IAI BOND FUND
(A SERIES OF IAI INVESTMENT FUNDS I, INC.)
IAI GROWTH FUND
(A SERIES OF IAI INVESTMENT FUNDS II, INC.)
IAI INTERNATIONAL FUND
(A SERIES OF IAI INVESTMENT FUNDS III, INC.)
IAI REGIONAL FUND
(A SERIES OF IAI INVESTMENT FUNDS IV, INC.)
IAI BALANCED FUND
IAI CAPITAL APPRECIATION FUND
IAI EMERGING GROWTH FUND
IAI MIDCAP GROWTH FUND
IAI MONEY MARKET FUND
(EACH A SERIES OF IAI INVESTMENT FUNDS VI, INC.)
IAI GROWTH AND INCOME FUND
(A SERIES OF IAI INVESTMENT FUNDS VII, INC.)
IAI LONG TERM GROWTH FUND*
(A SERIES OF IAI INVESTMENT FUNDS VIII, INC.)
601 SECOND AVENUE SOUTH
SUITE 3600
MINNEAPOLIS, MINNESOTA 55402
Dear Shareholder:
The Board of Directors of the mutual funds managed by Investment Advisers,
Inc. (collectively, the "IAI Funds") is pleased to submit for your vote a
proposal to reorganize each of the above-listed IAI Funds into a comparable
mutual fund advised by a subsidiary of Federated Investors, Inc. (each, a
"Federated Fund"). The Board of the IAI Funds and the management of Investment
Advisers, Inc. ("IAI") believe this reorganization is in the best interests of
IAI Fund shareholders. As a result of the reorganization, IAI Fund shareholders
would receive shares of a mutual fund managed and serviced by subsidiaries of
Federated Investors, Inc. ("Federated Investors"). Federated Investors was
established in 1955 and is one of the largest mutual fund investment managers in
the United States. It advises 175 mutual funds and separate accounts, which
totaled approximately $125 billion in assets as of March 31, 2000, and maintains
1.3 million shareholder accounts. This reorganization is being proposed in
conjunction with the sale by IAI of its
---------------
* Formerly, IAI Value Fund. On June 12, 2000 the Board of Directors of the
IAI Funds approved the Fund's new name and amendments to the Fund's
non-fundamental investment policies.
<PAGE>
mutual fund advisory business to Federated. On June 16, 2000, IAI and Federated
reached a definitive agreement covering such sale.
The Board considered various factors in reviewing this proposal on behalf
of IAI Fund shareholders, including the following: First, the Board considered
the fact that the Federated Funds have investment objectives and policies
substantially similar to those of corresponding IAI Funds. Second, because the
Federated Funds have a larger asset base, the Board believes the reorganization
may provide shareholders the benefit of economies of scale, increased
diversification, more efficient execution of portfolio transactions, and
improved services to shareholders. Third, you will not pay a sales charge to
become a shareholder of the Federated Funds nor will you have to pay any
front-end sales charges in the future if you wish to exchange into or purchase
shares of any other Federated mutual fund, assuming you meet that fund's minimum
investment requirements.+ Fourth, the reorganization is expected to be tax-free;
it is anticipated you will pay no federal income tax as a result of the
reorganization. And finally, the Board considered that the historical
performance of the respective Federated Funds generally compares favorably to
that of the corresponding IAI Funds, and the expense ratios after voluntary fee
waivers of the Federated Funds are within industry norms.
If the proposal is approved, each Federated Fund would acquire all of the
assets of an IAI Fund that has substantially similar investment objectives,
policies, and strategies, and Federated Fund shares would be distributed pro
rata to you in complete liquidation of the IAI Fund. In order to exchange your
IAI Fund shares for Federated Fund shares, the Board of Directors of the IAI
Funds submits for your approval an Agreement and Plan of Reorganization and
Termination ("Plan") that relates to your IAI Fund. Please note that in the case
of IAI Balanced Fund, IAI Capital Appreciation Fund, IAI Emerging Growth Fund,
IAI Midcap Growth Fund and IAI Money Market Fund, all of which are series of IAI
Investment Funds VI, Inc. ("IAI VI"), a vote in favor of the Plan also will be
considered a vote in favor of an amendment to the Articles of Incorporation of
IAI VI required to effect the reorganization.
Your vote on the transaction is critical to its success. The reorganization
of your IAI Fund will occur only if approved by a majority of the outstanding
shares on the record date of your IAI Fund voted in person or represented by
proxy. Whether or not you plan to attend the meeting, please vote your shares by
telephone or by the Internet or by mail. If you are a shareholder of more than
one IAI Fund, you will receive more than one prospectus/proxy statement and will
need to vote your shares of each Fund. Following this letter is a Q&A
summarizing the reorganization and information on how you vote your shares.
Please read the entire prospectus/proxy statement carefully before you vote.
THE BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION IS IN THE BEST
INTERESTS OF EACH IAI FUND AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR ITS APPROVAL.
---------------
2 IAI Money Market Fund will be reorganized into Automated Cash Management
Trust ("ACMT"), which has a $25,000 minimum investment requirement. This minimum
investment requirement will be waived for IAI Fund shareholders in connection
with the reorganization and any subsequent purchases or exchanges into ACMT.
2
<PAGE>
Thank you for your prompt attention and participation.
Sincerely,
/s/ J. Peter Thompson
---------------------
J. Peter Thompson
Chairman of the Board
/s/ Keith Wirtz
---------------
Keith Wirtz
President
Dated: July 20, 2000
3
<PAGE>
IAI FUNDS/FEDERATED FUNDS
PROXY Q&A
THE FOLLOWING IS IMPORTANT INFORMATION TO HELP YOU UNDERSTAND THE PROPOSALS ON
WHICH YOU ARE BEING ASKED TO VOTE. PLEASE READ THE ENTIRE PROSPECTUS/PROXY
STATEMENT.
WHY IS THIS REORGANIZATION TAKING PLACE?
Over the past several months, IAI management has given extensive consideration
to our company's ability to remain competitive in an environment where scale is
becoming more and more important. IAI and the Board of Directors believe that
larger mutual fund companies will be in the best position to offer excellent
products and services in the years ahead, as the mutual fund industry matures.
Management concluded that Federated Investors, with $125 billion of assets under
management across a broad product line, is in a good position to provide the
high-quality investment management and related services that our shareholders
deserve. Thus, the reorganization is being proposed in conjunction with the sale
by IAI of its mutual fund advisory business to Federated. On June 16, 2000, IAI
and Federated reached a definitive agreement covering such sale.
WHEN WILL THIS REORGANIZATION BECOME EFFECTIVE?
The reorganization is scheduled to be effective in mid-September. Shortly after
the reorganization has been approved, you will receive new account information
on your new ownership in the corresponding Federated Fund.
WHAT DO I HAVE TO DO TO BECOME A SHAREHOLDER IN THE FEDERATED FUNDS?
Shareholders are being asked to approve this reorganization through voting at
the Special Meeting of Shareholders, which is scheduled to occur in September.
Your vote is very important. You have the flexibility to cast your vote either
by phone, Internet or mail.
Upon shareholder approval of the reorganization, shareholders' accounts will
automatically be transferred to the corresponding Federated Fund.
WHAT WILL HAPPEN TO MY IAI ACCOUNT?
After the reorganization, shareholders will be assigned a new account at
Federated and then IAI accounts will be closed. This process will occur
automatically, with no action required by you.
WILL ALL OF MY CURRENT ACCOUNT OPTIONS SUCH AS SYSTEMATIC PURCHASES AND
WITHDRAWAL PLANS TRANSFER OVER TO FEDERATED?
Various types of account servicing features will transfer automatically to new
Federated accounts. Shortly after the reorganization, shareholders will receive
<PAGE>
information that further describes these options, along with Federated's
diversified product line and world-class shareholder services.
WHAT BENEFITS WILL I HAVE AS A FEDERATED SHAREHOLDER?
With over 45 years of investment management experience, Federated has made a
significant commitment to the development of superior portfolio management
strategies and world-class shareholder services. Federated has a diversified
product line, strong performance history and competitive fund expenses.
Shareholders of record at the time of the reorganization will be allowed to
exchange into or purchase the shares of any Federated mutual fund in the future
without paying any front-end sales charge, assuming shareholders meet the
Federated Fund's minimum investment requirement.3
WILL I INCUR TAXES AS A RESULT OF THIS REORGANIZATION?
This reorganization is expected to be a tax-free event. Except as described
below, shareholders generally will not realize capital gains or losses on the
conversion from IAI Fund shares to Federated Fund shares in connection with the
proposed transactions. Furthermore, the cost basis of each fund investment will
remain the same.
Shareholders will realize capital gains or losses if they sell their IAI Fund
shares before the reorganization becomes effective or sell/exchange their
Federated Fund shares after the reorganization becomes effective. Shareholders
will also be responsible for tax obligations associated with monthly or periodic
distributions that occur prior to or after the reorganization, which
distributions may include realized gains from sales of portfolio securities.
Please note that retirement accounts are exempt from such tax consequences.
WHERE CAN I GET MORE INFORMATION ABOUT THIS REORGANIZATION?
Contact IAI at 1-800-945-3863.
WHERE CAN I GET MORE INFORMATION ABOUT THE FEDERATED FUNDS?
Visit Federated's website at www.federatedinvestors.com or call Federated
Investors at 1-800-341-7400. Additionally, we encourage you to contact your
financial advisor.
---------------
3 IAI Money Market Fund will be reorganized into Automated Cash Management
Trust ("ACMT"), which has a $25,000 minimum investment requirement. This minimum
investment requirement will be waived for IAI Fund shareholders in connection
with the reorganization and any subsequent purchases or exchanges into ACMT.
<PAGE>
IAI BOND FUND
(A SERIES OF IAI INVESTMENT FUNDS I, INC.)
IAI GROWTH FUND
(A SERIES OF IAI INVESTMENT FUNDS II, INC.)
IAI INTERNATIONAL FUND
(A SERIES OF IAI INVESTMENT FUNDS III, INC.)
IAI REGIONAL FUND
(A SERIES OF IAI INVESTMENT FUNDS IV, INC.)
IAI BALANCED FUND
IAI CAPITAL APPRECIATION FUND
IAI EMERGING GROWTH FUND
IAI MIDCAP GROWTH FUND
IAI MONEY MARKET FUND
(EACH A SERIES OF IAI INVESTMENT FUNDS VI, INC.)
IAI GROWTH AND INCOME FUND
(A SERIES OF IAI INVESTMENT FUNDS VII, INC.)
IAI LONG TERM GROWTH FUND
(A SERIES OF IAI INVESTMENT FUNDS VIII, INC.)
601 SECOND AVENUE SOUTH
SUITE 3600
MINNEAPOLIS, MINNESOTA 55402
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders of each of the IAI Funds listed above
(each an "IAI Fund") will be held on September 8, 2000, at 1 p.m., Central Time
at 601 Second Avenue South, Suite 3700, Minneapolis, Minnesota 55402, for the
following purposes:
1. TO APPROVE A PROPOSED AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
("PLAN")4 BETWEEN EACH IAI FUND AND A COMPARABLE MUTUAL FUND MANAGED BY A
SUBSIDIARY OF FEDERATED INVESTORS, INC. (EACH A "FEDERATED FUND"), WHEREBY THE
FEDERATED FUND WOULD ACQUIRE ALL OF THE ASSETS OF THE IAI FUND IN EXCHANGE
SOLELY FOR THE FEDERATED FUND'S SHARES, TO BE DISTRIBUTED PRO RATA BY THE IAI
---------------
4 Please note there are separate Plans, which are substantially similar. For
example, IAI Investment Funds VI, Inc. (on behalf of IAI Capital Appreciation
Fund, IAI Emerging Growth Fund and IAI Midcap Growth Fund), IAI Investment Funds
IV, Inc. (on behalf of IAI Regional Fund), IAI Investment Funds VIII, Inc. (on
behalf of IAI Long Term Growth Fund) and IAI Investment Funds II, Inc. (on
behalf of IAI Growth Fund) has entered into a Plan with Federated Equity Funds,
on behalf of Federated Aggressive Growth Fund, Federated Large Cap Growth Fund,
Federated Growth Strategies Fund, and Federated Capital Appreciation Fund. For
convenience purposes, only one Plan is referred to in this combined
prospectus/proxy statement, and each separate reorganization of an IAI Fund into
a Federated Fund is referred to as "the Reorganization." A form of the Plan is
attached as Exhibit A. 5 Please note there are separate plans of reorganization,
which are substantially similar. For example, IAI Investment Funds VI, Inc. (on
behalf of IAI Capital Appreciation Fund, IAI Emerging Growth Fund and IAI Midcap
Growth Fund), IAI Investment Funds IV, Inc. (on behalf of IAI Regional Fund),
IAI Investment Funds VIII, Inc. (on behalf of IAI Long Term Growth Fund) and IAI
Investment Funds II, Inc. (on behalf of IAI Growth Fund) has contracted with
Federated Equity Funds, on behalf of Federated Aggressive Growth Fund, Federated
Large Cap Growth Fund, Federated Growth Strategies Fund, and Federated Capital
Appreciation Fund. For convenience purposes, only one Plan is referred to in
this combined prospectus/proxy statement, and each separate reorganization of an
IAI Fund into a Federated Fund is referred to as "the Reorganization." A Form of
the Plan is attached as Exhibit A.
<PAGE>
FUND TO THE HOLDERS OF ITS SHARES, IN COMPLETE LIQUIDATION OF THE IAI FUND. IN
THE CASE OF IAI BALANCED FUND, IAI CAPITAL APPRECIATION FUND, IAI EMERGING
GROWTH FUND, IAI MIDCAP GROWTH FUND AND IAI MONEY MARKET FUND, ALL OF WHICH ARE
SERIES OF IAI INVESTMENT FUNDS VI, INC. ("IAI VI"), A VOTE IN FAVOR OF THE PLAN
ALSO WILL BE CONSIDERED A VOTE IN FAVOR OF AN AMENDMENT TO THE ARTICLES OF
INCORPORATION OF IAI VI REQUIRED TO EFFECT THE REORGANIZATION.
2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF.
Dated: July 20, 2000 By Order of the Board of Directors,
/s/ Michael J. Radmer
Michael J. Radmer
Secretary
Shareholders of record at the close of business on July 14, 2000 are
entitled to vote at the meeting. Whether or not you plan to attend the meeting,
please vote your shares by returning the proxy card by mail, or by voting by
telephone or the internet. Your vote is important.
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF FURTHER
MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY ALSO
VOTE BY TELEPHONE OR THE INTERNET. YOU MAY REVOKE YOUR PROXY AT ANY TIME AT OR
BEFORE THE MEETING OR VOTE IN PERSON IF YOU ATTEND THE MEETING.
2
<PAGE>
FEDERATED BOND FUND
(CLASS A SHARES)
(A SERIES OF FEDERATED INVESTMENT SERIES FUNDS, INC.)
FEDERATED AGGRESSIVE GROWTH FUND
FEDERATED CAPITAL APPRECIATION FUND
FEDERATED GROWTH STRATEGIES FUND
FEDERATED LARGE CAP GROWTH FUND
(CLASS A SHARES)
(EACH A SERIES OF FEDERATED EQUITY FUNDS)
FEDERATED INTERNATIONAL EQUITY FUND
(CLASS A SHARES)
(A SERIES OF FEDERATED INTERNATIONAL SERIES, INC.)
FEDERATED STOCK AND BOND FUND, INC.
(CLASS A SHARES)
AUTOMATED CASH MANAGEMENT TRUST
(INSTITUTIONAL SERVICE SHARES)
(A SERIES OF MONEY MARKET OBLIGATIONS TRUST)
FEDERATED AMERICAN LEADERS FUND, INC.
(CLASS A SHARES)
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
1-800-341-7400
TO ACQUIRE THE ASSETS OF:
THE IAI FUNDS
601 SECOND AVENUE SOUTH
SUITE 3600
MINNEAPOLIS, MINNESOTA 55402
1-800-945-3863
PROSPECTUS/PROXY STATEMENT
JULY 20, 2000
This Prospectus/Proxy Statement describes a proposed Agreement and Plan of
Reorganization and Termination (the "Plan") related to your fund pursuant to
which you would receive shares of a mutual fund advised by a subsidiary of
Federated Investors, Inc. (each a "Federated Fund") in exchange for the shares
of the fund you currently own, which is advised by Investment Advisers, Inc.
(each an "IAI Fund"). Each Federated Fund and each IAI Fund is a diversified
portfolio of securities of an open-end management investment company. If the
Plan is approved with respect to your IAI Fund, the Federated Fund would acquire
all of the assets of an IAI Fund that has substantially similar investment
objectives and investment policies and strategies, and Federated Fund shares
would be distributed pro rata by each IAI Fund to the holders of its shares, in
complete liquidation of the IAI Fund. As a result of the Plan, each IAI Fund
shareholder would become the owner of the Federated Fund's shares having a total
net asset value equal to the total net asset value of such shareholder's
holdings in the IAI Fund. For the name of the Federated Fund into which your IAI
Fund would be reorganized, see "Summary - About the Proposed Reorganization."
<PAGE>
For a comparison of the investment policies of the IAI Fund and the Federated
Fund into which your IAI Fund would be reorganized, see "Summary - Comparison of
Investment Objectives, Policies, Strategies and Principal Risks of the IAI Funds
and Federated Funds." In the case of IAI Balanced Fund, IAI Capital Appreciation
Fund, IAI Emerging Growth Fund, IAI Midcap Growth Fund and IAI Money Market
Fund, all of which are series of IAI Investment Funds VI, Inc. ("IAI VI"), a
vote in favor of the Plan will be considered a vote in favor of an amendment to
the Articles of Incorporation of IAI VI required to effect the reorganization.5
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS OF THE IAI FUNDS UNANIMOUSLY RECOMMENDS APPROVAL OF THE
PLAN.
--------------------------------------------------------------------------------
You should retain this Prospectus/Proxy Statement for future reference. It
sets forth concisely the information about each Federated Fund that a
prospective investor should know before investing. This Prospectus/Proxy
Statement is accompanied by the Prospectus of the Federated Fund into which your
IAI Fund would be reorganized and that fund's Annual Report to Shareholders,
which are incorporated herein by reference. Statements of Additional Information
for each Federated Fund (one relating to the Federated Fund's Prospectus and a
second one relating to this Prospectus/Proxy Statement), all containing
additional information, have been filed with the Securities and Exchange
Commission and are incorporated herein by reference. Copies of the Statements of
Additional Information may be obtained without charge by writing or calling the
Federated Fund at the address and telephone number shown above.
This Prospectus/Proxy Statement was first mailed to shareholders the week
of July 24, 2000.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES, OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
5 Please note there are separate Plans, which are substantially similar. For
example, IAI Investment Funds VI, Inc. (on behalf of IAI Capital Appreciation
Fund, IAI Emerging Growth Fund and IAI Midcap Growth Fund), IAI Investment Funds
IV, Inc. (on behalf of IAI Regional Fund), IAI Investment Funds VIII, Inc. (on
behalf of IAI Long Term Growth Fund) and IAI Investment Funds II, Inc. (on
behalf of IAI Growth Fund) has entered into a Plan with Federated Equity Funds,
on behalf of Federated Aggressive Growth Fund, Federated Large Cap Growth Fund,
Federated Growth Strategies Fund, and Federated Capital Appreciation Fund. For
convenience purposes, only one Plan is referred to in this combined
prospectus/proxy statement, and each separate reorganization of an IAI Fund into
a Federated Fund is referred to as "the Reorganization." A form of the Plan is
attached as Exhibit A. 5 Please note there are separate plans of reorganization,
which are substantially similar. For example, IAI Investment Funds VI, Inc. (on
behalf of IAI Capital Appreciation Fund, IAI Emerging Growth Fund and IAI Midcap
Growth Fund), IAI Investment Funds IV, Inc. (on behalf of IAI Regional Fund),
IAI Investment Funds VIII, Inc. (on behalf of IAI Long Term Growth Fund) and IAI
Investment Funds II, Inc. (on behalf of IAI Growth Fund) has contracted with
Federated Equity Funds, on behalf of Federated Aggressive Growth Fund, Federated
Large Cap Growth Fund, Federated Growth Strategies Fund, and Federated Capital
Appreciation Fund. For convenience purposes, only one Plan is referred to in
this combined prospectus/proxy statement, and each separate reorganization of an
IAI Fund into a Federated Fund is referred to as "the Reorganization." A Form of
the Plan is attached as Exhibit A.
2
<PAGE>
TABLE OF CONTENTS
SUMMARY ......................................................................1
About the Proposed Reorganization......................................1
Comparative Fee Tables.................................................3
Shareholder Fees..............................................15
Comparison of Investment Objectives, Policies, Strategies
and Principal Risks of the IAI Funds and Federated Funds..............16
Comparison of Potential Risks and Rewards: Performance Information...44
Comparison of Operations..............................................58
Investment Advisory Agreements................................58
Administrative and Shareholder Services.......................60
Distribution Services.........................................61
Purchase, Exchange and Redemption Procedures..................62
Dividends and Other Distributions.............................65
Tax Consequences......................................................66
INFORMATION ABOUT THE REORGANIZATION..........................................66
Agreement Between IAI and Federated Investors for Sale of
IAI's Mutual Fund Advisory Business...................................66
Considerations by the Board of Directors of the IAI Funds.............67
Description of the Plan of Reorganization.............................69
Description of Federated Fund Shares..................................70
Federal Income Tax Consequences.......................................70
Comparative Information on Shareholder Rights and Obligations.........72
Capitalization........................................................75
INFORMATION ABOUT THE FEDERATED FUNDS AND THE IAI FUNDS.......................77
Federated Funds.......................................................77
IAI Funds.............................................................77
VOTING INFORMATION............................................................78
Outstanding Shares and Voting Requirements............................78
Other Matters.........................................................86
Board Recommendation..................................................86
FORM OF AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION - EXHIBIT A.....A-1
i
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus and Statement of Additional Information of each Federated Fund, the
Prospectus and Statement of Additional Information of each IAI Fund, and the
Plan, a form of which is attached to this Prospectus/Proxy Statement as Exhibit
A.
ABOUT THE PROPOSED REORGANIZATION
The Board of Directors of each corporation of which an IAI Fund is a series
has voted to recommend approval of the Plan to shareholders of each IAI Fund.
Under the Plan, each Federated Fund would acquire all of the assets of the
corresponding IAI Fund in exchange for the Federated Fund's shares to be
distributed pro rata by the IAI Fund to its shareholders in complete liquidation
and dissolution of the IAI Fund (the "Reorganization"). As a result of the
Reorganization, each shareholder of an IAI Fund will become the owner of a
Federated Fund's shares having a total net asset value equal to the total net
asset value of such shareholder's holdings in the IAI Fund on the date of the
Reorganization.
As a condition to the Reorganization, the Federated Fund and the IAI Fund
will receive an opinion of counsel that the Reorganization will be considered a
tax-free "reorganization" under applicable provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), so that neither the Federated Fund nor
the IAI Fund nor the shareholders of the IAI Fund will recognize any gain or
loss on the Reorganization.6 The tax basis of the Federated Fund's shares
received by IAI Fund shareholders will be the same as the tax basis of their
shares in the IAI Fund. After the acquisition is completed, each IAI Fund will
be dissolved.
In the case of IAI Balanced Fund, IAI Capital Appreciation Fund, IAI
Emerging Growth Fund, IAI Midcap Growth Fund and IAI Money Market Fund, all of
which are series of IAI Investment Funds VI, Inc. ("IAI VI"), a vote in favor of
the Plan will be considered a vote in favor of an amendment to the Articles of
Incorporation of IAI VI required to effect the reorganization. This amendment is
necessary under Minnesota law in order to bind the shareholders of these five
IAI Funds. The amendment is attached to the form of Plan attached as Exhibit A
to this Prospectus/Proxy Statement.
---------------
6 Certain IAI Funds or their shareholders may recognize gain if IAI makes any
payments to satisfy certain contingent liabilities of the IAI Fund(s). In
addition, shareholders may incur tax liabilities with respect to capital gains
distributed to them that are generated from sales of portfolio securities held
by an IAI Fund, either before the Reorganization by the IAI Fund or after the
Reorganization once those securities are held by the corresponding Federated
Fund. See "Federal Income Tax Consequences." All references herein and in the
accompanying documents to the Reorganization being "tax-free" or that an IAI
Fund or its shareholders "will recognize no gain or loss" or statements of
similar import are qualified by the foregoing.
1
<PAGE>
The following chart shows the Federated Fund into which each IAI Fund would
be reorganized if the Reorganization is approved. The chart is arranged
alphabetically according to the name of the IAI Fund.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
IAI Balanced Fund Would be reorganized into Federated Stock and Bond Fund, Inc.
(a series of IAI Investment Funds VI, (Class A Shares)
Inc.)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
IAI Bond Fund Would be reorganized into Federated Bond Fund
(a series of IAI Investment Funds I, Inc.) (Class A shares)
(a series of Federated Investment Series Funds,
Inc.)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
IAI Capital Appreciation Fund Federated Aggressive Growth Fund
IAI Emerging Growth Fund Would be reorganized into (Class A Shares)
(each a series of IAI Investment Funds (a series of Federated Equity Funds)
VI, Inc.)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
IAI Growth Fund Would be reorganized into Federated Large Cap Growth Fund
(a series of IAI Investment Funds II, (Class A Shares)
Inc.) (a series of Federated Equity Funds)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
IAI Growth and Income Fund Would be reorganized into Federated American Leaders Fund, Inc.
(a series of IAI Investment Funds VII, (Class A Shares)
Inc.)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
IAI International Fund Would be reorganized into Federated International Equity Fund
(a series of IAI Investment Funds III, (Class A Shares)
Inc.) (a series of Federated International Series
Inc.)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
IAI Long Term Growth Fund Federated Aggressive Growth Fund
(a series of IAI Investment Funds VIII, Would be reorganized into (Class A Shares)
Inc.) (a series of Federated Equity Funds)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
IAI Midcap Growth Fund Would be reorganized into Federated Growth
(a series of IAI Investment Funds VI, Strategies Fund
Inc.) (Class A Shares)
(a series of Federated Equity Funds)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
IAI Money Market Fund Would be reorganized into Automated Cash Management Trust
(a series of IAI Investment Funds VI, (Institutional Service Shares)
Inc.) (a series of Money Market Obligations Trust)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
IAI Regional Fund Would be reorganized into Federated Capital Appreciation Fund
(a series of IAI Investment Funds IV, (Class A Shares)
Inc.) (a series of Federated Equity Funds)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE FEE TABLES
The IAI Funds, like all mutual funds, incur certain expenses in their
operations and as a shareholder of an IAI Fund, you pay these expenses
indirectly. The Federated Funds also incur expenses in their operations. The
expenses include management fees, as well as the costs of maintaining accounts,
administration, providing shareholder liaison services and distribution
services, and other activities. The following tables compare the expenses paid
by the IAI Funds with the expenses that you will incur indirectly as a
shareholder of the Federated Fund into which your shares will be exchanged. The
tables also include any shareholder fees which are paid directly from your
investment. YOU WILL NOT BE CHARGED ANY SALES LOADS FOR ACQUIRING SHARES OF THE
FEDERATED FUND IN EXCHANGE FOR SHARES OF THE IAI FUND YOU CURRENTLY OWN, NOR
WILL YOU BE CHARGED A FRONT-END SALES LOAD IF YOU WISH TO EXCHANGE OR PURCHASE
THE SHARES OF ANY OTHER FEDERATED MUTUAL FUND, ASSUMING YOU MEET THAT FUND'S
MINIMUM INVESTMENT REQUIREMENTS. Federated has agreed to waive permanently the
initial investment minimum of $25,000 for Automated Cash Management Trust in
connection with the Reorganization and any subsequent purchases or exchanges
into that Fund by IAI Fund shareholders.
3
<PAGE>
This table describes the fees and expenses of Federated Aggressive Growth Fund
Class A Shares for its most recent fiscal year end as well as on a pro forma
basis giving effect to the Reorganization, and the fees and expenses of IAI
Emerging Growth Fund, IAI Long Term Growth Fund, and IAI Capital Appreciation
Fund for each Fund's most recent fiscal year end.
<TABLE>
<CAPTION>
Federated IAI
Aggressive IAI Long IAI Federated
Growth Emerging Term Capital Pro Forma
Fund Growth Growth Appreciation Estimated
(Class A) Fund Fund Fund Combined
<S> <C> <C> <C> <C> <C>
Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)................None2 None None None None2
Annual Fund Operating Expenses (Before Waivers)
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee..........................................1.00%3 1.25% 1.25% 1.40% 1.00%3
Distribution (12b-1) Fee................................0.25%4 None None None 0.25%4
Shareholder Services Fee................................0.25% None None None 0.25%
Other Expenses..........................................1.25% None None None 0.49%
Total Annual Fund Operating Expenses....................2.75%1 1.25% 1.25% 1.40% 1.99%1
-----------------------------------------------------------------------------------------------------------------
</TABLE>
1 Although not contractually obligated to do so, the adviser and distributor
waived certain amounts. These waivers are shown below along with the net
expenses the Fund actually paid for the fiscal year ended October 31, 1999.
Total Waivers of Fund Expenses.............................................0.99%
Total Actual Annual Fund Operating Expenses (after waivers)................1.76%
2 The Fund's Class A shares typically have a maximum sales charge of 5.50%.
However, you will not be charged a sales charge when receiving your Federated
Fund shares in connection with the Reorganization nor will you be charged a
sales charge if you decide to exchange your shares of the Federated Fund for
another Federated mutual fund or purchase additional shares of any Federated
mutual fund.
3 The Fund's adviser has voluntarily waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management fee paid
by the Fund (after the voluntary waiver) was 0.26% for the fiscal year ended
October 31, 1999.
4 The Fund's Class A Shares did not pay or accrue the distribution (12b-1) fee
during the year ended October 31, 1999. Class A Shares have no present intention
of paying or accruing the distribution (12b-1) fee during the fiscal year ending
October 31, 2000.
4
<PAGE>
This table describes the fees and expenses of Federated American Leaders Fund,
Inc. Class A Shares for its most recent fiscal year end as well as on a pro
forma basis giving effect to the Reorganization, and the fees and expenses of
IAI Growth and Income Fund Shares for its most recent fiscal year end.
<TABLE>
<CAPTION>
Federated IAI Federated
American Growth Pro Forma
Leaders Fund, and Income Estimated
Inc. (Class A) Fund Combined
<S> <C> <C> <C>
Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price).............None1 None None
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee..........................................0.65% 1.25% 0.65%
Distribution (12b-1) Fee................................None None None
Shareholder Services Fee................................0.25% None 0.25%
Other Expenses..........................................0.26% None 0.26%
Total Annual Fund Operating Expenses....................1.16% 1.25% 1.16%
-----------------------------------------------------------------------------------------------
</TABLE>
1 The Fund's Class A Shares typically have a maximum sales charge of 5.50%.
However, you will not be charged a sales charge when receiving your Federated
Fund shares in connection with the Reorganization nor will you be charged a
sales charge if you decide to exchange your shares of the Federated Fund for
another Federated mutual fund or purchase additional shares of any Federated
mutual fund.
