FEDERATED INTERNATIONAL SMALL CO OPPORTUNITY FUND, N-2, 2000-09-18

FEDERATED INTERNATIONAL SMALL CO OPPORTUNITY FUND
N-2, 2000-09-18

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Securities Act File No. _________
Investment Company Act File No.811-10131

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]

PRE-EFFECTIVE AMENDMENT No. ___ [ ]

POST-EFFECTIVE AMENDMENT No. ___ [ ]

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]

AMENDMENT No. ________

FEDERATED INTERNATIONAL SMALL COMPANY OPPORTUNITY FUND
(Exact Name of Registrant As Specified In Charter)

5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
(Address of Principal Executive Offices)

1-800-341-7400
(Registrant's Telephone Number, Including Area Code)

John W. McGonigle, Esquire
FEDERATED INTERNATIONAL SMALL COMPANY OPPORTUNITY FUND
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
(Name and Address of Agent for Service)

COPIES TO:

Clifford J. Alexander, Esquire Thomas A. DeCapo, Esquire
R. Darrell Mounts, Esquire SKADDEN, ARPS, SLATE, MEAGHER & FLOM
KIRKPATRICK & LOCKHART LLP ONE BEACON STREET
1800 MASSACHUSETTS AVENUE, N.W. BOSTON, MA 02108-3194
WASHINGTON, D.C. 20036-1800

(Approximate date of proposed public offering)
As soon as practicable after the effective date of this Registration Statement.

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

----------------------------------------------------------------------------------------------------------------
Title of Amount Being Proposed Maximum Proposed Maximum Amount of
Securities Registered Aggregate Offering Aggregate Offering Registration Fee
Being Registered Price Per Unit Price
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share of Beneficial 1,000,000 $25.00 $25,000,000 $6,600
Beneficial
Interest ($0.01
par value)
---------------------------------------------------------------------------------------------------------------
</TABLE>

The registrant hereby amends this Registration Statement under the Securities
Act of 1933 on such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in
accordance with the provisions of Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.

<PAGE>

[SIDEBAR]
Information contained herein is subject to completion or amendement. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED _________, 2000

[ ] SHARES

Federated International Small Company Opportunity Fund

-----------------------------------------

Federated International Small Company Opportunity Fund (the "Fund") is a
newly organized, diversified, closed-end management investment company. The
Fund's investment objective is to provide long-term growth of capital. The Fund
seeks to achieve its objective by investing at least 65% of its assets in equity
securities of foreign companies that have a market capitalization at the time of
purchase of $1.5 billion or less. There can be no assurance that the Fund will
achieve its investment objective.

An investment in the Fund involves special risks, including risks
associated with investments in small capitalization stocks and in stocks of
foreign companies, particularly in emerging market countries. SEE "RISK FACTORS
AND SPECIAL CONSIDERATIONS."

Historically, the shares of many closed-end funds have traded at sometimes
significant discounts to their net asset values, and the Fund's shares also may
trade at a discount. To address the risk that the Fund's shares may trade at a
discount, the Fund's charter provides that it will automatically convert to an
open-end investment company if the Fund's shares trade at a discount from net
asset value of 5% or more for at least 20 consecutive business days at any time
after the 24 month period following the closing date of this offering. This
conversion would not require approval of the Fund's shareholders or its Board of
Trustees and would occur even if the market discount subsequently is reduced to
less than 5%. Since shares of open-end funds are redeemable at the fund's net
asset value, the Fund's automatic conversion feature may help limit the
potential for any market discount on the Fund's shares. There can be no
assurance, however, that the Fund's shares will trade at a price equal to or
close to net asset value. The risk associated with the possibility that
closed-end fund shares may trade at a discount may be greater for investors
purchasing shares in the initial public offering and expecting to sell the
shares soon after its completion. See "Description of Shares - Automatic
Conversion to Open-End Structure."

Federated Global Investment Management Corp. (the "Adviser"), a Delaware
corporation and wholly owned subsidiary of Federated Investors, Inc.
("Federated"), serves as investment manager to the Fund. The Fund's address is
5800 Corporate Drive, Pittsburgh, PA, 15237-7000, and its telephone number is
1-800-341-7400.

-----------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

===============================================================================
PRICE TO PROCEEDS TO
PUBLIC SALES LOAD(1) FUND (2)
-------------------------------------------------------------------------------
Per Share......................... $25 None $25
-------------------------------------------------------------------------------
Total............................. $ None $
-------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-
Allotment Option (3).......... $ None $

===============================================================================
(FOOTNOTES ON THE FOLLOWING PAGE)

The Shares are offered by the Underwriters, subject to prior sale, when, as and
if delivered to and accepted by the Underwriters, and subject to their right to
reject orders in whole or in part. It is expected that delivery of the Shares
will be made in New York City on or about , 2000.

--------------------------------
RAYMOND JAMES & ASSOCIATES, INC.

-----------------------------------------

<PAGE>

THE DATE OF THIS PROSPECTUS IS ________, 2000.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES
OF THE FUND AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
NASDAQ MARKET, OR OTHERWISE. SUCH STABILIZATION, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

-------------------------

(CONTINUED FROM COVER PAGE)

The Fund is offering its shares of beneficial interest, par value $0.01
per share (the "Shares"). Prior to this offering, there has been no market for
the Fund's Shares. The Fund intends to apply to list its Shares on the New York
Stock Exchange under the symbol "[ ]." The minimum investment in this offering
is 100 Shares ($2500). This Prospectus sets forth in concise form information
about the Fund that a prospective investor should know before investing in the
Fund. Investors are advised to read this Prospectus carefully and to retain it
for future reference.

The Fund's shares do not represent a deposit or obligation of, and are not
guaranteed or endorsed by, any bank or other insured depository institution, and
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency.

-------------------------

(FOOTNOTES FROM COVER PAGE)
(1) The Underwriters' commission of 5% of the initial purchase price of each
Share for total commissions of up to $[ ] million ($[ ] million assuming
full exercise of the over-allotment option) will be paid by Putnam Lovell
Finance, L.P. (the "Payor"). In consideration of this payment, the Payor
will be entitled to receive either Shareholder Installment Fees payable by
shareholders out of distributions on their Shares or, at the sole
discretion of the Fund's Board of Trustees, Fund Installment Fees, which
will be paid to the Payor directly out of Fund assets. Shareholder
Installment Fees or Fund Installment Fees payable to the Payor would be
payable at an annual rate equal to [1.22%] of the Fund's current net asset
value ("NAV"), calculated daily and paid monthly, up to a maximum of 6.25%
of the gross proceeds of the Fund's initial public offering plus interest
on such amount at a per annum rate equal to the then current prime rate of
interest plus 1%. If this maximum is not reached within nine years, the
Shareholder Installment Fee will be eliminated. The aggregate amount of
such fees will not exceed. If the Fund does not pay Fund Installment Fees,
Shareholder Installment Fees will be payable and will be automatically
withheld only from monthly distributions to shareholders. In the event
that the Fund is converted to open-end form, merged, or liquidated, the
Payor may be entitled to receive either an Early Withdrawal Charge,
payable out of amounts distributable to shareholders of the Fund, or 12b-1
distribution fees and contingent deferred sales charges from the open-end
fund. See "Shareholder Installment Fees and Fund Installment Fees,"
"Description of Shares - Early Withdrawal Charge," and "Description of
Shares - Automatic Conversion to Open-End Structure." The Fund and the
Adviser have agreed to indemnify the Underwriters and the Payor against
certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting" and "------."
(2) [Before deducting certain organizational and offering expenses payable by
the Fund, including payment of $[ ] to the Underwriters in partial
reimbursement of their expenses, estimated at $ and $ , respectively.
Offering expenses will be deducted from net proceeds, and organizational
expenses (excluding Underwriters' commissions) will be expensed
immediately.]
(3) [Assuming exercise in full of the 45-day option granted by the Fund to the
Underwriters to purchase up to [ ] additional Shares, on the same terms,
solely to cover over-allotments. See "Underwriting."]

<PAGE>

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY
CONSIDER INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS AND SPECIAL
CONSIDERATIONS."

THE FUND Federated International Small Company Opportunity
Fund (the "Fund") is a newly organized, diversified,
closed-end fund. The Fund is managed by Federated
Global Investment Management Corp. (the "Adviser").
The Fund is designed for those who wish to pursue
long-term growth of capital. See "The Fund."

INVESTMENT OBJECTIVE AND The Fund's investment objective is to provide
POLICIES long-term growth of capital. The Fund seeks to
achieve its objective by investing at least 65% of
its assets in equity securities of foreign companies
that have a market capitalization at the time of
purchase of $1.5 billion or less. Foreign equity
securities are equity securities of issuers based
outside the United States. [The Fund may invest up to
35% of its total assets in other foreign and domestic
equity securities and in debt securities.]

The Fund will be managed following a growth style of
investment. For the Adviser, this style begins with a
"bottom-up" approach that looks for companies that
are positioned for rapid growth in revenues or
earnings and assets.

For the reasons described under "Investment
Rationale" below, the Adviser believes that the
securities of international small capitalization
companies offer the potential for long-term growth
opportunities. An investment in the Fund should not
itself be considered a balanced investment program
and is not intended to provide diversification as
would a more complete investment program. No
assurance can be given that the Fund will achieve its
investment objective. See "Investment Objective and
Policies."

Foreign equity securities are often denominated in
foreign currencies. Along with the risks normally
associated with domestic equity securities, foreign
equity securities are subject to currency risks and
risks of foreign investing. In some countries, a
small company by U.S. standards might rank among the
largest in that country in terms of its
capitalization. Market capitalization is determined
by multiplying the number of outstanding shares by
the current market price per share. The Adviser may
invest the Fund's assets in any region of the world.
It will invest in companies based in emerging
markets, typically in the Far East, Latin America,
and Eastern Europe, as well as in firms operating in
developed countries, such as those of Canada, Japan,
and Western Europe.

<PAGE>

downstream beneficiaries of large capitalization
stocks such as parts and software suppliers for the
technology and telecommunication business stocks.
Similarly, the Adviser may emphasize investment in a
particular region or regions of the world from time
to time when the growth potential of a region is
attractive to the Adviser.

For temporary or defensive purposes the Fund may
depart from its principal investment strategies by
investing its assets in cash and shorter-term debt
securities and similar obligations. It may do this to
minimize potential losses. This may cause the Fund to
give up greater investment returns to maintain the
safety of principal, that is, the original amount
invested by shareholders. See "Investment Objective
and Policies."

INVESTMENT RATIONALE The Adviser believes that the securities of small cap
companies offer the potential for long-term growth
opportunities because these stocks historically have
experienced superior investment growth over longer
periods of time.

In the view of the Adviser, this makes the Fund an
attractive investment for investors seeking long term
growth of capital through investment in international
equity securities that have a market capitalization
at the time of purchase of $1.5 billion or less.

By focusing investments on companies that are
positioned for growth and that also meet the
Adviser's investment criteria, the Adviser believes
that the Fund will be well-positioned to take
advantage of the strong potential of the leaders in
the small cap area.

INVESTMENT MANAGER AND Federated Global Investment Management Corp. is the
ADMINISTRATOR Fund's investment manager. Federated Global
Investment Management Corp. is a wholly owned
subsidiary of Federated Investors, Inc.
("Federated"). As of December 31, 1999, the Adviser
and other subsidiaries of Federated advise
approximately 176 mutual funds and separate
accounts, which totaled approximately $125 billion
in assets. Federated was established in 1955 and is
one of the largest mutual fund investment managers
in the United States with approximately 1,900
employees. More than 4,000 investment professionals
make the Federated Funds available to their
customers.

Federated Administrative Services ("FAS"), a
subsidiary of Federated, provides administrative
personnel and services (including certain legal and
financial reporting services) necessary to operate
the Fund. FAS may voluntarily waive a portion of its
fee and may reimburse the Fund for expenses. FAS also
provides certain accounting and recordkeeping
services with respect to the Fund's portfolio
investments for a fee based on Fund assets plus
out-of-pocket expenses. See "Management of the Fund."

THE OFFERING The Fund is offering [ ]
shares of beneficial interest, par value $0.01 per
share (the "Shares"), through a group of
underwriters (the "Underwriters") led by Raymond
James & Associates, Inc. The Underwriters have been
granted an option to purchase up to [15%] additional
Shares solely to cover over-allotments, if any. The
initial public offering price is $25 per share. The
minimum investment in the offering is 100 Shares
($2,500). See "Underwriting."

2
<PAGE>

PAYMENT OF UNDERWRITERS' The Shares will be sold during the initial public
COMMISSIONS offering without assessment of an initial sales load
or underwriting discounts payable by investors or the
Fund. Putnam Lovell Finance, L.P. (the "Payor") has
agreed to pay the Underwriters' commissions. As a
result, all proceeds of the offering (less certain
offering expenses) will be invested immediately by
the Fund. The Payor, which is a financial institution
unaffiliated with the Adviser, the Fund, or the
Underwriters, will pay the Underwriters' commissions
from its own assets.

The Payor will be entitled to receive on a monthly
basis either a Shareholder Installment Fee, payable
by shareholders out of distributions on their Shares,
or a Fund Installment Fee, payable directly out of
the Fund's assets. See "Prospectus Summary -
Shareholder Installment Fee and Fund Installment
Fee," "Prospectus Summary - Distributions,"
"Prospectus Summary - Automatic Conversion to
Open-End Structure," "Taxes," and "Underwriting."

LISTING Prior to this offering, there has been no market for
the Shares. The Fund intends to apply to list its
Shares on the New York Stock Exchange ("NYSE") under
the symbol "[ ]", subject to notice of issuance. See
"Description of Shares."

