Statement of Additional Information
FEDERATED MANAGED ALLOCATION PORTFOLIOS
(formerly, managed series trust)
Federated Managed Income portfolio(formerly, Federated managed income fund)
Federated Managed conservative Growth portfolio(formerly, federated Managed
growth and income fund)
Federated Managed moderate Growth portfolio(formerly, federated managed growth
fund)
Federated Managed Growth portfolio(formerly, federated managed aggressive growth
fund)
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, 2000.
The SAI incorporates by reference the Funds' Annual Reports. Obtain a prospectus
or the Annual Report without charge by calling 1-800-341-7400.
JANUARY 31, 2000
(REVISED MARCH 28, 2000)
CONTENTS
How are the Funds Organized? 1
Securities in Which the Funds Invest 1
What do Shares Cost? 13
How are the Funds Sold? 13
Subaccounting Services 14
Redemption in Kind 14
Massachusetts Partnership Law 14
Account and Share Information 14
Tax Information 15
Who Manages and Provides Services to the Funds? 15
How Do the Funds Measure Performance? 21
Who is Federated Investors, Inc.? 23
Financial Information 25
Investment Ratings 26
Addresses Inside Back Cover
Cusip 314212804 Cusip 314212705 Cusip 314212408 Cusip 314212309 Cusip 314212606
Cusip 314212507 Cusip 314212200 Cusip 314212101 G00873-05 (3/00)
How are the Funds Organized?
Each Fund is a diversified portfolio of Federated Managed Allocation Portfolios
(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. Effective January 31, 2000, the Trust changed
its name from Managed Series Trust to Federated Managed Allocation Portfolios
and Federated Managed Income Fund, Federated Managed Growth and Income Fund,
Federated Managed Growth Fund, and Federated Managed Aggressive Growth Fund
changed their names to Federated Managed Income Portfolio, Federated Managed
Conservative Growth Portfolio, Federated Managed Moderate Growth Portfolio and
Federated Managed Growth Portfolio, respectively.
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. The Funds' investment adviser is Federated Investment
Management Company (Adviser). Effective March 31, 1999, Federated Management,
former Adviser to the Funds, became Federated Investment Management Company
(formerly, Federated Advisers).
Securities in Which the Funds Invest
In pursuing its investment strategy, each 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>
Securities Income
Conservative Moderate Growth Growth Portfolio
Portfolio Growth
Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C> <C>
Common Stocks A
A A A
Large Company Stocks P
P P P
Small Company Stocks N
P P P
Preferred Stocks A
A A A
Interests in Other Limited Liability Companies A
A A A
Real Estate Investment Trusts A
A A A
Warrants A
A A A
Treasury Securities P
P P P
Agency Securities P
P P P
Corporate Debt Securities P
P P P
High-Yield Corporate Debt Securities4 P
P P P
Mortgage-Backed Securities P
P P P
Asset Backed Securities A
A A A
Zero Coupon Securities A
A A A
Credit Enhancement A
A A A
Convertible Securities A
A A A
Foreign Securities A
A A A
Foreign Stocks A
P P P
Depositary Receipts A
A A A
Foreign Exchange Contracts A
A A A
Foreign Government Securities P
P P P
Derivative Contracts P
P P P
Futures Contracts P
P P P
Options A
A A A
Hybrid Instruments A
A A A
Swaps A
A A A
Repurchase Agreements A
A A A
Reverse Repurchase Agreements A
A A A
Delayed Delivery Transactions1 P
P P P
Securities Lending A
A A A
Securities of Other Investment Companies A
A A A
Asset Coverage A
A A A
</TABLE>
1. 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.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
The Funds may also treat such redeemable preferred stock as a fixed income
security.
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. Treasury securities are generally regarded 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. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
The Funds treat 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.
In addition, 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 interest rate risks for
each CMO class.
The degree of increased or decreased prepayment risks depends upon the
structure of CMOs. 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.
Sequential CMOs
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.
PACs, TACs and Companion 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.
IOs and POs
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. POs tend to increase in
value when interest rates decline (and prepayments increase) making POs a
useful hedge against interest rate risk. 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 interest rate risks.
Floaters and Inverse Floaters
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 interest rate 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.
Z Classes
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.
Asset Backed Securities
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed
income assets (including other fixed income securities) may be used to create
an asset backed security. Asset backed securities may take the form of
commercial paper, notes, or pass through certificates. The Funds may also
purchase mortgage-related asset backed securities such as home equity loans,
second mortgages, and manufactured housing obligations. Asset backed
securities have prepayment risks.
Like mortgage-backed securities, asset backed securities may be issued by a
private entity and, although these securities must be investment grade, they
can present a credit risk.
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.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate and credit risks of a zero coupon security. A zero
coupon step-up security converts to a coupon security before final maturity.