5
<PAGE>
This table describes the fees and expenses of Automated Cash Management Trust
Institutional Service Shares for its most recent fiscal year end as well as on a
pro forma basis giving effect to the Reorganization, and the fees and expenses
of the IAI Money Market Fund Shares for its most recent fiscal year end.
<TABLE>
<CAPTION
Federated
Automated
Cash
Management IAI Federated
Trust (Institu- Money Pro Forma
tional Service Market Estimated
Shares) Fund Combined
<S> <C> <C> <C>
Shareholder Fees........................................None None None
Fees Paid Directly From Your Investment
Annual Fund Operating Expenses (Before Waivers)
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee..........................................0.50%2 0.60% 0.50%2
Distribution (12b-1) Fee................................None None None
Shareholder Services Fee................................0.25%3 None 0.25%3
Other Expenses..........................................0.16% None 0.16%
Total Annual Fund Operating Expenses....................0.91%1 0.60% 0.91%1
--------------------------------------------------------------------------------------------
</TABLE>
1 Although not contractually obligated to do so, the Fund's adviser and
shareholder services provider waived certain amounts. These waivers are shown
below along with the net expenses the Fund actually paid for the fiscal year
ended July 31, 1999.
Total Waivers of Fund Expenses.............................................0.32%
Total Actual Annual Fund Operating Expenses (after waivers)................0.59%
2 The adviser has voluntarily waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management fee paid
by the Fund's Institutional Services Shares (after voluntary waiver) was 0.19%
for the fiscal year ended July 31, 1999.
3 The shareholder services provider has voluntarily waived a portion of the
shareholder services fee. This voluntary waiver can be terminated at any time.
The shareholder services fee paid by the Fund's Institutional Services Shares
(after the voluntary waiver) was 0.24% for the fiscal year ended July 31, 1999.
6
<PAGE>
This table describes the fees and expenses of Federated Bond Fund Class A Shares
for its most recent fiscal year end as well as on a pro forma basis giving
effect to the Reorganization, and the fees and expenses of IAI Bond Fund Shares
for its most recent fiscal year end.
<TABLE>
<CAPTION>
Federated
Federated IAI Pro Forma
Bond Fund Bond Estimated
(Class A) Fund Combined
<S> <C> <C> <C>
Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price).............None2 None None2
Annual Fund Operating Expenses (Before Waivers)
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee..........................................0.75%3 1.10%6 0.75%3
Distribution (12b-1) Fee................................0.25%4 None 0.25%4
Shareholder Services Fee................................0.25%5 None 0.25%5
Other Expenses..........................................0.22% None 0.22%
Total Annual Fund Operating Expenses....................1.47%1 1.10%6 1.47%1
--------------------------------------------------------------------------------------
</TABLE>
1 Although not contractually obligated to do so, the Fund's adviser, distributor
and shareholder services provider waived certain amounts. These waivers are
shown below along with the net expenses the Fund actually paid for the fiscal
year ended October 31, 1999.
Total Waivers of Fund Expenses.............................................0.41%
Total Actual Annual Fund Operating Expenses (after waivers)................1.06%
2 The Fund's Class A Shares typically have a maximum sales charge of 4.50%.
However, you will not be charged a sales charge when receiving your Federated
Fund shares in connection with the Reorganization nor will you be charged a
sales charge if you decide to exchange your shares of the Federated Fund for
another Federated mutual fund or purchase additional shares of any Federated
mutual fund.
3 The adviser has voluntarily waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management fee paid
by the Fund (after the voluntary waiver) was 0.64% for the fiscal year ended
October 31, 1999.
4 The Fund's Class A Shares did not pay or accrue the distribution (12b-1) fee
during the year ended October 31, 1999. The Fund's Class A Shares have no
present intention of paying or accruing the distribution (12b-1) fee during the
fiscal year ending October 31, 2000.
5 The shareholder services provider has voluntarily waived a portion of the
shareholder services fee. This voluntary waiver can be terminated at any time.
The shareholder services fee paid by the Fund's Class A Shares (after the
voluntary waiver) was 0.20% for the fiscal year ended October 31, 1999.
6 Actual management fees and total Fund operating expenses were 1.07% for the
fiscal year ended November 30, 1999 as a result of fee waivers by IAI. IAI will
limit its management fee to 0.90% of average daily net assets through March 31,
2001. Although it has no current intention of doing so, IAI may discontinue this
limitation at any time after March 31, 2001, upon 30 days written notice to
shareholders.
7
<PAGE>
This table describes the fees and expenses of Federated Capital Appreciation
Fund Class A Shares for its most recent fiscal year end as well as on a pro
forma basis after giving effect to the Reorganization, and the fees and expenses
of IAI Regional Fund Shares for its most recent fiscal year end.
<TABLE>
<CAPTION>
Federated
Capital Federated
Appreciation IAI Pro Forma
Fund Regional Estimated
(Class A) Fund Combined
<S> <C> <C> <C>
Shareholder Fees
Fees Paid Directly from Your Investment
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price).............None2 None None2
Annual Fund Operating Expenses (Before Waivers)
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee..........................................0.75% 1.25% 0.75%
Distribution (12b-1) Fee................................0.25%3 None 0.25%3
Shareholder Services Fee................................0.25% None 0.25%
Other Expenses..........................................0.27% None 0.27%
Total Annual Fund Operating Expenses....................1.52%1 1.25% 1.52%1
-------------------------------------------------------------------------------------------
</TABLE>
1 Although not contractually obligated to do so, the distributor waived certain
amounts. These waivers are shown below along with the net expenses the Fund
actually paid for the fiscal year ended October 31, 1999.
Total Waivers of Fund Expenses.............................................0.25%
Total Actual Annual Fund Operating Expenses (after waivers)................1.27%
2 The Fund's Class A Shares typically have a maximum sales charge of 5.50%.
However, you will not be charged a sales charge when receiving your Federated
Fund shares in connection with the Reorganization nor will you be charged a
sales charge if you decide to exchange your shares of the Federated Fund for
another Federated mutual fund or purchase additional shares of any Federated
mutual fund.
3 The Fund's Class A Shares did not pay or accrue the distribution (12b-1) fee
for the fiscal year ended October 31, 1999. The Fund's Class A Shares have no
present intention of paying or accruing the distribution (12b-1) fee for the
fiscal year ending October 31, 2000.
8
<PAGE>
This table describes the fees and expenses of Federated Growth Strategies Fund
Class A Shares for its most recent fiscal year end as well as on a pro forma
basis after giving effect to the Reorganization, and the fees and expenses of
IAI Midcap Growth Fund Shares for its most recent fiscal year end.
<TABLE>
<CAPTION>
Federated
Growth IAI Federated
Strategies Midcap Pro Forma
Fund Growth Estimated
(Class A) Fund Combined
<S> <C> <C> <C>
Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price).............None1 None None1
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee..........................................0.75% 1.25% 0.75%
Distribution (12b-1) Fee................................None None None
Shareholder Services Fee................................0.25% None 0.25%
Other Expenses..........................................0.24% None 0.24%
Total Annual Fund Operating Expenses....................1.24% 1.25% 1.24%
---------------------------------------------------------------------------------------
</TABLE>
1 The Fund's Class A shares typically have a maximum sales charge of 5.50%.
However, you will not be charged a sales charge when receiving your Federated
Fund shares in connection with the Reorganization nor will you be charged a
sales charge if you decide to exchange your shares of the Federated Fund for
another Federated mutual fund or purchase additional shares of any Federated
mutual fund.
9
<PAGE>
This table describes the fees and expenses of Federated International Equity
Fund Class A Shares for its most recent fiscal year end as well as on a pro
forma basis after giving effect to the Reorganization, and the fees and expenses
of IAI International Fund Shares for its most recent fiscal year end.
<TABLE>
<CAPTION>
Federated Federated
International IAI Pro Forma
Equity Fund International Estimated
(Class A) Fund Combined
<S> <C> <C> <C>
Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price).............None1 None None1
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee..........................................1.00% 1.70% 1.00%
Distribution (12b-1) Fee................................None None None
Shareholder Services Fee................................0.25% None 0.25%
Other Expenses..........................................0.42% 0.07%2 0.42%
Total Annual Fund Operating Expenses....................1.67% 1.77% 1.67%
-------------------------------------------------------------------------------------------------
</TABLE>
1 The Fund's Class A shares typically have a maximum sales charge of 5.50%.
However, you will not be charged a sales charge when receiving your Federated
Fund shares in connection with the Reorganization nor will you be charged a
sales charge if you decide to exchange your shares of the Federated Fund for
another Federated mutual fund or purchase additional shares of any Federated
mutual fund.
2 "Other expenses" consist solely of interest expense.
10
<PAGE>
This table describes the fees and expenses of Federated Large Cap Growth Fund
Class A Shares for its most recent fiscal year end as well as on a pro forma
basis after giving effect to the Reorganization, and the fees and expenses of
IAI Growth Fund Shares for its most recent fiscal year end.
<TABLE>
<CAPTION>
Federated Federated
Large Cap IAI Pro Forma
Growth Fund Growth Estimated
(Class A) Fund Combined
<S> <C> <C> <C>
Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price).............None2 None None2
Annual Fund Operating Expenses (Before Waivers)
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management
Fee.....................................................0.75%3 1.25% 0.75%3
Distribution (12b-1) Fee................................0.25%4 None 0.25%4
Shareholder Services Fee................................0.25% None 0.25%
Other Expenses..........................................0.59% None 0.59%
Total Annual Fund Operating Expenses....................1.84%1 1.25% 1.84%1
----------------------------------------------------------------------------------------
</TABLE>
1 Although not contractually obligated to do so, the adviser and distributor
waived certain amounts. These waivers are shown below along with the net
expenses the Fund actually paid for the fiscal year ended October 31, 1999.
Total Waivers of Fund Expenses.............................................0.64%
Total Actual Annual Fund Operating Expenses (after waivers)................1.20%
2 The Fund's Class A shares typically have a maximum sales charge of 5.50%.
However, you will not be charged a sales charge when receiving your Federated
Fund shares in connection with the Reorganization nor will you be charged a
sales charge if you decide to exchange your shares of the Federated Fund for
another Federated mutual fund or purchase additional shares of any Federated
mutual fund.
3 The Fund's adviser has voluntarily waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management fee paid
by the Fund (after the voluntary waiver) was 0.36% for the year ended October
31, 1999.
4 The Fund's Class A Shares did not pay or accrue the distribution (12b-1) fee
during the year ended October 31, 1999. The Fund's Class A Shares have no
present intention of paying or accruing the distribution (12b-1) fee during the
fiscal year ending October 31, 2000.
11
<PAGE>
This table describes the fees and expenses of Federated Stock and Bond Fund,
Inc. Class A Shares for its most recent fiscal year end as well as on a pro
forma basis after giving effect to the Reorganization, and the fees and expenses
of IAI Balanced Fund Shares for its most recent fiscal year end.
<TABLE>
<CAPTION>
Federated Federated
Stock and IAI Pro Forma
Bond Fund, Balanced Estimated
Inc. (Class A) Fund Combined
<S> <C> <C> <C>
Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price).............None2 None None2
Annual Fund Operating Expenses (Before Waivers)
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee..........................................0.73% 1.25% 0.73%
Distribution (12b-1) Fee................................0.25%3 None 0.25%3
Shareholder Services Fee................................0.25% None 0.25%
Other Expenses..........................................0.27% 0.01%4 0.27%
Total Annual Fund Operating Expenses....................1.50%1 1.26% 1.50%1
---------------------------------------------------------------------------------------------
</TABLE>
1 Although not contractually obligated to do so, the Fund's distributor waived
certain amounts. These waivers are shown below along with the net expenses the
Fund actually paid for the fiscal year ended October 31, 1999.
Total Waivers of Fund Expenses.............................................0.25%
Total Actual Annual Fund Operating Expenses (after waivers)................1.25%
2 The Fund's Class A shares typically have a maximum sales charge of 5.50%.
However, you will not be charged a sales charge when receiving your Federated
Fund shares in connection with the Reorganization nor will you be charged a
sales charge if you decide to exchange your shares of the Federated Fund for
another Federated mutual fund or purchase additional shares of any Federated
mutual fund.
3 The Fund's Class A Shares did not pay or accrue the distribution (12b-1) fee
during the year ended October 31, 1999. The Fund's Class A Shares have no
present intention of paying or accruing the distribution (12b-1) fee during the
fiscal year ending October 31, 2000.
4 "Other expenses" consist solely of interest expense.
12
<PAGE>
EXAMPLES
The following Examples are intended to help you compare the cost of
investing in the IAI Fund whose shares you currently own with the cost of
investing in the Federated Fund into which your IAI Fund will be reorganized if
the proposed Reorganization is approved.
The Examples assume that you invest $10,000 in each fund for the time periods
indicated and then redeem all of your Shares at the end of those periods. Each
Example assumes that you invest $10,000 in the Federated Fund after the transfer
of assets from the IAI Fund into the Federated Fund. Each Example assumes that
your investment has a 5% return each year and that the Federated Fund, IAI Fund
and each estimated Pro Forma Combined operating expenses are before waivers as
shown above in the table and remain the same.* Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Federated American Leaders Fund, Inc................... $118 $368 $638 $1,409
IAI Growth and Income Fund............................. $127 $397 $686 $1,511
Pro Forma Combined..................................... $118 $368 $638 $1,409
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Automated Cash Management Trust........................ $93 $290 $504 $1,120
IAI Money Market Fund.................................. $61 $192 $335 $750
Pro Forma Combined..................................... $93 $290 $504 $1,120
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Bond Fund.................................... $150 $465 $803 $1,757
IAI Bond Fund.......................................... $112 $350 $606 $1,340
Pro Forma Combined..................................... $150 $465 $803 $1,757
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Capital Appreciation Fund.................... $155 $480 $829 $1,813
IAI Regional Fund...................................... $127 $397 $686 $1,511
Pro Forma Combined..................................... $155 $480 $829 $1,813
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Growth Strategies Fund....................... $126 $393 $681 $1,500
IAI Midcap Growth Fund................................. $127 $397 $686 $1,511
Pro Forma Combined..................................... $126 $393 $681 $1,500
13
<PAGE>
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated International Equity Fund.................... $170 $526 $907 $1,976
IAI International Fund................................. $180 $557 $959 $2,084
Pro Forma Combined..................................... $170 $526 $907 $1,976
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Large Cap Growth Fund........................ $187 $579 $996 $2,159
IAI Growth Fund........................................ $127 $397 $686 $1,511
Pro Forma Combined..................................... $187 $579 $996 $2,159
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Stock and Bond Fund, Inc..................... $153 $474 $818 $1,791
IAI Balanced Fund...................................... $128 $400 $692 $1,523
Pro Forma Combined..................................... $153 $474 $818 $1,791
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Aggressive Growth Fund....................... $278 $853 $1,454 $3,080
IAI Emerging Growth Fund............................... $127 $397 $686 $1,511
IAI Long Term Growth Fund.............................. $127 $397 $686 $1,511
IAI Capital Appreciation Fund.......................... $143 $443 $766 $1,680
Pro Forma Combined..................................... $202 $624 $1,073 $2,317
---------------
* The following Examples show your actual costs AFTER WAIVERS of the Federated Funds that have expense waivers:
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated American Leaders Fund, Inc................... $118 $368 $638 $1,409
IAI Growth and Income Fund............................. $127 $397 $686 $1,511
Pro Forma Combined..................................... $118 $368 $638 $1,409
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Automated Cash Management Trust........................ $60 $189 $329 $738
IAI Money Market Fund.................................. $61 $192 $335 $750
Pro Forma Combined..................................... $60 $189 $329 $738
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Bond Fund.................................... $108 $337 $585 $1,294
IAI Bond Fund.......................................... $109 $340 $590 $1,306
Pro Forma Combined..................................... $108 $337 $585 $1,294
14
<PAGE>
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Capital Appreciation Fund.................... $129 $403 $697 $1,534
IAI Regional Fund...................................... $127 $397 $686 $1,511
Pro Forma Combined..................................... $129 $403 $697 $1,534
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Growth Strategies Fund....................... $126 $393 $681 $1,500
IAI Midcap Growth Fund................................. $127 $397 $686 $1,511
Pro Forma Combined..................................... $126 $393 $681 $1,500
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Large Cap Growth Fund........................ $122 $381 $660 $1,455
IAI Growth Fund........................................ $127 $397 $686 $1,511
Pro Forma Combined..................................... $122 $381 $660 $1,455
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Stock and Bond Fund, Inc..................... $127 $397 $686 $1,511
IAI Balanced Fund...................................... $128 $400 $692 $1,523
Pro Forma Combined..................................... $127 $397 $686 $1,511
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Aggressive Growth Fund....................... $179 $554 $954 $2,073
IAI Emerging Growth Fund............................... $127 $397 $686 $1,511
IAI Long Term Growth Fund.............................. $127 $397 $686 $1,511
IAI Capital Appreciation Fund.......................... $143 $443 $766 $1,680
Pro Forma Combined..................................... $163 $505 $871 $1,900
</TABLE>
SHAREHOLDER FEES
----------------
The following table shows the fees you pay directly as a shareholder of the
Federated Funds for certain services, such as wiring money to or from your
account, maintaining an IRA account, using a debit card, and obtaining
historical account information. You are not currently charged any of the fees
reflected below in connection with your investment in the IAI Funds.
IRA FEES* $15
(charged annually)
DEBIT CARD FEES** $10
(charged annually)
TRANSCRIPT FEES** $2
(only applies to any history
files that have been purged)
INTERNATIONAL WIRE FEES** $25
15
<PAGE>
*The fee is $15 for each type of IRA registered under the same Social Security
or Tax Identification Number. For example, if you have an Individual IRA and a
Rollover IRA, the fee is $15; if you have an Individual IRA and an Education
IRA, the charge is $30.
**Optional service
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES, STRATEGIES AND PRINCIPAL RISKS
OF THE IAI FUNDS AND FEDERATED FUNDS
This section contains tables comparing the investment objectives, policies,
strategies and the principal risks of investing of the IAI Fund and the
Federated Fund into which it would be reorganized. The tables are arranged
alphabetically according to the name of the Federated Fund. In addition to the
policies and strategies set forth below, each Federated Fund and each IAI Fund
is subject to certain additional investment policies and limitations, described
in their respective Statements of Additional Information. Reference is hereby
made to the Prospectus and Statement of Additional Information of each Federated
Fund, and to the Prospectus and Statement of Additional Information of each IAI
Fund, which set forth in full the investment objectives, policies, strategies,
limitations and risks of each Federated Fund and each IAI Fund, all of which are
incorporated herein by reference thereto.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
IAI EMERGING GROWTH FUND FEDERATED AGGRESSIVE GROWTH FUND
--------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE:
To provide long-term capital appreciation. To provide appreciation of capital.
PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS:
IAI Emerging Growth Fund invests primarily Federated Aggressive Growth Fund pursues its
in common stocks of small emerging and investment objective by investing in equity
medium-sized U.S. companies that the Fund's securities of companies offering superior
adviser believes have above-average prospects for earnings growth. The Fund is not
prospects for growth. These companies are restricted to specific market capitalization
expected to show earnings growth over time requirements. The Fund may also invest
that is well above the growth rate of the in American Depositary Receipts, which represent
overall economy and the rate of inflation. interests in underlying securities issued by a
The Fund invests at least 65% of its total foreign company, but which are traded
assets in stocks of emerging growth companies in the United States.
with market capitalizations of $2 billion or
less at the time of investment.
INVESTMENT STYLE: INVESTMENT STYLE:
The Fund's investment style is substantially The Fund invests primarily for growth by targeting
similar to that of the Federated Aggressive equity securities with superior growth prospects.
Growth Fund.
INVESTMENT STRATEGIES: INVESTMENT STRATEGIES:
The Fund focuses on companies with: superior The Fund limits its exposure to each business
performance records; solid market positions; sector that comprises the Standard & Poor's
strong balance sheets; and management 500 Index ("S&P 500") by limiting its
teams that, in the opinion of the Fund's allocation to a sector to 300% of S&P 500's
adviser, are capable of sustaining growth. allocation to that sector or 30% of the total
portfolio, whichever is greater. The Fund's
--------------------------------------------------------------------------------------------------------
16
<PAGE>
--------------------------------------------------------------------------------------------------------
PRINCIPAL RISKS: approach with respect to its analysis of
securities, market capitalization, and
The principal risks of investing in the IAI sector allocation is designed to produce a
Emerging Growth Fund are substantially the portfolio of stocks whose long-term growth
same as those of the Federated Aggressive prospects are significantly above those of
Growth Fund, except that the IAI Emerging the S&P 500.
Growth Fund is not subject, as a principal
risk, to the risks of foreign investing. Using its own quantitative process, the Fund's
adviser rates the future performance potential
of companies. The adviser evaluates each
company's earnings quality in light of their
current valuation to narrow the list of
attractive companies. The adviser then evaluates
product positioning, management quality and
sustainability of current growth trends of those
companies. Using this type of fundamental analysis,
the adviser selects the most promising companies
for the Fund's portfolio.
The Fund may attempt to manage market risk by buying
and selling financial futures and options. This may
include the purchase of index futures contracts as a
substitute for direct investments in stocks. It may
also include the purchase and sale of options to
protect against general declines in small capitalization
stocks economically.
PRINCIPAL RISKS:
Federated Aggressive Growth Fund is subject to the
following principal risks:
o STOCK MARKET RISKS. The value of equity securities
in the Fund's portfolio will fluctuate and, as a
result, the Fund's share price may decline suddenly
or over a sustained period of time.
o LIQUIDITY RISKS. The equity securities in which
the Fund invests may be less readily marketable and
may be subject to greater fluctuation in price than
other securities. Consequently, the Fund may have to
accept a lower price to sell a security, sell other
securities to raise cash or give up an investment
opportunity, any of which could have a negative effect
on the Fund's performance.
o RISKS RELATED TO COMPANY SIZE. 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.
o SECTOR RISKS. As the Fund's 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.
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o RISKS OF FOREIGN INVESTING. Because the Fund
invests in securities issued by foreign companies, the
Fund's share price may be more affected by foreign
economic and political conditions, taxation policies
and accounting and auditing standards than would
otherwise be the case.
o RISKS RELATED TO INVESTING FOR GROWTH. The growth
growth stocks in which the Fund invests are typically
more volatile than value stocks and may depend more
on price changes than dividends for returns.
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IAI LONG TERM GROWTH FUND FEDERATED AGGRESSIVE GROWTH FUND
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INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE:
To provide long-term capital appreciation. To provide appreciation of capital.
PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS:
IAI Long Term Growth Fund invests primarily Federated Aggressive Growth Fund pursues its
in common stocks of small emerging U.S. investment objective by investing in equity
companies that the Fund's adviser believes securities of companies offering superior
have above-average prospects for growth. prospects for earnings growth. The Fund
These companies are expected to show is not restricted to specific market
earnings growth over time that is well capitalization requirements. The Fund
above the growth rate of the overall may also invest in American Depositary
economy and the rate of inflation. The Receipts, which represent interests in
Fund invests at least 65% of its total underlying securities issued by a foreign
assets in stocks of companies with market company, but which are traded in the
capitalizations of $1 billion or less at United States.
the time of investment.
INVESTMENT STYLE:
INVESTMENT STYLE:
The Fund invests primarily for growth by
The Fund's investment style is substantially targeting equity securities with superior
similar to that of the Federated Aggressive growth prospects.
Growth Fund.
INVESTMENT STRATEGIES:
INVESTMENT STRATEGIES:
The Fund limits its exposure to each business
In general, the Fund generally focuses on sector that comprises the Standard & Poor's
companies with superior performance records; 500 Index ("S&P 500") by limiting its
solid market positions; strong balance allocation to a sector to 300% of S&P 500's
sheets; and management teams that are allocation to that sector or 30% of the total
capable of sustaining growth. portfolio, whichever is greater. The Fund's
approach with respect to its analysis of
Prior to the IAI Board of Directors' securities, market capitalization, and sector
approval of the change in the name of allocation is designed to produce a
the IAI Value Fund to the IAI Long Term portfolio of stocks whose long-term growth
Growth Fund and certain changes to the prospects are significantly above those of
Fund's non-fundamental investment the S&P 500.
limitations, the Fund had the following
principal investments, investment style Using its own quantitative process, the
and investment strategies: Fund's adviser rates the future performance
potential of companies. The adviser evaluates
PRINCIPAL INVESTMENTS: each company's earnings quality in light of
their current valuation to narrow the list
IAI Value Fund invested primarily in of attractive companies. The adviser then
common stocks of U.S. companies that evaluates product positioning, management
the Fund's adviser believed were quality and sustainability of current
undervalued and offered opportunities growth trends of those companies. Using
for capital growth. The Fund generally this type of fundamental analysis, the
invested in small companies with market adviser selects the most promising
capitalizations of less than $1 billion companies for the Fund's portfolio.
at the time of purchase.
The Fund may attempt to manage market risk
INVESTMENT STYLE: by buying and selling financial futures and
options. This may include the purchase of
The Fund invested for value by investing index futures contracts as a substitute for
in equity securities of companies that direct investments in stocks. It may also
the Fund's adviser believed were include the purchase and sale of options to
undervalued while offering opportunities protect against general declines in small
for capital growth. capitalization stocks economically.
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INVESTMENT STRATEGIES: PRINCIPAL RISKS:
The Fund invested in common stocks of Federated Aggressive Growth Fund is subject
companies which had been unpopular for to the following principal risks:
some time, but where recent developments
suggested the possibility of improved o STOCK MARKET RISKS. The value of
operating results; which the Fund's equity securities in the Fund's
adviser believed had temporarily fallen portfolio will fluctuate and, as
out of favor for non-recurring or a result, the Fund's share price
short-term reasons; or which appeared may decline suddenly or over a
undervalued in relation to securities sustained period of time.
of other companies in the same industry.
In selecting investments, the Fund o LIQUIDITY RISKS. The equity securities
generally focused on companies with in which the Fund invests may be less
strong competitive positions, high readily marketable and may be subject
levels of discretionary cash flow, and to greater fluctuation in price than
solid financial characteristics. other securities. Consequently, the
Fund may have to accept a lower price
PRINCIPAL RISKS: to sell a security, sell other
securities to raise cash or give
The principal risks of investing in the up an investment opportunity, any
IAI Long Term Growth Fund are of which could have a negative
substantially the same as those of effect on the Fund's performance.
the Federated Aggressive Growth Fund,
except that the IAI Long Term Growth o RISKS RELATED TO COMPANY SIZE.
Fund is not subject, as a principal Because the smaller companies in
risk, to the risks of foreign investing. which the Fund may invest may have
unproven track records, a limited
Prior to the IAI Board of Directors' product or service base and limited
approval of the change in the name of access to capital, they may be more
the IAI Value Fund to the IAI Long Term likely to fail than larger companies.
Growth Fund and certain changes to the
Fund's non-fundamental investment o SECTOR RISKS. As the Fund's adviser
limitations, the principal risks of allocates more of the Fund's portfolio
investing in the IAI Long Term Growth holdings to a particular sector, the
Fund were substantially similar to those Fund's performance will be more
of the Federated Aggressive Growth Fund, susceptible to any economic, business
except that IAI Long Term Growth Fund or other developments which generally
invested principally in value stocks affect that sector.
rather than growth stocks. As a result,
rather than having the risks related to o RISKS OF FOREIGN INVESTING. Because
investing for growth described for the Fund invests in securities issued
Federated Aggressive Growth Fund, the by foreign companies, the Fund's share
IAI Long Term Growth Fund had the price may be more affected by foreign
following additional risks: economic and political conditions,
taxation policies and accounting and
o RISKS OF VALUE STOCKS. In auditing standards than would otherwise
selecting these value stocks, be the case.
the Fund's adviser will be
exercising opinions and o RISKS RELATED TO INVESTING FOR GROWTH.
judgments which may be contrary The growth stocks in which the Fund
to those of the majority of invests are typically more volatile
investors. There is a risk that than value stocks and may depend more
the judgment of the majority may on price changes than dividends for
be correct, in which case the returns.
Fund may incur losses, or its
profits may be limited. Even if
the adviser's judgment is correct,
there may be a long delay before
the security increases in value,
in which case capital invested
by the Fund may be nonproductive
for an extended period of time.
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IAI CAPITAL APPRECIATION FUND FEDERATED AGGRESSIVE GROWTH FUND
--------------------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE:
To provide long-term capital appreciation. To provide appreciation of capital.
PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS:
IAI Capital Appreciation Fund invests Federated Aggressive Growth Fund pursues
primarily in common stocks of small its investment objective by investing in
emerging U.S. companies that the Fund's equity securities of companies offering
adviser believes have above-average superior prospects for earnings growth.
prospects for growth. These companies The Fund is not restricted to specific
are expected to show earnings growth market capitalization requirements. The
over time that is well above the growth Fund may also invest in American
rate of the overall economy and the rate Depositary Receipts, which represent
of inflation. The Fund invests at least interests in underlying securities issued by
65% of its total assets in stocks of a foreign company, but which are traded
companies with market capitalizations in the United States.
of $1 billion or less at the time of
investment. INVESTMENT STYLE:
INVESTMENT STYLE: The Fund invests primarily for growth by
targeting equity securities with superior
The Fund's investment style is growth prospectus.
substantially similar to that of
the Federated Aggressive Growth Fund. INVESTMENT STRATEGIES:
INVESTMENT STRATEGIES: The Fund limits its exposure to each
business sector that comprises the Standard &
In general, the Fund focuses on companies Poor's 500 Index ("S&P 500") by limiting its
with superior performance records; solid allocation to a sector to 300% of the S&P
market positions; strong balance sheets; 500's allocation to that sector or 30% of
and management teams that are capable of the total portfolio, whichever is greater.
sustaining growth. The Fund's approach with respect to its
analysis of securities, market capitalization,
PRINCIPAL RISKS: and sector allocation are designed to produce a
portfolio of stocks whose long-term growth
The principal risks of investing in the prospects are significantly above those of
IAI Capital Appreciation Fund are the S&P 500.
substantially the same as those of the
Federated Aggressive Growth Fund, Using its own quantitative process, the
except that the IAI Capital Appreciation Fund's adviser rates the future performance
Fund is not subject, as a principal potential of companies. The adviser evaluates
risk, to the risks of foreign investing. each company's earnings quality in light of
their current valuation to narrow the list
of attractive companies. The adviser then
evaluates product positioning, management
quality and sustainability of current growth
trends of those companies. Using this type of
fundamental analysis, the adviser selects the
most promising companies for the Fund's portfolio.