SHAREHOLDER INSTALLMENT The Payor will be entitled to receive a monthly
FEES AND FUND INSTALLMENT Shareholder Installment Fee, except to the extent
FEES FUND INSTALLMENT FEES that the Fund pays any Fund
Installment Fees, as compensation for advancing the
5% underwriting commission relating to the initial
public offering of the Shares. The Shareholder
Installment Fee will be payable at an annual rate
equal to [1.22%] of the Fund's current NAV, computed
daily, and will be automatically deducted only from
each monthly distribution to shareholders on a pro
rata basis from the amount distributable on each
outstanding Share, up to a maximum of 6.25% of the
gross proceeds of the Fund's initial public offering
plus interest on such amount at a per annum rate
equal to the then current prime rate of interest plus
1%. If this maximum is not reached within nine years,
the Shareholder Installment Fee will be eliminated.

The Fund's Board of Trustees may from time to time
determine, at its sole discretion, to pay Fund
Installment Fees directly out of the Fund's assets to
the Payor. Any Fund Installment Fee that is paid by
the Fund would be in lieu of the payment of an equal
amount of a Shareholder Installment Fee out of
shareholder distributions. The Trustees intend to
consider at least quarterly whether to pay Fund
Installment Fees with respect to amounts that will be
due to the Payor during the subsequent quarter. There
is no assurance, however, that the Trustees will
determine to pay any Fund Installment Fees. See
"Shareholder Installment Fees and Fund Installment
Fees," "Distributions," and "Description of Shares -
Automatic Conversion to Open-End Structure."

3
<PAGE>

longer payable, Fund shareholders will be charged an
Early Withdrawal Charge ("EWC"), which will be a
percentage of the gross proceeds of the initial
offering of the Shares and will be assessed pro rata
against all outstanding Shares (including shares
obtained through the reinvestment of dividends or
other distributions) at a rate that declines from
5.50% during the first year following the date of
this offering to zero following the end of the sixth
such year. See "Early Withdrawal Charge."

Shareholders will not have any personal liability for
the payments of the Shareholder Installment Fee or
the EWC. Rather, the Shareholder Installment Fee or
EWC would be paid out of distributions or withdrawal
proceeds.

If the Fund converts to an open-end fund prior to the
ninth year after the date of this offering, the Fund
will make payments to the Payor under a distribution
plan adopted pursuant to Securities and Exchange
Commission (the "SEC" or the "Commission") Rule
12b-1, and the shares will be subject to a contingent
deferred sales charge ("CDSC") prior to the
anniversary date of the conversion next following the
sixth anniversary of the date of this offering. See
"Description of Shares - Automatic Conversion to
Open-End Structure."

DISTRIBUTIONS The Fund's Declaration of Trust provides that the
Fund will make monthly dividends or other
distributions in amounts at least sufficient to
enable shareholders to pay the Shareholder
Installment Fee, except to the extent that the
Fund's Trustees determine, in their sole discretion,
to pay a Fund Installment Fee out of the Fund's
assets in lieu of the Shareholder Installment Fee
that otherwise would be payable out of such
distributions.

Monthly distributions sufficient to pay any required
Shareholder Installment Fee will be made from the
Fund's net investment income and realized gains to
the extent available, and any balance will constitute
returns of capital. The Fund does not expect to pay
monthly distributions except to the extent necessary
to enable shareholders to pay Shareholder Installment
Fees to the Payor. Any Fund Installment Fees paid in
lieu of Shareholder Installment Fees will be treated
as distributions for federal tax purposes and taxable
as such. To the extent that such distributions
represent distributions of net investment income or
gain, they will be taxable as such to shareholders
notwithstanding the fact that the proceeds of such
distributions are withheld and paid to the Payor. The
Fund will distribute annually any net investment
income and capital gain. See "Distribution" and
"Taxes."

DIVIDEND REINVESTMENT The Fund has established a Dividend Reinvestment Plan
PLAN ("DRP"). Under the DRP, all distributions not
utilized to pay the Shareholder Installment Fee will
be invested in additional Shares issued by the Fund,
unless the shareholder elects in writing to receive
distributions in cash. The Fund will issue new Shares
at NAV, regardless of whether the NAV is at a
discount or premium to the then current market price
of the Shares.

All Shares issued pursuant to the DRP prior to any
conversion of the Fund to open-end form will be

4
<PAGE>

subject to the Shareholder Installment Fee (or Fund
Installment Fee), and may be subject to an EWC and,
following any such conversion, Rule 12b-1 Fees and
CDSCs. Accordingly, participants in the DRP will pay
more distribution-related charges in proportion to
their holdings of Shares than will shareholders who
do not participate in the DRP. See "Dividend
Reinvestment Plan."

CLOSED-END FUND STRUCTURE The Fund has been organized as a closed-end fund.
Closed-end funds differ from open-end management
investment companies (commonly referred to as
open-end funds) in that closed-end funds generally
list their shares for trading on a securities
exchange and do not redeem their shares at the option
of the shareholder. By comparison, open-end funds
issue securities redeemable at NAV at the option of
the shareholder and typically engage in a continuous
offering of their shares. As a result, open-end funds
are subject to continuous asset in-flows and
out-flows that can complicate portfolio management.

The Adviser expects the Fund to realize certain
important benefits of the closed-end structure. These
benefits include the ability to stay more fully
invested in securities consistent with the closed-end
fund's investment objective and policies, since the
portfolio is not affected by cash flows from share
purchases and sales. By their nature, companies with
smaller market capitalizations tend to have less
trading liquidity than larger companies. Accordingly,
the Adviser believes that the closed-end structure is
suited to a portfolio that plans to invest in
companies with small market capitalizations in
markets across the world. However, shares of
closed-end funds frequently trade at a discount from
their NAV. As described below, the Fund may, under
certain circumstances, automatically convert to an
open-end fund. In that event, the Fund would no
longer realize the benefits of the closed-end
structure. See "Description of Shares - Closed-End
Fund Structure."

AUTOMATIC CONVERSION The Fund will operate as a closed-end fund for a
TO OPEN-END STRUCTURE period of at least 24 months from the date of this
offering. After that initial period, the Fund will
automatically convert into an open-end fund if its
Shares close at a 5% or greater discount from the NAV
of the Fund for 20 consecutive days on which the NYSE
is open for trading. Any such conversion would occur
no earlier than 6 months following such 20th business
day and as soon as practicable thereafter. The
conversion would not require approval of Fund
shareholders or Board of Trustees and would occur
even if the discount subsequently is less than 5%.

If the Fund converts to an open-end fund, it will be
able to continuously issue and offer for sale Shares,
and shareholders will then be able to redeem Shares
at a price based on the then current NAV per share.
However, shareholders will be charged a CDSC on the
redemption of any Shares until the anniversary date
of the conversion next following the sixth
anniversary of the date of this offering. Shares
would no longer be listed on the NYSE. The Fund's
investment objective and policies would remain the
same after the conversion.

Under the terms of the Rule 12b-1 plan adopted by the
Fund, upon any conversion to open-end form, the Fund

5
<PAGE>

will pay the Payor from the date of conversion to the
ninth anniversary of the closing of the initial
public offering a Rule 12b-1 fee at an annual rate of
1.00% (or 0.75% if certain payments are made to the
Payor by the Adviser or one of its affiliates) of the
Fund's average daily net assets of the shares of the
open-end fund, subject to the maximum limit on the
aggregate amount of the fees payable to the Payor. If
the Rule 12b-1 Fee is 0.75%, the Fund expects that
the Board will implement a shareholder service plan
that imposes a fee at an annual rate of 0.25% of the
Fund's average daily net assets.

INVESTMENT MANAGEMENT FEE As the Fund's investment manager, the Adviser will
AND ADMINISTRATION FEE determine the composition of the Fund's portfolio,
place all orders for the purchase and sale of
securities and for other transactions, and oversee
the settlement of the Fund's securities and other
portfolio transactions. For investment management
services, the Adviser receives an annual investment
adviser fee of 1.25% of the Fund's average daily net
assets, plus or minus a performance-based adjustment
of 0.15% of the Fund's average daily net assets over
a one-year fiscal period. The performance-based
adjustment is calculated by comparing over a one-year
fiscal period the Fund's performance to that of the
Morgan Stanley Capital International ("MSCI") World
Ex-US Small Cap Index. If the Fund's performance
exceeds that of the Index by at least 1.00%, then the
advisory fee for the immediately following fiscal
year shall be 1.40%. If the Fund's performance lags
that of the Index by at least 1.00%, then the
advisory fee for the immediately following fiscal
year shall be 1.10%. See "Management of the Fund -
Investment Advisory Agreement"

For administrative services, FAS receives an
administration fee at the annual rate of
approximately 0.08% on the Fund's average daily net
assets for administrative services. See "Management
of the Fund."

CUSTODIAN AND TRANSFER State Street Bank and Trust Company will act as
DIVIDEND DISBURSING custodian for the Fund and may employ sub-custodians
AGENT outside the United States approved by the Trustees of
the Fund in accordance with SEC regulations. _______
will act as the Fund's Transfer and Dividend
Disbursing Agent. See "Management of the Fund."

RISK FACTORS AND SPECIAL Investors are advised to consider carefully the
CONSIDERATIONS special risks involved in investing in the Fund.

GENERAL. The Fund is a newly organized, diversified,
closed-end fund and has no operating history. The
Fund has been designed, and the Shares are intended,
primarily for long-term investors and the Shares
should not be considered a vehicle for speculative
trading purposes. The Fund's NAV will fluctuate with
price changes of the Fund's portfolio securities.

FOREIGN SECURITIES. The Fund will invest at least 65%
of its total assets in securities of issuers
domiciled outside of the United States or that are
denominated in various foreign currencies and
multinational foreign currency units. Investing in
securities of foreign entities and securities
denominated in foreign currencies involves certain

6
<PAGE>

risks not involved in domestic investments,
including, but not limited to, fluctuations in
foreign exchange rates, future foreign political and
economic developments, different legal systems and
the possible imposition of exchange controls or other
foreign governmental laws or restrictions. Securities
prices in different countries are subject to
different economic, financial, political, and social
factors. In addition, with respect to certain foreign
countries, there is the possibility of expropriation
of assets, confiscatory taxation, difficulty in
obtaining or enforcing a court judgment, economic,
political or social instability, or diplomatic
developments that could affect investments in those
countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy
in such respects as growth of domestic product, rates
of inflation, capital reinvestment, resources,
self-sufficiency, and balance of payments position.
Certain foreign investments also may be subject to
foreign withholding taxes. These risks often are
heightened for investments in smaller, emerging
capital markets.

SMALL CAP STOCKS. Because the smaller companies in
which the Fund may invest may have unproven track
records, a limited product or service base and
limited access to capital, they may be more likely to
fail than larger companies.

CURRENCY RISKS. Since the Fund may invest in
securities denominated or quoted in currencies other
than the U.S. dollar, changes in foreign currency
exchange rates may affect the value of securities in
the Fund and the unrealized appreciation or
depreciation of investments. Currencies of certain
countries may be volatile and therefore may affect
the value of securities denominated in such
currencies. The Fund may engage in certain
transactions to hedge the currency-related risks of
investing in non-U.S. dollar denominated securities.
Because the exchange rates for currencies fluctuate
daily, prices of the foreign securities in which the
Fund invests are more volatile than prices of
securities traded exclusively in the United States.

MARKET PRICE, DISCOUNT, AND NET ASSET VALUE OF
SHARES. Shares of closed-end funds in the past
frequently have traded at a discount to their NAVs.
The risk of loss associated with this characteristic
of closed-end funds may be greater for an investor
who sells shares of a closed-end fund soon after
completion of the initial public offering because the
investor will buy the shares at the initial offering
price and may be unable subsequently to sell the
shares for that amount. Whether investors will
realize gains or losses upon the sale of Shares will
not depend directly upon the Fund's NAV, but will
depend upon the market price of the Shares at the
time of sale. The market price of the Shares will be
determined by factors such as relative demand for and
supply of the Shares in the market, general market
and economic conditions and other factors beyond the
control of the Fund. The Fund cannot predict whether
the Shares will trade at, below or above NAV or at,
below or above the initial offering price. This risk
would exist primarily for the 24-month period
following the initial public offering since, after
that time, the Fund automatically will convert to an
open-end fund if the Fund's Shares trade at a
discount of 5% or greater. The Shares are designed
primarily for long-term investors. Investors in the
Shares should not view the Fund as a vehicle for
trading purposes, and should not assume that the Fund
may convert to an open-end investment company. See
"Risk Factors and Special Considerations" and
"Description of Shares."

7
<PAGE>

ANTI-TAKEOVER PROVISIONS. The Fund's Declaration of
Trust contains provisions limiting (i) the ability of
other entities or persons to acquire control of the
Fund, (ii) the Fund's freedom to engage in certain
transactions, and (iii) the ability of the Fund's
Trustees or shareholders to amend the Declaration of
Trust. These provisions of the Declaration of Trust
may be regarded as "anti-takeover" provisions. These
provisions could have the effect of depriving the
shareholders of opportunities to sell their Shares at
a premium over prevailing market prices by
discouraging a third party from seeking to obtain
control of the Fund in a tender offer or similar
transaction. In addition, the consent of the Payor is
required in the case of amendments relating to the
Shareholder Installment Fees or the EWC. See "Risk
Factors and Special Considerations - Anti-Takeover
Provisions" and "Description of Shares."

8
<PAGE>

FEE TABLE

The following tables are intended to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, directly or
indirectly.

SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering
price)(1).................................................................None
Dividend Reinvestment Plan Fees...........................................None

ANNUAL FUND OPERATING EXPENSES (AS A

PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO SHARES)(2)(3)
Management Fee...........................................................1.25%
Administration Fee.......................................................0.08%
Fund Installment Fee (1) ................................................1.22%
Other Expenses...........................................................0.20%
Total Annual Fund Expenses.........................................2.75%

-------------
(1) The Underwriters' commission of 5% of the initial purchase price of each
Share for total commissions of up to $[ ] million ($[ ] million assuming
full exercise of the over-allotment option) will be paid by the Payor. In
consideration of this payment, the Payor will be entitled to receive
either Shareholder Installment Fees payable by shareholders out of
distributions on their Shares or, at the sole discretion of the Fund's
Board of Trustees, Fund Installment Fees, which will be paid to the Payor
directly out of Fund assets. Shareholder Installment Fees or Fund
Installment Fees payable to the Payor would be payable at an annual rate
equal to [1.22%] of the Fund's NAV, calculated daily and paid monthly, up
to a maximum of 6.25% of the gross proceeds of the Fund's initial public
offering plus interest on such amount at a per annum rate equal to the
then current prime rate of interest plus 1%. If this maximum is not
reached within nine years, the Shareholder Installment Fee will be
eliminated. If the Fund does not pay Fund Installment Fees, Shareholder
Installment Fees will be payable and will be automatically withheld only
from monthly distributions to shareholders. In the event that the Fund is
converted to open-end form, merged, or liquidated, the Payor may be
entitled to receive either an EWC, payable out of amounts distributable to
shareholders of the Fund, or 12b-1 distribution fees and CDSCs from the
open-end fund. See "Shareholder Installment Fees and Fund Installment
Fees," "Description of Shares - Early Withdrawal Charge," and "Description
of Shares - Automatic Conversion to Open-End Structure."

(2) "Other Expenses" have been estimated. The Fund's total annual fund
operating expenses and any Shareholder Installment Fees are subject to a
voluntary aggregate cap of 2.75%. See "Management of the Fund" for
additional information.

(3) The Fund has agreed to reimburse the Underwriters up to $125,000 for
expenses.

EXAMPLE

The following Example demonstrates the projected dollar amount of total
cumulative expense that would be incurred over various periods with respect to a
hypothetical investment in the Fund. These amounts are based upon payment by the
Fund of operating expenses at the levels set forth in the above table, as well
as any Shareholder Installment Fee paid by shareholders.

9
<PAGE>

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
An investor would directly or
indirectly pay the following
expenses on a $1,000
investment in the Fund,
assuming (i) Total Annual Fund $[ ] $[ ] $[ ] $[ ]
Expenses of __% and (ii) a 5%
annual return throughout the
relevant period and
reinvestment of all dividends
and distributions (less any
applicable Shareholder
Installment Fee) at net asset
value:

This Example assumes that the percentage amount listed under Total Annual
Fund Expenses remains the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return and reinvestment of
distributions (less any applicable Shareholder Installment Fee) at NAV are
required by regulation of the Commission applicable to all investment companies;
the assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of the Shares. Actual expenses and annual rates
of return may be more or less than those assumed for purposes of the Example.

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES,
AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.

THE FUND

Federated International Small Company Opportunity Fund (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act") as a diversified, closed-end management investment company. The
Fund was organized as a business trust under the laws of Delaware on August 28,
2000 and has no operating history. The Fund's principal office is located at
5800 Corporate Drive, Pittsburgh, Pennsylvania, 15237-7000, and its telephone
number is 1-800-341-7400. Federated Global Investment Management Corp. (the
"Adviser") is the Fund's adviser.

USE OF PROCEEDS

The proceeds of this initial public offering are estimated at $___________
($_________if the Underwriters' over-allotment option is exercised in full)
before payment of organizational and offering expenses (estimated at $_________
and $__________, respectively). The proceeds will be invested in accordance with
the Fund's investment objective and policies during a period not to exceed [__]
months from the closing of the initial public offering. Pending such investment,
the proceeds may be invested in U.S. dollar-denominated, high quality,
short-term instruments. The Fund's organizational and offering expenses
(excluding Underwriters' commissions) will be paid by the Fund or its
shareholders upon completion of the initial public offering. The Payor (not the
Fund) will pay a commission to the Underwriters in connection with sales of
Shares in this offering. See "Underwriting."

INVESTMENT OBJECTIVE AND POLICIES

INVESTMENT OBJECTIVE

The Fund's investment objective is to provide long-term growth of capital.
The Fund's investment objective cannot be changed without approval by the
holders of a majority of the Fund's outstanding voting securities (as defined in
the Investment Company Act). The Fund seeks to achieve its objective by
investing at least 65% of its assets in equity securities of foreign companies
that have a market capitalization at the time of purchase of $1.5 billion or
less. The investment objective and other policies of the Fund (other than
policies that are designated as "fundamental") may be changed by the Trustees.

10
<PAGE>

INVESTMENT POLICIES

The Fund will be managed following a growth style of investment. In
selecting investments for the portfolio, the Adviser uses the "bottom-up"
approach and looks for companies that are positioned for rapid growth in
revenues or earnings and assets. The Adviser evaluates the company's historical
financial statements, the quality of each company's management, its market
share, and the uniqueness of its product line as part of its stock selection
process. The Adviser also may meet with company representatives, company
suppliers, customers, or competitors. The Adviser tries to select securities
that offer the best potential returns consistent with its general portfolio
strategy.

The Adviser believes that the securities of small cap companies offer the
potential for long-term growth opportunities. An investment in the Fund should
not itself be considered a balanced investment program and is not intended to
provide diversification as would a more complete investment program. No
assurance can be given that the Fund will achieve its investment objective.

Foreign equity securities are equity securities of issuers based outside
the United States. Foreign equity securities are often denominated in foreign
currencies. Along with the risks normally associated with domestic equity
securities, foreign equity securities are subject to currency risks and risks of
foreign investing. In some countries, a small company by U.S. standards might
rank among the largest in that country in terms of its capitalization. Market
capitalization is determined by multiplying the number of outstanding shares by
the current market price per share. The Adviser may invest the Fund's assets in
any region of the world. It will invest in companies based in emerging markets,
typically in the Far East, Latin America and Eastern Europe, as well as in firms
operating in developed countries, such as those of Canada, Japan and Western
Europe.

Companies may be grouped together in broad categories called business
sectors. The Adviser may emphasize certain business sectors in the portfolio
such as technology, telecommunications, and local consumption stocks that
exhibit stronger growth potential or higher profit margins. The Adviser also may
invest in downstream beneficiaries of large capitalization stocks such as parts
and software suppliers for the technology and telecommunication business stocks.
Similarly, the Adviser may emphasize investment in a particular region or
regions of the world from time to time when the growth potential of a region is
attractive to the Adviser.

The Fund may invest up to 15% of its total assets in securities for which
there is no readily available secondary market, including securities acquired in
private placements, venture capital opportunities, joint ventures, and
partnerships. See "Risk Factors and Special Considerations - Liquidity Risks."

[The Fund may invest up to 35% of its total assets in other foreign and
domestic equity securities and in debt securities.] See generally "Risk Factors
and Special Considerations".

For temporary or defensive purposes the Fund may depart from its principal
investment strategies by investing its assets in cash and shorter-term debt
securities and similar obligations. The Fund actively trades its portfolio
securities in an attempt to achieve its investment objective. See "Brokerage and
Portfolio Transactions - Portfolio Turnover."

PORTFOLIO SECURITIES

FOREIGN SECURITIES. The Fund may invest up to 100% of its total assets in
securities of issuers domiciled outside the United States or that are
denominated in various foreign currencies and multinational foreign currency
units. Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Similarly, volume
and liquidity in most foreign securities markets are less than in the United
States and, at times, volatility of price can be greater than in the United
States.

11
<PAGE>

Because evidences of ownership of such securities usually are held outside
the United States, the Fund will be subject to additional risks which include
possible adverse political and economic developments, seizure or nationalization
of foreign deposits and adoption of governmental restrictions which might
adversely affect or restrict the payment of principal and interest on the
foreign securities to investors located outside the country of the issuer,
whether from currency blockage or otherwise.

Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Fund have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain of these countries.

Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations. The Fund may engage in certain transactions to
hedge the currency-related risks of investing in non-U.S. dollar denominated
securities. 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, the Fund agrees to exchange one currency for another at
the current exchange rate. The 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.

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. American Depositary Receipts (ADRs)
provide a way to buy shares of foreign-based companies in the United States
rather than in overseas markets. ADRs also are 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.

EQUITY SECURITIES. Equity securities represent a share of an issuer's
earnings and assets, after the issuer pays its liabilities. The Fund cannot
predict the income it 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 principal types of equity
securities in which the Fund invests:

COMMON STOCKS

Common stocks are the most prevalent type of equity security. Holders of
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

Holders of 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.

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.

12
<PAGE>

WARRANTS

Warrants give the Fund 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 Fund 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.

CONVERTIBLE SECURITIES

Convertible securities are fixed income securities that the Fund has the
option to exchange for equity securities at a specified conversion price. The
option allows the Fund to realize additional returns if the market price of the
equity securities exceeds the conversion price. For example, the Fund may hold
fixed income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.

Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than nonconvertible fixed
income securities or equity securities depending upon changes in the price of
the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.

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. The Fund 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
over-the-counter are frequently referred to as forward contracts. The Fund may
buy or sell the following types of futures contracts: foreign currency,
securities, and securities indices.

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 Fund may:

o Buy call options on foreign currencies, securities, securities indices and
futures contracts involving these items to manage interest rate and currency
risks; and

13
<PAGE>

o Buy put options on foreign currencies, securities, securities indices, and
futures contracts involving these items to manage interest rate and currency
risks.

o The Fund may also write covered call options and secured put options on
securities to generate income from premiums and lock in gains. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from
an increase in the market price of the underlying asset over the exercise
price plus the premium received. In writing puts, there is a risk that the
Fund may be required to take delivery of the underlying asset when its
current market price is lower than the exercise price.

When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

HYBRID INSTRUMENTS

Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference to
changes in the price of an underlying asset or by reference to another benchmark
(such as interest rates, currency exchange rates or indices). Hybrid instruments
also include convertible securities with conversion terms related to an
underlying asset or benchmark.

The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument may
entail significant risks in addition to those associated with traditional fixed
income or convertible securities. Hybrid instruments are also potentially more
volatile and carry greater market risks than traditional instruments.

OTHER INVESTMENT PRACTICES

The Fund may utilize other investment practices and portfolio management
techniques as set forth below.

REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
Fund buys a security from member banks of the Federal Reserve System or certain
non-bank dealers and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.

The Fund's 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. If a particular bank or
non-bank dealer defaults on its obligation to repurchase the underlying debt
instrument as required by the terms of a repurchase agreement, the Fund may
incur a loss to the extent that the proceeds it realizes on the sale of the

14
<PAGE>

collateral are less than the repurchase price of the instrument. In addition,
should the defaulting bank or non-bank dealer file for bankruptcy, the Fund
could incur certain costs in establishing that it is entitled to dispose of the
collateral and its realization on the collateral may be delayed or limited.

REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are
repurchase agreements in which the Fund is the seller (rather than the buyer) 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 Fund.
Reverse repurchase agreements are subject to credit risks. In addition, reverse
repurchase agreements create leverage risks because the Fund 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 Fund buys 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 Fund to the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects 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, delayed delivery
transactions create market risks for the Fund. Delayed delivery transactions
also involve credit risks in the event of a counterparty default.

HEDGING. Hedging transactions are intended to reduce specific risks. For
example, to protect the Fund against circumstances that would normally cause the
Fund's portfolio securities to decline in value, the Fund may buy or sell a
derivative contract that would normally increase in value under the same
circumstances. The Fund may attempt to lower the cost of hedging by entering
into transactions that provide only limited protection, including transactions
that: (1) hedge only a portion of its portfolio; (2) use derivatives contracts
that cover a narrow range of circumstances; or (3) involve the sale of
derivatives contracts with different terms. Consequently, hedging transactions
will not eliminate risk even if they work as intended. In addition, hedging
strategies are not always successful, and could result in increased expenses and
losses to the Fund.

ASSET COVERAGE. In order to secure its obligations in connection with
derivatives contracts or special transactions, the Fund will own the underlying
assets, enter into an offsetting transaction, or set aside readily marketable
securities with a value that equals or exceeds the Fund's obligations. Unless
the Fund has other readily marketable assets to set aside, it cannot trade
assets used to secure such obligations entering into an offsetting derivative
contract or terminating a special transaction. This may cause the Fund to miss
favorable trading opportunities or to realize losses on derivative contracts or
special transactions.

NON-INVESTMENT GRADE SECURITIES

The Fund may, but does not intend to, invest in securities rated below
investment grade, also known as junk bonds. Notwithstanding the Fund's intention
not to invest in such securities, the Fund may from time to time acquire junk
bonds as a result of owning warrants, convertible securities, or similar
instruments.

RISK FACTORS AND SPECIAL CONSIDERATIONS

Investors are advised to consider carefully the special risks involved in
investing in the Fund.

15
<PAGE>

GENERAL

The Fund is a newly organized, diversified, closed-end fund and has no
operating history. Shares of closed-end management investment companies
frequently trade at a discount from their NAV. This risk may be greater for
investors expecting to sell their shares in a relatively short period after
completion of the public offering. Accordingly, the Shares are designed
primarily for long-term investors and should not be considered a vehicle for
trading purposes. The NAV of the Fund's Shares will fluctuate with interest rate
changes as well as with price changes of the Fund's portfolio securities and
these fluctuations are likely to be greater in the case of a fund having a
leveraged capital structure, as contemplated for the Fund.

FOREIGN INVESTING

Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States. The
risk of investing in these countries includes the possibility of the imposition
of exchange controls, currency devaluations, foreign ownership limitations,
expropriation, restrictions or removal of currency or other assets,
nationalization of assets, punitive taxes, and certain custody and settlement
risks.

Foreign financial markets also may have fewer investor protections. The
Fund may have greater difficulty voting proxies, exercising shareholder rights,
pursuing legal remedies and obtaining and enforcing judgments in foreign courts.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.

Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies also may receive less coverage than U.S. 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 ownership or may impose
exchange controls, capital flow restrictions, or repatriation restrictions,
which could adversely affect the Fund's investments.

EURO RISKS

The Fund makes significant investments in securities denominated in the
euro, the new single currency of the European Monetary Union. Therefore, the
exchange rate between the euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.