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 usually evaluates 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. If a default occurs, 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, a 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 treat 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 interest rate
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 interest rate 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.
Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party,
and the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, a Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by
a variety of names including caps, floors, and collars. Common swap agreements
that the Funds may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make
regular payments equal to a fixed or floating interest rate times a
stated principal amount of fixed income securities, in return for
payments equal to a different fixed or floating rate times the same
principal amount, for a specific period. For example, a $10 million LIBOR
swap would require one party to pay the equivalent of the London
Interbank Offer Rate of interest (which fluctuates) on $10 million
principal amount in exchange for the right to receive the equivalent of a
stated fixed rate of interest on $10 million principal amount.
Caps and Floors
Caps and Floors are contracts in which one party agrees to make payments
only if an interest rate or index goes above (Cap) or below (Floor) a
certain level in return for a fee from the other party.
Total Return Swaps
Total return swaps are contracts in which one party agrees to make
payments of the total return from the underlying asset during the
specified period, in return for payments equal to a fixed or floating
rate of interest or the total return from another underlying asset.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Funds buy a security from
a dealer or bank and agrees 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.
Delayed Delivery Transactions
Delayed delivery transactions, including 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
interest rate risks for the Funds. Delayed delivery transactions also involve
credit risks in the event of a counterparty default. These transactions create
leverage risks.
To Be Announced Securities (TBAs)
As with other delayed delivery 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 interest rate risks
because the underlying mortgages may be less favorable than anticipated by
the Funds.
Dollar Rolls
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 interest rate 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 they 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 interest rate risks and credit
risks. These transactions create leverage risks.
Inter-fund Borrowing and Lending Arrangements
The SEC has granted an exemption that permits the Funds and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to
lend and borrow money for certain temporary purposes directly to and from
other Federated funds. Participation in this inter-fund lending program is
voluntary for both borrowing and lending funds, and an inter-fund loan is only
made if it benefits each participating fund. Federated administers the program
according to procedures approved by the Funds' Board, and the Board monitors
the operation of the program. Any inter-fund loan must comply with certain
conditions set out in the exemption, which are designed to assure fairness and
protect all participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Funds'
participation in this program must be consistent with their investment
policies and limitations, and must meet certain percentage tests. Inter-fund
loans may be made only when the rate of interest to be charged is more
attractive to the lending fund than market-competitive rates on overnight
repurchase agreements (the "Repo Rate") and more attractive to the borrowing
fund than the rate of interest that would be charged by an unaffiliated bank
for short-term borrowings (the "Bank Loan Rate"), as determined by the Board.
The interest rate imposed on inter-fund loans is the average of the Repo Rate
and the Bank Loan Rate.
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 a Fund in shares of other
investment companies may be subject to such duplicate expenses.
The Funds may invest in mortgage-backed and high yield securities primarily by
investing in another investment company (which is not available for general
investment by the public) that owns those securities and that is advised by an
affiliate of the Adviser. This other investment company is managed independently
of the Funds and may incur additional administrative expenses. Therefore, any
such investment by the Funds may be subject to duplicate expenses. However, the
Adviser believes that the benefits and efficiencies of this approach should
outweigh the potential additional expenses. The Funds may also invest in such
securities directly.
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.
INVESTMENT RISKS
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.
Interest Rate Risks
. Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. However, market factors, such
as the demand for particular fixed income securities, may cause the price of
certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.
. 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, Inc. 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 their investment strategies.
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 its current market price.
An increase in the likelihood of a call may reduce the security's price.
. If a fixed income security is called, 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.
. Unlike traditional fixed income securities, which pay a fixed rate of
interest until maturity (when the entire principal amount is due) payments on
mortgage backed securities include both interest and a partial payment of
principal. Partial payment of principal may be comprised of scheduled
principal payments as well as unscheduled payments from the voluntary
prepayment , refinancing, or foreclosure of the underlying loans. These
unscheduled prepayments of principal create risks that can adversely affect a
Fund holding mortgage backed securities.
. For example, when interest rates decline, the values of mortgage backed
securities generally rise. However, when interest rates decline, unscheduled
prepayments can be expected to accelerate, and the Fund would be required to
reinvest the proceeds of the prepayments at the lower interest rates then
available. Unscheduled prepayments would also limit the potential for capital
appreciation on mortgage backed securities.
. Conversely, when interest rates rise, the values of mortgage backed
securities generally fall. Since rising interest rates typically result in
decreased prepayments, this could lengthen the average lives of mortgage
backed securities, and cause their value to decline more than traditional
fixed income securities.