The Fund may attempt to manage market risk by buying
and selling financial futures and options. This may
include the purchase of index futures contracts as a
substitute for direct investments in stocks. It may
also include the purchase and sale of options to
protect against general declines in small
capitalization stocks economically.
PRINCIPAL RISKS:
Federated Aggressive Growth Fund is subject to the
following principal risks:
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21
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o STOCK MARKET RISKS. The value of equity securities
in the Fund's portfolio will fluctuate and,
as a result, the Fund's share price may decline
suddenly or over a sustained period of time.
o LIQUIDITY RISKS. The equity securities in which
the Fund invests may be less readily marketable and
may be subject to greater fluctuation in price than
other securities. Consequently, the Fund may have to
accept a lower price to sell a security, sell other
securities to raise cash or give up an investment
opportunity, any of which could have a negative effect
on the Fund's performance.
o RISKS RELATED TO COMPANY SIZE. 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.
o SECTOR RISKS. As the Fund's 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.
o RISKS OF FOREIGN INVESTING. Because the Fund
invests in securities issued by foreign companies,
the Fund's share price may be more affected by foreign
economic and political conditions, taxation policies
and accounting and auditing standards than would
otherwise be the case.
o RISKS RELATED TO INVESTING FOR GROWTH. The growth
stocks in which the Fund invests are typically more
volatile than value stocks and may depend more on
price changes than dividends for returns.
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IAI GROWTH AND INCOME FUND FEDERATED AMERICAN LEADERS FUND, INC.
----------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE:
Primary objective is capital To seek growth of capital and of
appreciation and secondary objective income by concentrating the area of
is income. investment decision in the securities
of high quality companies.
PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS:
The IAI Growth and Income Fund Federated American Leaders Fund,
invests primarily in common stocks Inc. invests primarily in equity
of U.S.companies with market securities of large capitalization
capitalizations of $3 billion or companies that are in the top 25%
more at the time of investment. of their industry sectors in terms
The Fund generally selects from of revenues, are characterized by
the universe of companies included sound management and have the ability
in the Standard & Poor's 500 Index to finance expected growth. The Fund
("S&P 500"). invests at least 65% of its assets
in a portfolio of equity securities
INVESTMENT STYLE: issued by the 100 companies selected
from "The Leaders List." The Leaders
The Fund follows the approach of List is a trade name that represents a
purchasing stocks in growing list of 100 blue chip companies selected
companies at a reasonable price, by the Fund's adviser and consists of
also known in the investment world leading companies in their industries
as GARP. determined in terms of sales earnings
and/or market capitalizations.
INVESTMENT STRATEGIES:
The Fund may also invest in ADRs, which
The Fund evaluates each company to represent interests in underlying
determine its historical and projected securities issued by a foreign company,
growth rates, the financial risk of the but which are traded in the United States.
company (including its level of debt The Fund invests primarily in the ADRs
and liquidity), and the current and of companies with significant operations
expected market valuation of the firm. within the United States.
The Fund uses qualitative factors such
as market share, quality of INVESTMENT STYLE:
management, profitability trends,
product strategies and volatility of The Fund uses the value style of investing,
earnings. As a result of this process, selecting securities of companies which are
the Fund's portfolio is generally trading at discounts to their historic
comprised of approximately 70 to 90 relationship to the market as well as to
securities. The Fund will not deviate their expected growth.
significantly from the sectors or
categories of businesses included in the INVESTMENT STRATEGIES:
Standard & Poor's 500 Index.
The Fund diversifies its investments,
PRINCIPAL RISKS: limiting its risk exposure with respect
to individual securities and industry
The principal risks of investing in sectors. In determining the amount to
the IAI Growth and Income Fund are invest in a security, and in order to
substantially similar to those of manage sector risk, the Fund attempts
the Federated American Leaders Fund, to limit its exposure to each major
Inc., except that the IAI Growth and sector in the Standard & Poor's 500
Income Fund is not subject to the risks Index, as a general matter, to not
of investing in American Depositary less than 50% nor more than 200% of the
Receipts ("ADRs"). In addition, the IAI Index's allocation to that sector.
Growth and Income Fund uses the "growth"
style of investing rather than the "value" The Fund's adviser performs traditional
style, and is thus subject to the following fundamental analysis to select securities
principal risk: for the Fund that exhibit the most
promising long-term value for the Fund's
o RISKS OF GROWTH STOCKS. The Fund portfolio. In selecting securities, the
invests primarily in stocks of companies Fund's adviser focuses on the current
that the Fund's adviser believes have financial condition of the issuing company,
above-average prospects for growth. If in addition to examining each issuer's
the adviser incorrectly assesses a business and product strength, competitive
company's prospects for growth, or if its position, and management expertise. Further,
judgment about how other investors will the adviser considers current economic,
value the company's growth is wrong, financial market and industry factors,
then the price of the company's stock may which may affect the issuing company.
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decrease, or it may not increase to To determine the timing of purchases and
the level that the adviser had anticipated. sales of portfolio securities, the Fund's
adviser looks at recent stock price
performance and the direction of
current fiscal year earnings estimates of
various companies.
PRINCIPAL RISKS:
Federated American Leaders Fund, Inc. is
subject to the following principal risks:
o STOCK MARKET RISKS. The value of
equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's
share price may decline suddenly or over a
sustained period of time.
o RISKS RELATING TO INVESTING FOR VALUE.
Due to the Fund's value style of investing, the
Fund's share price may lag that of other funds
using a different investment style. Due to their
relatively low valuations, value stocks are
typically less volatile than growth stocks. For
instance, the price of a value stock may
experience a smaller increase on a forecast of
higher earnings, a positive fundamental
development, or positive market development.
Further, value stocks tend to have higher
dividends than growth stocks. This means they
depend less on price changes for returns and
may lag behind growth stocks in an up market.
o SECTOR RISK. Because the Fund may allocate
relatively more of its assets to one or more
industry sectors comprising the Standard and
Poor's 500 Index than to other sectors of the
Index, the Fund's performance will be more
susceptible to any developments which affect
the sectors emphasized by the Fund.
o RISKS OF INVESTING IN ADRs. Because the
Fund may invest in ADRs issued by foreign
foreign companies, the Fund's share price
price may be more affected by foreign
economic and political conditions, taxation
policies and accounting and auditing standards
than would otherwise be the case.
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IAI MONEY MARKET FUND AUTOMATED CASH MANAGEMENT TRUST
-----------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE:
To provide shareholders with a To provide stability of principal
high level of current income and current income consistent with
consistent with the preservation stability of principal.
of capital and liquidity.
PRINCIPAL INVESTMENTS:
The IAI Money Market Fund's principal
investments and investment policies Automated Cash Management Trust invests
and strategies are substantially primarily in a portfolio of high quality
similar to those of Automated Cash fixed income securities, issued by banks,
Management Trust, except that the IAI corporations, and the U.S. Government, maturing
Money Market Fund does not invest in in 397 days or less. The Fund's investments
asset-backed securities. may include demand instruments, commercial paper,
bank instruments, asset backed securities and
PRINCIPAL RISKS: repurchase agreements.
The principal risks of investing in INVESTMENT STRATEGIES:
the IAI Money Market Fund are
substantially the same as those of The Fund's adviser actively manages
Automated Cash Management Trust. the Fund's portfolio, seeking to limit
the credit risk taken by the Fund and
select investments with enhanced yields.
The adviser performs a fundamental credit
analysis to develop an approved list of
issuers and securities that meet the adviser's
standard for minimal credit risk. The Fund's
adviser targets an average portfolio maturity
based upon its interest rate outlook, by
analyzing various factors, such as current and
expected U.S. economic growth; current and
expected interest rates and inflation; and the
Federal Reserve's monetary policy.
MATURITY:
The dollar-weighted average maturity of the
Fund's portfolio will be 90 days or less.
The Fund's adviser generally shortens the
portfolio's maturity when it expects interest
rates to rise and extends the maturity when it
expects interest rates to fall.
PRINCIPAL RISKS:
Automated Cash Management Trust is subject to
the following principal risks:
o INTEREST RATE RISK. Prices of fixed income
securities generally fall when interest rates
rise. Interest rate changes have a greater
effect on the price of fixed income securities
with longer durations. The Fund minimizes
this risk by purchasing short-term securities.
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o CREDIT RISKS. There is a possibility that
issuers of securities in which the Fund may
invest may default in the payment of interest
or principal on the securities when due, which
would cause the Fund to lose money.
o SECTOR RISKS. A substantial part of the Fund's
portfolio may be comprised of securities that
are credit enhanced by banks or companies with
similar characteristics. As a result, the Fund
may be more susceptible to any economic, business,
political or other developments which generally
affect these entities.
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IAI BOND FUND FEDERATED BOND FUND
-----------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE:
To provide shareholders with a To provide as high a level of current income
high level of current income as is consistent with the preservation of capital.
consistent with preservation of
capital. PRINCIPAL INVESTMENTS:
PRINCIPAL INVESTMENTS: Under normal market conditions, the
Federated Bond Fund invests at least
The IAI Bond Fund's principal 65% of the value of its total assets
investments are substantially in a diversified portfolio of domestic
similar to those in the Federated investment grade debt securities,
Bond Fund, except for the following: including corporate debt securities and
U.S. government obligations. Investment
o Although the Fund generally does grade debt securities are rated in one
not purchase common stocks directly, of the four highest categories (BBB or
it may invest up to 10% of its net higher) by a nationally recognized
assets in convertible securities and statistical rating organization (NRSRO),
preferred stock. or if unrated, of comparable quality
o The Fund does not expect to invest as determined by the Fund's adviser.
more than 25% of its total assets in
foreign securities, or more than 15% The Fund may invest up to 35% of its
of its total assets in non-dollar portfolio in non-investment grade fixed
denominated foreign securities. income securities, which are rated BB
The Federated Bond Fund, in contrast, or lower by an NRSRO. The Fund may
may invest up to 35% of its total invest in non-investment grade securities
assets in foreign corporate debt primarily by investing in another
securities. The Fund currently does investment company (which is not available
not invest in non-dollar-denominated for general investment by the public) that
foreign securities. owns those securities and that is advised by
o The Fund may invest up to 15% of an affiliate of the Fund's adviser.
its total assets in securities rated
lower than investment grade at the The Fund's adviser may invest up to 35%
time of purchase; the Fund will not of the Fund's total assets in
invest in non-investment grade fixed dollar-denominated corporate debt securities
income securities rated lower than of companies based outside the United States,
B by Moody's Investors Service, Inc. to diversify the Fund's holdings and to
or Standard & Poor's, or if unrated, gain exposure to the foreign market. The Fund
judged to be of comparable quality. currently does not invest in non-dollar-denominated
(In contrast, the Federated Bond Fund foreign securities.
may invest up to 35% of its portfolio
in non-investment grade fixed income INVESTMENT STRATEGIES:
securities, including those rated lower
than B by Moody's Investors Service, The Fund's adviser seeks to enhance
Inc. or Standard & Poor's, and unrated the Fund's performance by allocating
securities.) relatively more of its portfolio to
o The Fund may enter into futures the security type that the Fund's adviser
contracts, options on futures expects to offer the best balance between
contracts and currency forward current income and risk and thus offers
contracts. The Fund intends to use the greatest potential for return. The
these derivative instruments primarily security's projected spread is weighed
for hedging purposes, although it may against the spread the security can currently
use hem for non-hedging purposes to a be purchased for, as well as the security's
limited extent. To generate additional credit risk (in the case of corporate securities).
income, the Fund may invest up to 10%
of its net assets in mortgage dollar The Fund's adviser invests the Fund's
roll transactions. portfolio, seeking the higher relative
returns of corporate debt securities,
INVESTMENT STRATEGIES: when available, while attempting to
limit the associated credit risks. The
The Fund's investment strategies are Fund's adviser attempts to manage the
substantially similar to those of the Fund's credit risk by selecting corporate
Federated Bond Fund. debt securities that are less likely to
default in the payment of principal and
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DURATION: interest. In selecting individual corporate
fixed income securities, the Fund's adviser
The Fund's adviser anticipates that the analyzes a company's business, competitive
average effective duration for the position, and general financial condition to
Fund's portfolio securities will range assess whether the security's credit risk is
from 3 1/2 to 7 1/2 years. This range may commensurate with its potential return.
change, however, due to market conditions
and other economic factors. DURATION:
PRINCIPAL RISKS: The Fund's adviser may lengthen or shorten
duration from time to time based on its
The principal risks of investing in the interest rate outlook, but the Fund has
IAI Bond Fund are substantially no set duration parameters. If the adviser
similar to those of the Federated Bond expects interest rates to decline, it will
Fund, except that IAI Bond Fund has generally lengthen the Fund's duration, and
the following additional risks: if the adviser expects interest rates to increase,
it will generally shorten the Fund's duration.
o RISKS OF PREFERRED STOCKS AND
CONVERTIBLE SECURITIES. The risks PRINCIPAL RISKS:
associated with investing in
preferred stocks and convertible The Federated Bond Fund is subject
securities are similar to the risks to the following principal risks:
of investing in equity securities,
including the risk that the prices o INTEREST RATE RISKS. Prices of fixed
of the securities will decline in income securities rise and fall in
response to the activities of the response to changes in the interest
issuing company or in response to rate paid by similar securities.
general market and/or economic Interest rate changes have a greater
conditions. effect on the price of fixed income
securities with longer durations.
o RISKS OF DERIVATIVE INSTRUMENTS. o CREDIT RISKS. There is a possibility
The use of derivative instruments that issuers of securities in which
exposes the Fund to additional risks the Fund may invest may default in
and transaction costs. Successful the payment of interest or principal
use of these instruments depends on on the securities when due, which
the Fund's adviser's ability to would cause the Fund to lose money.
correctly forecast the direction of Many fixed income securities receive
market movements. The Fund's credit ratings from services who
performance could be worse than if assign ratings by assessing the
the Fund had not used these likelihood of issuer default. Lower
instruments if the Fund's adviser's credit ratings correspond to higher
judgment proves incorrect. In credit risk. Fixed income securities
addition, even if the adviser's generally compensate for greater
forecast is correct, there may be an credit risk by paying interest at a
imperfect correlation between the higher rate.
price of derivative instruments and
movements in the prices of the o LIQUIDITY RISKS. The fixed income
securities, interest rates or securities in which the Fund invests
currencies being hedged. may be less readily marketable and
may be subject to greater fluctuation
o RISKS OF DOLLAR ROLL TRANSACTIONS. in price than other securities.
The use of mortgage dollar rolls Consequently, the Fund may have to
could increase the volatility of the accept a lower price to sell a
Fund's share price. It could also security, sell other securities to
diminish the Fund's investment raise cash or give up an investment
performance if the Fund's adviser opportunity, any of which could have
does not predict mortgage a negative effect on the Fund's
prepayments and interest rates performance.
correctly.
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o 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. The Federated Bond Fund's
potential risk exposure related to
non-investment grade securities is
Fund. The Federated Bond Fund may
invest up to 35% of its portfolio in
such securities, while the IAI Bond
Fund may invest only up to 15% of
its total assets in such securities.
In addition, the Federated Bond Fund
may invest in any non-investment
grade securities, whereas the IAI
Bond Fund may not invest in those
securities rated lower than B by
Moody's Investors Service, Inc. or
Standard & Poor's, or if unrated,
judged to be of comparable quality.
o RISKS OF FOREIGN INVESTING.
Because the Fund invests in
securities issued by foreign
companies, the Fund's share price
may be more affected by foreign
economic and political conditions,
taxation policies and accounting
and auditing standards than would
otherwise be the case.
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IAI REGIONAL FUND FEDERATED CAPITAL APPRECIATION FUND
----------------------------------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE:
To provide capital appreciation. To provide capital appreciation.
PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS:
IAI Regional Fund invests primarily in Federated Capital Appreciation Fund
common stocks of companies headquartered invests primarily in common stock of
in Minnesota, Wisconsin, Iowa, Illinois, companies with medium and largemarket
Nebraska, Montana, North Dakota or prospects or of companies whose stock
South Dakota. The Fund seeks to invest at is undervalued. This includes companies
least 65% of the Fund's equity investments with market capitalization in excess
in companies headquartered in one of these of $500 million. The Fund also invests
states. The Fund invests in both in the convertible securities issued by
nationally recognized companies and these companies and American Depositary
in less well known companies that are Receipts, which represent interestsin
newer or have smaller capitalizations, underlying securities issued by a foreign
but that appear to have the potential company, but which are traded in the
for capital appreciation. United States.
INVESTMENT STYLE: INVESTMENT STYLE:
The Fund invests in securities of The Fund uses a blended investment style by
established companies as well as investing in the common stock or companies
companies with the potential for with medium and large market capitalizations
capital appreciation. that offer superior growth prospects or of
companies whose stock is undervalued.
INVESTMENT STRATEGIES:
INVESTMENT STRATEGIES:
In selecting securities, the Fund's adviser
considers factors such as product development The Fund divesifies its investments, limiting
and demand, superior performance records, its risk exposure with respect to individual
management teams that the Fund's securities and industry sectors. In determining
adviser believes are capable of sustaining the amount to invest in a security, and in
growth and attractive market valuations. order to manage sector risk, the Fund attempts
to limit its exposure to each major sector in
the Standard & Poor's 500 Index, as a general
PRINCIPAL RISKS: matter, to not less than 50% nor more than 200%
of the Index's allocation to that sector.
The principal risks of investing in the IAI
Regional Fund are substantially similar to The Fund's adviser selects the most promising
those of the Federated Capital Appreciation companies for the Fund's portfolio using its
Fund, except that the IAI Regional Fund is own quantitative process to rate the future
not subject to the risks of foreign performance potential of companies by
investing. In addition, the IAI Regional evaluating each company's earnings quality
Fund may have greater exposure to the in light of their current valuation to narrow
following risks of geographic limitation by the list of attractive companies. The Fund's
virtue of investing primarily in a certain adviser then ealuates product positioning,
geographic region: management quality and sustainability of
current companies. The Fund's adviser then
evaluates product positioning, management
o RISKS OF GEOGRAPHIC LIMITATION. The quality and sustainability of current
Fund's of investing primarily in a growth trends of those companies.
certain geographic region means that
it will be subject to adverse
economic, political or other PRINCIPAL RISKS:
developments in that region.
Moreover, because of this Federated Capital Appreciation Fund is
geographic limitation, the Fund subject to the following principal risks:
the Fund may be less diversified by
industry and company than other funds
with a similar investment objective
and no such geographic limitation.
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o STOCK MARKET RISKS. The value
of equity securities in the
Fund's portfolio will
fluctuate and, as a result,
the Fund's share price may
decline suddenly or over a
sustained period of time.
o LIQUIDITY RISKS. The equity
securities in which the Fund
invests may be less readily
marketable and may be subject
to greater fluctuation in price
than other securities.
Consequently, the Fund may have
to accept a lower price to sell
a security, sell other
securities to raise cash or
give up an investment
opportunity, any of which could
have a negative effect on the
Fund's performance.
o RISKS RELATED TO COMPANY SIZE.
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.
o SECTOR RISKS. As the Fund's
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.
o RISKS OF FOREIGN INVESTING.
Because the Fund invests in
securities issued by foreign
companies, the Fund's share
price may be more affected by
foreign economic and political
conditions, taxation policies
and accounting and auditing
standards than would otherwise
be the case.
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IAI MIDCAP GROWTH FUND FEDERATED GROWTH STRATEGIES FUND
------------------------------ -----------------------------------------------------
INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE:
To provide long-term capital To provide appreciation of capital.
appreciation.
PRINCIPAL INVESTMENTS:
PRINCIPAL INVESTMENTS:
Federated Growth Strategies Fund
IAI Midcap Growth Fund invests pursues its investment objective
primarily in common stocks of by investing primarily in
medium-sized U.S. companies that common stock of companies with
have above-average prospects market capitalization above $100
for growth. These companies are million that offer superior
expected to show earnings growth growth prospects. The Fund also
over time that is well above the invests in American Depositary
growth rate of the overall economy Receipts, which represent
and the rate of inflation. The interests in underlying securities
Fund invests at least 65% of its issued by a foreign company, but
total assets in stocks of companies which are traded in the
with market capitalizations between United States.
$1 billion and $8 billion.
INVESTMENT STYLE:
INVESTMENT STYLE:
The Fund invests primarily for
The Fund's investment style is growth by investing in securities
substantially similar to that of companies with superior growth
Federated Growth Strategies Fund. prospects.
INVESTMENT STRATEGIES: INVESTMENT STRATEGIES:
Under normal market conditions, The Fund limits its exposure to
the weighted average market each major sector in the Standard
capitalization of the Fund's & Poor's 500 Index, as a
portfolio will range from $3 general matter, to not less than
billion to $6 billion. In general, 50% nor more than 200% of the
the Fund focuses on companies with Index's allocation to that
superior performance records, solid sector.
market positions, strong balance
sheets, and management teams that The Fund's adviser selects the
the adviser believes are capable most promising companies for the
of sustaining growth. Fund's portfolio using its
own quantitative process to rate
PRINCIPAL RISKS: the future performance of companies
by evaluating each company's earnings
The principal risks of investing quality in light of their current
in the IAI Midcap Growth Fund are valuation to narrow the list of
substantially similar to those of attractive companies. The Fund's
the Federated Growth Strategies adviser then evaluates product
Fund, except that the IAI Midcap positioning, management quality
Growth Fund is not subject to the quality and sustainability of
"Risks of Investing in American current growth trends of those
Depositary Receipts ("ADRs")" or companies.
the "Risks Related to Company Size,"
describing the risks of investing PRINCIPAL RISKS:
in small-cap companies. The Fund,
however, is subject to the following Federated Growth Strategies Fund
risk related to investing in mid-cap is subject to the following principal
companies: risks:
o RISKS OF MEDIUM-SIZED COMPANIES. o STOCK MARKET RISKS. The value of
Medium-sized companies are generally equity securities in the Fund's
considered to be less volatile than portfolio will fluctuate and,
smaller, emerging companies. However, as a result, the Fund's share
they may not generate the dividend price may decline suddenly or
income of larger companies. over a sustained period of
time.
o RISKS RELATED TO INVESTING FOR GROWTH.
The growth stocks in which the Fund
invests are typically more volatile
than value stocks and may depend more
on price changes than dividends for
returns.
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o RISKS RELATED TO COMPANY SIZE. 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.
o SECTOR RISKS. As the Fund's 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.
o LIQUIDITY RISKS. The equity securities
in which the Fund invests may be less
readily marketable and may be subject
to greater fluctuation in price than
other securities. Consequently, the Fund
may have to accept a lower price to sell
a security, sell other securities to
raise cash or give up an investment
opportunity, any of which could have
a negative effect on the Fund's
performance.
o RISKS OF INVESTING IN AMERICAN DEPOSITARY
RECEIPTS ("ADRs"). Because the Fund may
invest in ADRs issued by foreign companies,
the Fund's share price may be more affected
by foreign economic and political conditions,
taxation policies, and accounting and auditing
standards, than would otherwise be the case.
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IAI INTERNATIONAL FUND FEDERATED INTERNATIONAL EQUITY FUND
-------------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE:
Primary objective is capital To obtain a total return on its assets.
appreciation. Secondary
objective is to seek current PRINCIPAL INVESTMENTS:
income, principally from dividends.
The Federated International Equity
PRINCIPAL INVESTMENTS: Fund pursues its investment objective
by investing at least 65% of its
The IAI International Fund's assets in equity securities of
principal investments are companies based outside the U.S.
substantially similar to those The Fund will not invest more than
of the Federated International 20% of its assets in companies
Equity Fund, except for the located in emerging markets.
following:
INVESTMENT STYLE:
o Although the Fund is not
required to maintain any The Fund emphasizes growth stocks at
particular geographical mix a reasonable price.
of its investments, under
normal market conditions INVESTMENT STRATEGIES:
the Fund invests primarily in
countries that are represented The Fund's adviser takes a
on the Morgan Stanley Capital "bottom-up" approach and looks
International Europe, Australia, for companies which it perceives
Far East ("EAFE") Index. The as being undervalued in the
EAFE Index currently includes marketplace. Selection of
companies representing the stock industry and country are secondary
markets of 15 European countries, considerations. The market
Australia, New Zealand, Japan, capitalization of portfolio
Hong Kong and Singapore. securities is not a
o The Fund may engage in foreign determinative factor. The Fund's
currency hedging transactions, adviser may emphasize certain
such as forward foreign currency business sectors in the portfolio
exchange contracts and currency that exhibit stronger growth
financial futures and options. potential or higher profit margins.
o The Fund generally invests in
mid- and large-capitalization Using its own quantitative process,
companies with market capitalization the Fund's adviser ranks the potential
of $1 billion or more. future performance of select companies.
o In contrast to the Federated
International Equity Fund, which may o The Fund's adviser evaluates each
invest up to 20% of its assets in company's earnings potential in light
companies located in emerging markets, of its current valuation.
the IAI International Fund does not o The Fund's adviser reviews such factors
currently invest in companies located as the company's price-to-earnings
in emerging market countries. ratio, enterprise value, organic growth
rates versus growth through acquisition,
INVESTMENT STYLE: product niche and its pricing power.
o The Fund's adviser evaluates management
The Fund concentrates on securities quality and may meet with company
that it believes have investment representatives, company, suppliers,
values greater than their market prices. customers, or competitors.
o The Fund's adviser also reviews the
INVESTMENT STRATEGIES: company's financial statements and
forecasts of earnings.
The Fund's investment strategies are
substantially similar to the Federated Based on this information, the Fund's
International Equity Fund, except: adviser evaluates the sustainability
of the company's current growth trends
o Currency hedging may be used for and potential catalysts for increased
defensive reasons and to reduce growth.
portfolio volatility.
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In selecting emerging markets countries
PRINCIPAL RISKS: in which to invest, the Fund's adviser
reviews the country's economic outlook,
The principal risks of investing its interest and inflation rates, and
in the IAI International Fund are the political and foreign exchange risk
substantially similar to those of of investing in a particular country.
the Federated International Equity The Fund's adviser then analyzes
Fund, except that IAI International companies located in particular
Fund is not subject to the risks of emerging market countries.
investing in emerging market countries,
and has the following additional risks: PRINCIPAL RISKS:
o RISKS OF VALUE STOCKS. The Fund looks The Federated International Equity
for undervalued securities with Fund is subject to the following
appraised investment values greater principal risks:
than their market prices. These
securities can remain undervalued o STOCK MARKET RISKS. The value of
for years. There is a risk that their equity securities in the Fund's
prices will never reach what the Fund's portfolio will fluctuate and, as a
sub-adviser believes is the securities' result, the Fund's share price may
true value, or that their prices will decline suddenly or over a sustained
go down. period of time.
o RISKS OF FOREIGN CURRENCY HEDGING o CURRENCY RISKS. Exchange rates for
TRANSACTIONS. Attempts by the Fund currencies fluctuate daily. Foreign
to minimize the effects of currency securities are normally denominated
fluctuations through the use of and traded in foreign currencies. As
foreign currency hedging transactions a result, the value of the Fund's
may not be successful or the Fund's foreign investments and the value of
hedging transactions may limit the its shares may be affected favorably
Fund's ability to take advantage of or unfavorably by changes in currency
a favorable change in the value of exchange rates relative to the U.S.
foreign currencies. 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.
o RISKS OF FOREIGN INVESTING.
Foreign securities pose additional
risks because foreign economic
or political conditions may be
less favorable than those of the
United States. Foreign financial
markets may also have fewer investor
protections. Securities in foreign
markets may also be subject to
taxation policies that reduce returns
for U.S. investors. Foreign countries
may have restrictions on foreign
ownership of securities or may impose
exchange controls, capital flow
restrictions or repatriation
restrictions which could adversely
affect the liquidity of the Fund's
investments. Legal remedies available
to investors in certain foreign countries
may be more limited than those available
with respect to investments in the
United States or in other foreign
countries. 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
may also receive less coverage than
U.S. companies by market analysts and the
and the financial press. In addition,
foreign countries may lack financial
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35
<PAGE>
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controls and 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.
o CUSTODIAL SERVICES AND RELATED INVESTMENT
COSTS. Custodial services and other costs
relating to investment in international
securities markets are generally 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
problem could cause the Fund to miss s
attractive investment opportunities The
inability to dispose of a portfolio
security caused by settlement problems
could result either in losses to the Fund
due to a subsequent decline in value of
the portfolio security or could result in
possible liability to the Fund. In
addition, security settlement and
clearance procedures in some emerging
countries may not fully protect the Fund
against loss or theft of its assets.
o EURO RISKS. The Fund makes significant
investments in securities denominated in
the Euro, the new single currency of the
European Monetary Union (EMU). 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.
o EMERGING MARKETS RISKS. Securities issued
or traded in emerging markets generally
entail greater risks than securities
issued or traded in developed markets.
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. Because the Fund may
invest in securities issued by emerging
market companies, the Fund's share price
may be more affected by economic and
political conditions, taxation policies
and accounting and auditing standards in
those emerging market counries than in
more developed countries.
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36
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o LIQUIDITY RISKS. Trading opportunities are
more limited for equity securities issued
by companies located in emerging markets.
This may make it more difficult to sell or
buy a security at a favorable price or
time. The equity securities in which the
Fund invests may be less readily
marketable and may be subject to greater
fluctuation in price than other
securities. Consequently, the Fund may
have to accept a lower price to sell a
security, sell other securities to raise
cash or give up an investment opportunity,
any of which could have a negative effect
on the Fund's performance.
o SECTOR AND REGIONAL RISKS. As the Fund's
adviser allocates more of the Fund's
portfolio holdings to a particular sector,
or geographic region, the Fund's
performance will be more susceptible to
any economic, business or other
developments which generally affect that
sector or geographic region.
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37
<PAGE>
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IAI GROWTH FUND FEDERATED LARGE CAP GROWTH FUND
---------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE:
To provide long-term capital To provide capital appreciation.
appreciation.
PRINCIPAL INVESTMENTS:
PRINCIPAL INVESTMENTS:
Federated Large Cap Growth Fund pursues it
The principal investments of the investment objective by investing
IAI Growth Fund are substantially primarily in common stocks of the largest
similar to those of the Federated growth companies traded in the United
Large Cap Growth Fund, except that States based upon expected price to
the Fund does not invest in American earnings ratio, price to book ratio and
Depositary Receipts. The Fund estimated earnings growth. The Fund's
generally invests in companies with adviser will pick the largest growth
market capitalizations ranging from stocks based on market capitalizations.
$10 billion to over $100 billion at The Fund also invests in ADRs, which
the time of investment. represent interests in underlying
securities issued by a foreign company,
INVESTMENT STYLE: but which are traded in the United States.
