissed at any time by the President. Any vacancy in
any of the offices, whether by resignation, removal or otherwise, may be
filled for the unexpired portion of the term by the President. A vacancy
in the office of Assistant Vice President may be filled by a Vice
President; in the office of Assistant Secretary by the Secretary; or in
the office of Assistant Treasurer by the Treasurer. Any appointment to
fill any vacancy shall serve subject to ratification by the Board of
Trustees at its next regular meeting.
<PAGE>
EXHIBIT 23B(II) UNDER FORM N-1A
EXHIBIT 3(B) UNDER ITEM 601/REG. S-K
MANAGED SERIES TRUST
AMENDMENT #3
TO THE BY-LAWS
(EFFECTIVE FEBRUARY 27, 1998)
Delete Section 5 PROXIES of Article IV SHAREHOLDERS' MEETINGS, and replace with
the following:
Section 5. PROXIES. Any shareholder entitled to vote at any meeting of
shareholders may vote either in person, by telephone, by electronic means
including facsimile, or by proxy, but no proxy which is dated more than
six months before the meeting named therein shall be accepted unless
otherwise provided in the proxy. Every proxy shall be in writing,
subscribed by the shareholder or his duly authorized agent or be in such
other form as may be permitted by law, including documents conveyed by
electronic transmission. Every proxy shall be dated, but need not be
sealed, witnessed or acknowledged. The placing of a shareholder's name on
a proxy or authorizing another to act as the shareholder's agent, pursuant
to telephone or electronically transmitted instructions obtained in
accordance with procedures reasonably designed to verify that such
instructions have been authorized by such shareholder, shall constitute
execution of a proxy by or on behalf of such shareholder. Where Shares are
held of record by more than one person, any co-owner or co-fiduciary may
execute the proxy or give authority to an agent, unless the Secretary of
the Trust is notified in writing by any co-owner or co-fiduciary that the
joinder of more than one is to be required. All proxies shall be filed
with and verified by the Secretary or an Assistant Secretary of the Trust,
or the person acting as Secretary of the Meeting. Unless otherwise
specifically limited by their term, all proxies shall entitle the holders
thereof to vote at any adjournment of such meeting but shall not be valid
after the final adjournment of such meeting.
<PAGE>
EXHIBIT 23B(III) UNDER FORM N-1A
EXHIBIT 3(B) UNDER ITEM 601/REG. S-K
MANAGED SERIES TRUST
AMENDMENT #4
TO THE BY-LAWS
(EFFECTIVE MAY 12, 1998)
Strike Section 3 - Place of Meeting of Article IV - Shareholders' Meetings and
replace it with the following:
Section 3. PLACE OF MEETING. Meetings of the shareholders of the Trust or
a particular Series or Class shall be held at such place within or without
The Commonwealth of Massachusetts as may be fixed from time to time by
resolution of the Trustees.
Strike Section 6 - Place of Meeting of Article V - Trustees' Meetings and
replace it with the following:
Section 6. PLACE OF MEETING. Meetings of the Trustees shall be held at
such place within or without The Commonwealth of Massachusetts as fixed
from time to time by resolution of the Trustees, or as the person or
persons requesting said meeting to be called may designate, but any
meeting may adjourn to any other place.