RISKS RELATED TO COMPANY SIZE

Generally, the smaller the market capitalization of a company, the fewer
the number of its 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 may have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
larger, well-capitalized companies.

Smaller companies may lack depth of management. They may be unable to
generate funds necessary for growth or development or they may be developing or
marketing new products or services for which markets are not yet established and

16
<PAGE>

may never become established. Therefore, while smaller companies may offer
greater opportunities for capital growth than larger, more established
companies, they also involve greater risks and should be considered speculative.

IPO RISKS

The Fund may participate in the initial public offering (IPO) market, and
a significant portion of the Fund's returns may be attributable to its
investment in IPOs, which may have a magnified impact due to the Fund's small
asset base. As the Fund's assets grow, it is probable that the effect of the
Fund's investment in IPOs on its total returns will decline, which may reduce
the Fund's total returns.

STOCK MARKET RISKS

The value of equity securities in the Fund's portfolio will rise and fall.
These price movements may result from factors affecting individual companies,
industries or the securities market as a whole. These fluctuations could be a
sustained trend or a drastic movement. As a result, the Fund's portfolio will
reflect changes in prices of individual portfolio stocks or general changes in
stock valuations and the Fund's share price may decline and you could lose
money.

The Adviser attempts to limit market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.

CURRENCY RISKS

Exchange rates for currencies fluctuate daily. Foreign securities are
normally denominated and traded in foreign currencies. As a result, the value of
the Fund's foreign investments and the value of the Shares may be affected
favorably or unfavorably by changes in currency exchange rates relative to the
U.S. dollar. The combination of currency risk and market risks tends to make
securities traded in foreign markets more volatile than securities traded
exclusively in the United States.

Many of the Fund's investments are denominated in foreign currencies.
Changes in foreign currency exchange rates will affect the value of what the
Fund owns and the Fund's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment in that country loses value
because that currency is worth fewer U.S. dollars. Devaluation of a currency by
a country's government or banking authority also will have a significant impact
on the value of any securities denominated in that currency. Currency markets
generally are not as regulated as securities markets.

FOREIGN CUSTODIAL SERVICES AND RELATED INVESTMENT COSTS

Custodial services and other costs relating to investment in international
securities markets generally are more expensive than in the United States. Such
markets have settlement and clearance procedures that differ from those in the
United States. In certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. The inability of the Fund to make
intended securities purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security caused by settlement problems could result in losses to the Fund due to
a subsequent decline in value of the portfolio security. In addition, security
settlement and clearance procedures in some emerging countries may not fully
protect the Fund against loss of its assets.

LIQUIDITY RISKS

Trading opportunities are more limited for equity securities that are not
widely held or are closely held. This may make it more difficult to sell or buy
a security at a favorable price or time. Consequently, the Fund may have to

17
<PAGE>

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 Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.

EMERGING MARKET RISKS

Securities issued or traded in emerging markets generally entail greater
risks than securities issued or traded in developed markets. For example, their
prices can be significantly more volatile than prices in developed countries.
Emerging market economies may also experience more severe downturns (with
corresponding currency devaluations) than developed economies.

Emerging market countries may have relatively unstable governments and may
present the risk of nationalization of businesses, expropriation, confiscatory
taxation or, in certain instances, reversion to closed market, centrally planned
economies.

LEVERAGE RISKS

Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain. Investments
can have these same results if their returns are based on a multiple of a
specified index, security, or other benchmark.

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 the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business, or other
developments which generally affect that sector.

RISKS ASSOCIATED WITH NON-INVESTMENT 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.

MARKET PRICE, DISCOUNT, AND NET ASSET VALUE OF SHARES

Shares of closed-end funds traditionally have traded at a discount to
their net asset values. The risk of loss associated with this characteristic of
closed-end funds may be greater for an investor who sells shares of a closed-end
fund soon after completion of the initial public offering of the fund's shares
at the initial public offering price and may be unable subsequently to sell the
shares for that amount. Whether investors will realize gains or losses upon the
sale of Shares will not depend directly upon the Fund's NAV, but will depend
upon the market price of the Shares at the time of sale. The market price of the
Shares will be determined by factors such as relative demand for and supply of
the Shares in the market, general market and economic conditions, and other
factors beyond the control of the Fund. The Fund cannot predict whether the
Shares will trade at, below, or above NAV or at, below, or above the initial
offering price. This risk would exist primarily for the 24-month period
following the initial public offering since, after that time, the Fund will
automatically convert to an open-end fund if the Fund's Shares trade at a
discount greater than 5%. The Shares are designed primarily for long-term
investors. Investors in the Shares should not view the Fund as a vehicle for
trading purposes.

The Board of Trustees believes that the closed-end fund structure is
desirable, given the investment objective of the Fund. Closed-end funds have
more investment flexibility because they are not subject to the asset in-flows

18
<PAGE>

and out-flows that characterize open-end funds. As a closed-end fund, the Fund
will be able to remain fully invested in securities. As described below, the
Fund may automatically convert to an open-end structure under certain
circumstances. In addition, the Board of Trustees may consider various other
approaches to narrowing any discount. See "Description of Shares."

ANTI-TAKEOVER PROVISIONS

The Fund's Declaration of Trust contains provisions that limit, while the
Fund operates as a closed-end fund, (i) the ability of other entities or persons
to acquire control of the Fund, (ii) the Fund's freedom to engage in certain
transactions, including transactions with persons who own more than 5% of the
Fund's outstanding shares, and (iii) the ability of the Fund's Trustees or
shareholders to amend the Declaration of Trust. The Declaration of Trust
provides that Trustees may be removed from office only for cause, and only by a
vote of 80% of the outstanding shares of the Fund. The Declaration of Trust
provides for a staggered Board of Trustees, comprised of three classes, one of
which is elected each year, for a three-year term. In addition, the Declaration
of Trust provides that any amendment of the Declaration of Trust with respect to
its provisions for automatic conversion, conversion to an open-end or interval
fund, the Shareholder Installment Fee, merger or consolidation with another
fund, or shareholder voting, requires an affirmative vote of 80% of the Fund's
outstanding shares. Liquidation or partial liquidation of the Fund is also
subject to the 80% vote requirement. These provisions of the Declaration of
Trust may be regarded as "anti-takeover" provisions. [The Declaration of Trust
also contains provisions regarding the Shareholder Installment Fee and the EWC.
These provisions survive even after a conversion to an open-end fund and cannot
be changed without the consent of the Payor.] While these provisions are
designed to provide assurances to the Payor, their existence could have the
effect of discouraging takeovers. All of these provisions could have the effect
of depriving the shareholders of opportunities to sell their Shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund in a tender offer or similar transaction. See
"Anti-Takeover Provisions in the Trust Agreement" for a more complete
description of the relevant provisions of the Declaration of Trust.

INVESTMENT RESTRICTIONS

The Fund has adopted the following investment restrictions as fundamental
policies, which cannot be changed without approval by the holders of a majority
(as defined in the Investment Company Act) of the Fund's outstanding voting
shares. Unless expressly designated as fundamental, any policy of the Fund may
be changed by the Board of Trustees without shareholder approval.

FUNDAMENTAL RESTRICTIONS
------------------------

1. DIVERSIFICATION. With respect to securities comprising 75% of the value of
its total assets, the Fund will not purchase securities of any one issuer (other
than cash, cash items, securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities, 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 the Fund would own more than 10% of the
outstanding voting securities of that issuer.

2. BORROWING MONEY AND ISSUING SENIOR SECURITIES. The Fund may borrow money,
directly or indirectly, and issue senior securities to the maximum extent
permitted under the Investment Company Act, any rule or order thereunder, or any
Commission staff interpretation thereof.

3. INVESTING IN REAL ESTATE. The Fund may not purchase or sell real estate,
provided that this restriction does not prevent the 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. The 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.

19
<PAGE>

4. INVESTING IN COMMODITIES. The Fund may not purchase or sell physical
commodities, provided that the Fund may purchase securities of companies that
deal in commodities. For purposes of this restriction, 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.

5. UNDERWRITING. The Fund may not underwrite the securities of other issuers,
except that the 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.

6. LENDING. The Fund may not make loans, provided that this restriction does not
prevent the 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.

7. CONCENTRATION. The 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. For purposes of this restriction, the term concentration
has the meaning set forth in the Investment Company Act, any rule or order
thereunder, or any SEC staff interpretation thereof. Government securities and
municipal securities will not be deemed to constitute an industry.

NON-FUNDAMENTAL RESTRICTIONS
----------------------------

1. CONCENTRATION. In applying the concentration restriction: (a) utility
companies will be divided according to their services (for example, gas, gas
transmission, electric and telephone will 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 staff that only domestic bank
instruments may be excluded from industry concentration limitations, as a matter
of non-fundamental policy, the Fund will not exclude foreign bank instruments
from industry concentration limitation tests so 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. Foreign securities will not be excluded
from industry concentration limits. The investment of more than 25% of the value
of the Fund's total assets in any one industry will constitute "concentration."

2. INVESTING IN COMMODITIES. As a matter of non-fundamental operating 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.

3. PURCHASES ON MARGIN. The Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits necessary for the clearance
of purchases and sales of securities, and further provided that the 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.

4. PLEDGING ASSETS. The 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 permissible borrowing or to collateral arrangements in
connection with permissible activities.

5. ILLIQUID SECURITIES. The 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

20
<PAGE>

result, the value of such securities would exceed, in the aggregate, 15% of the
Fund's net assets.

For purposes of its policies and limitations, the Fund considers 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
limitation.

MANAGEMENT OF THE FUND

INVESTMENT MANAGER. Federated Global Investment Management Corp., a
Delaware corporation, is employed as the Fund's investment adviser. The Adviser
also serves as an investment adviser to [21] other Federated funds. The
corporate headquarters of Federated Investors, Inc. are located at 1001 Liberty
Avenue, Pittsburgh, PA, 15222-3779.

Federated Global Investment Management Corp. is a wholly owned subsidiary
of Federated Investors, Inc. The Adviser and other subsidiaries of Federated
advise approximately [176] mutual funds and separate accounts, which totaled
approximately [$125] billion in assets as of December 31, 1999. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with approximately 1,900 employees. More than 4,000 investment
professionals make Federated Funds available to their customers.

As required by SEC rules, the Fund, its Adviser, and its Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, Fund Trustees, and certain other employees. Although they
permit these people to trade in securities, including those that the Fund could
buy, they also contain significant safeguards designed to protect the Fund and
its shareholders from abuses in this area, such as requirements to obtain prior
approval for, and to report, particular transactions.

INVESTMENT ADVISORY AGREEMENT. The Adviser provides investment management
services pursuant to an Investment Advisory Agreement (the "Agreement") dated
____, ____ with the Fund.

For all services rendered by Adviser hereunder, the Fund shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee ("Advisory Fee") equal to:
1.25% of the average daily net assets of the Fund ("Base Fee"), plus or minus a
performance-based fee of 0.15% of the Fund's average daily net assets
("Performance Adjustment Rate") over a one-year fiscal period (Performance-Based
Fee").

The Base Fee shall be accrued daily at the rate of 1/365th of 1.25%
applied to the daily net assets of the Fund. The Performance-Based Fee is
calculated daily by comparing over a one-year fiscal period the Fund's
performance to that of the MSCI World Ex-US Small Cap Index. If the Fund's
performance exceeds that of the Index by at least 1.00%, then the
Performance-Based Fee for the immediately following fiscal year shall be 1.40%.
If the Fund's performance lags that of the Index by at least 1.00%, then the
Performance-Based Fee for the immediately following fiscal year shall be 1.10%.
The Performance-Based Fee shall be accrued daily at the rate of 1/365th of the
Performance Adjustment Rate over a one-year period, and the resulting dollar
amount is then added to or subtracted from the Base Fee. The Advisory Fee so
accrued shall be paid to Adviser monthly.

The initial term of the Agreement is for two years, and thereafter the
Agreement is subject to annual approval by (i) the Fund's Board or (ii) vote of
a majority (as defined in the Investment Company Act) of the outstanding voting
securities of the Fund, provided that in either event the continuance also is
approved by a majority of the Board members who are not "interested persons" (as
defined in the Investment Company Act) of the Fund or Adviser by vote cast in

21
<PAGE>

person at a meeting called for the purpose of voting on such approval. The
Agreement was approved by the Fund's Board, including a majority of the Board
members who are not "interested persons" of any party to the Agreement, at a
meeting held on ____, ____. The Agreement was approved by the Fund's initial
shareholder on ____, _____. The Agreement is terminable without penalty, on 60
days' notice, by the Fund's Board or by vote of the holders of a majority of the
Fund's Shares. The Agreement will terminate automatically in the event of its
assignment (as defined in the Investment Company Act).

The Adviser manages the Fund's investments in accordance with the stated
policies of the Fund, subject to the supervision of the Fund's Board. The
Adviser is responsible for investment decisions, and provides the Fund with
portfolio managers who are authorized by the Board to execute purchases and
sales of securities.

EXPENSES. All expenses incurred in the operation of the Fund are borne by
the Fund, except to the extent specifically assumed by the Adviser. The expenses
borne by the Fund include: [certain organizational costs; taxes; interest;
interest and distributions paid on securities sold short; fees of Board members
who are not officers, directors, employees, or holders of 5% or more of the
outstanding voting securities of [adviser] or any of its affiliates; Commission
fees; state Blue Sky qualification fees; advisory and administration fees;
charges of custodians, transfer, and dividend disbursing agents' fees; certain
insurance premiums; industry association fees; outside auditing and legal
expenses; costs of maintaining the Fund's existence; costs of independent
pricing services; costs attributable to investor services (including, without
limitation, telephone and personnel expenses); costs of preparing and printing
prospectuses, statements of additional information, and proxy statements; costs
of shareholders' reports and meetings; and any extraordinary expenses.