The Fund's investment style is INVESTMENT STYLE:
substantially similar to that of
Federated Large Cap Growth Fund. The Fund invests primarily for growth
by investing in companies with above-average
INVESTMENT STRATEGIES: potential for expected growth.
The Fund focuses on companies that INVESTMENT STRATEGIES:
have strong management, leading
market positions, strong balance The Fund diversifies its investments,
sheets, and a well-defined strategy limiting its risk exposure with respect
for future growth. In selecting to individual securities and industry
investments, the Fund uses several sectors. When possible, the Fund
valuation techniques to determine employs tax management techniques
which stocks offer the best combination which are designed to minimize capital
of intrinsic value and earnings growth gains while maximizing after-tax returns.
potential. The goal is to have an
acceptable balance of risk and reward Using its own quantitative process,
in the Fund's portfolio. the Fund's adviser rates the future
performance potential of companies.
PRINCIPAL RISKS: The adviser evaluates each company's
earnings quality in light of their
The principal risks of investing in current valuation to narrow the list
the IAI Growth Fund are substantially of attractive companies. The adviser
similar to those of the Federated Large then evaluates product positioning,
Cap Growth Fund except that the IAI management quality and sustainability
Growth Fund is not subject to the "Risks of current growth trends of those
of Investing in American Depositary companies. Using this type of fundamental
Receipts ("ADRs")." analysis, the adviser selects the most
promising companies for the Fund's portfolio.
PRINCIPAL RISKS:
Federated Large Cap Growth Fund is subject
to the following principal risks:
o STOCK MARKET RISKS. The value of equity
securities in the Fund's portfolio will
fluctuate and, as a result, the Fund's
share price may decline suddenly or over a
sustained period of time.
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o SECTOR RISKS. As the Fund's 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.
o RISKS RELATED TO INVESTING FOR GROWTH. The
growth stocks in which the Fund invests
are typically more volatile than value
stocks and may depend more on price
changes than dividends for returns.
o RISKS OF INVESTING IN ADRs. Because the Fund
may invest in ADRs issued by foreign
companies, the Fund's share price may be
more affected by foreign economic and
political conditions, taxation policies
and accounting and auditing standards than
would otherwise be the case.
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IAI Balanced Fund FEDERATED STOCK AND BOND FUND, INC.
---------------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE:
To maximize total return. To provide relative safety of capital with
the possibility of long-term growth of
PRINCIPAL INVESTMENTS: capital and income.
The IAI Balanced Fund's principal PRINCIPAL INVESTMENTS:
investments are substantially
similar to the Federated Stock The Federated Stock and Bond Fund, Inc.
and Bond Fund, Inc., except: invests in a diversified portfolio that is
allocated between equity and fixed income
o The Fund may invest in foreign securities. With respect to the equity
equity and debt securities. The portion of the portfolio, the Fund invests
Fund limits its investment in primarily in shares of domestic large
foreign securities denominated in capitalization companies. The Fund invests
foreign currencies and not publicly primarily in equity securities of
traded in the United States to 25% companies that are generally leaders in
of total assets. their industries, are characterized by
o The Fund may enter into futures sound management and have the ability to
contracts and options on those finance expected growth. The Fund's
contracts, may invest in options holdings ordinarily will be in the top 25%
on securities and financial indexes, of their industry with regard to revenues.
and may enter into foreign currency
currency transactions such as currency With respect to the fixed income portion of
forward contracts. the portfolio, the adviser invests
o The Fund may invest in asset-backed primarily in domestic investment-grade
securities as part of its principal debt securities, including corporate debt
investment strategy. securities, U.S. government obligations
and mortgage backed securities, and may
INVESTMENT STYLE: engage in dollar roll transactions.
With respect to the equity portion of The Fund may invest a portion of its portfolio
the Fund's portfolio, the Fund's stock in non-investment grade fixed income
selection process emphasizes earnings securities, which are rated BB or lower by
growth and attractive valuation. The a nationally recognized statistical rating
Fund has incorporated a organization (NRSRO).
"growth-at-a-reasonable price" style
bias. INVESTMENT STYLE:
INVESTMENT STRATEGIES: With respect to the equity portion of the
Fund's portfolio, currently the Fund
The Fund's investment strategies are primarily uses a "value" style of
substantially similar to those of the investing, selecting stocks of companies
Federated Stock and Bond Fund. Although which are trading at a low valuation
the IAI Balanced Fund's and the Federated relative to their history, to the market,
Stock and Bond Fund's respective investment and to their expected future growth.
objectives are stated differently, their
investment strategies and policies are INVESTMENT STRATEGIES:
substantially similar. In essence, both
Funds seek growth of capital and income. The Strategy Committee of the Fund's adviser
determines the Fund portfolio's allocation
The IAI Balanced Fund's adviser regularly between equity securities and fixed income
reviews the allocation of Fund assets among securities based upon an analysis of
stocks and long-and short-term debt instruments.general market and economic conditions.
Because the Fund seeks to maximize total During normal market conditions, the
return over the long term, the adviser equity allocation ranges from 50% to 70%
will not try to pinpoint the precise moment of the portfolio and the fixed income
when major reallocations are warranted. allocation ranges from 30% to 50% of the
Rather, reallocations among asset classes portfolio.
will be made gradually over time to favor
asset classes that, in the adviser's With regard to the portion of the Fund
judgment, provide the most favorable total allocated to equity securities:
return outlook. Normally, a single
reallocation decision will not involve o The Fund's adviser ranks the future
more than 10% of the Fund's total assets. performance potential of companies, based on
Although the Fund is not required to keep valuation models which attempt to identify
any specified percentage of its assets in companies trading at a low valuation relative
stocks or debt securities, generally between to their history, to the market and to their
50% and 70% of the Fund's assets will be expected future growth.
invested in stocks.
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o To determine the timing of purchases and
DURATION: sales of portfolio securities, the Fund's
adviser looks at recent stock price
The Fund's adviser anticipates that the performance and the direction of current
average effective duration for the debt fiscal year earning estimates.
portion of the Fund will range from 3 1/2
to 7 1/2 years. This range may change, o In determining the amount to invest in
however, due to market conditions and security, the Fund's adviser limits the
other economic factors. Fund's exposure to each business sector
that comprises more than 5% of the
PRINCIPAL RISKS: Standard & Poor's 500 Index ("S&P 500").
Within the equity portion of the
The principal risks of investing in portfolio, the Fund's allocation to a
the IAI Balanced Fund are substantially sector will not be less than 50% or more
similar to those of the Federated Stock than 200% of the S&P 500's allocation to
and Bond Fund, Inc. IAI Balanced Fund that sector.
has the following additional risks:
With respect to the fixed income securities
o RISKS OF INVESTING IN GROWTH STOCKS. allocation:
If IAI incorrectly assesses a company's
prospects for growth, or if its judgment o The Fund's adviser seeks to enhance the
about how other investors will value the performance of the Fund's fixed income
company's growth is wrong, then the price portfolio by allocating more assets to the
of the company's stock may decrease, or security type that the adviser expects to
it may not increase to the level IAI had offer the best balance between total
anticipated. return and risk. The allocation process is
based on the adviser's continuing analysis
o RISKS OF FOREIGN SECURITIES. Investing of a variety of economic and market
in foreign securities typically involves indicators in order to arrive at the
risks not associated with U.S. investing. projected yield "spread" of each security
Risks of foreign investing include the type. The security's projected spread is
risk that the Fund may experience a then weighed against the security's
decline in net asset value resulting current spread credit risk and risk of
from changes in exchange rates between prepayment.
the U.S. dollar and foreign currencies,
the risk of adverse political and o The Fund's adviser attempts to manage
economic developments, and the prepayment risk to the Fund by selecting
possibility of expropriation, mortgage backed securities with
nationalization or confiscatory characteristics that make prepayment
taxation or limitations on the fluctuations less likely.
removal of Fund assets.
o The Fund's adviser attempts to manage
o RISKS OF DERIVATIVE INSTRUMENTS. credit risk to the Fund by selecting
Derivative instruments in which the corporate debt securities that make
Fund invests are futures contracts default in the payment of principal and
and options on those contracts, options interest less likely.
on securities and financial indexes,
and foreign currency transactions o In selecting individual corporate fixed
such as currency forward contracts. income securities, the Fund's adviser
The use of derivative instruments analyzes a company's business, competitive
exposes the Fund to additional risks position, and general financial condition
and transaction costs. Successful use to assess whether the security's credit
of these instruments depends on the Fund's risk is commensurate with its potential
adviser's ability to correctly forecast return.
the direction of market movements. The
Fund's performance could be worse than DURATION:
if the Fund had not used these instruments
if the adviser's judgment proves incorrect. The Fund's adviser selects securities with
In addition, even if the Fund's adviser's longer or shorter duration based on its
forecast is correct, there may be an interests rate outlook, but does not
imperfect correlation between the price target any specific duration for the fixed
of derivative instruments and movements income portion of the Fund.
in the prices of the securities,
interest rates or currencies being hedged.
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PRINCIPAL RISKS:
The Federated Stock and Bond Fund, Inc. is
subject to the following principal risks:
The specific risks associated with equity
securities are as follows:
o STOCK MARKET RISKS. The value of equity
securities in the Fund's portfolio will
fluctuate and, as a result, the Fund's
share price may decline suddenly or over a
sustained period of time.
o LIQUIDITY RISKS. The equity securities in
which the Fund invests may be less readily
marketable and may be subject to greater
fluctuation in price than other
securities. Consequently, the Fund may
have to accept a lower price to sell a
security, sell other securities to raise
cash or give up an investment opportunity,
any of which could have a negative effect
on the Fund's performance.
o SECTOR RISKS. As the Fund's 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.
o RISKS RELATED TO INVESTING FOR VALUE. Due to
their relatively low valuations, value
stocks are typically less volatile than
growth stocks. For instance, the price of
a value stock may experience a smaller
increase on a forecast of higher earnings,
a positive fundamental development, or
positive market development. Further,
value stocks tend to have higher dividends
than growth stocks. This means they depend
less on price changes for returns and may
lag behind growth stocks in an up market.
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The specific risks associated with fixed
income securities are as follows:
o INTEREST RATE RISKS. Prices of fixed income
securities rise and fall in response to
changes in the interest rate paid by
similar securities. Interest rate changes
have a greater effect on the price of
fixed income securities with longer
durations.
o CREDIT RISKS. There is a possibility that
issuers of securities in which the Fund
may invest may default in the payment of
interest or principal on the securities
when due, which would cause the Fund to
lose money. Many fixed income securities
receive credit ratings from services who
assign ratings by assessing the likelihood
of issuer default. Lower credit ratings
correspond to higher credit risk. Fixed
income securities generally compensate for
greater credit risk by paying interest at
a higher rate.
o LIQUIDITY RISKS. The fixed income
securities in which the Fund invests may
be less readily marketable and may be
subject to greater fluctuation in price
than other securities. Consequently, the
Fund may have to accept a lower price to
sell a security, sell other securities to
raise cash or give up an investment
opportunity, any of which could have a
negative effect on the Fund's performance.
o PREPAYMENT RISK. When homeowners prepay
their mortgages in response to lower
interest rates, the Fund will be required
to reinvest the proceeds at the lower
interest rates available. Also, when
interest rates fall, the price of mortgage
backed securities may not rise to as great
an extent as that of other fixed income
securities. Conversely, prepayments due to
refinancings decrease when mortgage rates
increase. This extends the life of
mortgage backed securities with lower
interest rates. Other economic factors can
also lead to increases or decreases in
prepayments. Increases in prepayments of
high interest rate mortgage backed
securities, or decreases in prepayments of
lower interest rate mortgage backed
securities, may reduce their yield and
price. The price of mortgage backed
securities may be more volatile than many
other types of fixed income securities
with comparable credit risks because of
the risk of prepayment.
--------------------------------------------------------------------------------------------------------
43
<PAGE>
--------------------------------------------------------------------------------------------------------
o RISKS ASSOCIATED WITH NONINVESTMENT GRADE
SECURITIES. Securities rated below
investment grade, also known as junk
bonds, generally entail greater market,
credit and liquidity risks than investment
grade securities. For example, their
prices are more volatile, economic
downturns and financial setbacks may
affect their prices more negatively, and
their trading market may be more limited.
--------------------------------------------------------------------------------------------------------
</TABLE>
COMPARISON OF POTENTIAL RISKS AND REWARDS: PERFORMANCE INFORMATION
The bar charts and tables below compare the potential risks and rewards of
investing in the IAI Funds and the Federated Funds. Each bar chart provides an
indication of the risks of investing in each Fund by showing changes in the
Fund's performance from year to year for the last ten years or since the Fund's
inception. The tables show how each Fund's average annual total returns for one
year, five years and ten years (or since inception) compare to the returns of a
broad-based market index. The figures assume reinvestment of dividends and
distributions.
Keep in mind past performance does not indicate future results.
RISK/RETURN BAR CHART AND TABLE
The bar charts shown below show the variability of total returns on a
calendar year-end basis for each IAI Fund and its corresponding Federated Fund.
The charts are arranged alphabetically according to the name of the Federated
Fund.
For the Federated Funds, the total returns shown are those of Class A
Shares, except in the case of Automated Cash Management Trust, where the total
returns of the Fund's Institutional Service Shares are shown. The Federated
Fund's Class A Shares are sold subject to a sales charge (load). The total
returns displayed for the Federated Fund's Class A Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
Neither Automated Cash Management Trust's Institutional Service Shares nor any
of the IAI Funds are sold subject to a sales charge (load). Remember, you will
not be charged any sales charges in connection with the reorganization of your
IAI Fund into its corresponding Federated Fund or any subsequent purchases of or
exchanges for the shares of any other Federated mutual fund.
44
<PAGE>
FEDERATED AGGRESSIVE GROWTH FUND
1997 1998 1999
30.06% 8.09% 111.62%
The Fund's Class A Shares total return for the three-month period from January
1, 2000 to March 31, 2000 was 14.67%. The sectors of the stock market in which
the Fund invested in 1999 were unusually favorable and the Fund benefited from
this positive investment environment. The Fund's total returns for the 1999
calendar year are unlikely to be duplicated in the future.
IAI CAPITAL APPRECIATION FUND
1997 1998 1999
17.78% 2.21% 24.50%
The Fund's total return for the three-month period from January 1, 2000 to March
31, 2000 was 27.18%.
IAI EMERGING GROWTH FUND
1992 1993 1994 1995 1996 1997 1998 1999
22.45% 14.76% 0.19% 49.55% 6.95% (2.86%) 5.19% 43.47%
The Fund's total return for the three-month period from January 1, 2000 to March
31, 2000 was 27.98%.
45
<PAGE>
IAI LONG TERM GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
(11.47%) 19.78% 11.90% 22.08% (9.08%) 24.39% 21.87% 19.60% (0.04%) (4.52%)
</TABLE>
The Fund's total return for the three-month period from January 1, 2000 to March
31, 2000 was 25.42%.
46
<PAGE>
FEDERATED AMERICAN LEADERS FUND, INC.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
(1.76%) 31.04% 11.68% 11.75% 0.05% 37.00% 19.39% 31.95% 17.38% 6.72%
</TABLE>
The Fund's Class A Shares total return for the three-month period from January
1, 2000 to March 31, 2000 was (2.28)%.
IAI GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
(6.68%) 26.66% 3.99% 9.98% (4.77%) 27.14% 20.21% 23.92% 15.00% 5.99%
</TABLE>
The Fund's total return for the three-month period from January 1, 2000 to March
31, 2000 was 10.81%.
47
<PAGE>
AUTOMATED CASH MANAGEMENT TRUST
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
8.00% 5.88% 3.51% 2.79% 3.91% 5.61% 5.04% 5.18% 5.13% 4.77%
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The Fund's Institutional Service Shares total return for the three-month
period from January 1, 2000 to March 31, 2000 was 1.34%.
IAI MONEY MARKET FUND
1994 1995 1996 1997 1998 1999
3.74% 5.40% 4.89% 5.04% 5.05% 4.69%
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The Fund's total return for the three-month period from January 1, 2000
to March 31, 2000 was 1.33%.
48
<PAGE>
FEDERATED BOND FUND
1996 1997 1998 1999
5.21% 11.08% 5.52% (2.35%)
The Fund's Class A Shares total return for the three-month period from January
1, 2000 to March 31, 2000 was (1.18)%.
IAI BOND FUND
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
7.07% 17.32% 6.80% 12.32% (4.92%) 16.25% 4.12% 10.85% 5.58% (3.47%)
The Fund's total return for the three-month period from January 1, 2000 to March
31, 2000 was 1.05%.
49
<PAGE>
FEDERATED CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
17.58% (4.43%) 27.32% 11.38% 11.31% (0.30%) 37.17% 18.39% 30.62% 20.07% 43.99%
</TABLE>
The Fund's Class A Shares total return for the three-month period from January
1, 2000 to March 31, 2000 was 8.51%.
IAI REGIONAL FUND
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
(0.33%) 35.38% 3.54% 8.96% 0.68% 32.64% 15.72% 18.86% (1.37%) 8.62%
The Fund's total return for the three-month period from January 1, 2000 to March
31, 2000 was 4.30%.
50
<PAGE>
FEDERATED GROWTH STRATEGIES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
29.24% (4.90%) 35.08% 8.59% 6.62% (11.87%) 40.02% 23.33% 27.06% 16.34 70.71%
</TABLE>
The Fund's Class A Shares total return for the three-month period from January
1, 2000 to March 31, 2000 was 13.05%. The sectors of the stock market in which
the Fund invested in 1999 were unusually favorable and the Fund benefited from
this positive investment environment. The Fund's total returns for the 1999
calendar year are unlikely to be duplicated in the future.
IAI MIDCAP GROWTH FUND
1993 1994 1995 1996 1997 1998 1999
22.85% 5.65% 26.09% 16.58% 8.85% 24.95% 26.98%
The Fund's total return for the three-month period from January 1, 2000 to March
31, 2000 was 18.39%.
51
<PAGE>
FEDERATED INTERNATIONAL EQUITY FUND
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
(11.55%) (7.53%) (5.89%) 31.25% 0.49% 6.52% 5.76% 7.08% 24.68% 78.36%
The Fund's Class A Shares total return for the three-month period from January
1, 2000 to March 31, 2000 was 7.17%. The markets in which the Fund invested in
1999 were unusually favorable and the Fund benefited from this positive
investment environment. The Fund's total returns for the 1999 calendar year are
unlikely to be duplicated in the future.
IAI INTERNATIONAL FUND
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
(13.10%) 16.60% (6.30%) 39.50% 0.50% 9.10% 8.40% (4.20%) 1.80% 8.00%
The Fund's total return for the three-month period from January 1, 2000 to March
31, 2000 was (4.47)%.
52
<PAGE>
FEDERATED LARGE CAP GROWTH FUND
1999
62.03%
The Fund's Class A Shares total return for the three-month period from January
1, 2000 to March 31, 2000 was 4.02%. The sectors of the stock market in which
the Fund invested in 1999 were unusually favorable and the Fund benefited from
this positive investment environment. The Fund's total returns for the 1999
calendar year are unlikely to be duplicated in the future.
IAI GROWTH FUND
1994 1995 1996 1997 1998 1999
0.66% 23.17% 15.35% 19.16% 26.53% 20.14%
The Fund's total return for the three-month period from January 1, 2000 to March
31, 2000 was 10.37%.
53
<PAGE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
12.46% 0.19% 18.52% 7.33% 10.50% (1.92%) 25.06% 13.69% 23.92% 11.16% 2.23%
</TABLE>
The Fund's Class A Shares total return for the three-month period from January
1, 2000 to March 31, 2000 was (0.50)%.
IAI BALANCED FUND
1993 1994 1995 1996 1997 1998 1999
4.99% (1.45%) 18.56% 14.75% 25.70% 17.66% (0.52%)
The Fund's total return for the three-month period from January 1, 2000 to March
31, 2000 was 3.25%.
54
<PAGE>
Listed below are the highest and lowest quarterly returns for each Fund for the
periods shown in the bar charts above.
<TABLE>
<CAPTION>
FUND NAME HIGHEST QUARTERLY RETURN LOWEST QUARTERLY RETURN
--------- ------------------------ -----------------------
<S> <C> <C>
Federated Aggressive Growth Fund 59.95% (Quarter ended 12/31/99) (30.17%) (Quarter ended 9/30/98)
IAI Capital Appreciation Fund 26.48% (Quarter ended 12/31/99) (22.46%) (Quarter ended 9/30/98)
IAI Emerging Growth Fund 34.84% (Quarter ended 12/31/99) (20.59%) (Quarter ended 3/31/97)
IAI Long Term Growth Fund 24.80% (Quarter ended 6/30/98) (35.28%) (Quarter ended 9/30/98)
Federated Amer. Leaders Fund, Inc. 16.72% (Quarter ended 3/31/91) (14.45%) (Quarter ended 9/30/90)
IAI Growth and Income Fund 20.07% (Quarter ended 12/31/98) (14.71%) (Quarter ended 9/30/98)
Automated Cash Management Trust 2.04% (Quarter ended 9/30/90) 1.11% (Quarter ended 6/30/99)
IAI Money Market Fund 1.35% (Quarter ended 6/30/95) 0.76% (Quarter ended 3/31/94)
Federated Bond Fund 4.40% (Quarter ended 6/30/97) (1.83%) (Quarter ended 3/31/96)
IAI Bond Fund 7.67% (Quarter ended 12/31/90) (3.68%) (Quarter ended 3/31/92)
Federated Capital Appreciation Fund 27.57% (Quarter ended 12/31/99) (15.52%) (Quarter ended 9/30/90)
IAI Regional Fund 18.21% (Quarter ended 3/31/91) (17.89%) (Quarter ended 9/30/98)
Federated Growth Strategies Fund 41.95% (Quarter ended 12/31/99) (20.30%) (Quarter ended 9/30/98)
IAI Midcap Growth Fund 31.97% (Quarter ended 12/31/98) (12.73%) (Quarter ended 9/30/98)
Federated International Equity Fund 55.35% (Quarter ended 12/31/99) (19.77) (Quarter ended 9/30/90)
IAI International Fund 11.35% (Quarter ended 3/31/98) (14.16) (Quarter ended 9/30/90)
Federated Large Cap Growth Fund 36.80% (Quarter ended 12/31/99) (0.08%) (Quarter ended 9/30/99)
IAI Growth Fund 27.00% (Quarter ended 12/31/98) (13.74%) (Quarter ended 9/30/98)
Federated Stock and Bond Fund, Inc. 10.50% (Quarter ended 6/30/97) (7.58%) (Quarter ended 9/30/97)
IAI Balanced Fund 14.92% (Quarter ended 6/30/97) (11.97%) (Quarter ended 9/30/98)
</TABLE>
AVERAGE ANNUAL TOTAL RETURN TABLES
----------------------------------
The following tables represent the funds' Average Annual Total Returns for
the calendar periods ended December 31, 1999. Each of the returns shown for the
Federated Funds Class A Shares reflect applicable sales charges (except for
Automated Cash Management Trust's Institutional Service Shares, which does not
charge any sales charge). The IAI Funds do not charge sales charges. Remember,
you will not be charged any sales charges in connection with the reorganization
of your IAI Fund into its corresponding Federated Fund or any subsequent
purchases of or exchanges for the shares of any other Federated mutual fund. If
the returns shown below did not reflect these applicable sales charges, the
returns would have been higher.
The tables also show the funds' total returns averaged over a period of
years relative to one or more broad-based market indexes. Total returns for the
indexes shown do not reflect sales charges, expenses or other fees the
Securities and Exchange Commission requires to be reflected in the fund's
performance. Indexes are unmanaged, and it is not possible to invest directly in
an index.
55
<PAGE>
The tables are arranged alphabetically according to the name of the
Federated Fund. Please note that the average annual total return since a fund's
inception is only given for those funds that have been in existence for less
than ten calendar years.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the fund's investment risks are balanced by its potential
returns.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
IAI IAI IAI
FEDERATED EMERGING CAPITAL LONG TERM S&P
AGGRESSIVE GROWTH APPRECIATION GROWTH 600/BARRA
CALENDAR PERIOD GROWTH FUND FUND FUND FUND S&P 500* GROWTH* LSGI*
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
1 Year 99.97% 43.37% 24.50% -4.52% 21.03% 28.25% 61.17%
-------------------------------------------------------------------------------------------------------------------
5 Year N/A 18.56% N/A 11.59% 28.54% N/A 23.66%
-------------------------------------------------------------------------------------------------------------------
10 Year N/A N/A N/A 8.59% 18.19% N/A 17.60%
-------------------------------------------------------------------------------------------------------------------
Since
Inception of
Federated
Aggressive
Growth Fund** 39.10% -- -- -- 18.19% 33.35% 21.71%
-------------------------------------------------------------------------------------------------------------------
Since
Inception of
IAI Emerging
Growth Fund*** -- 18.79 -- -- 19.86% -- 18.42%
------------------------------------------------------------------------------------------------------------------
Since
Inception of
IAI Capital
Appreciation
Fund**** -- N/A 24.12% -- 24.94% -- 21.06%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Standard and Poor's 500 Index (S&P 500), Standard & Poor's 600/Barra
Growth Index (S&P 600/Barra Growth) and Lipper Small Growth Index (LSGI) are
broad-based market indexes. Data for the S&P 600/Barra Index was not
reported until 1997; therefore, total returns for that index are not
available for the 5 Year and 10 Year periods or since inception dates of IAI
Emerging Growth Fund or IAI Capital Appreciation Fund.
** The Federated Aggressive Growth Fund's start of performance date for Class A
Shares was November 25, 1996.
*** The IAI Emerging Growth Fund's start of performance date was August 5, 1991.
****The IAI Capital Appreciation Fund's start of performance date was February
1, 1996.
---------------------------------------------------------------------------
FEDERATED IAI
AMERICAN LEADERS GROWTH AND INCOME
CALENDAR PERIOD FUND, INC. FUND S&P 500* LGIFA*
---------------------------------------------------------------------------
1 Year 0.85% 5.99% 21.03% 13.71%
---------------------------------------------------------------------------
5 Year 20.63% 18.21% 28.54% 21.35%
---------------------------------------------------------------------------
10 Year 15.17% 11.51% 18.19% 14.43%
---------------------------------------------------------------------------
*The Standard & Poor's 500 Index (S&P 500) is a broad-based market index and the
Lipper Growth and Income Funds Average (LGIFA) is an average of funds with
similar investment objectives to the Funds in this table.
56
<PAGE>
---------------------------------------------------------------------------
IAI
AUTOMATED CASH MONEY MARKET FUND
CALENDAR PERIOD MANAGEMENT TRUST FUND
---------------------------------------------------------------------------
1 Year 4.77% 4.69%
---------------------------------------------------------------------------
5 Year 5.15% 5.01%
---------------------------------------------------------------------------
10 Year 4.97% N/A
---------------------------------------------------------------------------
Since --
inception of
IAI Money
Market Fund* 4.52%
--------------------------------------------------------------------------
*The IAI Money Market Fund's start of performance date is January 5, 1993.
-------------------------------------------------------------------------------
Calendar Period Federated IAI LBCBI*
Bond Fund Bond Fund LCDBBB* LBABI*
-------------------------------------------------------------------------------
1 Year 6.77% -3.47% -1.94% -1.79% -0.82%
-------------------------------------------------------------------------------
5 Year N/A 6.46% 8.18% 7.68% 7.73%
-------------------------------------------------------------------------------
10 Year N/A 6.96% 8.21% 7.72% 7.70%
-------------------------------------------------------------------------------
Since inception of
Federated Bond Fund** 4.80% -- 5.94% 5.77% 6/04%
-------------------------------------------------------------------------------
*The Lehman Brothers Corporate Bond Index (LBCBI) and Lehman Brothers Aggregate
Bond Index (LBABI) are broad-based market indexes, and the Lipper Corporate Debt
Funds BBB Rated Average (LCDBBB) is an average of funds with similar investment
objectives to those of the Funds shown in this table. The LBCBI is comprised of
a large universe of bonds issued by industrial, utility and financial companies
which have a minimum rating of Baa by Moody's Investors Service, Inc., BBB by
Standard and Poor's Ratings Group or, in the case of bank bonds not rated by
either of the previously mentioned services, BBB by Fitch IBCA, Inc. The LBABI
is a broad measure of the performance of taxable bonds in the US market, with
maturities of at least one year.
**The Federated Bond Fund's start of performance date was June 28, 1995.
----------------------------------------------------------------------
FEDERATED
CAPITAL
APPRECIATION IAI
CALENDAR PERIOD FUND REGIONAL FUND S&P 500* LGIFA*
----------------------------------------------------------------------
1 Year 35.52% 8.62% 21.03% 13.71%
----------------------------------------------------------------------
5 Year 28.11% 14.34% 28.54% 21.35%
----------------------------------------------------------------------
10 Year 17.92% 11.60% 18.19% 14.43%
----------------------------------------------------------------------
*The Standard & Poor's 500 Index (S&P 500) is a broad-based market index and the
Lipper Growth and Income Funds Average (LGIFA) is an average of funds with
similar investment objectives to those of the Funds shown in this table.
-----------------------------------------------------------------
FEDERATED
GROWTH IAI
STRATEGIES MIDCAP
CALENDAR PERIOD FUND GROWTH FUND S&P 500* LGFIA*
-----------------------------------------------------------------
1 Year 61.31% 26.98% 21.03% 29.23%
-----------------------------------------------------------------
5 Year 32.72% 20.48% 28.54% 25.03%
-----------------------------------------------------------------
10 Year 18.37% N/A 18.19% 16.48%
-----------------------------------------------------------------
Since Inception
of IAI Midcap
Growth Fund** -- 18.81% 20.78% 19.08%
-----------------------------------------------------------------
*The Standard & Poor's 500 Index (S&P 500) is a broad-based market index and the
Lipper Growth Fund Index (LGFI) is an average of funds with similar investment
objectives to those of the Funds shown in this table.
**The IAI Midcap Growth Fund's start of performance date was April 10, 1992.
57
<PAGE>
--------------------------------------------------------
FEDERATED IAI
INTERNATIONAL INTERNATIONAL
CALENDAR PERIOD EQUITY FUND FUND EAFE*
--------------------------------------------------------
1 Year 68.52% 8.00% 27.30%
--------------------------------------------------------
5 Year 20.45% 4.51% 13.15%
--------------------------------------------------------
10 Year 11.59% 5.19% 7.33%
--------------------------------------------------------
*The Morgan Stanley Capital International Europe, Australia, and Far East Index
(EAFE) is a broad-based market index. The EAFE is a standard foreign securities
index representing major non-U.S. stock markets as monitored by Morgan Stanley
Capital International.