. Generally, mortgage backed securities compensate for the increased risk
associated with prepayments by paying a higher yield. The additional interest
paid for risk is measured by the difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread). An increase in the spread will cause the price of the
mortgage backed security to decline. Spreads generally increase in response
to adverse economic or market conditions. Spreads may also increase if the
security is perceived to have an increased prepayment risk or is perceived to
have less market demand.
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,
a 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 companies with larger market capitalizations.
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 than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
. Foreign companies may not provide information companies in the United States.
Foreign companies (including financial statements) as frequently or may also
receive less coverage than United States to as great an extent as companies
by market analysts and the financial press. In addition, foreign countries
may lack uniform accounting, auditing and financial reporting standards or
regulatory requirements comparable to those applicable to U.S. companies.
These factors may prevent the Fund and its Adviser from obtaining information
concerning foreign companies that is as frequent, extensive and reliable as
the information available concerning companies in the United States.
. Foreign countries may have restrictions on foreign restrictions or
repatriation restrictions which ownership of securities or may impose
exchange could adversely affect the liquidity of the controls, capital flow
Fund's investments.
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.
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 of securities may also lead to an
increase in their 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.
FUNDAMENTAL INVESTMENT OBJECTIVES AND POLICIES
<TABLE>
<CAPTION>
Fund Objective
<S> <C>
Federated Managed Income Portfolio To seek total return with an
emphasis on income and
potential for capital
appreciation
Federated Managed Conservative Growth Portfolio To seek total return with an
emphasis on income and
capital appreciation
Federated Managed Moderate Growth Portfolio To seek capital appreciation
with income as a
secondary objective
Federated Managed Growth Portfolio To seek capital appreciation
</TABLE>
The investment objectives may not be changed by the Funds' Trustees without
shareholder approval.
INVESTMENT LIMITATIONS
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets,
a Fund will not purchase securities of any one issuer (other than cash;
cash items; securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such U.S. government securities; and securities of other
investment companies) 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 a
Fund would own more than 10% of the outstanding voting securities of that
issuer.
Borrowing Money and Issuing Senior Securities
A Fund may borrow money, directly or indirectly, and issue senior
securities to the maximum extent permitted under the 1940 Act.
Investing in Real Estate
A Fund may not purchase or sell real estate, provided that this restriction
does not prevent a Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests
therein. A Fund may exercise its rights under agreements relating to such
securities, including the right to enforce security interests and to hold
real estate acquired by reason of such enforcement until that real estate
can be liquidated in an orderly manner.
Investing in Commodities
The Funds may not purchase or sell physical commodities, provided that the
Funds may purchase securities of companies that deal in commodities.
Underwriting
A Fund may not underwrite the securities of other issuers, except that a
Fund may engage in transactions involving the acquisition, disposition or
resale of its portfolio securities, under circumstances where it may be
considered to be an underwriter under the Securities Act of 1933.
Lending Cash or Securities
A Fund may not make loans, provided that this restriction does not prevent
a Fund from purchasing debt obligations, entering into repurchase
agreements, lending its assets to broker/dealers or institutional investors
and investing in loans, including assignments and participation interests.
Concentration of Investments
A Fund will not make investments that will result in the concentration of
its investments in the securities of issuers primarily engaged in the same
industry. Government securities, municipal securities and bank instruments
will not be deemed to constitute an industry.
The above limitations cannot be changed by the Board of Trustees (Board) unless
authorized by the "vote of a majority of its outstanding voting securities," as
defined by the Investment Company Act. The following limitations, however, may
be changed by the Board without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.
Buying on Margin
A Fund will not purchase securities on margin, provided that a Fund may
obtain short-term credits necessary for the clearance of purchases and
sales of securities, and further provided that a Fund may make margin
deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments.
Pledging Assets
A Fund will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in
connection with any permissable borrowing or to collateral arrangements in
connection with permissable activities.
Investing in Illiquid Securities
A Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, if immediately after and as a result, the
value of such securities would exceed, in the aggregate, 15% of a Fund's
net assets.
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." 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.
As a matter of non-fundamental policy, for purposes of the commodities policy,
investments in transactions involving futures contracts and options, forward
currency contracts, swap transactions and other financial contracts that settle
by payment of cash are not deemed to be investments in commodities.
In applying a Fund's concentration restriction: (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (c) asset-backed
securities will be classified according to the underlying assets securing such
securities. To conform to the current view of the SEC that only domestic bank
instruments may be excluded from industry concentration limitations, as a matter
of non-fundamental policy, a Fund will not exclude foreign bank instruments from
industry concentration limits as long as the policy of the SEC remains in
effect. In addition, investments in bank instruments, and investments in certain
industrial development bonds funded by activities in a single industry, will be
deemed to constitute investment in an industry, except when held for temporary
defensive purposes. The investment of more than 25% of the value of a Fund's
total assets in any one industry will constitute "concentration."