ADMINISTRATION AGREEMENT. Federated Administrative Services, a subsidiary
of Federated, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund, pursuant
to a separate Administrative Services Agreement dated ____, ____ with the Fund.
FAS provides these at the annual rate of approximately 0.08% of the average
aggregate daily net assets of the Fund. FAS may voluntarily waive a portion of
its fee and may reimburse the Fund for expenses. FAS also provides certain
accounting and recordkeeping services with respect to the Fund's portfolio
investments for a fee based on Fund assets plus out-of-pocket expenses.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. [State Street Bank
and Trust Company ("State Street")] will act as the Fund's Custodian. The
Custodian may employ sub-custodians outside the U.S. approved by the Board of
Trustees in accordance with regulations under the Investment Company Act. [ ]
will also act as the Fund's Transfer and Dividend Disbursing Agent.

TRUSTEES AND OFFICERS OF THE FUND

The Fund has a Board composed of twelve Trustees which supervises the
Fund's investment activities and reviews contractual arrangements with companies
that provide the Fund with services. The following lists the Trustees and
officers and their positions with the Fund and their present and principal
occupations during the past five years. Each Trustee who is an "interested
person" of the Fund (as defined in the Investment Company Act) is indicated by
an asterisk (*).

All of the officers and Trustees of the Fund hold comparable positions
with other Federated funds.

22
<PAGE>

-------------------------------------------------------------------------------
NAME
BIRTH DATE
ADDRESS PRINCIPAL OCCUPATIONS
POSITION WITH FUND FOR PAST FIVE YEARS
--------------------------------------------------------------------------------
JOHN F. DONAHUE*+# Chief Executive Officer and Director or Trustee of
Birth Date: July 28, 1924 the Federated Fund Complex; Chairman and Director,
Federated Investors Tower Federated Investors, Inc.; Chairman, Federated
1001 Liberty Avenue Investment Management Company, Federated Global
Pittsburgh, PA Investment Management Corp. and Passport Research,
TRUSTEE AND CHAIRMAN Ltd.; formerly: Trustee, Federated Investment
CHAIRMAN Management Company and Chairman and Director,
Federated Investment Counseling.
--------------------------------------------------------------------------------
THOMAS G. BIGLEY Director or Trustee of the Federated Fund Complex;
Birth Date: February 3, 1934 Director, Member of Executive Committee,
15 Old Timber Trail Childern's Hospital of Pittsburgh; Director,
Pittsburgh, PA Robroy Industries, Inc. (coated steel
TRUSTEE 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 Fund Complex;
Birth Date: June 23, 1937 President, Investment Properties Corporation;
Grubb & Ellis/Investment Senior Vice President, John R. Wood and
Properties Corporation Associates, Inc., Realtors; Partner or Trustee in
3201 Tamiami Trail North private real estate ventures in Southwest Florida;
Naples, FL formerly: President, Naples Property Management,
TRUSTEE Inc. and Northgate Village Development
Corporation.
--------------------------------------------------------------------------------
NICHOLAS P. CONSTANTAKIS Director or Trustee of the Federated Fund Complex;
Birth Date: September 3, 1939 Director, Michael Baker Corporation (engineering,
175 Woodshire Drive construction, operations and technical services);
Pittsburgh, PA formerly: Partner, Andersen Worldwide SC.
September 3, 1939
TRUSTEE
--------------------------------------------------------------------------------
JOHN F. CUNNINGHAM Director or Trustee of the Federated Fund Complex;
Birth Date: March 5, 1943 Chairman, President and Chief Executive Officer,
353 El Brillo Way Cunningham & Co., Inc. (strategic business
Palm Beach, FL consulting); Trustee Associate, Boston College;
TRUSTEE 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.
--------------------------------------------------------------------------------
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund Complex;
Birth Date: October 11, 1932 Professor of Medicine, University of Pittsburgh;
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical
Suite 1111 Center - Downtown; Hematologist, Oncologist, and
Pittsburgh, PA Internist, University of Pittsburgh Medical
TRUSTEE Center; Member, National Board of Trustees,
Leukemia Society of America.

23
<PAGE>

PETER E. MADDEN Director or Trustee of the Federated Fund Complex;
Birth Date: March 16, 1942 formerly: Representative, Commonwealth of
One Royal Palm Way Massachusetts General Court; President, State
100 Royal Palm Way Street Bank and Trust Company and State Street
Palm Beach, FL Corporation
TRUSTEE
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 the Federated Fund Complex;
Birth Date: April 10, 1945 Executive Vice President, Legal and External
80 South Road Affairs, DVC Group, Inc. (formerly, Dugan Valva
Westhampton Beach, NY Contess, Inc.) (marketing, communications,
TRUSTEE technology and consulting).

Previous Positions: Chief Executive Officer, PBTC
International Bank; Partner, Arthur Young &
Company (now Ernst & Young LLP); Chief Financial
Officer of Retail Banking Sector, Chase Manhattan
Bank; Senior Vice President, HSBC Bank USA
(formerly, Marine Midland Bank); Vice President,
Citibank; Assistant Professor of Banking and
Finance, Frank G. Zarb School of Business, Hofstra
University.
--------------------------------------------------------------------------------
JOHN E. MURRAY, JR., Director or Trustee of the Federated Fund Complex;
J.D., S.J.D.# President, Law Professor, Duquesne University;
Birth Date: December 20, 1932 Consulting Partner, Mollica & Murray; Director,
December 20, 1932 Michael Baker Corp. (engineering, construction,
President, Duquesne operations and technical services).
University
Pittsburgh, PA Previous Positions: Dean and Professor of Law,
TRUSTEE 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 Fund Complex;
Birth Date: June 21, 1935 Public Relations/Marketing/Conference Planning.
4905 Bayard Street
Pittsburgh, PA Previous Positions: National Spokesperson,
TRUSTEE Aluminum Company of America; television producer;
business owner.
--------------------------------------------------------------------------------
JOHN S. WALSH
Birth Date: November 28, 1957 Director or Trustee of the Federated Fund Complex;
2007 Sherwood Drive President and Director, Heat Wagon, Inc.
Valparaiso, IN (manufacturer of construction temporary heaters);
TRUSTEE President and Director, 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.

24
<PAGE>

--------------------------------------------------------------------------------
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Senior
Birth Date: June 17, 1954 Vice President, Federated Administrative Services;
Federated Investors Tower formerly: Vice President, Federated Administrative
1001 Liberty Avenue Services; held various management positions within
Pittsburgh, PA Funds Financial Services Division of Federated
TREASURER Investors, Inc.
--------------------------------------------------------------------------------
RICHARD B. FISHER President or Vice President of some of the Funds
Birth Date: May 17, 1923 in the Federated Fund Complex; Vice Chairman,
Federated Investors Towers Federated Investors, Inc.; Chairman, Federated
1001 Liberty Avenue Securities Corp.; formerly: Director or Trustee of
Pittsburgh, PA some of the Funds in the Federated Fund Complex,;
PRESIDENT Executive Vice President, Federated Investors,
Inc. and Director and ChiefExecutive Officer,
Federated Securities Corp.
--------------------------------------------------------------------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund and various
Birth Date: November 28, 1942 other Funds in the Federated Fund Complex;
Federated Investors Towers Executive Vice President, Federated Investment
1001 Liberty Avenue Counseling, Federated Global Investment Management
Pittsburgh, PA Corp., Federated Investment Management Company and
CHIEF INVESTMENT Passport Research, Ltd.; Director, Federated
OFFICER Global Investment Management Corp. and Federated
Investment Management Company; Registered
Representative, Federated Securities Corp.;
Vice President, Federated Investors, Inc.;
formerly: Executive Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Chief Investment
Officer/Manager, International Equities, Brown
Brothers Harriman & Co.; Managing Director, BBH
Investment Management Limited.

# 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 FUND.

25
<PAGE>

--------------------------------------------------------------------------------
NAME OF TRUSTEE Estimated Aggregate Total Compensation From the
--------------- COMPENSATION FROM THE FUND COMPLEX
---------------------- ------------
--------------------------------------------------------------------------------
John F. Donahue $0 for the Fund and 43
other investment companies
in the Fund Complex
--------------------------------------------------------------------------------
Thomas G. Bigley $116,760.63 for the Fund and
43 other investment companies
in the Fund Complex
--------------------------------------------------------------------------------
John T. Conroy, Jr. $128,455.37 for the Fund and
43 other investment companies
in the Fund Complex
--------------------------------------------------------------------------------
Nicholas P. Constantakis $73,191.21 for the Fund and
37 other investment companies
in the Fund Complex
--------------------------------------------------------------------------------
John F. Cunningham $93,190.48 for the Fund and
37 other investment
companies in the Fund Complex
--------------------------------------------------------------------------------
Lawrence D. Ellis* $116,760.63 for the Fund and
43 other investment companies
in the Fund Complex
--------------------------------------------------------------------------------
Peter E. Madden $109,153.60 for the Fund and
43 other investment companies
in the Fund Complex
--------------------------------------------------------------------------------
Charles F. Mansfield, Jr. $102,573.91 for the Fund and
40 other investment companies
in the Fund Complex
--------------------------------------------------------------------------------
John E. Murray, Jr. $128,455.37 for the Fund and
43 other investment companies
in the Fund Complex
--------------------------------------------------------------------------------
Marjorie P. Smuts $116,760.63 for the Fund and
43 other investment companies
in the Fund Complex
--------------------------------------------------------------------------------
John S. Walsh $94,536.85 for the Fund and
39 other investment companies
in the Fund Complex
--------------------------------------------------------------------------------
Christopher Donahue+* $0 for the Fund and 30 other
investment companies in the
Fund Complex
--------------------------------------------------------------------------------

All shares of the Fund prior to the offering were held by the Adviser. The
officers and Trustees of the Fund as a group owned beneficially less than 1% of
the total shares of the Fund outstanding as of ___, ___.

No officer or employee of the Fund receives any compensation from the Fund
for serving as an officer or Trustee of the Fund. In addition, no officer or
employee of the Adviser (or of any parent, subsidiary or affiliate thereof)
receives compensation for serving as an officer or Trustee of the Fund.

PORTFOLIO MANAGERS
------------------

LEONARDO A. VILA

Leonardo A. Vila will serve as a Portfolio Manager of the Fund. Mr. Vila joined
Federated in 1995 as a Quantitative Analyst. He served as an Assistant Vice
President of the Fund's Adviser from January 1998 to July 1999; in April 1998 he
was named a Senior Investment Analyst. He was named a Portfolio Manager and a
Vice President of the Adviser in July 1999. From April 1994 to September 1995,
Mr. Vila was an Equity Research Manager with the American Stock Exchange. Mr.
Vila earned his M.B.A. from St. John's University.

REGINA CHI

Regina Chi will serve as a Portfolio Manager of the Fund. Ms. Chi joined
Federated in August 1999 as a Senior Investment Analyst. Ms. Chi was previously
employed with Clay Finlay, Inc., where she served as a Vice President/Portfolio
Manager from July 1997 to July 1999 and as a Research Analyst from June 1994 to
July 1997. Ms. Chi earned her B.A. in economics and philosophy from Columbia
University.

26
<PAGE>

STEPHEN F. AUTH

Stephen F. Auth will serve as a Portfolio Manager of the Fund. Mr. Auth joined
Federated in May 2000 as Senior Vice President and Director of Global Portfolio
Management of the Fund's Adviser. From 1985 through March 2000, Mr. Auth was
employed with Prudential Investments, a unit of Prudential Insurance Company of
America, where he served as a Portfolio Manager since September 1991 and also as
Senior Managing Director. Mr. Auth is a Chartered Financial Analyst. He earned a
Bachelors Degree from Princeton University and an M.B.A. from Harvard
University.

HENRY A. FRANTZEN

Henry A. Frantzen is the Chief Investment Officer for global and international
investments. Mr. Frantzen joined Federated in 1995 as an Executive Vice
President of the Fund's Adviser and has overseen the operations of the Adviser
since its formation. In 1999, Mr. Frantzen became a Director of the Fund's
Adviser. Mr. Frantzen served as Chief Investment Officer of international
equities at Brown Brothers Harriman & Co. from 1992 to 1995. Mr. Frantzen earned
his bachelors degree in Business Administration from the University of North
Dakota.

BROKERAGE AND PORTFOLIO 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 that have sold or are selling Shares of the Fund
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 Fund's Board.

The Adviser evaluates the overall reasonableness of brokerage commissions
paid by reviewing the quality of executions obtained on the Fund's portfolio
transactions, viewed in terms of the size of transactions, prevailing market
conditions in the security purchased or sold, and general economic and market
conditions. In seeking to ensure that the commissions charged the Fund are
consistent with prevailing and reasonable commissions, the Adviser also
endeavors to monitor brokerage industry practices with regard to the commissions
charged by broker/dealers on transactions effected for other comparable
institutional investors. While the Adviser seeks reasonably competitive rates,
the Fund does not necessarily pay the lowest commissions available.

Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, the Adviser may select brokers that provide research
services to effect such transactions. 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.

27
<PAGE>

Investment decisions for the Fund are made independently from those of
other accounts managed by the Adviser. When the Fund 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 Fund 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 Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

Transactions in foreign securities markets often involve the payment of
fixed brokerage commissions, which are usually higher than commission rates
available in the United States. In such transactions, the Fund will seek to
obtain prompt execution of orders at the most favorable net price consistent
with the description above relating to best execution.

PORTFOLIO TURNOVER

Portfolio turnover may vary from year to year as well as within a year. In
periods in which extraordinary market conditions prevail, the Adviser will not
be deterred from changing the Fund's investment strategy as rapidly as Adviser
determines to be necessary, in which case higher turnover rates can be
anticipated which would result in greater brokerage expenses. The overall
reasonableness of brokerage commissions paid is evaluated by Adviser based upon
its knowledge of available information as to the general level of commissions
paid by other institutional investors for comparable services. Higher portfolio
turnover rates usually generate additional brokerage commissions and expenses,
and the short-term gains realized from these transactions are taxable to
shareholders as ordinary income when distributed to them.