----------------------------------------------------------------
FEDERATED
LARGE CAP IAI
CALENDAR PERIOD GROWTH FUND GROWTH FUND S&P 500*
----------------------------------------------------------------
1 Year 53.12% 20.14% 21.03%
----------------------------------------------------------------
5 Year N/A% 20.81% 28.54%
----------------------------------------------------------------
Since Inception 54.96% -- 22.32%
of Federated
Large Cap Growth
Fund**
----------------------------------------------------------------
Since Inception -- 16.20% 22.86%
of IAI Growth
Fund***
----------------------------------------------------------------
* The Standard & Poor's 500 Index (S&P 500) is a broad-based market index.
** The Federated Large Cap Growth Fund's start of performance date was December
29, 1998.
***The IAI Growth Fund's start of performance date was August 6, 1993.
---------------------------------------------------------------------
FEDERATED
STOCK AND IAI
BOND BALANCED
CALENDAR PERIOD FUND, INC. FUND S&P 500* LBGCBI* LBFA*
---------------------------------------------------------------------
1 Year -3.39% -0.52% 21.03% -2.15% 8.79%
---------------------------------------------------------------------
5 Year 13.60% 14.89% 28.54% 7.60% 16.26%
---------------------------------------------------------------------
10 Year 10.08% N/A 18.19% 7.65% 11.86%
---------------------------------------------------------------------
Since
Inception of
IAI Balanced
Fund** -- 11.09% 20.78% 6.99% 12.49%
---------------------------------------------------------------------
* The Standard & Poor's 500 Index (S&P 500) is a broad-based market index and
the Lehman Brothers Government/Corporate Bond Index (LBGCBI) is an index
composed of all bonds that are investment grade rated Baa or higher by
Moody's or BBB or higher by Standard and Poor's, if unrated by Moody's, and
the Lipper Balanced Funds Average (LBFA) is an average of funds with similar
investment objectives to those of the Funds shown in this table.
**The IAI Balanced Fund's start of performance date was April 10, 1992.
COMPARISON OF OPERATIONS
INVESTMENT ADVISORY AGREEMENTS
------------------------------
A Board of Directors or a Board of Trustees governs each Federated Fund.
This Board selects and oversees the adviser, a subsidiary of Federated
Investors, who manages the Fund's assets, including buying and selling portfolio
securities. Federated Investment Management Company acts as investment adviser
to all the Federated Funds, except for Federated International Equity Fund, for
which Federated Global Investment Management Corporation (collectively, with
Federated Investment Management Company, the "Advisers") acts as investment
adviser. The address of Federated Investment Management Company is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The address of
Federated Global Investment Management Corporation is 175 Water Street, New
York, New York 10038-9965.
58
<PAGE>
The Advisers advise approximately 175 mutual funds and separate accounts,
which totaled approximately $125 billion in assets as of March 31, 2000.
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.
Investment Advisers, Inc. ("IAI") serves as investment adviser to the IAI
Funds. IAI, which has been in the investment advisory business since 1947, also
furnishes investment advice to institutional investors. As of March 31, 2000,
IAI managed accounts which totaled approximately $2.37 billion. IAI is located
at 601 Second Avenue South, Suite 3600, Minneapolis, Minnesota 55402. IAI is a
wholly-owned subsidiary of Lloyds TSB Group plc ("Lloyds TSB").
The IAI Funds have entered into Management Agreements with IAI under which
IAI provides the funds with investment advisory services and is responsible for
managing each fund's business affairs, subject to the authority of the Board of
Directors. IAI also is responsible under the Management Agreements for providing
or arranging for the provision of all required administrative, stock transfer,
redemption, dividend disbursing, accounting and shareholder services. The
Management Agreements require IAI to pay all of each IAI Fund's operating
expenses, except for brokerage commissions and other expenditures in connection
with the purchase and sale of portfolio securities, interest and, in certain
circumstances, taxes and extraordinary expenses.
On June 19, 2000, IAI announced publicly that a management team led by
IAI's President and Chief Investment Officer, Keith Wirtz, had agreed in
principle to acquire most of the business of IAI from Lloyds TSB. The new firm
would manage U.S. and international equity investments for institutional
clients. This acquisition of IAI is subject to the satisfaction of various
conditions. If these conditions are satisfied, the management acquisition of IAI
is expected to occur in the fourth quarter of 2000 and, in any event, is not
expected to be consummated until the Reorganization described in this
Prospectus/Proxy Statement is consummated. In addition, IAI has advised the IAI
Funds that this buy-out will not have any effect on the services provided by IAI
to the IAI Funds prior to the Reorganization pursuant to the Management
Agreements, including the key personnel who are currently responsible for the
day-to-day management of those funds. As of the date of this Prospectus/Proxy
Statement, the parties are still negotiating the final terms of the management
buy-out, and whether such buy-out will be dependent on the Reorganization with
respect to any one or more of the IAI Funds has not yet been determined. If the
Reorganization does not occur with respect to one or more IAI Funds, that Fund
or Funds' Board of Directors will consider the appropriate steps to be taken,
which may include liquidating the IAI Fund or Funds at issue or seeking
shareholder approval for the assignment of the advisory contract.
59
<PAGE>
ADMINISTRATIVE AND SHAREHOLDER SERVICES
---------------------------------------
Federated Services Company, an affiliate of the Advisers, provides certain
administrative personnel and services necessary to operate the Federated Funds.
Federated Services Company provides these services at an annual rate based upon
the average aggregate daily net assets of all funds advised by the Advisers and
their affiliates. The rate charged is 0.15 of 1% on the first $250 million of
each fund's average aggregate daily net assets, 0.125 of 1% on the second $250
million, 0.10 of 1% on the third $250 million and 0.075 of 1% of each fund's
average aggregate daily net assets in excess of $750 million. Federated Services
Company's minimum annual administrative fee for each Federated Fund is $125,000,
plus $30,000 for each additional class of shares of any such portfolio. In
addition, there are certain fees paid directly by shareholders for certain
services provided by Federated Services Company, such as wiring money to or from
your bank account, maintaining an IRA account, using a debit card, and obtaining
historical account information. See "Comparative Fee Tables - Shareholder Fees."
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Federated Funds' portfolio investments for a fee
based on Fund assets plus out-of-pocket expenses.
The Federated Funds have each entered into a Shareholder Services Agreement
under which the Fund may make payments of up to 0.25 of 1% of the average daily
net asset value of the shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts. The Shareholder
Services Agreement provides that Federated Shareholder Services Company
("FSSC"), an affiliate of the Advisers, either will perform shareholder services
directly or will select financial institutions or other investment professionals
to perform such services. Financial institutions may receive fees based upon
shares owned by their clients or customers. The schedule of such fees and the
basis upon which such fees will be paid is determined from time to time by the
Federated Funds and FSSC.
Federated Services Company, through its registered transfer agent
subsidiary, Federated Shareholder Services Company, maintains all necessary
shareholder records. Each Federated Fund pays the transfer agent a fee based on
the size, type and number of accounts and transactions by shareholders.
Firstar Mutual Fund Service, LLC ("FMFS") provides administrative and
accounting services to the IAI Funds. Under a Fund Administration Servicing
Agreement between IAI and FMFS, FMFS provides to the IAI Funds general
management services, compliance services, financial reporting services, and tax
reporting services. The annual fees paid for such services are as follows, based
upon the assets of all IAI Funds: 0.07% on the first $500 million; 0.06% on the
next $500 million; and 0.04% on the balance of the assets, subject to a minimum
annual fee of $25,000 per IAI Fund, plus out-of-pocket expenses.
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<PAGE>
Under a Fund Accounting Services Agreement between IAI and FMFS, FMFS
provides portfolio accounting services, expense accrual and payment services,
fund valuation and financial reporting services, tax accounting, and compliance
control services. The annual fee for such accounting services is as follows: 5
basis points on the first $500 million; 3 basis points on the next $500 million;
2 basis points on the next $500 million; and 1 basis point on the balance of the
assets, subject to a minimum annual fee of $22,000 per IAI Fund, plus
out-of-pocket expenses.
Under a Transfer Agent Servicing Agreement between IAI and FMFS, FMFS
provides shareholder services, such as receiving and processing purchase,
exchange and redemption orders, preparing and transmitting payments for
dividends and distributions, preparing shareholder meeting lists, mailing proxy
statements, shareholder reports and prospectuses, and providing shareholder
account information upon request. The annual fee per shareholder account is
$14.00 with a minimum annual fee of $25,000 for one IAI Fund and $10,000 for
each additional IAI Fund, plus any out-of-pocket expenses.
Under each agreement listed above, IAI is responsible for paying all fees
of FMFS. IAI directly or indirectly pays qualifying broker-dealers, financial
institutions and other entities for providing administrative, stock transfer,
redemption, dividend disbursing, accounting and shareholder services to IAI Fund
shareholders.
DISTRIBUTION SERVICES
---------------------
Federated Securities Corp. ("FSC"), an affiliate of the Advisers, is the
principal distributor for shares of the Federated Funds. Shares of the Federated
Funds are sold at net asset value, plus any applicable sales charges, next
determined after an order is received. AFTER THE REORGANIZATION IS COMPLETED,
IAI FUND SHAREHOLDERS WILL BE ABLE TO EXCHANGE THEIR SHARES OF FEDERATED FUNDS
INTO OR PURCHASE THE SHARES OF ANY OTHER FEDERATED MUTUAL FUND WITHOUT A
FRONT-END SALES CHARGE, ASSUMING THE SHAREHOLDER MEETS THAT FUND'S INVESTMENT
MINIMUM REQUIREMENTS. (Federated has agreed to waive the initial investment
minimum of $25,000 for Automated Cash Management Trust in connection with the
Reorganization and any subsequent purchases or exchanges into that Fund by IAI
Fund shareholders.) For a complete description of sales charges and exemptions
from such charges, reference is made to the Prospectuses and SAIs of the
Federated Funds, which are incorporated by reference herein. A copy of the
Prospectus of the Federated Fund into which your IAI Fund will be reorganized is
included herewith.
Federated Growth Strategies Fund, Federated International Equity Fund,
Automated Cash Management Trust, and Federated American Leaders Fund, Inc. do
not have Rule 12b-1 plans in effect with respect to their Class A or
Institutional Service Shares and, accordingly, do not, nor does FSC, compensate
brokers and dealers for sales and administrative services performed in
connection with sales of shares of the Federated Funds under a plan of
distribution adopted pursuant to Rule 12b-1. However, for those Federated Funds
that are marketed through financial institutions, FSC and FSSC, from their own
assets, may pay a financial institution supplemental fees as financial
assistance for providing substantial sales services, distribution-related
support services or shareholder services with respect to a Federated Fund. Such
assistance will be predicated upon the amount of shares the financial
61
<PAGE>
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
FSC may be reimbursed by the Advisers or their affiliates. Federated Bond Fund,
Federated Stock and Bond Fund, Inc., Federated Capital Appreciation Fund,
Federated Large Cap Growth Fund and Federated Aggressive Growth Fund have 12b-1
plans in effect.
Shares of the IAI Funds are self-distributed, i.e., distributed directly by
the fund, and are sold at net asset value next determined after an order is
received. None of the IAI Funds has a sales charge or 12b-1 fee. IAI may
directly or indirectly pay qualifying broker-dealers, financial institutions and
other entities for providing distribution services to the IAI Funds.
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
--------------------------------------------
The transfer agent and dividend disbursing agent for each of the Federated
Funds is FSSC. FMFS acts as the IAI Funds' transfer agent and dividend
disbursing agent. Procedures for the purchase, exchange and redemption of each
Federated Fund's shares differ slightly from procedures applicable to the
purchase, exchange and redemption of the IAI Fund shares. Reference is made to
the Prospectuses of the Federated Funds, and the Prospectuses of the IAI Funds,
for a complete description of the purchase, exchange and redemption procedures
applicable to purchases, exchanges and redemptions of Federated Fund and IAI
Fund shares, respectively, each of which is incorporated herein by reference
thereto. Set forth below is a brief description of the significant purchase,
exchange and redemption procedures applicable to the Federated Fund shares and
the IAI Fund shares.
Purchases of shares of the Federated Funds may be made through an
investment professional, directly from the Fund or through an exchange from
another Federated Fund. Accounts through investment professionals may be subject
to higher or lower minimum investment requirements. The following chart shows
the minimum initial investment amounts for each Federated Fund:
62
<PAGE>
--------------------------------------------------------------------------------
Systematic
Retirement Investment
Retirement Plan Plan
Initial Subsequent Plan Subsequent Subsequent
Investment Investment Investment Investment Investment
Minimum Minimum Minimum Minimum Minimum
--------------------------------------------------------------------------------
All Federated $1,500 $100 $250 $100 $50
Funds (except
Automated Cash
Management Trust)
--------------------------------------------------------------------------------
Automated Cash $25,000* None N/A N/A $100
Management Trust
--------------------------------------------------------------------------------
* This investment minimum will be waived for IAI Fund shareholders in connection
with this Reorganization and for any subsequent exchanges or purchases of shares
of Automated Cash Management Trust by IAI Fund shareholders. For all other
accounts, an account may be opened with a smaller amount as long as the minimum
amount is reached within 90 days, and an institutional investor's minimum
investment is calculated by combining all accounts it maintains with the Fund.
Purchases of shares of the IAI Funds may be made through certain securities
dealers or directly by wire or check once an account has been established. The
minimum initial investment to establish an account with the IAI Family of Funds
is $5,000 for a retail account and $2,000 for an IRA account. In each case, your
initial investment may be allocated in any way you wish among the IAI Funds, so
long as no less than $1,000 is allocated to any one fund. Once you have met the
account minimum, subsequent purchases can be made for as little as $100.
Each Federated Fund and each IAI Fund reserves the right to reject any
purchase request.
The purchase price of each of the Federated Fund's Class A shares and
Institutional Service Shares is based on net asset value, plus any applicable
sales charges. However, IAI Fund shareholders will not be charged these sales
charges in connection with the Reorganization. The purchase price of the IAI
Fund shares is based on net asset value, without any sales charge. Except in
limited circumstances, the net asset value per share for each Federated Fund and
each IAI Fund is calculated as of the close of trading (normally 4:00 p.m.,
Eastern time) (5:00 p.m., Eastern Time, in the case of Automated Cash Management
Trust) on the New York Stock Exchange, Inc. (the "NYSE") on each day on which
the NYSE is open for business. You also have the following purchase options: by
a Systematic Investment Program established with the Fund; through a depository
institution that is an automated clearing house (ACH) member; or through a
retirement account.
63
<PAGE>
Federated Fund purchase orders by wire are considered received immediately
and payments must be received before 3:00 p.m. (Eastern time) (5:00 p.m.
(Eastern time) in the case of Automated Cash Management Trust) on the next
business day following the order. Federated Fund purchase orders received by
check are considered received after the check is converted into federal funds,
which normally occurs the business day after receipt, and shares will be
eligible to receive interest and/or dividends when the Fund receives the
payment. IAI Fund purchase or redemption orders are considered received when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. In such circumstances, customer orders will be priced at a Fund's net
asset value next computed after they are accepted by an authorized broker or the
broker's authorized designee.
Shares in certain of the funds for which the Advisers serve as investment
adviser may be exchanged for shares of a Federated Fund at net asset value.
Shares of the Federated Funds may be exchanged through an investment
professional if you purchased shares through an investment professional or
directly from the Fund if you purchased shares directly from the Fund. The
exchange is subject to any initial or subsequent minimum investment amounts of
the fund into which the exchange is being made, and is treated as a sale of your
shares for federal tax purposes. Shares of the IAI Funds may be exchanged for
shares of another IAI Fund if you satisfy the fund's purchase requirements.
Redemptions of Federated Fund Shares may be made through an investment
professional, by telephone or by mailing a written request. Shares of the
Federated Funds are redeemed at their net asset value next determined after the
redemption request is received in proper form on each day on which the Fund
computes its net asset value. Proceeds normally are wired or mailed within one
business after receiving a request in proper form, although payment may be
delayed up to seven days. You also have the following redemption options: an
electronic transfer to your account at a financial institution that is an ACH
member, or wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
Redemptions of IAI Fund shares may be made by telephone or by mailing a
written request, however, telephone redemptions are not permitted for IRAs. To
redeem IAI Fund shares from an IRA account, an IRA Distribution Form must be
completed and returned to IAI. Telephonic redemptions are limited to $50,000.
Shares of the IAI Funds are each redeemed at their net asset value next
determined after the redemption request is received in proper form on each day
on which the Fund computes its net asset value. Proceeds sent by check will
ordinarily be mailed on the business day following your redemption request,
although payment may be made as late as seven days after receipt of a redemption
request. When redeeming by phone, you may have the proceeds wired to your bank
account, subject to certain requirements, or sent to your bank account by an
Automatic Clearing House. Proceeds will be wired on the next business day after
your redemption request. Proceeds sent by ACH transfer should be credited the
second day after the redemption.
64
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS
---------------------------------
The following chart compares when each IAI Fund and each Federated Fund
declares and pays dividends. All of the IAI Funds and Federated Funds declare
and pay capital gain distributions, if any, at least annually.
--------------------------------------------------------------------------------
Dividends Dividends
IAI Fund Distribution Federated Fund Distribution
--------------------------------------------------------------------------------
IAI Emerging Growth Fund Declares and Federated Declares and
pays Aggressive pays annually
IAI Long Term Growth Fund semi-annually Growth Fund
IAI Capital Appreciation Fund
--------------------------------------------------------------------------------
IAI Growth and Income Fund Declares and Federated Declares
pays American Leaders daily and
semi-annually Fund, Inc. pays quarterly
--------------------------------------------------------------------------------
IAI Money Market Fund Declares daily Automated Cash Declares
and pays monthly Management Trust daily and
pays monthly
--------------------------------------------------------------------------------
IAI Bond Fund Declares and Federated Bond Declares and
pays monthly Fund pays monthly
--------------------------------------------------------------------------------
IAI Regional Fund Declares and Federated Declares and
pays Capital pays quarterly
semi-annually Appreciation Fund
--------------------------------------------------------------------------------
IAI Midcap Growth Fund Declares and Federated Growth Declares and
pays Strategies Fund pays annually
semi-annually
--------------------------------------------------------------------------------
IAI International Fund Declares and Federated Declares and
pays International pays annually
semi-annually Equity Fund
--------------------------------------------------------------------------------
IAI Growth Fund Declares and Federated Large Declares and
pays Cap Growth Fund pays annually
semi-annually
--------------------------------------------------------------------------------
IAI Balanced Fund Declares and Federated Stock Declares and
pays and Bond Fund, pays quarterly
semi-annually Inc.
--------------------------------------------------------------------------------
65
<PAGE>
With respect to both the Federated Funds and the IAI Funds, unless a
shareholder otherwise instructs, dividends and/or capital gain distributions
will be reinvested automatically in additional shares at net asset value.
TAX CONSEQUENCES
----------------
As a condition to the Reorganization, each Federated Fund and each IAI Fund
will receive an opinion of counsel that the Reorganization will be considered a
tax-free "reorganization" under applicable provisions of the Code so that
neither the Federated Fund nor the IAI Fund nor the shareholders of the IAI Fund
will recognize any gain or loss on the Reorganization. The tax basis of the
Federated Fund's shares received by the IAI Fund's shareholders will be the same
as the tax basis of their shares in the IAI Fund.
INFORMATION ABOUT THE REORGANIZATION
AGREEMENT BETWEEN IAI AND FEDERATED INVESTORS FOR SALE OF IAI'S MUTUAL FUND
ADVISORY BUSINESS
On June 16, 2000, IAI and Federated Investors reached a definitive
agreement covering the sale by IAI of its mutual fund advisory business to
Federated Investors. Pursuant to the agreement between IAI and Federated
Investors, IAI will receive from Federated Investors a lump sum payment on the
closing date of the Reorganization based primarily upon the net assets of the
IAI Funds, as well as contingent payments subsequent to that date. The
contingent payments will be based primarily upon the amount of assets maintained
in Federated mutual funds by IAI Fund shareholders, whether resulting from the
Reorganization or from a subsequent exchange or purchase by an IAI Fund
shareholder. Consummation of the Agreement between Federated and IAI with
respect to an IAI Fund is conditioned upon, among other things, shareholders of
that IAI Fund approving the Reorganization.
In determining to sell its mutual fund advisory business, IAI management
considered its ability to remain competitive in an environment where the amount
of assets under management was becoming more and more important to running a
successful mutual fund business. After such consideration, IAI and the Board of
Directors of the IAI Funds concluded that larger mutual fund companies would be
in the best position to offer excellent products and services in the years
ahead, as the mutual fund industry matures. IAI found that Federated Investors,
with $125 billion of assets under management across a broad product line, is in
a good position to provide such high-quality investment management and related
services to IAI Fund shareholders. The reorganization described in this
Prospectus/Proxy Statement is being proposed in conjunction with the sale by IAI
of its mutual fund advisory business to Federated Investors.
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<PAGE>
CONSIDERATIONS BY THE BOARD OF DIRECTORS OF THE IAI FUNDS
The Board of Directors of the IAI Funds believes that the proposed
Reorganization is in the best interests of IAI Fund shareholders. The Board
first considered engaging in such transactions with the Federated Funds at a
special Board meeting held on April 7, 2000. At this meeting, representatives of
IAI advised the Board that Federated Investors (together with its subsidiaries,
"Federated") had expressed an interest in pursuing such transactions. These
representatives also presented preliminary information to the Board concerning
the Federated Funds and Federated. Following consideration of these matters, the
Board informally authorized IAI to engage in further discussions with Federated
concerning possible transactions.
As a result of these further discussions, the Board met with senior
representatives of Federated on April 26, 2000. At this meeting, these
representatives presented information concerning Federated's investment
management personnel and processes, its shareholder servicing capabilities, and
its experience in executing transactions similar to the Reorganization. They
also responded to questions from Board members concerning these and related
matters. In addition, the Board reviewed written information provided by
Federated concerning these matters and the Federated Funds' performance, expense
structures, asset levels, compliance histories, and tax positions. In
considering the proposed Reorganization, the Board was advised by the IAI Funds'
outside legal counsel.
The Board met again on June 12, 2000 to receive additional information and
to consider and act upon the proposed Plan pursuant to which the Reorganization
would be effected. At this meeting, after reviewing the terms of the Plan with
counsel, the Board (including a majority of the directors who are not
"interested persons," as that term is defined in the Investment Company Act of
1940, as amended ("1940 Act") unanimously approved the Plan and recommended its
approval by IAI Fund shareholders. In approving the Plan, the Board determined
that participation in the Reorganization is in the best interests of each IAI
Fund and that the interests of IAI Fund shareholders would not be diluted as a
result of the Reorganization. In approving the Plan, the Board considered the
following factors:
o The Reorganization would secure for IAI Fund shareholders the
investment advisory services of Federated's subsidiaries. Federated
advises approximately 175 mutual funds and separate accounts, which
totaled approximately $125 billion in assets as of March 31, 2000.
Federated was established in 1955 and is one of the largest mutual
fund investment managers in the United States. It maintains 1.3
million shareholder accounts covering assets of $125 billion.
o Each of the Federated Funds has a much larger asset base than its
corresponding IAI Fund. Thus, the Reorganization may give IAI Fund
shareholders the benefit of economies of scale, increased
diversification, more efficient execution of portfolio transactions,
and improved services to shareholders. The Board noted in this
regard that several of the IAI Funds have experienced a decrease in
net assets, which tends to produce the opposite effects.
67
<PAGE>
o Substantial similarities exist between the investment objectives,
policies, and strategies of the IAI Funds and their corresponding
Federated Funds. Thus, the Reorganization will enable IAI Fund
shareholders to continue their current investment programs without
substantial disruption.
o IAI Fund shareholders will not pay a sales charge to become
shareholders of the Federated Funds in connection with the
Reorganization. In addition, IAI Fund shareholders as of the date of
the Reorganization will not have to pay a front-end sales charge to
exchange into or purchase shares of any other Federated mutual fund.
Thus, as a result of the Reorganization, IAI Fund shareholders will
gain access to a much broader range of funds without being required
to pay front-end sales charges.
o It is anticipated that IAI Fund shareholders will not have to pay
any federal income tax solely as a result of the Reorganization.
o Pursuant to a separate agreement, Federated Investors and IAI are
responsible for the payment of the expenses related to consummating
the Reorganization.
o Because the proposed Reorganization will be effected on the basis of
the relative net asset values of the Federated Funds and their
corresponding IAI Funds, shareholders of the IAI Funds will not
experience any dilution in the value of their investments as a
result of the Reorganization.
o The historical performance of the respective Federated Funds
generally compares favorably to that of the corresponding IAI Funds.
In addition, the expense ratios after voluntary fee waivers of the
Federated Funds are within industry norms. The Board noted in this
regard that the after-waiver expense ratios of some of the Federated
Funds are higher than those of their corresponding IAI Funds. The
Board also noted that Federated could discontinue its voluntary fee
waivers at any time, which would result in increased expenses for
several of the Federated Funds. See "Comparative Fee Tables"
elsewhere herein. The Board believes that these latter factors are
counterbalanced by the economies of scale that may result from the
proposed Reorganization, by the pressures in the marketplace on
Federated as well as other mutual fund companies to maintain expense
ratios at competitive levels, and by the other anticipated benefits
of the proposed transactions to IAI Fund shareholders.
o The portfolio managers and investment personnel who are responsible
for managing the Federated Funds are well-trained and experienced.
In addition, Federated represented that it follows well-defined
investment disciplines and portfolio monitoring processes.
o Federated's shareholder servicing organization also is well-trained
and experienced. In addition, the size of the Federated organization
68
<PAGE>
has enabled it to make substantial investments in technologies which
support the shareholder servicing function.
o The Federated organization previously has executed several
transactions similar to the proposed Reorganization, so that it has
the knowledge and experience which are needed successfully to
complete the Reorganization.
The Board did not assign relative weights to the foregoing factors or deem
any one or group of them to be controlling in and of themselves.
Under Minnesota law and the IAI Funds' organizational documents, the
directors of each IAI Fund are entitled to be indemnified by the applicable fund
for certain liabilities they may incur in connection with their service as
directors. Upon completion of the Reorganization, however, the IAI Funds will
not have any substantial assets from which they could pay such indemnification.
For this reason, IAI and its parent company have agreed to indemnify the IAI
Funds' directors following the Reorganization to the same extent that the IAI
Funds would be required to do so. IAI and its parent company also have agreed to
maintain the IAI Funds' current directors liability insurance policy or its
equivalent in force for a period following completion of the Reorganization.
The Boards of Trustees/Directors of the Federated Funds (including a
majority of the Directors/Trustees who are not "interested persons," as that
term is defined in the 1940 Act), approved the Plan on May 17, 2000. The Boards
have unanimously concluded that consummation of the Reorganization is in the
best interests of the Federated Funds and the shareholders of the Federated
Funds and that the interests of Federated Fund shareholders would not be diluted
as a result of effecting the Reorganization and have unanimously voted to
approve the Plan.
DESCRIPTION OF THE PLAN OF REORGANIZATION
The Plan provides that your IAI Fund will transfer all its assets to a
corresponding Federated Fund in exchange solely for the Federated Fund's shares
to be distributed pro rata by the IAI Fund to its shareholders in complete
liquidation of the IAI Fund on or about September 15, 2000 (the "Closing Date").
The value of each IAI Fund's assets to be acquired by the Federated Fund shall
be the value of such assets computed as of the close of regular trading on the
New York Stock Exchange (normally 4:00 p.m. Eastern time) on the Closing Date
(the "Closing"). IAI Fund shareholders will become shareholders of the
corresponding Federated Fund as of the Closing, and will be entitled to the
Federated Fund's next dividend distribution thereafter.
On or before the Closing, the IAI Funds will declare and pay a dividend or
dividends which, together with all previous dividends, shall have the effect of
distributing to its shareholders substantially all of its net investment income
and realized net capital gain, if any, for all taxable years ending on or before
the Closing Date.
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<PAGE>
Consummation of the Reorganization is subject to the conditions set forth
in the Plan, including receipt of an opinion in form and substance reasonably
satisfactory to the IAI Funds and the Federated Funds, as described under the
caption "Federal Income Tax Consequences" below. The Plan may be terminated and
the Reorganization may be abandoned at any time before or after approval by the
IAI Fund shareholders prior to the Closing Date by either party if it believes
that consummation of the Reorganization would not be in the best interests of
its shareholders.
Pursuant to a separate agreement, Federated Investors and IAI are
responsible for the payment of the expenses related to consummating the
Reorganization. Such expenses include, but are not limited to, accountants'
fees, legal fees, registration fees, transfer taxes (if any), the fees of banks
and transfer agents and the costs of preparing, printing, copying and mailing
proxy solicitation materials to the IAI Fund shareholders and the costs of
holding the Special Meeting (as hereinafter defined). If the Reorganization is
not consummated with respect to one or more of the IAI Funds, IAI is responsible
for the proxy-related expenses for those Funds, except that if none of the IAI
Funds approve the Reorganization, Federated and IAI will split the proxy-related
expenses.
The foregoing description of the Plan entered into between the Federated
Funds and the IAI Funds is qualified in its entirety by the terms and provisions
of the Plan, the form of which is attached hereto as Exhibit A and incorporated
herein by reference thereto.
DESCRIPTION OF FEDERATED FUND SHARES
Full and fractional shares of the Federated Funds will be issued without
the imposition of a sales charge or other fee to the IAI Fund shareholders in
accordance with the procedures described above. Shares of the Federated Funds to
be issued to IAI Fund shareholders under the Plan will be fully paid and
non-assessable when issued and transferable without restriction and will have no
preemptive or conversion rights. Reference is hereby made to the Prospectus of
the Federated Fund into which your IAI Fund will be reorganized, provided
herewith for additional information about shares of the Federated Fund.
FEDERAL INCOME TAX CONSEQUENCES
As a condition to each Reorganization, the participating Federated Fund and
IAI Fund will receive an opinion from counsel to the effect that, on the basis
of the existing provisions of the Code, current administrative rules and court
decisions, for federal income tax purposes: (1) the Reorganization will qualify
as a "reorganization" under section 368(a)(1)(C) of the Code, and the Federated
Fund and the IAI Fund involved therein each will be "a party to a
reorganization" within the meaning of section 368(b) of the Code; (2) the IAI
Fund will recognize no gain or loss on the transfer of its assets to the
Federated Fund in exchange solely for the Federated Fund's shares or on the
subsequent distribution of those shares to the IAI Fund's shareholders in
exchange for their IAI Fund shares (except with respect to payments of certain
contingent liabilities of the IAI Fund described below); (3) the Federated Fund
will recognize no gain or loss on its receipt of those assets in exchange solely
for its shares; (4) the Federated Fund's basis in those assets will be the same
as the IAI Fund's basis therein immediately before the Reorganization, and the
Federated Fund's holding period for those assets will include the IAI Fund's
holding period therefor; (5) an IAI Fund shareholder will recognize no gain or
70
<PAGE>
loss on the constructive exchange of the shareholder's IAI Fund shares solely
for Federated Fund shares pursuant to the Reorganization (except with respect to
payments of those IAI Fund contingent liabilities); and (6) an IAI Fund
shareholder's aggregate basis in the Federated Fund shares received by the
shareholder in the Reorganization will be the same as the aggregate basis in the
shareholder's IAI Fund shares to be constructively surrendered in exchange for
those IAI Fund shares, and the shareholder's holding period for those Federated
Fund shares will include the shareholder's holding period for those IAI Fund
shares, provided the shareholder holds them as capital assets at the time of the
Reorganization.