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 fixed income securities, at the last sale price on a national securities
exchange, if available, otherwise, as determined by an independent pricing
service;
. futures contracts and options are generally valued at 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
generally 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;
. 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.
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
(NAV), 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 NAV per Share fluctuates and is based on the market value of all
securities and other assets of a 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.) 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 banks, 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.
For some classes of Shares, 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 Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company 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 Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company 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 professionals
may be paid cash or promotional incentives, such as reimbursement of certain
expenses relating to attendance at 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
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 professionals 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 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 about 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 a 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 Funds. To protect their
shareholders, the Funds have filed legal documents with Massachusetts that
expressly disclaim the liability of their shareholders for acts or obligations
of the Funds.
In the unlikely event a shareholder is held personally liable for the Funds'
obligations, the Funds are required by the Declaration of Trust to use their
property to protect or compensate the shareholder. On request, the Fundswill
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Funds. Therefore, financial loss resulting from liability as a
shareholder will occur only if a Fund 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 Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board 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 January 12, 2000 the following shareholders owned of record, beneficially,
or both, 5% or more of the outstanding Shares of the Funds:
Charles Schwab & Co., Inc., San Francisco, California, owned approximately
13.65% of the Institutional Shares of the Income Portfolio. Bayban, First State
Bank of Bayport, Bayport Minnesota, owned approximately 6.71% of the
Institutional Shares of the Income Portfolio. South Valley Bank & Trust,
Medford, Oregon, owned approximately 8.05% of the Institutional Shares of the
Conservative Growth Portfolio.
Kirchbak & Co., Richfield, Minnesota, owned approximately 15.81% of the Select
Shares of the Income Portfolio. Oltrust & Co., Evansville, Indiana, owned
approximately 5.28% of the Select Shares of the Growth Portfolio.
Tax Information
FEDERAL INCOME TAX
Each Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to registered investment companies. If these requirements are
not met, it will not receive special tax treatment and will pay federal income
tax.
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 a Fund.
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 a Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of a Fund's 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, a 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 a 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, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to 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 43 investment companies,
whose investment advisers are affiliated with the Funds' Adviser.
As of January 12, 2000 the Funds' Board and Officers as a group owned less than
1% of the Funds' outstanding Shares.
NameFinancial Printing GroupFinancial Printing Group
<TABLE>
<CAPTION>
Name
Total
Birthdate
Aggregate Compensation From
Address Principal
Occupations Compensation Trust
Position With Trust for Past 5
Years From Trust and Fund Complex
<S>
<C> <C> <C>
John F. Donahue*#+ Chief Executive Officer and Director
or $ 0 $0 for the Trust
Birth Date: July 28, 1924 Trustee of the Federated Fund
Complex, and 43 other
Federated Investors Tower Chairman and Director,
Federated investment
1001 Liberty Avenue Investors, Inc.; Chairman and
Trustee, companies in the
Pittsburgh, PA Federated Investment
Management Fund Complex
CHAIRMAN AND TRUSTEE Company; Chairman and Director,
Federated Investment Counseling and
Federated Global Investment Management
Corp..; Chairman, Passport Research,
Ltd.
Thomas G. Bigley Director or Trustee of the
Federated $1,483.98 $116,760.63 for the
Birth Date: February 3, 1934 Fund Complex; Director, Member
of Trust and 43other
15 Old Timber Trail Executive Committee,
Children's investment
Pittsburgh, PA Hospital of Pittsburgh;
Director, companies in the
TRUSTEE Robroy Industries, Inc. (coated
steel Fund Complex
conduits/computer storage equipment);
formerly: Senior Partner, Ernst & Young
LLP; Director, MED 3000 Group, Inc.
(physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the
Federated $1,632.63 $128,455.37 for the
Birth Date: June 23, 1937 Fund Complex; President,
Investment Trust and 43 other
Grubb & Ellis/Investment Properties Corporation; Senior
Vice investment
Properties Corporation President, John R. Wood and
Associates, companies in the
3201 Tamiami Trail North Naples, FL Inc., Realtors; Partner or Trustee
in Fund Complex
TRUSTEE private real estate ventures in
Southwest Florida; formerly: President,
Naples Property Management, Inc. and
Northgate Village Development
Corporation.
Nicholas P. Constantakis++ Director or Trustee of the
Federated $ 0 $0 for the
Birth Date: September 3, 1939 Fund Complex; Director, Michael
Baker Trust and
175 Woodshire Drive Corporation (engineering,
construction, 37 other investment
Pittsburgh, PA operations and technical
services); companies
TRUSTEE formerly: Partner, Andersen
Worldwide in the Fund Complex
SC.