The Fund actively trades its portfolio securities in an attempt to achieve
its investment objective. Active trading will cause the Fund to have an
increased portfolio turnover rate, which is likely to generate short-term gain
(losses) for its shareholders. Short-term gain is taxed at a higher rate than
long-term gain (losses). Actively trading portfolio securities increases the
Fund's trading costs and may have an adverse impact on the Fund's performance.

DETERMINATION OF NET ASSET VALUE

The Fund intends to calculate the NAV of its Shares daily and to make that
information available for publication. Currently, THE WALL STREET JOURNAL and
BARRON'S publish NAVs for closed-end funds each week. NAV is determined at the
end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is
open.

Market values of the 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

28
<PAGE>

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 may be completed at times that vary from the
closing of the NYSE. In computing its NAV, the Fund values 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
Fund's Board, although the actual calculation may be done by others.

SHAREHOLDER INSTALLMENT FEES AND FUND INSTALLMENT FEES

The Underwriters' commission of 5% of the initial purchase price of each
Share for total commissions of up to $[ ] million ($[ ] million assuming full
exercise of the over-allotment option) will be paid by the Payor. The Payor will
be entitled to receive a monthly Shareholder Installment Fee, except to the
extent that the Fund pays any Fund Installment Fees, as compensation for
advancing the 5% underwriting commission relating to the initial public offering
of the Shares. The Shareholder Installment Fee will be payable at an annual rate
equal to [1.22%] of the Fund's current NAV, computed daily, and will be
automatically deducted only from each monthly distribution to shareholders on a
pro rata basis from the amount distributable on each outstanding Share, up to
6.25% of the gross proceeds of the Fund's initial public offering plus interest
on such amount at a per annum rate equal to the then current prime rate of
interest plus 1%. If this maximum is not reached within nine years, the
Shareholder Installment Fee will be eliminated. If the Fund does not pay Fund
Installment Fees, Shareholder Installment Fees will be payable and will be
automatically withheld only from monthly distributions to shareholders.

The Fund's Board of Trustees may from time to time determine, at its sole
discretion, to pay Fund Installment Fees directly out of the Fund's assets to
the Payor. Any Fund Installment Fee that is paid by the Fund would be in lieu of
the payment of an equal amount of a Shareholder Installment Fee out of
shareholder distributions. The Trustees intend to consider at least quarterly
whether to pay Fund Installment Fees with respect to amounts that will be due to
the Payor during the subsequent quarter. There is no assurance, however, that
the Trustees will determine to pay any Fund Installment Fees.

In the event that, prior to the expiration of six years from the date of
this offering, the Fund liquidates or is a party to a merger or consolidation in
which it is not the surviving entity or as a result of which the Shareholder
Installment Fee is no longer payable, the Payor may be entitled to receive
either an EWC, payable out of amounts distributable to shareholders of the Fund,
or 12b-1 distribution fees and CDSCs from the open-end fund. The aggregate
amount of Shareholder Installment Fees along with the EWC and any Fund
Installment Fees (or comparable payments if the Fund automatically converts to
an open-end fund) will not exceed 6.25% of the gross proceeds of the Fund's
initial public offering plus interest on such amount at a per annum rate equal
to the then current prime rate of interest plus 1%.

The Fund and the Advisor have made certain representations and undertaken
certain covenants and indemnities in favor of the Payor and certain other
parties.

The documents relating to the payment of the Underwriters' commissions by
the Payor have been filed with the SEC with this Registration Statement and are
available for inspection upon request.

29
<PAGE>

EARLY WITHDRAWAL CHARGE

The shareholders of the Fund are required to pay an EWC in the event that,
prior to the sixth anniversary of the closing of the initial public offering,
the Fund liquidates or is a party to a merger or consolidation in which it is
not the surviving entity or as a result of which the Shareholder Installment Fee
is no longer payable. The EWC will be payable out of amounts distributable to
shareholders of the Fund. The EWC will be based on a specified percentage, at
the time of the event giving rise to the EWC, of the pro rata amount per share
of the aggregate gross proceeds of the initial public offering, and the
percentage will decline over time as follows:

----------------------------------------------------------
YEAR SINCE INITIAL PUBLIC OFFERING EWC
----------------------------------------------------------
First 5.50%
----------------------------------------------------------
Second 4.75%
----------------------------------------------------------
Third 4.00%
----------------------------------------------------------
Fourth 3.00%
----------------------------------------------------------
Fifth 2.00%
----------------------------------------------------------
Sixth 1.00%
----------------------------------------------------------
Thereafter 0.00%
----------------------------------------------------------

The EWC will decline to the next lower rate after the last day of the
month of the annual initial public offering date.

DISTRIBUTIONS

The Fund will make monthly distributions sufficient to pay any required
Shareholder Installment Fee out of the Fund's net investment income and realized
gains to the extent available, and any balance will constitute returns of
capital. All net realized capital gain, if any, either will be distributed to
the Fund's Shareholders at least annually or will be retained by the Fund, and
subject to Fund-level associated tax liabilities thereon. The Fund will
distribute to the Shareholders at least [annually] all net realized gains from
foreign currency transactions, if any. The Fund may make additional
distributions if necessary to avoid a [4%] excise tax on certain undistributed
income and capital gain. See "Taxes." The Fund may change the foregoing
distribution policy if its experience indicates, or its Board of Trustees for
any reason determines, that changes are desirable.

Distributions in excess of the Shareholder Installment Fee will be
automatically reinvested in additional Shares without a sales charge, unless a
shareholder elects cash payments. See "Dividend Reinvestment Plan" for
information concerning the manner in which distributions to shareholders may be
reinvested in Shares. Distributions, including those attributable to the
Shareholder Installment Fee, will be taxable to shareholders whether they are
applied to payments of the Shareholder Installment Fee, reinvested in Shares, or
received in cash. See "Taxes" below.

The Fund expects that it will commence paying dividends within __ days of
the date of this Prospectus.

TAXES

The Fund intends to elect to be, and to qualify to be treated as, a
regulated investment company ("RIC") under the Internal Revenue Code of 1986
("Code"). For each taxable year that the Fund so qualifies, the Fund (but not
its shareholders) will be relieved of federal income tax on that part of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain and net gains from certain foreign currency
transactions, determined without regard to any deduction for dividends paid) and
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) that it distributes to its shareholders. If the Fund failed to
qualify for treatment as a RIC for any taxable year, it would be taxed as an
ordinary corporation on its taxable income for that year (even if that income
was distributed to its shareholders) and all distributions out of its earnings
and profits would be taxable to its shareholders as dividends (I.E., ordinary
income).

Distributions from the Fund's investment company taxable income (whether
applied to the Shareholder Installment Fee, received in cash, or reinvested in
additional Shares) generally are taxable to its shareholders as ordinary income
to the extent of its earnings and profits. Distributions of the Fund's net
capital gain (whether applied to the Shareholder Installment Fee, received in

30
<PAGE>

cash, or reinvested in additional Shares), when designated as such, are taxable
to its shareholders as long-term capital gain, regardless of how long they have
held their Shares.

Distributions by the Fund to its shareholders in any year that exceed its
earnings and profits generally may be applied by each shareholder against his or
her basis in the Shares and will be taxable at capital gains rates (assuming the
Shares are held as a capital asset) to any shareholder only to the extent the
distributions to the shareholder exceed the shareholder's basis in his or her
Shares. Shareholders who are not liable for tax on their income and whose Shares
are not debt-financed generally are not required to pay tax on dividends or
other distributions they receive from the Fund.

Any Fund Installment Fee paid by the Fund in lieu of the Shareholder
Installment Fee will not be a deductible expense of the Fund. Rather, the
payment of the Fund Installment Fee by the Fund will be treated for tax purposes
as a constructive distribution to shareholders. The Fund intends to distribute
the full amount of its net investment income and realized gains (I.E., its
earnings and profits) to its shareholders so that its payment of the Fund
Installment Fee will be treated as a distribution in the nature of a return of
capital and will reduce each shareholder's basis in its Shares. This portion of
the Fund Installment Fee or Shareholder Installment Fee consisting of
undistributed net investment income will not be deductible by shareholders, but
will increase a shareholder's basis in the related Shares, thereby reducing the
amount of taxable gain realized upon sale of the Shares.

To the extent that the Board of Trustees does not determine to pay a Fund
Installment Fee, and the Fund thus withholds the Shareholder Installment Fee
from distributions, shareholders will be required to recognize the full amount
of Fund distributions, including amounts withheld to pay the Shareholder
Installment Fee, as income or capital gain, except to the extent those
distributions exceed the Fund's earnings and profits (in which event the excess
will be treated as a return of capital, in the manner described above).

If the Fund does not distribute the full amount of its earnings and
profits to its shareholders, its payment of either the Fund Installment Fee or
the Shareholder Installment Fee will be treated as paid wholly or partly out of
those earnings and profits. In that case, shareholders will be required to
include in income the portion of the Fund Installment Fee or the Shareholder
Installment Fee paid out of the Fund's earnings and profits.

The Fund will notify its shareholders following the end of each calendar
year of the amounts of dividends and capital gain distributions paid (or deemed
paid) that year and undistributed capital gain designated for that year.

Dividends and other distributions declared by the Fund in October,
November, or December of any year and payable to its shareholders of record on a
date in the month declared will be deemed to have been paid by the Fund and
received by the shareholders on December 31st if the distributions are paid by
the Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31st falls.

An investor should be aware that, if the investor purchases Shares shortly
before the record date for any dividend or other distribution, he or she will
pay full price for the Shares and will receive some portion of the purchase
price back as a taxable distribution.

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<PAGE>

Upon the sale or exchange of Shares (including a sale pursuant to a Share
repurchase or tender offer by the Fund), a shareholder generally will recognize
a taxable gain or loss equal to the difference between his or her adjusted basis
in the Shares and the amount received. Any such gain or loss will be capital
gain or loss if the Shares are capital assets in the shareholder's hands and
will be long-term capital gain or loss if the Shares have been held for more
than one year. See below for a discussion of the tax rates applicable to capital
gains. Any loss recognized on a sale or exchange of Shares that were held for
six months or less will be treated as long-term, rather than short-term, capital
loss to the extent of any capital gain distributions previously received
thereon. A loss realized on a sale or exchange of Shares will be disallowed to
the extent those Shares are replaced by other Shares within a period of 61 days
beginning 30 days before and ending 30 days after the date of disposition of the
Shares (which could occur, for example, as a result of participation in the
Dividend Reinvestment Plan). In that event, the basis of the replacement Shares
will be adjusted to reflect the disallowed loss.

The maximum tax rate applicable to net capital gains recognized by
individuals and other non-corporate taxpayers is (i) the same as the ordinary
income tax rate for capital assets held for one year or less and (ii) 20% (10%
for taxpayers in the 15% marginal tax bracket) for capital assets held for more
than one year. The maximum net capital gain tax rate for corporations is 35%.

The Fund is required to withhold 31% of all dividends, capital gain
distributions, and repurchase proceeds payable to any individual shareholders
and certain other non-corporate shareholders who do not provide the Fund with a
correct taxpayer identification number. The Fund is also required to withhold
31% of all dividends and capital gain distributions payable to such shareholders
who otherwise are subject to backup withholding.

The foregoing is only a brief summary of some of the important federal
income tax considerations generally affecting the Fund and its shareholders.
There may be other federal, state, local, or foreign tax considerations
applicable to a particular investor. Prospective investors are urged to consult
their tax advisers regarding the specific federal income tax consequences of
purchasing, holding and disposing of Shares, as well as the effects of state,
local, and foreign tax laws and any proposed tax law changes.

DIVIDEND REINVESTMENT PLAN

Distributions in excess of each shareholder's Shareholder Installment Fee
obligation will be automatically reinvested in additional shares of the Fund
("Additional Fund Shares"), unless the shareholder elects in writing to receive
cash. Additional Fund Shares will be issued directly by the Fund and will be
determined by dividing the dollar amount of the distribution, net of Shareholder
Installment Fee, by the net asset value per share on the date the shares are
issued.

The Fund's DRP permits, if a shareholder so elects, any balance of
dividends and other distributions remaining following payment of any applicable
Shareholder Installment Fee (collectively referred to in this section as
"dividends") may be reinvested by [State Street], as agent for shareholders in
administering the DRP (the "DRP Agent"), in additional Shares of the Fund.
Shareholders who elect not to participate in the Plan will receive all dividends
payable in cash by check mailed directly to the shareholder of record (or, if
the Shares are held in street or other nominee name, then to such nominee) by
State Street as dividend disbursing agent. Such participants may elect not to
participate in the DRP and to receive in cash all dividends payable in cash by
sending written instructions to State Street, as dividend disbursing agent, at
the address set forth below. Participation in the DRP may be terminated or
resumed at any time without penalty by written notice if received by the DRP
Agent not less than thirty days prior to any dividend record date; otherwise
such termination will be effective with respect to any subsequently declared
dividend or other distribution.