The foregoing opinion may state that no opinion is expressed as to the
effect of a Reorganization on the participating Federated Fund or IAI Fund or
any IAI Fund shareholder with respect to any asset as to which any unrealized
gain or loss is required to be recognized for federal income tax purposes at the
end of a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting.
In connection with the Reorganizations involving IAI Emerging Growth Fund,
IAI Regional Fund, IAI Growth and Income Fund, IAI Midcap Growth Fund, and IAI
Long-Term Growth Fund, IAI has agreed to assume certain of those Funds'
contingent liabilities. If IAI makes a payment to satisfy any such liability of
an IAI Fund after its Reorganization has occurred and after it has liquidated
for tax purposes, those payments will result in the recognition of income for
federal tax purposes by the former shareholders of the IAI Fund. The former
shareholders may be entitled to claim a corresponding deduction for tax
purposes, which may be either capital or ordinary, depending upon the nature of
the claim against the IAI Fund that is being satisfied. If IAI makes a payment
in satisfaction of a liability, it will report to the former shareholders of the
IAI Fund on whose behalf it is making the payment the amount that they must
include in income and will also advise them as to the basis for claiming a
corresponding deduction for tax purposes.
You should recognize that an opinion of counsel is not binding on the
Internal Revenue Service ("IRS") or any court. Neither the IAI Funds nor the
Federated Funds expect to obtain a ruling from the IRS regarding the
consequences of the Reorganization. Accordingly, if the IRS sought to challenge
the tax treatment of any Reorganization and was successful, neither of which is
anticipated, the Reorganization would be treated as a taxable sale of assets of
the participating IAI Fund, followed by the taxable liquidation thereof.
In order to align the policies and investment practices of each IAI Fund
with those of its corresponding Federated Fund, it may be necessary to sell
certain portfolio securities currently held by an IAI Fund either before or
after the Reorganization. To the extent that gain is realized as a result of an
IAI Fund's sale of its portfolio securities in connection with the
Reorganization or as a result of a Federated Fund's sale of securities received
from its corresponding IAI Fund, distributions of those gains would be taxable
to shareholders.
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<PAGE>
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS AND OBLIGATIONS
The chart below describes some of the differences between your rights as a
shareholder of the IAI Funds and your rights as a shareholder of the Federated
Funds. To facilitate the comparison, we have broken the Funds into three
categories: the IAI Funds, the Federated Maryland Corporations and the Federated
Massachusetts Business Trusts. Each IAI Fund is organized as a series of a
Minnesota corporation, and each Federated Fund is a series of either a Maryland
corporation or a Massachusetts business trust. The following Federated Funds are
organized as series of a Maryland corporation:
Federated American Leaders Fund, Inc.
Federated Bond Fund
Federated International Equity Fund
Federated Stock and Bond Fund, Inc.
The following series are organized as series of a Massachusetts business trust:
Federated Aggressive Growth Fund
Automated Cash Management Trust
Federated Capital Appreciation Fund
Federated Growth Strategies Fund
Federated Large Cap Growth Fund
Exceptions are noted in the footnotes to the chart.
72
<PAGE>
<TABLE>
<CAPTION>
FEDERATED FEDERATED
CATEGORY IAI FUNDS MARYLAND CORPORATIONS MASSACHUSETTS BUSINESS
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Par Value Each share has a par value Each share has a par value No par value
of $.01 of $.0011
-------------------------------------------------------------------------------------------------------------------
2. Preemptive Rights None None None
-------------------------------------------------------------------------------------------------------------------
3. Preference None None None
-------------------------------------------------------------------------------------------------------------------
4. Appraisal Rights None None None
-------------------------------------------------------------------------------------------------------------------
5. Conversion Rights None except a contemplated None None
right to convert shares
into another Series or
Class
-------------------------------------------------------------------------------------------------------------------
6. Exchange Rights (not None None None
including the right to
exchange among Funds)
-------------------------------------------------------------------------------------------------------------------
7. Shareholder Rights No express statement No right to call for any No right to call for any
partition or division of partition or division of
property, profits, rights property, profits, rights
or interests of the or interest of the Trust
Corporation
-------------------------------------------------------------------------------------------------------------------
8. Personal Liability of No express statement No express statement None
Shareholders
-------------------------------------------------------------------------------------------------------------------
9. Annual meetings No annual meetings required No annual meetings required No annual meetings required
-------------------------------------------------------------------------------------------------------------------
10. Right to call meeting If a regular meeting of Shall be called upon Shall be called upon
of shareholders shareholders has not been request of shareholders request of shareholders
held during the holding at least 10% of the owning at least 10% of the
immediately preceding 15 outstanding shares outstanding shares
months, 3% or more of the
outstanding shares may
demand a regular meeting
by written notice of
demand to the chief
executive officer or chief
financial officer; In
addition, a shareholders
meeting shall be called at
any time upon request of
shareholders holding at
least 10% of the
outstanding shares; if the
meeting is to facilitate
or effect a business
combination, the meeting
must be called by 25% of
the outstanding shares
entitled to vote.
-------------------------------------------------------------------------------------------------------------------
---------------
7 Each share of Federated International Equity Fund has a par value of $.0001.
73
<PAGE>
11. Notice of meetings Mailed to each shareholder Mailed to each shareholder Mailed to each
entitled to vote at least entitled to vote at least shareholders entitled to
10 days before the 10 days, not more than 90 vote at least seven days
meeting, or two weeks in days before the meeting prior to the meeting to
the case of a meeting at the shareholders
which an agreement of registered address
merger or consolidation is
to be considered
-------------------------------------------------------------------------------------------------------------------
12. Record date for Directors may close Directors may close Trustees may close the
meetings transfer books not transfer book not exceeding Share transfer books for a
exceeding 60 days 90 days and not less than period not exceeding sixty
10 days prior to the date (60) days prior to the
of such meeting date of any meetings of
the Shareholders
-------------------------------------------------------------------------------------------------------------------
13. Election of Directors Majority of shares Majority of shares entitled A plurality
or Trustees represented at meeting or to vote
by proxy
-------------------------------------------------------------------------------------------------------------------
14. Adjournment of meetings Majority of shares Majority of shares A majority of Shares
represented at meeting or represented at meeting or present or by proxy
by proxy by proxy entitled to vote may vote
to adjourn
-------------------------------------------------------------------------------------------------------------------
15. Removal of Directors May be removed from office May be removed from office May be removed at a
or Trustees by by a vote of the by a vote of the shareholder meeting by a
Shareholders shareholders holding a shareholders holding a vote of shareholders
majority of the shares majority of the shares owning at least 2/3 of the
entitled to vote entitled to vote outstanding shares of the
Trust
-------------------------------------------------------------------------------------------------------------------
</TABLE>
74
<PAGE>
CAPITALIZATION
The following tables set forth the unaudited capitalization of each IAI
Fund and of the Federated Fund into which the IAI Fund will be reorganized as of
March 31, 2000:
<TABLE>
<CAPTION>
IAI IAI IAI
Federated Emerging Long Term Capital Federated
Aggressive Growth Growth Fund Appreciation Pro Forma*
Growth Fund Fund Fund Combined
------------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Net Assets.......... $333,534,903 $89,400,619 $16,561,484 $24,485,639 $463,982,645
Net Asset Value
Per Share........... $33.46* $16.51 $8.19 $17.27 $33.46*
Shares Outstanding.. 10,095,979 5,413,611 2,021,084 1,417,582 13,994,596
</TABLE>
*THE PRO FORMA FIGURES ASSUME THAT SHAREHOLDERS OF EACH OF IAI EMERGING GROWTH
FUND, IAI LONG TERM GROWTH FUND AND IAI CAPITAL APPRECIATION FUND APPROVE THE
PROPOSED REORGANIZATION.
<TABLE>
<CAPTION>
Federated IAI
American Growth and Federated
Leaders Fund, Income Pro Forma
Inc. Fund Combined
--------------- --------------- -------------------
<S> <C> <C> <C>
Net Assets................. $3,701,811,541 $31,416,201 $3,733,227,742
Net Asset Value Per Share.. $24.74* $14.04 $24.74 *
Shares Outstanding......... 2,237,945 151,140,768 149,870,913
Automated IAI Money Federated
Cash Market Pro Forma
Management Fund Combined
Trust
--------------- --------------- -------------------
Net Assets................. $3,473,344,060 $19,000,391 $3,492,344,451
Net Asset Value Per Share.. $1.00** $1.00 $1.00**
Shares Outstanding......... 3,473,344,060 19,000,391 3,492,344,451
Federated
Federated IAI Pro Forma
Bond Fund Bond Fund Combined
--------------- --------------- -------------------
Net Assets................. $ 958,682,947 $15,436,472 $ 974,119,419
Net Asset Value Per Share.. $8.44 $8.93* $8.93*
Shares Outstanding......... 107,235,229 1,828,966 108,963,837
75
<PAGE>
Federated
Capital IAI Federated
Appreciation Regional Pro Forma
Fund Fund Combined
--------------- --------------- -------------------
Net Assets................. $630,896,210 $190,168,251 $821,064,461
Net Asset Value Per Share.. $20.87 $31.02* $31.02*
Shares Outstanding......... 20,430,834 9,113,962 26,561,339
Federated
Growth IAI Federated
Strategies Midcap Growth Pro Forma
Fund Fund Combined
--------------- --------------- -------------------
Net Assets................. $1,742,835,548 $42,567,503 $1,785,403,051
Net Asset Value Per Share.. $17.96 $49.81* $49.81*
Shares Outstanding........ 35,502,143 2,370,526 36,356,741
Federated IAI Federated
International International Pro Forma
Equity Fund Fund Combined
--------------- --------------- -------------------
Net Assets................. $705,018,214 $11,778,333 $716,796,547
Net Asset Value Per Share.. $10.46 $33.19* $33.19*
Shares Outstanding........ 21,901,887 21,547,011 1,126,036
Federated IAI Federated
Large Cap Growth Pro Forma
Growth Fund Fund Combined
--------------- --------------- -------------------
Net Assets................. $728,706,708 $ 8,442,365 $737,149,073
Net Asset Value Per Share.. $11.50 $17.09* $17.09*
Shares Outstanding......... 43,258,472 42,764,478 733,987
Federated IAI Federated
Stock and Bond Balanced Pro Forma
Fund, Inc. Fund Combined
--------------- --------------- -------------------
Net Assets................. $260,625,874 $11,477,208 $272,103,082
Net Asset Value Per Share.. $ 9.85 $18.34* $18.34*
Shares Outstanding......... 15,009,128 14,383,326 1,165,531
</TABLE>
* Net Asset Value of Class A Shares.
** Net Asset Value of Institutional Service Shares
76
<PAGE>
INFORMATION ABOUT THE FEDERATED FUNDS AND THE IAI FUNDS
FEDERATED FUNDS
Information about each Federated Fund is contained in the Federated Funds
current Prospectus, each of which is incorporated herein by reference. A copy of
the current Prospectus of the Federated Fund for which your IAI Fund shares will
be exchanged and that fund's most current Annual Report to Shareholders are
included herewith. Additional information about each Federated Fund is included
in that Fund's Statement of Additional Information, and the Statement of
Additional Information dated July 20, 2000 (relating to this Prospectus/Proxy
Statement), each of which is incorporated herein by reference. Copies of the
Statements of Additional Information, which have been filed with the Securities
and Exchange Commission (the SEC), may be obtained upon request and without
charge by contacting the Federated Funds at 1-800-245-5051 or by writing the
Federated Funds at Federated Investors Funds, 5800Corporate Drive, Pittsburgh,
PA 15237-7000. The Federated Funds are subject to the informational requirements
of the Securities Act of 1933, as amended (the 1933 Act), the Securities
Exchange Act of 1934, as amended (the 1934 Act), and the 1940 Act and in
accordance therewith file reports and other information with the SEC. Reports,
proxy and information statements, charter documents and other information filed
by the Federated Funds can be obtained by calling or writing the Federated Funds
and can also be inspected and copied by the public at the public reference
facilities maintained by the SEC in Washington, D.C. located at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at certain of its regional
offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New York, NY
10048. Copies of such material can be obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services, SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates or from the SECs Internet site
at http://www.sec.gov.
This Prospectus/Proxy Statement, which constitutes part of a Registration
Statement filed by the Federated Funds with the SEC under the 1933 Act, omits
certain of the information contained in the Registration Statement. Reference is
hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Federated Funds and the shares offered
hereby. Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
SEC.
IAI FUNDS
Information about the IAI Funds is contained in each IAI Funds current
Prospectus, Annual Report to Shareholders, Statement of Additional Information,
and the Statement of Additional Information dated July 20, 2000 (relating to
this Prospectus/Proxy Statement), each of which is incorporated herein by
reference. Copies of such Prospectuses, Annual Reports, and Statements of
Additional Information, which have been filed with the SEC, may be obtained upon
request and without charge from the IAI Funds by calling 1-800-945-3863, or by
writing to the IAI Funds at c/o Firstar Trust Company, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701. The IAI Funds are subject to the informational
77
<PAGE>
requirements of the 1933 Act, the 1934 Act and the 1940 Act and in accordance
therewith file reports and other information with the SEC. Reports, proxy and
information statements, charter documents and other information filed by the IAI
Funds can be obtained by calling or writing the IAI Funds and can also be
inspected at the public reference facilities maintained by the SEC or obtained
at prescribed rates at the addresses listed in the previous section or from the
SECs Internet site at http://www.sec.gov.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of the IAI Funds of proxies for use at
the Special Meeting of Shareholders (the Special Meeting) to be held on
September 8, 2000 at 1 p.m., Central Time at 601 Second Avenue South, Suite
3600, Minneapolis, Minnesota 55402, and at any adjournments thereof. The proxy
confers discretionary authority on the persons designated therein to vote on
other business not currently contemplated which may properly come before the
Special Meeting. A proxy, if properly executed, duly returned and not revoked,
will be voted in accordance with the specifications thereon; if no instructions
are given, such proxy will be voted in favor of the Plan. A shareholder may
revoke a proxy at any time prior to use by filing with the Secretary of the IAI
Funds an instrument revoking the proxy, by submitting a proxy bearing a later
date or by attending and voting at the Special Meeting.
The cost of the solicitation, including the printing and mailing of proxy
materials, will be borne by Federated Investors and IAI pursuant to a separate
agreement. In addition to solicitations through the mails, proxies may be
solicited by officers, employees and agents of the IAI. Such solicitations may
be by telephone, telegraph or personal contact. IAI will reimburse custodians,
nominees and fiduciaries for the reasonable costs incurred by them in connection
with forwarding solicitation materials to the beneficial owners of shares held
of record by such persons.
You may vote by completing and signing the enclosed proxy card(s) and
mailing them in the enclosed postage paid envelope. You may also vote your
shares by phone at 1-800-690-6903. Internet voting is also available at
www.proxyvote.com. Shareholder Communications Corp. (SCC) has been hired to
assist in the proxy solicitation. For soliciting services, estimated proxy
expenses total $100,000. If votes are recorded by telephone, SCC will use
procedures designed to authenticate shareholders identities, to allow
shareholders to authorize the voting of their shares in accordance with their
instructions, and to confirm that a shareholders instructions have been
properly recorded.
OUTSTANDING SHARES AND VOTING REQUIREMENTS
The Board of Directors of the IAI Funds has fixed the close of business on
July 14, 2000, as the record date for the determination of shareholders of the
IAI Funds entitled to notice of and to vote at the Special Meeting and any
adjournments thereof. Each share of an IAI Fund is entitled to one vote and
fractional shares have proportionate voting rights. Only shareholders of record
78
<PAGE>
as of the record date are entitled to vote on the proposal. As of the record
date, each of the IAI Funds had the number of shares issued and outstanding
listed below:
Fund Name Total Shares Outstanding
--------- ------------------------
IAI Balanced Fund 1,168,121.450
IAI Bond Fund 1,451,416.617
IAI Capital Appreciation Fund 1,350,989.739
IAI Emerging Growth Fund 3,937,471.168
IAI Growth Fund 734,704.762
IAI Growth and Income Fund 2,331,652.155
IAI International Fund 1,101,024.440
IAI Long Term Growth Fund 2,359,837.111
IAI Midcap Growth Fund 2,702,969.029
IAI Money Market Fund 17,897,951.080
IAI Regional Fund 9,447,967.014
On the record date, the Directors and officers of the IAI Funds owned in
the aggregate 1.11% of the outstanding shares of the IAI Growth and Income Fund,
3.89% of the outstanding shares of the IAI Money Market Fund, and less than 1%
of the outstanding shares of each of the other IAI Funds. To the best knowledge
of IAI, as of the record date, no person, except as set forth in the table
below, owned beneficially or of record 5% or more of the outstanding shares of
any IAI Fund.
<TABLE>
<CAPTION>
Shares Owned Percent of
of Record and Outstanding
Name of Fund Name and Address Beneficially Shares
------------------ ----------------------------------- -------------- -----------
<S> <C> <C> <C>
IAI Balanced Fund Wausau Homes Inc. 226,323.584 19.47%
Attn: Marvin Schuette
PO Box 8005
Wausau, WI 54402-8005
Charles Schwab & Co. Inc.
SPL Custody A/C for Excl Benefit of
Customer
101 Montgomery St., Dept. 0
San Francisco, CA 94104-4122 126,871.655 10.92%
Emjayco
FBO Wausau Homes Inc.
401K Plan #6662
PO Box 170910
Milwaukee, WI 53217-8091 126,448.436 10.88%
79
<PAGE>
Shares Owned Percent of
of Record and Outstanding
Name of Fund Name and Address Beneficially Shares
------------------ ----------------------------------- -------------- -----------
IAI Bond Fund Charles Schwab & Co. Inc. 206,744.686 14.29%
SPL Custody A/C for Excl Benefit of
Customer
101 Montgomery St.
San Francisco, CA 94104-4122
IAI Capital Charles Schwab & Co. Inc. 208,617.691 15.43%
Appreciation SPL Custody A/C for Excl Benefit of
Fund Customer
Attn: Mutual Funds Dept. - Cap App
Rein
101 Montgomery St.
San Francisco, CA 94104-4122
Olcoba Company 188,478.025 13.94%
Attn: Marquette Trust Co.
7575 Golden Valley Rd., Ste 375
Golden Valley, MN 55427-4556
National Financial Services Corp. 88,118.207 6.52%
For the Excl Benefit of Our Customer
Attn; Reconciliation Dept.
PO Box 3908
New York, NY 10008-3908
IAI Emerging Charles Schwab & Co. Inc. 701,332.523 17.82%
Growth Fund SPL Custody A/C for Excl Benefit of
Customer
101 Montgomery St., Dept. 0
San Francisco, CA 94104-4122
IAI Growth Fund Charles Schwab & Co. Inc. 50,790.199 6.91%
SPL Custody A/C for Excl Benefit of
Customer
101 Montgomery St.
San Francisco, CA 94104-4122
Firstar Bank NA Cust. 41,532.744 5.65%
Thomas Clifford IRA Rollover
1336 Camelback Ct., NE
Rochester, MN 55906-8900
IAI Growth and Hawaiian Trust Co Ltd Agent 164,280.616 7.05%
Income Fund FSM National Government
FBO Yap State
Monetization Inv #140022302
PO Box 1930
Honolulu, HI 96805-1930
80
<PAGE>
Shares Owned Percent of
of Record and Outstanding
Name of Fund Name and Address Beneficially Shares
------------------ ----------------------------------- -------------- -----------
IAI International Hawaiian Trust Co. Ltd. Agent 214,129.749 19.52%
Fund FSM National Government
FBO Yap State
Monetization Inv #140022302
PO Box 1930
Honolulu, HI 96805-1930
Charles Schwab & Co. Inc. 193,430.200 17.63%
SPL Custody A/C for Excl Benefit of
Customer
101 Montgomery St.
San Francisco, CA 94104-4122
Salomon Smith Barney Inc. 84,798.403 7.73%
388 Greenwich St #-010980125
New York, NY 10013-2375
Olcoba Company 66,892.873 6.10%
Attn: Marquette Trust Co.
7575 Golden Valley Rd., Ste 375
Golden Valley, MN 55427-4556
IAI Long Term FTC & Co. 1,075,682.583 45.62%
Growth Fund Attn: Datalynx House Account
PO Box 173736
Denver, CO 80217-3736
Charles Schwab & Co. Inc. 230,398.830 9.77%
SPL Custody A/C for Excl Benefit of
Customer
101 Montgomery St., Dept 0
San Francisco, CA 94104-4122
IAI Midcap Charles Schwab & Co. Inc. 469,444.108 17.31%
Growth Fund SPL Custody A/C for Excl Benefit of
Customer
101 Montgomery St.
San Francisco, CA 94104-4122
National Financial Services Corp 173,759.397 6.43%
For the Excl Benefit of Our Customer
Attn: Reconciliation Dept.
PO Box 3908
New York, NY 10008-3908
81
<PAGE>
Shares Owned Percent of
of Record and Outstanding
Name of Fund Name and Address Beneficially Shares
------------------ ----------------------------------- -------------- -----------
Smith Barney 401K Advisor Group 168,347.756 6.22%
Trust
Smith Barney Corporate Trust Company
Attn: Plan Valuation Services
PO Box 1063
East Brunswick, NJ 08816-1063
IAI Regional Fund Charles Schwab & Co. Inc. 751,563.336 7.97%
SPL Custody A/C for Excl Benefit of
Customer
101 Montgomery St.
San Francisco, CA 94104-4122
</TABLE>
On the record date, the Directors/Trustees and officers of each Federated
Fund as a group owned less than 1% of the outstanding shares of each Federated
Fund. To the best knowledge of Federated Investment Management Company (and in
the case of Federated International Equity Fund, Federated Global Investment
Management Corporation), as of the record date, no person, except as set forth
in the table below, owned beneficially or of record 5% or more of the
outstanding shares of any Federated Fund.
<TABLE>
<CAPTION>
Shares Owned Percent of
Name of Fund Name and Address of Record and Outstanding
Beneficially Shares
----------------------------- ---------------------------------- ----------------- ---------------
<S> <C> <C> <C>
Federated Aggressive Growth MLPF&S for the sole benefit of 533,816.241 8.38%
Fund (Class A) its customers
Attn: Fund Admin. SEC #97L82
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, FL 32246-6484
Federated Aggressive Growth MLPF&S for the sole benefit of 501,401.577 8.31%
Fund (Class B) its customers
Attn: Fund Admin. SEC #97L83
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, FL 32246-6484
82
<PAGE>
Shares Owned Percent of
Name of Fund Name and Address of Record and Outstanding
Beneficially Shares
----------------------------- ---------------------------------- ----------------- ---------------
Federated Aggressive Growth MLPF&S for the sole benefit of 458,305.761 26.78%
Fund (Class C) its customers
Attn: Fund Admin. SEC #97L84
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, FL 32246-6484
Federated American Leaders MLPF&S for the sole benefit of 1,740,931.638 22.85%
Fund, Inc. (Class C) its customers
Attn: Fund Admin. SEC #97BG7
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, FL 32246-6484
Federated American Leaders MLPF&S for the sole benefit of 935,937.088 19.35%
Fund, Inc. (Class F) its customers
Attn: Fund Admin. SEC #97B11
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, FL 32246-6484
Automated Cash Management Stephens Inc. 186,735,870.040 8.62%
Trust (Institutional Omnibus Account
Service Shares) C/o Stephens Inc.
Attn: Jean Geiger
P.O. Box 3507
Little Rock, AR 72203-3507
Fiduciary Tr. Co. International 390,966,754.070 18.04%
Customer Account
Attn: Sec. Dept. Ben Dipietro
PO Box 3199 - Church St. Station
New York, NY 10008-3199
Primevest Financial Services 121,469,902.790 5.60%
Attn: Commercial Sweep Account
400 First Street South
Suite 300
St. Cloud, MN 56301-3661
Federated Bond Fund MLPF&S for the sole benefit of 6,037,537.103 24.28%
(Class A) its customers
Attn: Fund Admin. SEC #97G52
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, FL 32246-6484
83
<PAGE>
Shares Owned Percent of
Name of Fund Name and Address of Record and Outstanding
Beneficially Shares
----------------------------- ---------------------------------- ----------------- ---------------
Federated Bond Fund MLPF&S for the sole benefit of 2,998,623.517 8.92%
(Class B) its customers
Attn: Fund Admin. SEC #97G53
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, FL 32246-6484
Federated Bond Fund MLPF&S for the sole benefit of 2,661,758.079 30.65%
(Class C) its customers
Attn: Fund Admin. SEC #97G54
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, FL 32246-6484
Federated Bond Fund Parsch & Co. 1,937,895.742 5.27%
(Class F) Lapeer County Bank & Trust Co.
Attn: Trust Department
P.O. Box 250
Lapeer, MI 48446-0250
MLPF&S for the sole benefit of 3,470,403.255 9.43%
its customers
Attn: Fund Admin. SEC #971L6
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, FL 32246-6484
Nationwide QPVA 6,751,327.883 18.35%
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Federated Capital MLPF&S for the sole benefit of 136,231.823 12.06%
Appreciation Fund (Class C) its customers
Attn: Fund Admin. SEC #97JG2
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, FL 32246-6484
Federated Growth Strategies MLPF&S For the Sole Benefit of 112,732.104 6.82%
Fund (Class C) Its Customers
Attn: Fund Admin. Sec. #97HC2
4800 Deer Lake Drive East 2nd
Flr.
Jacksonville, FL 32246-6484
Federated International MLPF&S For the Sole Benefit of 344,234.180 8.59%
Equity Fund (Class B) Its Customers
Attn: Fund Admin. Sec. #97FH4
4800 Deer Lake Drive East 2nd
Flr.
Jacksonville, FL 32246-6484
84
<PAGE>
Shares Owned Percent of
Name of Fund Name and Address of Record and Outstanding
Beneficially Shares
----------------------------- ---------------------------------- ----------------- ---------------
Federated International MLPF&S For the Sole Benefit of 547,453.614 19.19%
Equity Fund (Class C) Its Customers
Attn: Fund Admin. Sec. #97BH2
4800 Deer Lake Drive East 2nd
Flr.
Jacksonville, FL 32246-6484
Federated Large Cap Growth MLPF&S For The Sole Benefit Of 521,347.986 13.53%
Fund (Class C) Its Customers
Attn: Fund Admin. Sec. #9EELO
4800 Deer Lake Drive E Fl. 2
Jacksonville, FL 32246-6484
Federated Stock and Bond MLPF&S For The Sole Benefit Of 71,958.589 5.94%
Fund, Inc. (Class C) Its Customers
Attn: Fund Admin. Sec. #9EELO
4800 Deer Lake Drive E Fl. 2
Jacksonville, FL 32246-6484
Banco Popular De Puerto Rico 87,738.755 7.25%
RPO Western Auto Puerto Rico Inc.
Attn: Maryvette Velazques Torres
Trust Division 725
Ponce De Leon 209 FL 4
Hato Rey PR 00917-1818
</TABLE>
Approval of the Plan with respect to an IAI Fund requires the affirmative
vote, in person or by proxy, of a majority of the outstanding shares on the
record date. With respect to IAI Balanced Fund, IAI Capital Appreciation Fund,
IAI Emerging Growth Fund, IAI Midcap Growth Fund and IAI Money Market Fund, all
of which are series of IAI VI, approval of the Plan will be considered approval
of the amendment to the Articles of Incorporation of IAI VI required to effect
the Reorganization attached to the Plan. In the event that shareholders of one
or more of the IAI Funds do not approve the Plan, the Reorganization will
proceed with respect to those IAI Funds that have approved the Plan, subject to
certain other conditions being met. The votes of shareholders of the Federated
Funds are not being solicited since their approval is not required in order to
effect the Reorganization.
Each IAI Fund will vote separately on the proposal. In order for the
shareholder meeting to go forward for an IAI Fund, there must be a quorum. This
means that at least 10% of that Fund's shares must be represented at the
meeting-either in person or by proxy. All returned proxies count toward a
quorum, regardless of how they are voted. An abstention will be counted as
shares present at the meeting in determining whether a proposal has been
approved, and will have the same effect as a vote "against" the proposal. Broker
non-votes will not be counted as present in calculating the vote on any
proposal. (Broker non-votes are shares for which (a) the underlying owner has
not voted and (b) the broker holding the shares does not have discretionary
85
<PAGE>
authority to vote on the particular matter.) If you sign and date your proxy,
but do not specify instructions, your shares will be voted in favor of the
proposal.
If a quorum is not obtained or if sufficient votes to approve any of the
proposals are not received, the persons named as proxies may propose one or more
adjournments of the meeting to permit further solicitation of proxies. In
determining whether to adjourn the meeting, the following factors may be
considered: the nature of the proposal; the percentage of votes actually cast;
the percentage of negative votes actually cast; the nature of any further
solicitation; and the information to be provided to shareholders with respect to
the reasons for the solicitation. Any adjournment will require a vote in favor
of the adjournment by the holders of a majority of the shares present in person
or by proxy at the meeting (or any adjournment of the meeting).
Other Matters
Management of the IAI Funds knows of no other matters that may properly be,
or which are likely to be, brought before the Special Meeting. However, if any
other business shall properly come before the Special Meeting, the persons named
in the proxy intend to vote thereon in accordance with their best judgment.
Board Recommendation
After carefully considering the issues involved, the Board of Directors of
the IAI Funds has unanimously concluded that the proposed Reorganization is in
the best interests of shareholders. The Board of Directors of the IAI Funds
recommends that you vote to approve the Plan. Whether or not shareholders expect
to attend the Special Meeting, all shareholders are urged to sign, fill in and
return the enclosed proxy form promptly.
86
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JULY 20, 2000
Federated Bond Fund
(Class A shares)
(a series of Federated Investment Series Funds, Inc.)
Federated Aggressive Growth Fund
Federated Capital Appreciation Fund
Federated Growth Strategies Fund
Federated Large Cap Growth Fund
(Class A Shares)
(each a series of Federated Equity Funds)
Federated International Equity Fund
(Class A Shares)
(a series of Federated International Series,
Inc.)
Federated Stock and Bond Fund, Inc.
(Class A Shares)
Automated Cash
Management Trust
(Institutional Service Shares)
(a series of Money Market Obligations Trust)
Federated American Leaders Fund, Inc.