John F. Cunningham Director or Trustee of some of
the $1,483.98 $93,190.48 for the
Birth Date: March 5, 1943 Federated Fund Complex;
Chairman, Trust and 37 other
353 El Brillo Way President and Chief Executive
Officer, investment
Palm Beach, FL Cunningham & Co., Inc.
(strategic companies in the
TRUSTEE business consulting);
Trustee Fund Complex
Associate, Boston College; Director,
Iperia Corp. (communications/software);
formerly: Director, Redgate
Communications and EMC Corporation
(computer storage systems) .
Previous Positions: Chairman of the
Board and Chief Executive Officer,
Computer Consoles, Inc., President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo
Computer, Inc.
J. Christopher Donahue*+(++) President or Executive Vice
President $ 0 $0 for the Trust
Birth Date: April 11, 1949 of the Federated Fund Complex;
Director and 30 other
Federated Investors Tower or Trustee of some of the Funds in
the investment
1001 Liberty Avenue Federated Fund Complex;
President, companies in the
Pittsburgh, PA Chief Executive Officer and
Director, Fund Complex
EXECUTIVE VICE PRESIDENT AND Federated Investors, Inc.; President
TRUSTEE and Trustee, Federated Investment
Management Company; President and
Trustee, Federated Investment
Counseling; President and Director,
Federated Global Investment Management
Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder
Services Company; Director, Federated
Services Company.
Lawrence D. Ellis, M.D.* Director or Trustee of the
Federated $1,483.98 $116,760.63 for the
Birth Date: October 11, 1932 Fund Complex; Professor of
Medicine, Trust and 43 other
3471 Fifth Avenue University of Pittsburgh;
Medical investment
Suite 1111 Director, University of
Pittsburgh companies in the
Pittsburgh, PA Medical Center -
Downtown; Fund Complex
TRUSTEE Hematologist, Oncologist, and
Internist, University of Pittsburgh
Medical Center; Member, National Board
of Trustees, Leukemia Society of
America.
Peter E. Madden Director or Trustee of the
Federated $1,392.31 $109,153.60 for the
Birth Date: March 16, 1942 Fund Complex; formerly:
Representative, Trust and 43 other
One Royal Palm Way Commonwealth of Massachusetts
General investment
100 Royal Palm Way Court; President, State Street Bank
and companies in the
Palm Beach, FL Trust Company and State
Street Fund Complex
TRUSTEE Corporation.
Previous Positions: Director, VISA USA
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository Trust
Corporation; Director, The Boston Stock
Exchange.
Charles F. Mansfield, Jr. Director or Trustee of some of
the $1,559.80 $102,573.91 for the
Birth Date: April 10, 1945 Federated Fund Complex; Executive
Vice Trust and 40 other
80 South Road President, Legal and External
Affairs, investment
Westhampton Beach, NY TRUSTEE Dugan Valva Contess, Inc.
(marketing, companies in the
communications, technology
and Fund Complex
consulting); formerly Management
Consultant.
Previous Positions: Chief Executive Officer,
PBTC International Bank; Partner, Arthur
Young & Compnay (now Ernst & Young LLP);
Chief Financial Officer of Retail Banking
Sector, Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice
President, Citibank; Assistant Professor of
Banking and Finance, Frank G. Zarb School of
Business, Hofstra University.
John E. Murray, Jr., J.D., S.J.D.# Director or Trustee of the
Federated $1,632.63 $128,455.37 for the
Birth Date: December 20, 1932 Fund Complex; President, Law
Professor, Trust and 43 other
President, Duquesne University Duquesne University;
Consulting investment
Pittsburgh, PA Partner, Mollica & Murray;
Director, companies in the
TRUSTEE Michael Baker Corp.
(engineering, Fund Complex
construction, operations and technical
services).
Previous Positions: Dean and Professor
of Law, University of Pittsburgh School
of Law; Dean and Professor of Law,
Villanova University School of Law.
Marjorie P. Smuts Director or Trustee of the
Federated $1,483.98 $116,760.63 for the
Birth Date: June 21, 1935 Fund Complex;
Public Trust and 43 other
4905 Bayard Street Relations/Marketing/Conference
Planning. investment
Pittsburgh,
PA
companies in the
TRUSTEE Previous Positions:
National Fund Complex
Spokesperson, Aluminum Company of America;
television producer; business owner.
John S. Walsh Director or Trustee of some of
the $1,483.98 $94,536.85 for the
Birth Date: November 28, 1957 Federated Fund Complex; President
and Trust and 39 other
2007 Sherwood Drive Director, Heat Wagon,
Inc. investment
Valparaiso, IN (manufacturer of construction
temporary companies in the
TRUSTEE heaters); President and
Director, Fund Complex
Manufacturers Products, Inc.
(distributor of portable construction
heaters); President, Portable Heater
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway contractor);
formerly: Vice President, Walsh &
Kelly, Inc.