To the extent that the Fund's Board of Trustees determines not to pay the
Shareholder Installment Fee on behalf of shareholders, the Fund expects to make
monthly distributions of net income or return of capital in a minimum amount

32
<PAGE>

equal to the Shareholder Installment Fee. For amounts of distributions in excess
of the Shareholder Installment Fee, non-participants in the DRP will receive
cash and participants in the DRP will receive the equivalent in Shares. Whenever
the Fund declares dividends in additional unissued but authorized Shares ("newly
issued Shares"), non-participants in the DRP will receive newly issued Shares
and participants will receive Shares under the DRP as described as follows. The
Shares will be acquired by the DRP Agent for the participants' accounts
generally through receipt of newly issued Shares, but also may be acquired by
purchase of outstanding Shares on the open market ("open-market purchases") on
the NYSE or elsewhere, except that no such open-market purchases may be made if
the shareholders of the Fund have any remaining obligation to pay a Shareholder
Installment Fee. If on the payment date for a dividend payable in either cash or
Shares, the NAV per Share is equal to or less than the market price per Share
plus estimated brokerage commissions (such condition being referred to herein as
"market premium"), the DRP Agent will invest the dividend amount in newly issued
Shares on behalf of the participants. The number of newly issued Shares to be
credited to each participant's account will be determined by dividing the dollar
amount of the dividend by the NAV per Share on the date the Shares are issued,
provided that the maximum discount from the then current market price per Share
on the date of issuance may not exceed 5%. If on the dividend payment date for a
dividend payable only in cash the NAV per Share is greater than the market value
(such condition being referred to herein as "market discount"), the DRP Agent
will invest the dividend amount in Shares acquired on behalf of the participants
in open-market purchases.

In the event of a market discount on the dividend payment date for a
dividend payable only in cash, the DRP Agent will have no more than 30 days
after the dividend payment date (the "last purchase date") to invest the
dividend amount in Shares acquired in open-market purchases. If, before the DRP
Agent has completed its open-market purchases, the market price of a Share
exceeds the NAV per Share, the average per Share purchase price paid by the DRP
Agent may exceed the NAV of the Shares, resulting in the acquisition of fewer
Shares than if the dividend had been paid in newly issued Shares on the dividend
payment date. Because of the foregoing difficulty with respect to open-market
purchases, the DRP provides that if the DRP Agent is unable to invest the full
dividend amount in open-market purchases by the last purchase date or if the
market discount shifts to a market premium by that date, the DRP Agent will
cease making open-market purchases and will invest the uninvested portion of the
dividend amount in newly issued Shares at the close of business on the last
purchase date.

The DRP Agent maintains all shareholders' accounts in the DRP and
furnishes written confirmation of all transactions in the accounts, including
information needed by shareholders for tax records. Shares in the account of
each Plan participant will be held by the DRP Agent on behalf of the DRP
participant, and each shareholder proxy will include those Shares purchased or
received pursuant to the DRP. The DRP Agent will forward all proxy solicitation
materials to participants and vote proxies for Shares held pursuant to the DRP
in accordance with the instructions of the participants.

In the case of shareholders such as banks, brokers or nominees that hold
Shares for others who are the beneficial owners, the DRP Agent will administer
the DRP on the basis of the number of Shares certified from time to time by the
record shareholder's name and held for the account of beneficial owners who
participate in the DRP.

The automatic reinvestment of dividends will not relieve DRP participants
of any federal, state or local income tax that may be payable (or required to be
withheld) on such dividends. See "Taxes."

All Shares issued pursuant to the DRP prior to any conversion of the Fund
to open-end form will be subject to the Shareholder Installment Fee (or Fund
Installment Fee), and may be subject to an EWC and, following any such
conversion, Rule 12b-1 Fees and CDSCs. Accordingly, participants in the DRP will
pay more distribution-related charges in proportion to their holdings of Shares
than will shareholders who do not participate in the DRP.

[Shareholders participating in the DRP may receive benefits not available
to shareholders not participating in the Plan. If the market price (plus
commissions) of the Fund's Shares is above their NAV, participants in the DRP

33
<PAGE>

will receive Shares of the Fund at less than they could otherwise purchase them
and will have Shares with a cash value greater than the value of any cash
distribution they would have received on their Shares. If the market price plus
commissions is below the NAV, participants will receive distributions in Shares
with a NAV greater than the value of any cash distribution they would have
received on their Shares. However, there may be insufficient Shares available in
the market to make distributions in Shares at prices below the NAV. Also, since
the Fund does not redeem its Shares, the price on resale may be more or less
than the NAV. See "Taxes" for a discussion of tax consequences of the DRP.]

[Experience under the DRP may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the DRP.]

[All correspondence concerning the DRP should be directed to the DRP
Agent at ________________.]

UNDERWRITING

The underwriters named below (the "Underwriters"), acting through Raymond
James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716,
as their representatives (the "Representatives"), have severally agreed, subject
to the terms and conditions of the Underwriting Agreement with the Fund and the
Adviser (the "Underwriting Agreement"), to purchase from the Fund the number of
Shares set forth below opposite their respective names.

UNDERWRITER NUMBER OF SHARES
------------ ----------------
Raymond James & Associates, Inc. -------
[ ] [ ]
Total ======

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any materially adverse change in our business and the receipt of certain
certificates, opinions, and letters from the Fund and the Fund's attorneys and
independent accountants. The nature of the Underwriters' obligation is such that
they are committed to purchase all Shares offered hereby if any of the Shares
are purchased.

[The Fund has granted to the Underwriters an option, exercisable for 45
days from the date of this Prospectus to purchase up to an aggregate of
__________ additional Shares to cover over-allotments, if any, at the initial
offering price. The Underwriters may exercise such option solely for the purpose
of covering over-allotments incurred in the sale of the Shares offered hereby.
To the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase an additional number of Shares proportionate to such Underwriters'
initial commitment.]

The Payor will pay commissions to the Underwriters in the amount of $1.25
per Share (5% of the public offering price per Share) or an aggregate amount of
up to $25 million ($28.75 million assuming full exercise of the over-allotment
option) for all Shares covered by this Prospectus. Receipt of this payment is a
condition to the Underwriters' obligation to purchase the Shares.

The Representatives have advised the Fund that the Underwriters may pay up
to $___ per Share from such payment to certain dealers who sell the Shares and
that the Underwriters may allow and such dealers may re-allow a concession of up
to $___ per Share to certain other dealers who sell Shares. The Fund has agreed
to pay the Underwriters $[ ] in partial reimbursement of their expenses. The
Shares are offered by the Underwriters, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters, and subject to their right to
reject orders in whole or in part.

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<PAGE>

The Adviser or an affiliate will pay to the Representatives a fee in
connection with the sale and distribution of the Shares in an aggregate amount
equal to $250,000 for each $100,000,000 in excess of the first $200,000,000 of
the total gross offering price of the Shares to be purchased by the Underwriters
hereunder, PLUS an additional $250,000 in the event such total gross offering
price is equal to or exceeds $500,000,000. The Adviser or an affiliate also will
pay the Representatives an ongoing fee at the annual rate of 0.10% of the NAV of
the outstanding Shares, provided the amount of Shares sold in the initial public
offering exceeds $200,000,000, and subject to reduction or elimination over time
to the extent required by applicable requirements of the National Association of
Securities Dealers, Inc.

The Fund intends to apply to list its Shares on the NYSE under the symbol
"[ ]." In order to meet the requirements for listing the Shares on the NYSE, the
Underwriters have undertaken to sell lots of 100 or more Shares to a minimum of
2,000 beneficial owners. The minimum investment requirement is 100 Shares
($2,500). Prior to this offering, there has been no public market for the Shares
or any other securities of the Fund. Consequently, the offering price for the
Shares was determined by negotiation among the Fund, the Adviser, and the
Representatives.

The Fund and the Adviser have each agreed to indemnify the several
Underwriters for or to contribute to any losses arising out of certain
liabilities, including liabilities under the Securities Act of 1933, as amended.

The Fund has agreed not to offer or sell any additional Shares, other than
as contemplated by this Prospectus, for a period of 180 days after the date of
the Underwriting Agreement without the prior written consent of the
Underwriters.

The Underwriting Agreement provides that it may be terminated in the
absolute discretion of the Representatives, without liability on the part of any
Underwriter to the Fund or the Adviser by notice to the Fund or the Adviser if,
prior to the delivery and payment for the Shares, any of the following occurs:
trading in securities generally on the NYSE, American Stock Exchange, Nasdaq
National Market, Nasdaq SmallCap Market, or the Nasdaq Stock Market shall have
been suspended or limited or minimum prices established; additional governmental
restrictions not in force on the date of the underwriting agreement have been
imposed upon trading in securities generally or a general moratorium on
commercial banking activities shall have been declared by federal or any state's
authorities; or any outbreak or material escalation of hostilities or other
international or domestic calamity, crisis or change in political, financial,
economic, legal or regulatory conditions occurs, the effect of which is such as
to make it, in the judgment of the representatives, impracticable or inadvisable
to commerce or continue the offering of the shares at the offering prices set
forth herein. The Underwriting Agreement also may be terminated if any of the
conditions specified in the Underwriting Agreement have not been fulfilled when
and as required by such agreement.

The Fund anticipates that the Representatives and certain other
Underwriters may from time to time act as brokers or dealers in connection with
the execution of its portfolio transactions after they have ceased to be
Underwriters and, subject to certain restrictions, may act as such brokers while
they are Underwriters. See "Management of the Fund."

Until the distribution of Shares is completed, rules of the Commission may
limit the ability of the Underwriters and certain selling group members to bid
for and purchase the Shares. As an exception to these rules, the Underwriters
are permitted to engage in certain transactions that stabilize the price of the
Shares. Such transactions may consist of short sales, stabilizing transactions
and purchases to cover positions created by short sales. Short sales involve the
sale by the Underwriters of a greater number of shares of our common stock than
they are required to purchase in the offering. Stabilizing transactions consist
of certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of our common stock while the offering is in
progress.

The Underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the other underwriters a portion of the

35
<PAGE>

underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of such underwriter in stabilizing
or short covering transactions.

These activities by the Underwriters may stabilize, maintain, or otherwise
affect the market price of our common stock. As a result, the price of our
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters without notice at any time. These transactions may be effected on
the NYSE, or otherwise.

DESCRIPTION OF SHARES

The Fund is an unincorporated business trust under the laws of the
Delaware created pursuant to an Agreement and Declaration of Trust (the "Trust
Agreement") dated August 28, 2000. The Fund is authorized to issue an unlimited
number of shares of beneficial interest, par value $0.01 per share. Each Share
has one vote and, when issued and paid for in accordance with the terms of the
offering, will be fully paid and non-assessable. Fund Shares are of one class
and have equal rights as to dividends and in liquidation. The Fund may
reclassify Shares as preferred shares, with such rights and designations as the
Board shall determine. Shares have no preemptive, subscription or conversion
rights and are freely transferable. The Fund will send annual and semi-annual
financial statements to all of its shareholders.

Under Delaware law, shareholders will not be held personally liable for
the obligations of a Delaware business trust. In addition, the Trust Agreement
disclaims shareholder liability for acts or obligations of the Fund and requires
that notice of such disclaimer be given in each agreement, obligation, or
instrument entered into or executed by the Fund or a Trustee. The Trust
Agreement provides for indemnification from the Fund's property for all losses
and expenses of any shareholder held personally liable for the obligations of
the Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself would
be unable to meet its obligations, a possibility which management believes is
remote. Upon payment of any liability incurred by the Fund, the shareholder
paying such liability will be entitled to reimbursement from the general assets
of the Fund. The Fund intends to conduct its operations in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.

In addition, as described above, if the Fund's Board of Trustees
determines not to pay the Shareholder Installment Fee out of Fund assets on
behalf of shareholders, payments of the Shareholder Installment Fee will be
deducted from the Fund's distributions to shareholders. Shareholders will not
have any personal liability for the payments of the Shareholder Installment Fee
or the EWC. Rather, the Shareholder Installment Fee or EWC would be paid out of
distributions or withdrawal proceeds.

The Fund has no present intention of offering additional Shares, although
additional shares may be issued in connection with the DRP. Other offerings of
its Shares, if made, will require approval of the Fund's Board of Trustees. Any
additional offering will not be sold at a price per Share below the then current
NAV (exclusive of underwriting discounts and commissions) except in connection
with an offering to existing shareholders or with the consent of a majority of
the Fund's outstanding Shares or otherwise as permitted by applicable law.

The Fund intends to apply to list its Shares on the NYSE under the
symbol "[ ]."

ANTI-TAKEOVER PROVISIONS IN THE TRUST AGREEMENT

The Fund's Trust Agreement includes provisions that apply while the Fund
is a closed-end fund that could have the effect of limiting the ability of other
entities or persons to acquire control of the Fund or to change the composition
of its Board of Trustees, and could have the effect of depriving shareholders of

36
<PAGE>

an opportunity to sell their Shares at a premium over prevailing market prices
by discouraging a third party from seeking to obtain control of the Fund. These
provisions may have the effect of discouraging attempts to acquire control of
the Fund, which attempts could have the effect of increasing the expenses of the
Fund and interfering with the normal operation of the Fund. The Board of
Trustees is divided into three classes, with the terms of one class expiring at
each annual meeting of shareholders. At each annual meeting, one class of
Trustees is elected to a three-year term. This provision could delay for up to
two years the replacement of a majority of the Board of Trustees. A Trustee may
be removed from office only for cause by a written instrument signed by at least
two-thirds of the remaining Trustees or by a vote of the holders of at least 80%
of the Shares.

In addition, the Declaration of Trust requires, while the Fund is a
closed-end fund, that (i) the favorable vote of a majority of the Trustees
and/or (ii) the consent of the holders of at least 80% of the outstanding Shares
of the Fund to approve, adopt or authorize the following transactions: (i) the
merger or consolidation of the Fund or any subsidiary of the Fund with or into
any Principal Shareholder (as hereinafter defined) or another fund; (ii) the
issuance of any securities of the Fund to any Principal Shareholder for cash;
(iii) the sale, lease or exchange of all or any substantial part of the assets
of the Fund to any Person or entity (except assets having an aggregate fair
market value of less than $1,000,000 as reasonably determined by the Trustees);
(iv) the sale, lease or exchange to the Fund, in exchange for securities of the
Fund, of any assets of any Person or entity (except assets having an aggregate
fair market value of less than $1,000,000 as reasonably determined by the
Trustees); and [(v) any amendment to the Declaration of Trust with respect to
its provisions relating to automatic conversion, conversion of the Fund to an
open-end fund, the Shareholder Installment Fees, the EWC, or shareholder voting
(each of which also requires the consent of the Payor)]. Such affirmative vote
is in addition to, and not in lieu of, the vote or consent of the shareholders
of the Trust otherwise required [by law or] by any agreement between the Fund
and any national securities exchange. For purposes of these provisions, a
Principal Shareholder refers to any person who, whether directly or indirectly
and whether alone or together with its affiliates and associates, beneficially
owns 5% or more of the outstanding shares of the Fund.