(Class A Shares)
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
To acquire the Assets of:
The IAI Funds
601 Second Avenue South
Suite 3600
Minneapolis, Minnesota 55402
1-800-945-3863
This Statement of Additional Information relates specifically to the
reorganization of mutual funds managed by Investment Advisers, Inc. ("IAI
Funds") into the above-referenced Federated Funds (each a "Federated Fund").
Pursuant to this reorganization, each Federated Fund would acquire all of the
assets of an IAI Fund that has substantially similar investment objectives and
investment policies and strategies, and Federated Fund shares would be
distributed pro rata by each IAI Fund to the holders of its shares, in complete
liquidation of the IAI Fund. For the name of the Federated Fund into which your
IAI Fund would be reorganized, see the "Summary - About the Proposed
Reorganization" in the Prospectus/Proxy Statement dated July 20, 2000. This
<PAGE>
Statement of Additional Information dated July 20, 2000 is not a prospectus. A
Prospectus/Proxy Statement dated July 20, 2000, related to the above-referenced
matter may be obtained from the Federated Funds at the address and telephone
number shown above. This Statement of Additional Information should be read in
conjunction with such Prospectus/Proxy Statement.
This Statement of Additional Information consists of the following
described documents, each of which is incorporated by reference herein:
1. Statement of Additional Information of IAI Bond Fund, a series of IAI
Investment Funds I, Inc., dated March 31, 2000, included in Post-Effective
Amendment No. 41 to the Registration Statement on Form N-1A of IAI Investment
Funds I, Inc. (1933 Act File No. 2-59115 and 1940 Act File No. 811-2747),
previously filed on EDGAR, Accession Number 0000897101-00-000337.
2. Statement of Additional Information of IAI Growth Fund, a series of IAI
Investment Funds II, Inc., dated July 30, 1999, included in Post-Effective
Amendment No. 11 to the Registration Statement on Form N-1A of IAI Investment
Funds II, Inc. (1933 Act File No. 33-61834 and 1940 Act File No. 811-7690),
previously filed on EDGAR, Accession Number 0000897101-99-000749.
3. Statement of Additional Information of IAI International Fund, a series
of IAI Investment Funds III, Inc., dated March 1, 2000, included in
Post-Effective Amendment No. 29 to the Registration Statement on Form N-1A of
IAI Investment Funds III, Inc. (1933 Act File No. 33-10207 and 1940 Act File No.
811-4904), previously filed on EDGAR, Accession Number 0000897101-00-000206.
4. Statement of Additional Information of IAI Regional Fund, a series of
IAI Investment Funds IV, Inc., dated July 30, 1999, included in Post-Effective
Amendment No. 35 to the Registration Statement on Form N-1A of IAI Investment
Funds IV, Inc. (1933 Act File No. 2-66885 and 1940 Act File No. 811-3004),
previously filed on EDGAR, Accession Number 0000897101-99-000750.
5. Statement of Additional Information of IAI Balanced Fund, IAI Capital
Appreciation Fund, IAI Emerging Growth Fund, IAI Midcap Growth Fund, IAI Money
Market Fund, each a series of IAI Investment Funds VI, Inc., dated July 30,
1999, included in Post-Effective Amendment No. 31 to the Registration Statement
on Form N-1A of IAI Investment Funds VI, Inc. (1933 Act File No. 33-40496 and
1940 Act File No. 811-5990), previously filed on EDGAR, Accession Number
0000897101-99-000754.
6. Statement of Additional Information of IAI Growth and Income Fund, a
series of IAI Investment Funds VII, Inc., dated July 30, 1999, included in
Post-Effective Amendment No. 54 to the Registration Statement on Form N-1A of
IAI Investment Funds VII, Inc. (1933 Act File No. 2-39560 and 1940 Act File No.
811-2147), previously filed on EDGAR, Accession Number 0000897101-99-000752.
7. Statement of Additional Information of IAI Long Term Growth Fund
(formerly, IAI Value Fund), a series of IAI Investment Funds VIII, Inc., dated
July 30, 1999, included in Post-Effective Amendment No. 27 to the Registration
Statement on Form N-1A of IAI Investment Funds VIII, Inc. (1933 Act File No.
2-84589 and 1940 Act File No. 811-3767), previously filed on EDGAR, Accession
Number 0000897101-99-000751.
2
<PAGE>
8. Statement of Additional Information of Federated Bond Fund, a series of
Federated Investment Series Funds, Inc., dated December 31, 1999, included in
Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A of
Federated Investment Series Funds, Inc. (1933 Act File No. 33-48847 and 1940 Act
File No. 811-07021), previously filed on EDGAR, Accession Number
0000889388-99-000014.
9. Statement of Additional Information of Federated Aggressive Growth
Fund, Federated Capital Appreciation Fund, Federated Growth Strategies Fund,
Federated Large Cap Growth Fund, each a series of Federated Equity Funds, dated
December 31, 1999, included in Post-Effective Amendment No. 44 to the
Registration Statement on Form N-1A of Federated Equity Funds, as amended on
March 28, 2000, (1933 Act File No. 2-91090 and 1940 Act File No. 811-4017),
previously filed on EDGAR, Accession Numbers 0000745968-99-000014 and
0000745968-00-000007, respectively.
10. Statement of Additional Information of Federated International Equity
Fund, a series of Federated International Series, Inc., dated March 31, 2000
included in Post-Effective Amendment No. 36 to the Registration Statement on
Form N-1A of Federated International Series, Inc. (1933 Act File No. 2-91776 and
1940 Act File No. 811-3984), previously filed on EDGAR, Accession Number
0000742286-00-000010.
11. Statement of Additional Information of Federated Stock and Bond Fund,
Inc., dated December 31, 1999, included in Post-Effective Amendment No. 100 to
the Registration Statement on Form N-1A of Federated Stock and Bond Fund, Inc.,
as amended March 28, 2000, (1933 Act File No. 2-10415 and 1940 Act File No.
811-1), previously filed on EDGAR, Accession Numbers 0000013386-99-000016 and
0000013386-00-000006, respectively.
12. Statement of Additional Information of Automated Cash Management Trust,
a series of Money Market Obligations Trust, dated September 30, 1999, included
in Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of
Money Market Obligations Trust (1933 Act File No. 33-31602 and 1940 Act File No.
811-5950), previously filed on EDGAR, Accession Number 0000856517-99-000036.
13. Statement of Additional Information of Federated American Leaders Fund,
Inc., dated May 31, 2000, included in Post-Effective Amendment No. 67 to the
Registration Statement on Form N-1A of Federated American Leaders Fund, Inc.
(1933 Act File No. 2-29786 and 1940 Act File No. 811-1704), previously filed on
EDGAR, Accession Number 0000005352-00-000004.
14. The audited financial statements of IAI Bond Fund, a series of IAI
Investment Funds I, Inc., included in the Annual Report to Shareholders of IAI
Bond Fund for the fiscal year ended November 30, 1999, previously filed on
EDGAR, Accession Number 0000897101-99-000765.
15. The audited financial statements of IAI Growth Fund, a series of IAI
Investment Funds II, Inc., included in the Annual Report to Shareholders of IAI
Growth Fund for the fiscal year ended March 31, 2000, previously filed on EDGAR,
Accession Number 0000897101-00-000601.
16. The audited financial statements of IAI International Fund, a series of
IAI Investment Funds III, Inc., included in the Annual Report to Shareholders of
IAI International Fund for the fiscal year ended October 31, 1999, previously
filed on EDGAR, Accession Number 0000897101-99-000006.
3
<PAGE>
17. The unaudited financial statements of IAI International Fund, a series
of IAI Investment Funds III, Inc., included in the Semi-Annual Report to
Shareholders of IAI International Fund for the period ended April 30, 2000,
previously filed on EDGAR, Accession Number 0000897101-00-000675.
18. The audited financial statements of IAI Regional Fund, a series of IAI
Investment Funds IV, Inc., included in the Annual Report to Shareholders of IAI
Regional Fund for the fiscal year ended March 31, 2000, previously filed on
EDGAR, Accession Number 0000897101-00-000601.
19. The audited financial statements of IAI Balanced Fund, IAI Capital
Appreciation Fund, IAI Emerging Growth Fund, IAI Midcap Growth Fund, each a
series of IAI Investment Funds VI, Inc., included in the Annual Reports to
Shareholders of IAI Investment Funds VI, Inc. for the fiscal year ended March
31, 2000, previously filed on EDGAR, Accession Numbers 0000897101-00-000600 (IAI
Balanced Fund), and 0000897101-00-000601 (IAI Capital Appreciation Fund, IAI
Emerging Growth Fund, and IAI Midcap Growth Fund).
20. The audited financial statements of IAI Money Market Fund, a series of
IAI Investment Funds VI, Inc., included in the Annual Report to Shareholders of
IAI Money Market Fund for the fiscal year ended January 31, 2000, previously
filed on EDGAR, Accession Number 0000897101-00-000347.
21. The audited financial Statements of IAI Growth and Income Fund, a
series of IAI Investment Funds VII, Inc., included in the Annual Report to
Shareholders of IAI Growth and Income Fund for the fiscal year ended March 31,
2000, previously filed on EDGAR, Accession Number 0000897101-00-000601.
22. The audited financial statements of IAI Long Term Growth Fund
(formerly, IAI Value Fund), a series of IAI Investment Funds VIII, Inc.,
included in the Annual Report to Shareholders of IAI Long Term Growth Fund for
the fiscal year ended March 31, 2000, previously filed on EDGAR, Accession
Number 0000897101-00-000601.
23. The audited financial statements of Federated Bond Fund, a series of
Federated Investment Series Funds, Inc., included in the Annual Report to
Shareholders of Federated Bond Fund for the fiscal year ended October 31, 1999,
previously filed on EDGAR, Accession Number 0000889388-99-000010.
24. The unaudited financial statements of Federated Bond Fund, a series of
Federated Investment Series Funds, Inc., included in the Semi-Annual Report to
Shareholders of Federated Bond Fund for the period ended April 30, 2000,
previously filed on EDGAR, Accession Number 0000889388-00-000005.
25. The audited financial statements of Federated Aggressive Growth Fund,
Federated Capital Appreciation Fund, Federated Growth Strategies Fund, Federated
Large Cap Growth Fund, each a series of Federated Equity Funds, included in the
separate Annual Reports to Shareholders of Federated Aggressive Growth Fund,
Federated Capital Appreciation Fund, Federated Growth Strategies Fund, Federated
Large Cap Growth Fund for the fiscal year ended October 31, 1999, previously
filed on EDGAR, Accession Number 0000745968-00-000013.
26. The unaudited financial statements of Federated Aggressive Growth Fund,
Federated Capital Appreciation Fund, Federated Growth Strategies Fund, Federated
Large Cap Growth Fund, each a series of Federated Equity Funds, included in the
4
<PAGE>
separate Semi-Annual Reports to Shareholders of Federated Aggressive Growth
Fund, Federated Capital Appreciation Fund, Federated Growth Strategies Fund,
Federated Large Cap Growth Fund for the period ended April 30, 2000, previously
filed on EDGAR, Accession Number 0000745968-00-000013.
27. The audited financial statements of Federated International Equity
Fund, a series of Federated International Series, Inc., included in the Annual
Report to Shareholders of Federated International Equity Fund for the fiscal
year ended November 30, 1999, previously filed on EDGAR, Accession Number
0000742286-00-000002.
28. The audited financial statements of Federated Stock and Bond Fund,
Inc., included in the Annual Report to Shareholders of Federated Stock and Bond
Fund, Inc. for the fiscal year ended October 31, 1999, previously filed on
EDGAR, Accession Number 0000013386-99-000013.
29. The unaudited financial statements of Federated Stock and Bond Fund,
Inc., included in the Semi-Annual Report to Shareholders of Federated Stock and
Bond Fund, Inc. for the period ended April 30, 2000, previously filed on EDGAR,
Accession Number 0000013386-00-000009.
30. The audited financial statements of Automated Cash Management Trust, a
series of Money Market Obligations Trust, included in the Annual Report to
Shareholders of Automated Cash Management Trust for the fiscal year ended July
31, 1999, previously filed on EDGAR, Accession Number 0000856517-99-000042.
31. The unaudited financial statements of Automated Cash Management Trust,
a series of Money Market Obligations Trust, included in the Semi-Annual Report
to Shareholders of Automated Cash Management Trust for the period ended January
31, 2000, previously filed on EDGAR, Accession Number 0000856517-00-000013.
32. The audited financial statements of Federated American Leaders Fund,
Inc. included in the Annual Report to Shareholders of Federated American Leaders
Fund, Inc. for the fiscal year ended March 31, 2000, previously filed on EDGAR,
Accession Number 0000005352-00-0000003.
5
<PAGE>
IAI EMERGING GROWTH FUND
IAI LONG TERM GROWTH FUND
IAI CAPITAL APPRECIATION FUND
FEDERATED AGGRESSIVE GROWTH FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
Basis of Combination
--------------------
The accompanying unaudited Pro Forma Combining Statements of Assets and
Liabilities, Statements of Operations and Schedule of Investments ("Pro Forma
Financial Statements") reflect the accounts of IAI Emerging Growth Fund, IAI
Long Term Growth Fund, IAI Capital Appreciation Fund, collectively ("the IAI
Funds"), and the Federated Aggressive Growth Fund ("Federated Fund") for the
year ended March 31, 2000. These statements have been derived from the books and
records utilized in calculating daily net asset values at March 31, 2000.
The Pro Forma Combining Financial Statements are presented for the information
of the reader and may not necessarily be representative of what the actual
combined financial statements would have been had the reorganization occurred at
March 31, 2000. They should be read in conjunction with the historical financial
statements of the Funds which have been incorporated by reference in the
Statement of Additional Information. The Funds follow generally accepted
accounting principles applicable to management investment companies which are
disclosed in the historical financial statements of each fund.
The Pro Forma Combining Financial Statements give effect to the proposed
exchange of assets of the IAI Funds for shares of Federated Fund as if the
reorganization was consummated on March 31, 2000. Under generally accepted
accounting principles, Federated Fund will be the surviving entity for
accounting purposes with its historical cost of investment securities and
results of operations being carried forward. The statements assume that the
shareholders of each IAI Fund have approved its reorganization into the
Federated Fund. If shareholders of one or more of the IAI Funds do not approve
the reorganization, pro forma financial information may be different than that
provided.
To the extent any of the IAI Funds have capital losses, they will be aggregated
and carried forward to the Federated Fund. Subject to limitations, the Federated
Fund will be able to use these losses to offset future capital gains it realizes
and, thereby, minimize taxable gains to its shareholders.
Adjustments to Pro Forma Combining Statement of Assets and Liabilities
----------------------------------------------------------------------
The following assumptions were made to the pro forma combining statement of
assets and liabilities.
6
<PAGE>
The statement assumes that the shareholders of each IAI Fund have approved its
reorganization into the Federated Fund. If shareholders of one or more of the
IAI Funds do not approve the reorganization, pro forma financial information may
be different than that provided.
The pro forma net assets per share assumes the issuance of 3,898,617 shares of
the Federated Aggressive Growth Fund in exchange for 5,413,611shares IAI
Emerging Growth Fund, 2,021,084 shares of IAI Long Term Growth Fund and
1,417,582 shares of IAI Capital Appreciation Fund which would have been issued
at March 31, 2000, in connection with the proposed reorganization.
Adjustments to Pro Forma Combining Statement of Operations
----------------------------------------------------------
The following assumptions were made as part of the pro forma combining statement
of operations.
The statement assumes that the shareholders of each IAI Fund have approved its
reorganization into the Federated Fund. If shareholders of one or more of the
IAI Funds do not approve the reorganization, pro forma financial information may
be different than that provided.
The pro forma combined Federated Aggressive Growth Fund will use all of the
Federated Aggressive Growth Fund's current service providers at their current
contracted rates.
Under terms of the IAI Funds Management Agreement, Investment Advisers, Inc.
("IAI") is required to pay for all expenses of each IAI Fund, except certain
costs (primarily those incurred in the purchase and sale of assets, taxes,
interest and extraordinary expenses), in return for the fund's paying an all
inclusive management fee equal to an annual rate of 1.25% declining to 1.10% of
average daily net assets of the IAI Emerging Growth Fund, 1.25% declining to
1.10% of average daily net assets of the IAI Long Term Growth Fund, and 1.40%
declining to 1.10% of the average daily net assets of the IAI Capital
Appreciation Fund. The Management Agreement also provides that IAI will
reimburse each fund for the fees and expenses it pays to Directors who are not
"interested persons" of the Fund or reduce its fee by an equivalent amount. For
the year ended March 31, 2000, the IAI Emerging Growth Fund, IAI Long Term
Growth Fund and IAI Capital Appreciation Fund paid investment advisory fees of
1.25%, 1.25% and 1.40%, respectively.
Federated Investment Management Company ("FIMC") acts as the investment adviser
for the Federated Aggressive Growth Fund. For its services, FIMC receives an
annual fee equal to 1.00% of the Fund's average daily net assets.
An adjustment to the combining investment advisory fee reflects investment
advisory fees charged at 1.00% of the pro forma combined fund's average daily
assets.
Administrative personnel and services will be provided to the combined entity by
Federated Services Company for a fee based on a scale that ranges from 0.15% to
0.075% of the average aggregate daily net assets of all funds advised by
7
<PAGE>
Federated Investors, Inc., subject to a minimum fee of $125,000 plus $30,000 for
each additional class of shares per annum.
Custodian, transfer and dividend disbursing agent, and portfolio accountant fees
are calculated based on existing fund contracts that stipulate base fees and
other factors such as the fund's asset size, number of accounts, and number and
types of transactions.
The director's fees of the pro forma adjusted entity have been adjusted to
reflect estimated fees incurred by the Federated Aggressive Growth Fund's board
of directors.
The pro forma shareholder services fee has been adjusted to reflect the
combination of the IAI Funds' net assets into Federated Aggressive Growth Fund's
Class A Shares.
Pro forma legal, share registration, insurance, and miscellaneous fees have been
adjusted to reflect the estimated charges of the combined entity.
8
<PAGE>
<TABLE>
<CAPTION>
IAI Emerging Growth Fund
IAI Long Term Growth Fund
IAI Capital Appreciation Fund
Federated Aggressive Growth Fund
Pro Forma Combining Statements of Assets and
Liabilities
March 31, 2000 (Unaudited)
-------------------------------------------------------------------------------------------------------------------------------
IAI IAI IAI Federated
Emerging Long Term Capital Aggressive
Growth Growth Appreciation Growth Pro Forma Proforma
Fund Fund Fund Fund Adjustment3 Combined
-------------- ------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value $90,628,150 $16,470,613 $25,142,520 $335,306,093 - 467,547,376
Cash 113,822 13,903 - 2,879 - 130,604
Income receivable 4,285 2,170 2,947 3,741 - 13,143
Receivable for shares sold 166,948 - - 8,633,234 - 8,800,182
Receivable for Investments sold 2,862,017 822,691 601,188 1,225,492 - 5,511,388
Prepaid assets - 11,766 - 6,943 - 18,709
----------- ----------- ----------- ------------ ---------- ------------
Total assets 93,775,222 17,321,143 25,746,655 345,178,382 - 482,021,402
----------- ----------- ----------- ------------ ---------- ------------
LIABILITIES:
Payable for investments purchased 4,098,083 739,121 1,177,420 10,797,177 - 16,811,801
Payable for shares redeemed 184,872 4,504 19,239 472,692 - 681,307
Bank overdraft - - 39,181 - 39,181
Income distribution payable - - - - -
Accrued expenses 91,648 16,034 25,176 373,610 - 506,468
----------- ----------- ----------- ------------ ---------- ------------
Total liabilities 4,374,603 759,659 1,261,016 11,643,479 - 18,038,757
----------- ----------- ----------- ------------ ---------- ------------
NET ASSETS $89,400,619 $16,561,484 $24,485,639 $333,534,903 $ - $463,982,645
----------- ----------- ----------- ------------ ---------- ------------
NET ASSETS CONSISTS OF:
Paid in capital $50,822,946 $12,416,930 $15,614,707 $272,982,387 $ - 351,836,970
Net unrealized appreciation
(depreciation)
of investments 16,598,176 1,815,486 4,358,060 49,128,374 - 71,900,096
Accumulated net realized gain (loss)
on Investments 22,007,546 2,329,068 4,512,872 14,429,192 - 43,278,678
Accumulated undistributed net
investment income/(Distributions
in excess of net investment income) (28,049) - - (3,005,050) - (3,033,099)
----------- ----------- ----------- ------------ ---------- ------------
Total Net Assets $89,400,619 $16,561,484 $24,485,639 $333,534,903 $ - $463,982,645
----------- ----------- ----------- ------------ ---------- ------------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE
Net Asset Value and Redemption Proceeds
Per Share $ 16.51 $ 8.19 $ 17.27 $ 33.46(1) $ 33.46
----------- ----------- ----------- ------------ ---------- ------------
Offering Price Per Share $ 16.51 $ 8.19 $ 17.27 $ 35.41(2) $ 35.41
----------- ----------- ----------- ------------ ---------- ------------
SHARES OUTSTANDING (ALL CLASSES) 5,413,611 2,021,084 1,417,582 10,095,979 (4,953,660) 13,994,596
----------- ----------- ----------- ------------ ---------- ------------
9
<PAGE>
COST OF INVESTMENTS $74,029,974 $14,655,127 $20,784,460 $286,177,719 $395,647,280
----------- ----------- ----------- ------------ ------------
1 Class A shares
2 Computation of offering price per share 100/94.5 of net asset value. This factors in the sales load charged to certain other
investors of the Federated Aggressive Growth Fund. However, IAI Fund shareholders will not pay any sales charges in connection
with the reorganization or on any subsequent purchases of or exchanges for shares of other Federated mutual funds; such
transactions will be effected at net asset value.
3 See Notes to Pro Forma Financial Statements for discussion of pro forma adjustments.
</TABLE>
10
<PAGE>
<TABLE>
IAI Emerging Growth Fund
IAI Long Term Growth Fund
IAI Capital Appreciation Fund
Federated Aggressive Growth Fund
Pro Forma Combining Statements of Operations
Year Ended March 31, 2000 (unaudited)
---------------------------------------------------
<CAPTION>
IAI IAI Federated
Emerging IAI Capital Aggressive
Growth Value Appreciation Growth Pro Forma Pro Forma
Fund Fund Fund Fund Adjustment Combined
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 9,574 $ 61,125 $ 19,113 $ 14,676 $ - $ 104,488
Interest 243,054 40,163 60,960 145,572 - 489,749
------------ ------------ ------------ ------------ ------------ ------------
Total investment income 252,628 101,288 80,073 160,248 594,237
EXPENSES:
Investment advisory fee 755,602 125,699 356,300 1,028,365 (278,061) 1,987,905
Administrative personnel and services fee - - - 185,000 - 185,000
Custodian fees - - - 22,841 9,595 32,436
Transfer and dividend disbursing agent fees - - - 345,943 50,000 395,943
Directors' fees 23,347 3,890 10,074 4,395 (36,811) 4,895
Auditing fees - - - 9,570 - 9,570
Legal fees - - - 1,724 - 1,724
Portfolio accounting fees - - - 76,778 20,000 96,778
Shareholder services fees - - - 257,091 239,900 496,991
Share registration costs - - - 62,922 25,000 87,922
Printing and postage - - - 71,618 15,000 86,618
Interest expense 375 359 109 - (843) -
Distribution fees - - - 555,149 - 555,149
Insurance premiums - - - - - -
Miscellaneous - - - 9,490 7,500 16,990
------------ ------------ ------------ ------------ ------------ ------------
TOTAL EXPENSES 779,324 129,948 366,483 2,630,886 51,280 3,957,921
Less fees waived/reimbursed by adviser (23,347) (3,890) (10,074) (276,148) 37,311 (276,148)
------------ ------------ ------------ ------------ ------------ ------------
NET EXPENSES 755,977 126,058 356,409 2,354,738 88,591 3,681,773
------------ ------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME/(NET OPERATING
LOSS) $ (503,349) $ (24,770) $ (276,336) $(2,194,490) $ (88,591) $(3,087,536)
------------ ------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments 36,771,387 6,364,324 9,223,171 15,054,835 - 67,413,717
Net change in unrealized appreciation
(depreciation) on investments (1,888,674) (5,686,039) 1,969,105 41,336,420 - 35,730,812
Net realized and unrealized gain
(loss) on investments 34,882,713 678,285 11,192,276 56,391,255 - 103,144,529
------------ ------------ ------------ ------------ ------------ ------------
Change in net assets resulting
from operations $ 34,379,364 $ 653,515 $ 10,915,940 $ 54,196,765 $ (88,591) $100,056,993
------------ ------------ ------------ ------------ ------------ ------------
(See Notes to Pro Forma Financial Statements for a discussion of Pro Forma Adjustments)
</TABLE>
11
<PAGE>
--------------------------------------------
IAI Emerging Growth Fund
IAI Long Term Growth Fund
IAI Capital Appreciation Fund
Federated Aggressive Growth Fund
Pro Forma Combining Schedule of Investments
As of March 31, 2000
<TABLE>
Principal Amount of Shares Value
<CAPTION>
IAI IAI
IAI Long Term IAI Federated IAI Long Term IAI
Emerging Growth Capital Aggressive Pro Forma Emerging Growth Capital
Growth Fund Appreciation Growth Combined Growth Fund Appreciation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stocks--98.3%
Capital Goods--4.8%
93,300 93,300 ACT Manufacturing, Inc.
15,300 15,300 Dupont Photomasks, Inc.
17,700 17,700 Flextronics International Ltd.
132,500 132,500 Newpark Resources, Inc.
118,560 118,560 Orbital Sciences Corp.
93,000 93,000 Waste Connections, Inc.
62,600 62,600 Zomax Optical Media, Inc.
19,600 3,500 5,200 28,300 (1)Advanced Lighting Technologies 367,500 65,625 97,500
52,000 9,400 13,800 75,200 (1)Applied Science and Technology 1,573,000 284,350 417,450
18,789 3,388 4,725 26,902 (1)IFCO Systems, foreign 429,798 77,501 108,084
13,100 2,200 3,200 18,500 (1)Trex Company 501,075 84,150 122,400
43,000 7,100 10,400 60,500 (1)Zebra Technologies Class A 2,150,000 355,000 520,000
Total 5,021,373 866,626 1,265,434
Communication Services--3.4%
19,250 19,250 Covad Communications Group, Inc.
9,300 9,300 Cypress Communications, Inc.
FirstWorld Communications, Inc.,
17,300 17,300 Class B
56,500 56,500 IDT Corp.
44,600 44,600 MGC Communications, Inc.
3,500 3,500 Net2000 Communications, Inc.
7,600 7,600 Nextel Partners, Inc., Class A
3,400 3,400 TeleCorp PCS, Inc.
1,200 1,200 Tritel, Inc.
14,100 2,500 3,700 20,300 (1)Catalina Marketing 1,427,625 253,125 374,625
8,500 1,500 2,100 12,100 (1)Official Payments 357,000 63,000 88,200
104,900 (1)Profit Recovery Group
71,800 12,700 20,400 International, foreign 1,328,300 234,950 377,400
26,000 4,700 6,600 37,300 (1)TTI Team Telecom International 858,000 155,100 217,800
49,100 8,800 13,000 70,900 (1)Valassis Communications 1,635,644 293,150 433,062
Total 5,606,569 999,325 1,491,087
Consumer Cyclicals--7.1%
1,100 1,100 Avenue A, Inc.
37,400 37,400 Career Education Corp.
53,300 53,300 Children's Place Retail Stores, Inc.
33,100 33,100 Diamond Technology Partners, Class A
1,700 1,700 Digital Impact, Inc.
63,350 63,350 Insight Enterprises, Inc.
44,200 44,200 MIPS Technologies, Inc.
96,200 96,200 Modem Media . Poppe Tyson, Inc.
177,000 177,000 Navigant Consulting, Inc.
79,012 79,012 Pacific Sunwear of California
122,000 122,000 Webvan Group, Inc.
71,000 71,000 bebe stores, Inc.
10,900 1,600 2,400 14,900 (1)Express Scripts Class A 457,800 67,200 100,800
(1)Kenneth Cole
26,900 4,800 7,100 38,800 Productions Class A 1,055,825 188,400 278,675
60,233 10,799 15,900 86,932 (1)99 Cents Only Stores 2,364,145 423,861 624,075
53,300 9,600 14,100 77,000 (1)Pacific Sunwear of California 2,052,050 369,600 542,850
58,800 10,350 15,250 84,400 (1)Wild Oats Markets 1,205,400 212,175 312,625
224,600 41,600 59,300 325,500 (1)Aftermarket Technology 2,807,500 520,000 741,250
Total 9,942,720 1,781,236 2,600,275
12
<PAGE>
Consumer Staples--4.9%
Beasley Broadcast Group,
136,100 136,100 Inc., Class A
61,300 61,300 Citadel Communications Corp.
38,700 38,700 P. F. Chang's China Bistro, Inc.
40,500 40,500 Radio One, Inc.
123,800 123,800 Spanish Broadcasting System, Inc.
75,600 75,600 TiVo, Inc.
XM Satellite Radio Holdings,
56,500 56,500 Inc., Class A
109,450 19,700 28,950 158,100 (1)JAKKS Pacific 2,360,016 424,781 624,234
31,150 5,600 8,200 44,950 (1)Apollo Group Class A 878,041 157,850 231,137
(1)Hotel Reservations
47,800 8,600 12,600 69,000 Network Class A 848,450 152,650 223,650
36,600 4,900 7,200 48,700 (1)Papa John's International 1,207,800 161,700 237,600
Total 5,294,307 896,981 1,316,621
Energy--5.7%
17,100 17,100 Cal Dive International, Inc.
28,000 28,000 Cooper Cameron Corp.
47,500 47,500 ENSCO International, Inc.
51,895 51,895 Nabors Industries, Inc.
136,700 136,700 Patterson Energy, Inc.
41,500 41,500 Precision Drilling Corp.
175,670 175,670 R&B Falcon Corp.
52,600 52,600 UTI Energy Corp.
153,000 153,000 Varco International, Inc.
76,900 76,900 Weatherford International, Inc.
50,800 9,100 13,400 73,300 (1)Patterson Energy 1,612,900 288,925 425,450
Total 1,612,900 288,925 425,450
Financials--2.8%
64,900 64,900 Americredit Corp.
116,500 116,500 E-LOAN, Inc.
112,100 112,100 Intercept Group, Inc.
44,900 44,900 Metris Cos., Inc.
243,700 243,700 Net.B@nk, Inc.
52,600 9,500 13,899 75,999 Radian Group 2,505,075 452,438 661,940
Total 2,505,075 452,438 661,940
Health Care--9.0%
184,600 184,600 Advance Paradigm, Inc.
7,800 7,800 Affymetrix, Inc.
26,800 26,800 Alexion Pharmaceuticals, Inc.
44,000 44,000 Gilead Sciences, Inc.