Glen R. Johnson Staff member, Federated Securities
Corp. $ 0 $0 for the Trust
Birth Date: May 2,
1929
and 21 other
Federated Investors
Tower
investment
1001 Liberty
Avenue
companies in the
Pittsburgh,
PA
Fund Complex
PRESIDENT
Edward C. Gonzales President, Executive Vice President
and $0 $0 for the Trust
Birth Date: October 22, 1930 Treasurer of some of the Funds in
the and 42 other
Federated Investors Tower Federated Fund Complex; Vice
Chairman, investment
1001 Liberty Avenue Federated Investors, Inc.;
Trustee, companies in the
Pittsburgh, PA Federated Administrative
Services; Fund Complex
EXECUTIVE VICE PRESIDENT formerly, Trustee or Director of some
of the Funds in the Federated Fund
Complex; Vice President, Federated
Financial Services, Inc., CEO and
Chairman, Federated Administrative
Services; Director, Vice President and
Treasurer, Federated Investors
Management Company; Federated
Investment Management Company,
Federated Investment Counseling,
Federated Global Investment Management
Corp. and Passport Research, Ltd.;
Director and Executive Vice President,
Federated Securities Corp.; Director,
Federated Services Company; Trustee,
Federated Shareholder Services Company.
John W. McGonigle Executive Vice President and
Secretary $0 $0 for the Trust
Birth Date: October 26, 1938 of the Federated Fund
Complex; and 43 other
Federated Investors Tower Executive Vice President,
Secretary, investment
1001 Liberty Avenue and Director, Federated
Investors, companies in the
Pittsburgh, PA Inc.; Trustee, Federated
Investment Fund Complex
EXECUTIVE VICE PRESIDENT AND Management Company and Federated
SECRETARY Investment Counseling; Director,
Federated Global Investment Management
Corp., Federated Services Company and
Federated Securities Corp.
Richard J. Thomas Treasurer of the Federated
Fund $0 $0 for the Trust
Birth Date: June 17, 1954 Complex; Vice President -
Funds and 43 other
Federated Investors Tower Financial Services Division,
Federated investment
1001 Liberty Avenue Investors, Inc.; formerly:
various companies in the
Pittsburgh, PA management positions within
Funds Fund Complex
TREASURER Financial Services Division of
Federated Investors, Inc.
Richard B. Fisher President or Vice President of some
of $0 $0 for the Trust
Birth Date: May 17, 1923 the Funds in the Federated
Fund and 41 other
Federated Investors Tower Complex; Director or Trustee of some
of investment
1001 Liberty Avenue the Funds in the Federated
Fund companies in the
Pittsburgh, PA Complex; Executive Vice
President, Fund Complex
VICE PRESIDENT Federated Investors, Inc.; Chairman and
Director, Federated Securities Corp.
J. Thomas Madden Chief Investment Officer of these
Funds $0 $0 for the Trust
Birth Date: October 22, 1945 and various other Funds in
the and 12 other
Federated Investors Tower Federated Fund Complex; Executive
Vice investment
1001 Liberty Avenue President, Federated
Investment companies in the
Pittsburgh, PA Counseling, Federated Global
Investment Fund Complex
CHIEF INVESTMENT OFFICER Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Vice President,
Federated Investors, Inc.; formerly:
Executive Vice President and Senior
Vice President, Federated Investment
Counseling Institutional Portfolio
Management Services Division; Senior
Vice President, Federated Investment
Management Company and Passport
Research, Ltd.
John W. Harris John W. Harris has been the
Fund's $0 $0 for the
Birth Date: June 6, 1954 Portfolio Manager since December
1998. Trust and
Federated Investors Tower He is Vice President of the Trust.
Mr. 0 other investment
1001 Liberty Avenue Harris initially joined Federated
in companies
Pittsburgh, PA 1987 as an Investment Analyst.
He in the Fund Complex
VICE PRESIDENT served as an Investment Analyst and an
Assistant Vice President from 1990
through 1992 and as a Senior Investment
Analyst and Vice President through May
1993. After leaving the money
management field to travel extensively,
he rejoined Federated in 1997 as a
Senior Investment Analyst and became a
Portfolio Manager and Assistant Vice
President of the Fund's Adviser in
December 1998. In January 2000, Mr.
Harris became Vice President of the
Funds' Adviser. Mr. Harris is a
Chartered Financial Analyst. He
received his M.B.A. from the University
of Pittsburgh.
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
and Trustee of the Trust.
++ Mr. Nicholas P. Constantakis and Mr. J. Christopher Donahue became members of
the Board of Trustees on January 1, 2000. Mr. Constantakis did not earn any
fees as of the fiscal year end of the Trust.
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 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.
CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the FundS, their Adviser, and their Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, Funds' Trustees, and certain other employees. Although
they do permit these people to trade in securities, including those that the
Funds could buy, they also contain significant safeguards designed to protect
the Funds and their shareholders from abuses in this area, such as requirements
to obtain prior approval for, and to report, particular transactions.
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.
For the fiscal year ended November 30, 1999, the Funds' Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of each Fund's transactions and the portion of which
each Fund paid in brokerage commissions is as follows:
<TABLE>
<CAPTION>
Fund Brokerage Brokerage
Transactions Commissions
<S> <C> <C>
Federated Managed $11,995,060.70 $9,431.46
Income Portfolio
Federated Managed $126,126,937.46 $317,467.77
Growth Portfolio
Federated Managed $58,462,399.74 $110.827.07
Conservative Growth
Portfolio
Federated Managed $168,142,270.61 $411,495.67
Moderate Growth
Portfolio
</TABLE>
On November 30, 1999, each Fund owned securities of the following regular broker
dealers:
<TABLE>
<CAPTION>
Fund Regular Broker/ Aggregate Amount
Dealer of Securities
Owned
<S> <C> <C>
Federated Managed Merrill Lynch & Co., Inc. $16,000
Income Portfolio
Federated Managed Merrill Lynch & Co., Inc. $81,000
Growth Portfolio
Federated Managed Merrill Lynch & Co., Inc. $137,000
Conservative Growth
Portfolio
Federated Managed Merrill Lynch & Co., Inc. $210,000
Moderate Growth
Portfolio
</TABLE>
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:
<TABLE>
<CAPTION>
Maximum Administrative Fee Average Aggregate Daily
Net Assets of the Federated Funds
<S> <C>
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
</TABLE>
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 AUDITORS
The independent auditor for the Funds, Deloitte & Touche LLP, plans and performs
its audit so that it may provide an opinion as to whether the Funds' financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUNDS FOR SERVICES
<TABLE>
<CAPTION>
Fund Advisory Fee Paid Brokerage Commissions
Paid Administrative Fee Paid
Advisory Fee Waived
Sub-Advisory Fee Paid
- ------------------------------------------------------------
For the fiscal year ended For the fiscal year
ended For the fiscal year ended
November 30, November
30, November 30,
- ------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998
1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
Income Portfolio $ 994,855 $ 880,363 $ 696,806 $ 13,258 $ 29,143 $ 18,013
$155,000 $155,001 $154,890
$ 448,968 $ 494,803 $ 461,157
$ 1,473 $ 58,453 $ 8,724
Conservative $1,767,694 $1,704,532 $1,535,953 $120,815 $154,743 $235,841
$177,712 $171,362 $155,085
Growth Portfolio $ 0 $ 0 $ 101,972
$ 4,697 $ 313,796 $ 99,378
Moderate Growth $1,994,215 $1,876,254 $1,653,493 $447,756 $461,050 $423,125
$200,485 $188,627 $166,775
Portfolio $ 0 $ 0 $ 129,366
$ 24,373 $ 340,468 $ 243,773
Growth Portfolio $1,178,534 $1,048,670 $ 762,135 $352,922 $341,583 $279,734
$155,000 $155,001 $154,893
$ 27,768 $ 176,779 $ 326,658
$ 13,271 $ 149,290 $ 87,324
</TABLE>
<TABLE>
<CAPTION>
Select Shares Institutional
Shares Select Shares
- --------------------------------------------------------------------------------------------------------
Figures for the fiscal 12b-1 Fee Paid 12b-Fee Waived Shareholder
Shareholder Shareholder Shareholder
year ended November Servicing Fee
Servicing Fee Servicing Fee Servicing Fee
30, 1999 Paid
Waived Paid Waived
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C>
Income Portfolio $354,680 $118,227 $212,891
$170,313 $118,227 $0
Conservative Growth $494,542 $164,848 $424,384
$339,507 $164,848 $0
Portfolio
Moderate Growth $686,157 $228,719 $436,019
$348,815 $228,719 $0
Portfolio
Growth Portfolio $501,841 $167,280 $225,564
$180,452 $167,280 $0
</TABLE>
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.
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.
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.
Average Annual Total Returns and Yield
<TABLE>
<CAPTION>
Fund Average Annual Total
Returns Yields
for the periods ended November 30,
1999 for the 30-day period
- ----------------------------------------------------------------------------------
ended
Institutional Shares Select
Shares November 30, 1999
One-Year Five-Year Start of One-Year Five-Year
Start of Institutional Select
Performance
Performance Shares Shares
(5/25/94)
(5/25/94)
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
Income Portfolio 1.22% 8.29% 7.59% 0.52% 7.50%
6.82% 5.44% 4.73%
Conservative Growth 5.11% 10.84% 9.77% 4.29% 10.09%
9.02% 3.83% 3.13%
Portfolio
Moderate Growth 11.00% 13.79% 12.29% 10.26% 12.99%
11.52% 2.59% 1.90%
Portfolio
Growth Portfolio 14.83% 15.28% 13.56% 14.05% 14.52%
12.82% 1.43% 0.74%
</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 30-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 30-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 a 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.