The Board of Trustees has determined that provisions with respect to the
Board of Trustees and the 80% voting requirements described above (and the
requirements relating to conversion to an open-end fund described below), which
voting requirements are greater than the minimum requirements under Delaware law
or the Investment Company Act, are in the best interest of shareholders
generally. Reference should be made to the Declaration of Trust on file with the
Commission for the full text of these provisions.

CLOSED-END FUND STRUCTURE

Closed-end funds differ from open-end funds in that closed-end funds
generally list their shares for trading on a securities exchange and do not
redeem their shares at the option of the shareholder. By comparison, mutual
funds issue securities redeemable at net asset value at the option of the
shareholder and typically engage in a continuous offering of their shares.
Open-end funds are subject to continuous asset in-flows and out-flows that can
complicate portfolio management, whereas closed-end funds generally can stay
more fully invested in securities consistent with the closed-end fund's
investment objective and policies. However, shares of closed-end funds
frequently trade at a discount from their net asset value.

The Fund's Shares may trade at a discount to their NAV, although it is
possible that they may trade at a premium above NAV. The market price of the
Fund's Shares will be determined by such factors as relative demand for and
supply of such Shares in the market, the Fund's NAV, general market and economic
conditions and other factors beyond the control of the Fund. See "Determination
of Net Asset Value."

AUTOMATIC CONVERSION TO OPEN-END STRUCTURE

The Fund's Declaration of Trust provides that beginning after 24 months
from the date of the initial public offering, the Fund will automatically

37
<PAGE>

convert into an open-end investment company if its Shares close at a 5% or
greater discount from the NAV of the Fund for 20 consecutive business days. No
further approval of the shareholders of the Fund would be necessary and the
automatic conversion would occur even if the discount subsequently is less than
5%.

Following any conversion to an open-end fund, it is possible that certain
of the Fund's investment policies and strategies would have to be modified to
assure sufficient portfolio liquidity. In the event of conversion, the Shares
would cease to be listed on the NYSE or other national securities exchange or
market system. Shareholders of an open-end fund may require the company to
redeem their shares at any time (except in certain circumstances as authorized
by or under the Investment Company Act) at their NAV, less any redemption charge
or CDSC, if any, as might be in effect at the time of a redemption. The Fund
expects to pay all such redemption requests in cash, but intends to reserve the
right to pay redemption requests in a combination of cash or securities. If a
payment in securities were made, investors may incur brokerage costs in
converting such securities to cash.

In addition, upon automatic or other conversion to an open-end Fund prior
to the ninth anniversary of the initial public offering (unless shareholders
have previously paid an EWC), the Fund would be subject to a Rule 12b-1 Plan.
Under the terms of the Rule 12b-1 plan, the Fund will pay the Payor from the
date of conversion to the ninth anniversary of the closing of the initial public
offering a Rule 12b-1 fee at the annual rate of 1.00% of the Fund's average
daily net assets of the shares of the open-end fund outstanding at the time of
the conversion (the "Open-end Shares") and any shares derived therefrom up to
the maximum limit on the aggregate amount of the fees payable to the Payor. If
the Adviser or one of its affiliates has, upon conversion, paid the Payor a
one-time payment determined in accordance with a specified formula, as agreed
upon by the Fund, the Adviser, and the Payor, the annual rate of the Rule 12b-1
Fee will be 0.75%. If the Rule 12b-1 Fee is 0.75%, the Fund expects that the
Board will implement a shareholder service plan that imposes a fee at an annual
rate of 0.25% of the Fund's average daily net assets.

The Open-end Shares also would be subject to a CDSC, which will be based
on a pro rata amount per share of the aggregate gross proceeds of the initial
public offering. The initial CDSC applicable to the Open-end Shares is based on
the date of the initial public offering. The initial CDSC will remain in effect
for one year from the date of conversion, and the CDSC percentage will decline
yearly thereafter in accordance with the following schedule:

-------------------------------------------------------------------------------
YEAR SINCE INITIAL PUBLIC OFFERING CDSC
-------------------------------------------------------------------------------
First 5.50% for 1 full year from date of open-ending
-------------------------------------------------------------------------------
Second 4.75% for 1 full year from date or anniversary
of open-ending
-------------------------------------------------------------------------------
Third 4.00% for 1 full year from date or anniversary
of open-ending
-------------------------------------------------------------------------------
Fourth 3.00% for 1 full year from date or anniversary
of open-ending
-------------------------------------------------------------------------------
Fifth 2.00% for 1 full year from date or anniversary
of open-ending
-------------------------------------------------------------------------------
Sixth 1.00% for 1 full year from date or anniversary
of open-ending
-------------------------------------------------------------------------------
Thereafter 0.00%
-------------------------------------------------------------------------------

For example, if the conversion occurs from the beginning of the 25th month
to the end of the 36th month (I.E., in the third year) after the initial public
offering, the initial CDSC would be 4.00% and would be in effect until the first
anniversary of the conversion. The CDSC would then decline to 3.00% and would
further decline yearly thereafter.

The CDSC on redemptions of Open-end Shares would be assessed against the
original cost basis of each of the Shares outstanding on the date of conversion.
The original cost basis of each Fund Share will be calculated by taking the
original gross proceeds as of the initial public offering of the Fund and
dividing such amount by the total number of Shares outstanding on the date of
conversion.

38
<PAGE>

LEGAL OPINIONS

Certain legal matters in connection with the Shares offered hereby will be
passed upon for the Fund by Kirkpatrick & Lockhart LLP and for the Underwriters
by Skadden, Arps, Slate, Meagher & Flom LLP, and its affiliated entities.

EXPERTS

The statement of assets and liabilities of the Fund included in this
Prospectus has been so included in reliance upon the report of [ ], independent
auditors, and on their authority as experts in auditing and accounting.

39
<PAGE>

INDEPENDENT AUDITORS' REPORT

<PAGE>

STATEMENT OF ASSETS AND LIABILITIES

A-2
<PAGE>

===================================== ============================

No person has been authorized to give any
information or to make any representations
in connection with this offering other
than those contained in this Prospectus
and, if given or made, such other
information or representations must not be
relied upon as having been authorized by
the Fund or the Underwriters. Neither the
delivery of this Prospectus nor any sale
made hereunder shall, under any
circumstances, create any implication that
there has been no change in the affairs of _________ SHARES
the Fund since the date hereof or that the
information contained herein is correct as FEDERATED
of any time subsequent to its date. This INTERNATIONAL SMALL
Prospectus does not constitute an offer to COMPANY OPPORTUNITY
sell or a solicitation of an offer to buy FUND
any securities other than the registered
securities to which it relates. This
Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy
such in any circumstances in which such
offer or solicitation is unlawful.

----------------------

TABLE OF CONTENTS
---------------------
PAGE PROSPECTUS
---- ---------------------

Prospectus Summary........................
Fee Table.................................
The Fund..................................
Use of Proceeds...........................
Investment Objective and Policies.........
Other Investment Practices................
Risk Factors and Special Considerations...
Investment Restrictions................... RAYMOND JAMES & ASSOCIATES,
Management of the Fund.................... INC.
Trustees and Officers of the Fund.........
Brokerage and Portfolio Transactions......
Determination of Net Asset Value..........
Distributions.............................
Taxes.....................................
Dividend Reinvestment.....................
Plan......................................
Underwriting..............................
Description of Shares..................... _____________, 2000
Legal Opinions............................
Experts...................................
Independent Auditors' Report..............
Statement of Assets and Liabilities.......

Until , all dealers effecting transactions
in the Shares, whether or not
participating in this distribution, may be
required to deliver a Prospectus. This is
in addition to the obligation of dealers
to deliver a Prospectus when acting as
Underwriters and with respect to their
unsold allotments or subscriptions.

===================================== ============================

<PAGE>

Part C - Other Information Item
<S> <C>

Item 24. Financial Statements and Exhibits

(1) Financial Statements.

Report of Independent Auditors. To be filed by amendment.
Statement of Assets and Liabilities. To be filed by amendment.

(2) Exhibits.

(a) Declaration of Trust. To be filed by amendment.

(b) Bylaws. To be filed by amendment.

(d) To be filed by amendment.

(e) Form of Dividend Reinvestment Plan. To be filed by amendment.

(f) Not Applicable.

(g) Form of Investment Advisory and Administration Agreement. To be filed by
amendment.

(h) (1) Form of Underwriting Agreement. To be filed by amendment.

(2) Form of Distribution Agreement. To be filed by amendment.

(i) Not Applicable.

(j) Form of Custodian Agreement. To be filed by amendment.

(k) (1) Form of Agreement for Fund Accounting Services, Administration
Services, Transfer Agency Services and Custody Services Procurement.
To be filed by amendment.

(2) Form of Shareholder Installment Fee Plan. To be filed by amendment.

(l) Opinion and Consent of Kirkpatrick & Lockhart LLP. To be filed by
amendment.

(m) Not Applicable.

(n) Consent of Independent Auditors. To be filed by amendment.

(o) Not Applicable.
</TABLE>

<PAGE>

(p) Form of Initial Capital Agreements. To be filed by amendment.

(q) Not Applicable.

(r) Code of Ethics. To be filed by amendment.

Item 25. Marketing Arrangements.

Reference is made to the Form of Underwriting Agreement for
Registrant's shares of beneficial interest to be filed by amendment to this
Registration Statement.

Item 26. Other Expenses of Issuance and Distribution.

Registration Fees............................................$ *
Legal Fees...................................................$ *
NASD Fees....................................................$ *
Accounting Fees..............................................$ *
Printing Fees................................................$ *
Miscellaneous Fees...........................................$ *
-------

Total Fees $ *
-------
------------------
*To be filed by amendment.

Item 27. Persons Controlled By or Under Common Control with Registrant.

None.

Item 28. Number of Holders of Securities.

As of September 10, 2000

--------------------------------------------------
TITLE OF CLASS HOLDERS OF RECORD
--------------------------------------------------
--------------------------------------------------
Shares of Beneficial 0
Interest $0.01 par value
--------------------------------------------------

Item 29. Indemnification.

Reference is made to the provisions of Article VIII Section 8.2 of
Registrant's Declaration of Trust and Article VII Section 2 of Registrant's
Bylaws. It states that the Registrant shall indemnify any present or past
trustee or officer to the fullest extent permitted by law against liability.
Indemnification will not be provided in certain circumstances, however. These
include instances of willful misfeasance, bad faith, gross negligence, and
reckless disregard of the duties involved in the conduct of the particular
office involved. Insofar as indemnification for liabilities arising under the

<PAGE>

Securities Act of 1933, as amended, may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised by the Securities and Exchange Commission
that such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by any such director, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

Item 30. Business and Other Connections of Investment Adviser.

Federated Global Investment Management Corp. is the Fund's investment
manager. Federated Global Investment Management Corp. is a wholly owned
subsidiary of Federated Investors, Inc. ("Federated"). The Adviser and other
subsidiaries of Federated advise approximately 176 mutual funds and separate
accounts. The list required by this Item 30 of officers and directors of
Federated Global Investment Management Corp., together with information as to
any other business, profession, vocation or employment of a substantial nature
engaged in by such officers and directors during the past two years, is
incorporated by reference to Schedules A and D of the Form ADV, as amended,
filed by Federated Global Investment Management Corp. with the Securities and
Exchange Commission pursuant to the Investment Advisers Act of 1940, as amended
(SEC File No. 801-49470). Federated Global Investment Management Corp. is
located at 175 Water Street, New York, NY 10038-4965.

Item 31. Location of Accounts and Records.

--------------------------------------------------------------------------------
FUND: Federated International Small Company
----- Opportunity Fund
5800 Corporate Drive
Pittsburgh, PA 15237-7000

--------------------------------------------------------------------------------
CUSTODIAN: State Street Bank and Trust Company
---------- 225 Franklin Street
Boston, Massachusetts 02110

--------------------------------------------------------------------------------
INVESTMENT ADVISER: Federated Global Investment Management Corp.
------------------- 175 Water Street
New York, NY 10038-4965
--------------------------------------------------------------------------------

Item 31. Management Services.

Not applicable.

Item 32. Undertakings.

1. Registrant undertakes to suspend the offering of shares until the prospectus
is amended if, (1) subsequent to the effective date of its registration

<PAGE>

statement, the net asset value declines more than ten percent from its net asset
value as of the effective date of the registration statement or (2) the net
asset value increases to an amount greater than its net proceeds as stated in
the prospectus.

2. Registrant undertakes:

a. To file, during any period in which offers or sales are being made,
a post-effective amendment to the registration statement:
i. to include any prospectus required by Section 10(a)(3) of the
Securities Act;
ii. to reflect in the prospectus any facts or events after the
effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
iii. to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;

b. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of those securities at that time shall be deemed to be the
initial bona fide offering thereof; and

c. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

3. Registrant undertakes that:

a. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 497(h) under the
Securities Act shall be deemed to be part of this registration statement
as of the time it was declared effective.

b. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

4. Registrant undertakes to send by first class mail or other means designed
to ensure equally prompt delivery within two business days of receipt of a
written or oral request, Registrant's Statement of Additional Information.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
duly caused this Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of Pittsburgh, and State of
Pennsylvania, on the 15th day of September, 2000.

FEDERATED INTERNATIONAL SMALL
COMPANY OPPORTUNITY FUND

By: /s/ J. CHRISTOPHER DONAHUE
---------------------------
J. Christopher Donahue, as Trustee

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.

/s/ J. CHRISTOPHER DONAHUE Trustee September 15, 2000
--------------------------
J. Christopher Donahue