A Fund 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:
. Lipper Analytical Services, Inc., ranks funds in various fund categories by
making competitive calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in net asset value over a specified period of
time. From time to time, a Portfolio will quote its Lipper ranking in
advertising and sales literature.
. Standard & Poor's 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.
. 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.
. 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.
. Europe, Australia, and Far East (EAFE) is a market capitalization weighted
foreign securities index, which is widely used to measure the performance of
European, Australian, New Zealand and Far Eastern stock markets. The index
covers approximately 1,020 companies drawn from 18 countries in the above
regions. The index values its securities daily in both U.S. dollars and
local currency and calculates total returns monthly. EAFE U.S. dollar total
return is a net dividend figure less Luxembourg withholding tax. The EAFE is
monitored by Capital International, S.A., Geneva, Switzerland.
. Russell 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.
. Russell 2000 Index is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested
primarily in small capitalization common stocks.
. Lehman Brothers Treasury Intermediate Bond Index (U.S. Dollars) is an index
composed of all bonds covered by the Lehman Brothers Treasury Bond Index
with maturities between one and 9.9 years. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indexes are rebalanced monthly by market capitalization.
. Lehman Brothers Treasury Long-Term Bond Index (U.S. Dollars) is an index
composed of all bonds covered by the Lehman Brothers Treasury Bond Index
with maturities of 10 years or greater. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indexes are rebalanced monthly by market capitalization.
. J.P. Morgan Global Non-U.S. Government Bond Index is a total return, market
capitalization weighted index, rebalanced monthly consisting of the
following countries: Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, Netherlands, Spain, Sweden and United Kingdom.
. Lehman Brothers Corporate Intermediate Bond Index (U.S. Dollars) is a subset
of the Lehman Brothers Corporate Bond Index covering all corporate, publicly
issued, fixed-rate, nonconvertible U.S. debt issues rated at least Baa with
at least $150 million principal outstanding and maturity less than 10 years.
. Lehman Brothers Corporate B Index is an index composed of all bonds covered
by Lehman Brothers High Yield Index rated "B" by Moody's Investors Service.
Bonds have a minimum amount outstanding of $100 million and at least one
year to maturity. Total return comprises price appreciation/depreciation and
income as a percentage of the original investment. Indexes are rebalanced
monthly by market capitalization.
. Lehman Brothers Mortgage-Backed Securities Index includes 15- and 30-year
fixed-rate securities backed by mortgage pools of the Government National
Mortgage Association , Federal Home Loan Mortgage Corporation , and Federal
National Mortgage Corporation . Graduated payment mortgages and balloons are
included in the index.
. 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.
. 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.
. 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.
. 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 a fusion of talents and state-of-the-art industry tools
and resources. Federated's investment process involves teams of portfolio
managers and analysts, and investment decisions are executed by traders
dedicated to specific market sectors and who handle trillions of dollars in
annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1999, Federated managed 12 bond
funds with approximately $2.0 billion in assets and 24 money market funds with
approximately $13.1 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 29 years' experience. As of
December 31, 1999, Federated managed 53 equity funds totaling approximately
$18.3 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, 1999, Federated managed 13
money market funds and 29 bond funds with assets approximating $35.7 billion and
$7.7 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 27 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 $209 billion.
Government Funds
In the government sector, as of December 31, 1999, Federated managed 9 mortgage-
backed, 11 government/agency and 16 government money market mutual funds, with
assets approximating $4.7 billion, $1.6 billion and $34.1 billion, respectively.
Federated trades approximately $450 million in U.S. government and mortgage-
backed securities daily and places approximately $25 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 $43.8 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1999, Federated managed more than $83.0billion in assets across 54 money market
funds, including 16 government, 13 prime and 24 municipal and 1 euro-denominated
with assets approximating $34.1 billion, $35.7 billion, $13.1 billion and 115
million, respectively.
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 $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
Federated Clients Overview
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 1,160 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,
1999 are incorporated herein by reference to the Annual Reports to Shareholders
of the Funds dated November 30, 1999.
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.
Addresses
FEDERATED MANAGED INCOME PORTFOLIO
FEDERATED MANAGED CONSERVATIVE GROWTH PORTFOLIO
FEDERATED MANAGED MODERATE GROWTH PORTFOLIO
FEDERATED MANAGED GROWTH PORTFOLIO
Institutional Shares
Select Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116-5022