13,000 13,000 Human Genome Sciences, Inc.
10,600 10,600 Incyte Pharmaceuticals, Inc.
43,300 43,300 Maxim Pharmacceuticals, Inc.
95,400 95,400 Microvision, Inc.
6,300 6,300 Millennium Pharmaceuticals, Inc.
154,600 154,600 Osteotech, Inc.
33,400 33,400 Protein Design Laboratories, Inc.
32,000 32,000 QLT Phototherapeutics, Inc.
164,800 164,800 Theragenics Corp.
30,900 5,600 8,150 44,650 (1)Patterson Dental 1,181,925 214,200 311,738
78,100 14,000 20,600 112,700 (1)Renal Care Group 1,693,794 303,625 446,763
23,900 4,300 6,300 34,500 (1)Albany Molecular Research 1,395,162 251,012 367,763
4,100 700 1,000 5,800 (1)Antigenics 83,537 14,262 20,375
22,200 4,000 5,900 32,100 (1)Coherent 1,154,400 208,000 306,800
33,300 6,000 8,800 48,100 (1)Eclipse Surgical Technologies 247,669 44,625 65,450
16,200 2,900 4,300 23,400 (1)Emisphere Technologies 840,375 150,438 223,063
56,300 10,100 14,900 81,300 (1)InfoCure 978,212 175,488 258,888
4,874 4,874 (1)GalaGen 12,642
3,800 700 900 5,400 (1)Maxygen 247,712 45,631 58,669
66,100 11,900 17,450 95,450 Mentor 1,784,700 321,300 471,150
20,000 3,600 5,300 28,900 (1)Novoste 800,000 144,000 212,000
Total 10,420,128 1,872,581 2,742,659
13
<PAGE>
Technology 59.7%
58,100 58,100 24/7 Media, Inc.
125,000 125,000 ACTV, Inc.
65,400 65,400 Accrue Software, Inc.
14,800 14,800 Aether Systems, Inc.
72,200 72,200 Airnet Communications Corp.
27,800 27,800 Allaire Corp.
93,000 93,000 Ancor Communications, Inc.
60,200 60,200 AnswerThink Consulting Group, Inc.
35,400 35,400 AudioCodes Ltd.
39,500 39,500 Aurora Bioscences, Inc.
1,200 1,200 Avanex Corp.
79,500 79,500 Aware, Inc.
79,500 79,500 Bluestone Software, Inc.
87,800 87,800 Braun Consulting, Inc.
1,800 1,800 Caliper Technologies Corp.
800 800 Centra Software, Inc.
86,000 86,000 Chordiant Software, Inc.
26,100 26,100 Clarent Corp.
52,300 52,300 Cobalt Networks, Inc.
Cognizant Technology
64,000 64,000 Solutions Corp.
8,500 8,500 Comverse Technology, Inc.
59,900 59,900 Concentric Network Corp.
114,600 114,600 Concur Technologies, Inc.
38,874 38,874 Conexant Systems, Inc.
25,700 25,700 Credence Systems Corp.
26,700 26,700 Crossroads Systems, Inc.
111,500 111,500 Cybersource Corp.
30,000 30,000 Cymer, Inc.
28,800 28,800 Delano Technology Corp.
79,500 79,500 Digital River, Inc.
13,300 13,300 E-Tek Dynamics, Inc.
83,800 83,800 EarthWeb, Inc.
123,383 123,383 Egain Communications Corp.
34,200 34,200 Extreme Networks, Inc.
39,600 39,600 F5 Networks, Inc.
8,800 8,800 FairMarket, Inc.
52,100 52,100 Firepond, Inc.
45,000 45,000 GRIC Communications, Inc.
75,500 75,500 Gadzoox Networks, Inc.
46,100 46,100 Healtheon Corp.
79,900 79,900 Henry Jack & Associates, Inc.
48,800 48,800 Hi/fn, Inc.
41,400 41,400 ISS Group, Inc.
20,400 20,400 Informatica Corp.
InterWAVE Communications
29,800 29,800 International Ltd.
51,500 51,500 Intertrust Technologies Corp.
1,200 1,200 Interwoven, Inc.
28,200 28,200 Keynote Systems, Inc.
48,500 48,500 Kopin Corp.
1,300 1,300 Lante Corp.
25,000 25,000 Liberate Technologies, Inc.
79,300 79,300 MMC Networks, Inc.
70,400 70,400 Marimba, Inc.
93,000 93,000 Mastech Corp.
1,500 1,500 MatrixOne, Inc.
70,100 70,100 Medquist, Inc.
18,600 18,600 Mercury Interactive Corp.
23,000 23,000 Micrel, Inc.
25,300 25,300 Micromuse, Inc.
92,900 92,900 Neon Systems, Inc.
44,200 44,200 NetIQ Corp.
63,600 63,600 Netro Corp.
4,700 4,700 Niku Corp.
14,400 14,400 Official Payments Corp.
114,800 114,800 ONYX Software Corp.
59,100 59,100 OTG Software, Inc.
79,300 79,300 Onvia.com, Inc.
35,800 35,800 PRI Automation, Inc.
47,400 47,400 Packeteer, Inc.
104,100 104,100 Paradyne Networks, Inc.
143,000 143,000 Pilot Network Services, Inc.
6,400 6,400 Quantum Effect Devices, Inc.
60,800 60,800 Quokka Sports, Inc.
27,800 27,800 RF Micro Devices, Inc.
8,200 8,200 Razorfish, Inc.
14
<PAGE>
5,000 5,000 Register.Com, Inc.
35,700 35,700 SCM Microsystems, Inc.
53,500 53,500 Satyam Infoway Ltd., ADR
74,700 74,700 SmartForce PLC, ADR
7,400 7,400 Software.com, Inc.
77,500 77,500 Tollgrade Communications, Inc.
33,300 33,300 Veeco Instruments, Inc.
13,500 13,500 VerticalNet, Inc.
44,000 44,000 Virata Corp.
18,700 18,700 Vitesse Semiconductor Corp.
58,200 58,200 WebTrends Corp.
83,300 83,300 Witness Systems, Inc.
100,500 100,500 XCare.net, Inc.
137,800 137,800 eGain Communications Corp.
1,400 1,400 WebMethods, Inc.
21,300 3,800 5,600 30,700 (1)Alamosa PCS Holdings 804,075 143,450 211,400
44,400 8,000 11,700 64,100 (1)American Mobile Satellite 1,065,600 192,000 280,800
145,800 27,600 41,900 215,300 (1)CCC Information Services Group 3,134,700 593,400 900,850
5,100 900 1,400 7,400 (1)Diamond Technology Partners 335,325 59,175 92,050
68,100 12,200 18,000 98,300 (1)DSET 1,255,594 224,937 331,875
20,500 3,700 5,400 29,600 (1)Exchange Applications 1,084,898 195,811 285,778
17,900 3,200 4,700 25,800 (1)Great Plains Software 955,413 170,800 250,863
32,300 5,300 7,700 45,300 (1)iGATE Capital 1,457,538 239,163 347,463
149,300 26,900 39,500 215,700 (1)IMRglobal 2,146,188 386,687 567,813
96,400 17,300 25,500 139,200 (1)Wavo 430,788 77,309 113,953
17,100 3,100 4,500 24,700 (1)ADE 376,200 68,200 99,000
27,700 5,000 7,300 40,000 (1)Advanced Radio Telecom 917,562 165,625 241,812
35,800 6,400 9,500 51,700 (1)American Xtal Technology 1,159,025 207,200 307,562
900 200 200 1,300 (1)ArrowPoint Communications 106,636 23,697 23,697
20,900 3,800 5,500 30,200 (1)AstroPower 675,331 122,787 177,719
13,600 2,500 3,600 19,700 (1)California Amplifier 421,600 77,500 111,600
13,600 2,500 3,600 19,700 (1)Cognex 784,550 144,219 207,675
59,200 10,000 14,300 83,500 (1)Datalink 1,184,000 200,000 286,000
20,000 3,600 5,300 28,900 (1)Exar 1,431,250 257,625 379,281
25,200 4,500 6,700 36,400 (1)Lattice Semiconductor 1,705,725 304,594 453,506
45,200 8,100 12,000 65,300 (1)Mercury Computer Systems 2,209,150 395,888 586,500
26,000 4,700 6,900 37,600 National Computer Systems 1,319,500 238,525 350,175
60,600 10,900 16,000 87,500 (1)REMEC 3,060,300 550,450 808,000
25,600 4,600 6,800 37,000 (1)Sawtek 1,345,600 241,788 357,425
48,300 8,733 12,833 69,866 (1)Three-Five Systems 2,898,000 523,980 769,980
9,000 1,600 2,400 13,000 (1)Visual Networks 510,750 90,800 136,200
78,300 14,095 20,600 112,995 (1)Zamba 819,703 147,557 215,656
17,500 3,100 4,600 25,200 (1)Zoran 985,469 174,569 259,037
23,950 6,300 30,250 (1)ANADIGICS 1,580,700 283,800 415,800
31,100 5,600 8,200 44,900 (1)ANTEC 1,393,669 250,950 367,462
13,300 2,300 3,400 19,000 (1)Aware 533,662 92,287 136,425
17,800 3,200 5,000 26,000 (1)BreezeCom, foreign 665,275 119,600 186,875
11,900 2,100 3,200 17,200 (1)CommScope 542,937 95,812 146,000
20,900 3,800 5,500 30,200 (1)Com21 982,300 178,600 258,500
32,400 5,800 8,600 46,800 (1)Digital Microwave 1,097,550 196,475 291,325
18,300 3,300 4,900 26,500 (1)Orckit Communications, foreign 1,226,100 221,100 328,300
57,200 10,300 15,800 83,300 (1)Tollgrade Communications 3,031,600 545,900 837,400
26,000 4,700 6,900 37,600 (1)Westell Technologies Class A 828,750 149,812 219,937
Total 46,463,013 8,352,072 12,341,694
Transportation--.9%
84,500 84,500 SkyWest, Inc.
24,700 4,500 6,500 35,700 (1)Atlas Air 676,163 123,188 177,938
--------------------------------
Total 676,163 123,188 177,938
Total Common Stocks
Repurchase Agreement--0.5%
2,105,000 2,105,000 ABN AMRO, Inc., 6.18%, dated 3/31/2000, due 4/3/2000
15
<PAGE>
RESTRICTED SECURITIES - 0.0% (2)
----------------------------------------
Common Stocks - 0.0%
42,272 42,272 Westgate Acquisitions 0
Non-Convertible Preferred Stock- 0.0%
86,198 86,198 Westgate Acquisitions Series A 0
Limited Partnerships - 0.0%
(percentage ownership)
1.78% 1.78% (1) Alta Berkeley III, foreign 161,520
0.69% 0.69% (1) South Street Corporate
Recovery Fund I
1.65% 1.10% 2.75% (1) South Street Leveraged
Corporate Recovery Fund I
1.42% 1.42% (1) Vanguard Associates III 11,795
Total 161,520 11,795 0
Convertible Debentures-0.0%
258,332 258,332 Air Communications Series B 0
Exercise Exercise
Warrants - 0.0% Price Date
1,805 1,805 Gala Gen $11.08 07/09/00 0
22,501 22,501 GalaGen $11.08 01/29/01 0
Total 0 0 0
Total Restricted Securities
SHORT - TERM SECURITIES - 1.2%
--------------------------------------
Market
Commercial Paper -0.8% Rate Maturity Value (a)
Associates (Financial)
2,500,000 2,500,000 6.20% 04/03/00 2,549,122
Gillette (Consumer Non-Durables)
1,200,000 1,200,000 6.20% 04/03/00 1,199,587
Investment Company - 0.4% Total 2,549,122 0 1,199,587
375,260 683,686 919,835 1,978,781 Firstar Institutional Money 375,260 683,686 919,835
Market Fund 5.69%
Demand Note - 0.0
141,760 141,760 Wisconsin Electric (Utilities) 141,760
Total Short-Term Securities
TOTAL INVESTMENTS IN SECURITIES 90,628,150 16,470,613 25,142,520
(1) Non-Income Producing Security
(2) Restricted securities generally must be registered with the Securities and Exchange Commission under the Securities Act
of 1933 prior to being sold to the public.
</TABLE>
--------------------------------------------
IAI Emerging Growth Fund
IAI Long Term Growth Fund
IAI Capital Appreciation Fund
Federated Aggressive Growth Fund
Pro Forma Combining Schedule of Investments
As of March 31, 2000
16
<PAGE>
<TABLE>
<CAPTION>
Value
Federated
Aggressive Pro Forma
Growth Combined
<S> <C> <C>
Common Stocks--98.3%
Capital Goods--4.8%
ACT Manufacturing, Inc. 5,218,969 5,218,969
Dupont Photomasks, Inc. 886,444 886,444
Flextronics International Ltd. 1,246,744 1,246,744
Newpark Resources, Inc. 1,060,000 1,060,000
Orbital Sciences Corp. 1,778,400 1,778,400
Waste Connections, Inc. 1,127,625 1,127,625
Zomax Optical Media, Inc. 3,771,650 3,771,650
(1)Advanced Lighting Technologies 530,625
(1)Applied Science and Technology 2,274,800
(1)IFCO Systems, foreign 615,383
(1)Trex Company 707,625
(1)Zebra Technologies Class A 3,025,000
Total 15,089,832 22,243,265
Communication Services--3.4%
Covad Communications Group, Inc. 1,395,625 1,395,625
Cypress Communications, Inc. 227,850 227,850
FirstWorld Communications, Inc.,
Class B 352,488 352,488
IDT Corp. 2,344,750 2,344,750
MGC Communications, Inc. 3,188,900 3,188,900
Net2000 Communications, Inc. 83,125 83,125
Nextel Partners, Inc., Class A 220,400 220,400
TeleCorp PCS, Inc. 175,950 175,950
Tritel, Inc. 45,900 45,900
(1)Catalina Marketing 2,055,375
(1)Official Payments 508,200
(1)Profit Recovery Group
International, foreign 1,940,650
(1)TTI Team Telecom International 1,230,900
(1)Valassis Communications 2,361,856
Total 8,034,988 16,131,969
Consumer Cyclicals--7.1%
Avenue A, Inc. 33,550 33,550
Career Education Corp. 1,309,000 1,309,000
Children's Place Retail Stores, Inc. 759,525 759,525
Diamond Technology Partners, Class A 2,176,325 2,176,325
Digital Impact, Inc. 60,456 60,456
Insight Enterprises, Inc. 2,308,316 2,308,316
MIPS Technologies, Inc. 2,458,625 2,458,625
Modem Media . Poppe Tyson, Inc. 3,114,475 3,114,475
Navigant Consulting, Inc. 1,947,000 1,947,000
Pacific Sunwear of California 3,041,962 3,041,962
Webvan Group, Inc. 937,875 937,875
bebe stores, Inc. 896,375 896,375
(1)Express Scripts Class A 625,800
(1)Kenneth Cole
Productions Class A 1,522,900
(1)99 Cents Only Stores 3,412,081
(1)Pacific Sunwear of California 2,964,500
(1)Wild Oats Markets 1,730,200
(1)Aftermarket Technology 4,068,750
Total 19,043,484 33,367,715
Consumer Staples--4.9%
Beasley Broadcast Group, 1,258,925 1,258,925
Inc., Class A
Citadel Communications Corp. 2,586,094 2,586,094
P. F. Chang's China Bistro, Inc. 1,281,938 1,281,938
Radio One, Inc. 2,698,313 2,698,313
Spanish Broadcasting System, Inc. 2,903,497 2,903,497
TiVo, Inc. 2,617,650 2,617,650
XM Satellite Radio Holdings, 1,970,438 1,970,438
Inc., Class A
(1)JAKKS Pacific 3,409,031
(1)Apollo Group Class A 1,267,028
(1)Hotel Reservations
Network Class A 1,224,750
(1)Papa John's International 1,607,100
Total 15,316,855 22,824,764
17
<PAGE>
Energy--5.7%
Cal Dive International, Inc. 867,825 867,825
Cooper Cameron Corp. 1,872,500 1,872,500
ENSCO International, Inc. 1,715,938 1,715,938
Nabors Industries, Inc. 2,014,175 2,014,175
Patterson Energy, Inc. 4,340,225 4,340,225
Precision Drilling Corp. 1,385,063 1,385,063
R&B Falcon Corp. 3,458,503 3,458,503
UTI Energy Corp. 1,985,650 1,985,650
Varco International, Inc. 1,931,625 1,931,625
Weatherford International, Inc. 4,532,294 4,532,294
(1)Patterson Energy 2,327,275
Total 24,103,798 26,431,073
Financials 2.8%
Americredit Corp. 1,058,681 1,058,681
E-LOAN, Inc. 815,500 815,500
Intercept Group, Inc. 2,886,575 2,886,575
Metris Cos., Inc. 1,745,488 1,745,488
Net.B@nk, Inc. 3,168,100 3,168,100
Radian Group 3,619,453
Total 9,674,344 13,293,797
Health Care--9.0%
Advance Paradigm, Inc. 2,192,125 2,192,125
Affymetrix, Inc. 1,157,813 1,157,813
Alexion Pharmaceuticals, Inc. 1,869,300 1,869,300
Gilead Sciences, Inc. 2,788,500 2,788,500
Human Genome Sciences, Inc. 1,079,813 1,079,813
Incyte Pharmaceuticals, Inc. 926,838 926,838
Maxim Pharmacceuticals, Inc. 2,032,394 2,032,394
Microvision, Inc. 5,306,625 5,306,625
Millennium Pharmaceuticals, Inc. 818,213 818,213
Osteotech, Inc. 2,067,775 2,067,775
Protein Design Laboratories, Inc. 2,655,300 2,655,300
QLT Phototherapeutics, Inc. 1,768,000 1,768,000
Theragenics Corp. 2,204,200 2,204,200
(1)Patterson Dental 1,707,863
(1)Renal Care Group 2,444,182
(1)Albany Molecular Research 2,013,937
(1)Antigenics 118,174
(1)Coherent 1,669,200
(1)Eclipse Surgical Technologies 357,744
(1)Emisphere Technologies 1,213,876
(1)InfoCure 1,412,588
(1)GalaGen 12,642
(1)Maxygen 352,012
Mentor 2,577,150
(1)Novoste 1,156,000
Total 26,866,896 41,902,264
Technology 59.7%
24/7 Media, Inc. 2,294,950 2,294,950
ACTV, Inc. 4,382,813 4,382,813
Accrue Software, Inc. 2,995,116 2,995,116
Aether Systems, Inc. 2,686,200 2,686,200
Airnet Communications Corp. 2,522,488 2,522,488
Allaire Corp. 2,102,375 2,102,375
Ancor Communications, Inc. 3,824,625 3,824,625
AnswerThink Consulting Group, Inc. 1,471,138 1,471,138
AudioCodes Ltd. 3,553,275 3,553,275
Aurora Bioscences, Inc. 1,614,563 1,614,563
Avanex Corp. 182,100 182,100
Aware, Inc. 3,189,938 3,189,938
Bluestone Software, Inc. 2,683,125 2,683,125
Braun Consulting, Inc. 2,809,600 2,809,600
Caliper Technologies Corp. 145,575 145,575
Centra Software, Inc. 16,800 16,800
Chordiant Software, Inc. 1,397,500 1,397,500
Clarent Corp. 2,353,894 2,353,894
Cobalt Networks, Inc. 2,458,100 2,458,100
Cognizant Technology
Solutions Corp. 4,000,000 4,000,000
Comverse Technology, Inc. 1,606,500 1,606,500
Concentric Network Corp. 3,294,500 3,294,500
Concur Technologies, Inc. 1,726,163 1,726,163
Conexant Systems, Inc. 2,760,054 2,760,054
Credence Systems Corp. 3,215,713 3,215,713
Crossroads Systems, Inc. 2,756,775 2,756,775
Cybersource Corp. 4,153,375 4,153,375
Cymer, Inc. 1,500,000 1,500,000
18
<PAGE>
Delano Technology Corp. 646,200 646,200
Digital River, Inc. 1,709,250 1,709,250
E-Tek Dynamics, Inc. 3,128,825 3,128,825
EarthWeb, Inc. 2,063,575 2,063,575
Egain Communications Corp. 4,811,948 4,811,948
Extreme Networks, Inc. 2,701,800 2,701,800
F5 Networks, Inc. 2,682,900 2,682,900
FairMarket, Inc. 200,200 200,200
Firepond, Inc. 2,132,844 2,132,844
GRIC Communications, Inc. 1,518,750 1,518,750
Gadzoox Networks, Inc. 3,619,281 3,619,281
Healtheon Corp. 1,060,300 1,060,300
Henry Jack & Associates, Inc. 2,946,313 2,946,313
Hi/fn, Inc. 3,175,050 3,175,050
ISS Group, Inc. 4,823,100 4,823,100
Informatica Corp. 1,566,975 1,566,975
InterWAVE Communications
International Ltd. 897,725 897,725
Intertrust Technologies Corp. 2,188,750 2,188,750
Interwoven, Inc. 131,700 131,700
Keynote Systems, Inc. 2,883,450 2,883,450
Kopin Corp. 3,334,375 3,334,375
Lante Corp. 39,488 39,488
Liberate Technologies, Inc. 1,568,750 1,568,750
MMC Networks, Inc. 2,616,900 2,616,900
Marimba, Inc. 3,106,400 3,106,400
Mastech Corp. 4,196,625 4,196,625
MatrixOne, Inc. 59,906 59,906
Medquist, Inc. 1,905,844 1,905,844
Mercury Interactive Corp. 1,474,050 1,474,050
Micrel, Inc. 2,208,000 2,208,000
Micromuse, Inc. 3,511,956 3,511,956
Neon Systems, Inc. 3,065,700 3,065,700
NetIQ Corp. 2,953,113 2,953,113
Netro Corp. 4,134,994 4,134,994
Niku Corp. 222,369 222,369
Official Payments Corp. 604,800 604,800
ONYX Software Corp. 3,659,250 3,659,250
OTG Software, Inc. 2,382,469 2,382,469
Onvia.com, Inc. 1,675,213 1,675,213
PRI Automation, Inc. 2,188,275 2,188,275
Packeteer, Inc. 1,659,000 1,659,000
Paradyne Networks, Inc. 3,227,100 3,227,100
Pilot Network Services, Inc. 4,727,938 4,727,938
Quantum Effect Devices, Inc. 509,600 509,600
Quokka Sports, Inc. 646,000 646,000
RF Micro Devices, Inc. 3,735,625 3,735,625
Razorfish, Inc. 225,500 225,500
Register.Com, Inc. 347,500 347,500
SCM Microsystems, Inc. 3,462,900 3,462,900
Satyam Infoway Ltd., ADR 2,868,938 2,868,938
SmartForce PLC, ADR 3,426,863 3,426,863
Software.com, Inc. 953,675 953,675
Tollgrade Communications, Inc. 4,107,500 4,107,500
Veeco Instruments, Inc. 2,464,200 2,464,200
VerticalNet, Inc. 1,836,000 1,836,000
Virata Corp. 4,394,500 4,394,500
Vitesse Semiconductor Corp. 1,799,875 1,799,875
WebTrends Corp. 4,190,400 4,190,400
Witness Systems, Inc. 2,530,238 2,530,238
XCare.net, Inc. 1,444,688 1,444,688
eGain Communications Corp. 5,374,200 5,374,200
WebMethods, Inc. 337,925 337,925
(1)Alamosa PCS Holdings 1,158,925
(1)American Mobile Satellite 1,538,400
(1)CCC Information Services Group 4,628,950
(1)Diamond Technology Partners 486,550
(1)DSET 1,812,406
(1)Exchange Applications 1,566,487
(1)Great Plains Software 1,377,076
(1)iGATE Capital 2,044,164
(1)IMRglobal 3,100,688
(1)Wavo 622,050
(1)ADE 543,400
(1)Advanced Radio Telecom 1,324,999
(1)American Xtal Technology 1,673,787
(1)ArrowPoint Communications 154,030
(1)AstroPower 975,837
(1)California Amplifier 610,700
(1)Cognex 1,136,444
(1)Datalink 1,670,000
(1)Exar 2,068,156
(1)Lattice Semiconductor 2,463,825
(1)Mercury Computer Systems 3,191,538
19
<PAGE>
National Computer Systems 1,908,200
(1)REMEC 4,418,750
(1)Sawtek 1,944,813
(1)Three-Five Systems 4,191,960
(1)Visual Networks 737,750
(1)Zamba 1,182,916
(1)Zoran 1,419,075
(1)ANADIGICS 2,280,300
(1)ANTEC 2,012,081
(1)Aware 762,374
(1)BreezeCom, foreign 971,750
(1)CommScope 784,749
(1)Com21 1,419,400
(1)Digital Microwave 1,585,350
(1)Orckit Communications, foreign 1,775,500
(1)Tollgrade Communications 4,414,900
(1)Westell Technologies Class A 1,198,499
Total 211,764,833 278,921,612
Transportation--.9%
SkyWest, Inc. 3,306,063 3,306,063
(1)Atlas Air 0 977,289
-----------
Total 3,306,063 4,283,352
Total Common Stocks 459,399,811
ABN AMRO, Inc., 6.18%, dated 3/31/2000, 2,105,000 2.105,000
due 4/3/2000
Westgate Acquisitions 0
Westgate Acquisitions Series A 0
(1) Alta Berkeley III, foreign 161,520
(1) South Street Corporate
Recovery Fund I 0
(1) South Street Leveraged
Corporate Recovery Fund I 0
(1) Vanguard Associates III 11,795
Total 0 173,315
Air Communications Series B 0
Exercise Exercise
Price Date
Gala Gen $11.08 07/09/00
GalaGen $11.08 01/29/01
Total 0 0
Total Restricted Securities 173,315
Market
Rate Maturity Value (a)
Associates (Financial)
6.20% 04/03/00 2,549,122 2,549,122
Gillette (Consumer Non-Durables)
6.20% 04/03/00
Total 0 3,748,709
Investment Company - 0.4%
Firstar Institutional Money 1,978,781
Market Fund 5.69%
Demand Note - 0.0
Wisconsin Electric (Utilities) 141,760
Total Short-Term Securities 5,869,250
TOTAL INVESTMENTS IN SECURITIES 335,306,093 467,547,376
(1) Non-Income Producing Security
(2) Restricted securities generally must be registered with the Securities and Exchange Commission under the Securities Act
of 1933 prior to being sold to the public.
</TABLE>
20
<PAGE>
Pro Forma Combining Schedule of Expense Ratios
(Unaudited)
As discussed in the Notes to the Pro Forma Financial Statements, it is possible
that one or more of IAI Capital Appreciation Fund, IAI Emerging Growth Fund or
IAI Long Term Growth Fund will not approve the Reorganization, in which case the
resulting Federated Aggressive Growth Fund will include only those IAI Funds
that approve the Reorganization.
Presented below is combining pro forma expense ratio information for historical
periods under all possible combination scenarios.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Scenario 1 - Federated Aggressive Growth Fund,
IAI Emerging Growth Fund
Expenses (a) 2.10% 1.82% 1.44%
Expenses - after waiver (a)(b) 1.93% 1.57% 1.35%
Scenario 2 - Federated Aggressive Growth Fund,
IAI Long Term Growth Fund
Expenses (a) 2.46% 2.60% 2.45%
Expenses - after waiver (a)(b) 2.22% 1.97% 1.62%
Scenario 3 - Federated Aggressive Growth Fund,
IAI Capital Appreciation Fund
Expenses (a) 2.32% 2.09% 1.90%
Expenses - after waiver (a)(b) 2.10% 1.70% 1.46%
Scenario 4 - Federated Aggressive Growth Fund,
IAI Emerging Growth Fund,
IAI Long Term Growth Fund
Expenses (a) 2.06% 1.75% 1.43%
Expenses - after waiver (a)(b) 1.90% 1.53% 1.35%
Scenario 5 - Federated Aggressive Growth Fund,
IAI Emerging Growth Fund,
IAI Capital Appreciation Fund
Expenses (a) 2.00% 1.68% 1.44%
Expenses - after waiver (a)(b) 1.85% 1.49% 1.36%
Scenario 6 - Federated Aggressive Growth Fund,
IAI Long Term Growth Fund,
IAI Capital Appreciation Fund
Expenses (a) 2.24% 1.93% 1.71%
Expenses - after waiver (a)(b) 2.04% 1.61% 1.40%
Scenario 7 - Federated Aggressive Growth Fund,
IAI Emerging Growth Fund,
IAI Long Term Growth Fund,
IAI Capital Appreciation Fund
Expenses (a) 1.99% 1.66% 1.45%
Expenses - after waiver (a)(b) 1.85% 1.49% 1.37%
</TABLE>
a Represents the ratio of expenses to average net assets. The combining pro
forma expense ratios were computed assuming the applicable Funds had been
combined during the indicated periods and reflect the revised investment
management fee structure of Federated Aggressive Growth Fund.
b Ratios represent waivers of certain expenses of Federated Aggressive Growth
Fund.
21
<PAGE>
IAI Regional Fund
Federated Capital Appreciation Fund
Notes to Pro Forma Financial Statements (unaudited)
March 31, 2000
Basis of Combination
--------------------
The accompanying unaudited Pro Forma Combining Statements of Assets and
Liabilities, Statements of Operations and Schedule of Investments ("Pro Forma
Financial Statements") reflect the accounts of IAI Regional Fund and Federated
Capital Appreciation Fund, collectively ("the Funds"), for the year ended March
31, 2000. These statements have been derived from the books and records utilized
in calculating daily net asset values at March 31, 2000.
The Pro Forma Combining Financial Statements are presented for the information
of the reader and may not necessarily be representative of what the actual
combined financial statements would have been had the reorganization occurred at
March 31, 2000. They should be read in conjunction with the historical financial
statements of the Funds which have been incorporated by reference in the
Statement of Additional Information. The Funds follow generally accepted
accounting principles applicable to management investment companies which are
disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed exchange of
assets of IAI Regional Fund for shares of Federated Capital Appreciation Fund as
if the reorganization had been consummated on March 31, 2000. Under generally
accepted accounting principles, Federated Capital Appreciation Fund will be the
surviving entity for accounting purposes with its historical cost of investment
securities and results of operations being carried forward.
To the extent the acquired fund has capital losses, they will be carried forward
to the acquiring fund. The acquiring fund will be able to use these losses to
offset future capital gains it realizes, subject to limitations, and, thereby,
minimize taxable gains to its shareholders.
Adjustments to Pro Forma Combining Statement of Assets and Liabilities
----------------------------------------------------------------------
The following assumptions were made to the pro forma combining statement of
assets and liabilities.
The Pro Forma net asset value per share assumes the issuance of 6,130,505 shares
of the Federated Capital Appreciation Fund in exchange for 9,113,962 shares of
the IAI Regional Fund which would have been issued at March 31, 2000, in
connection with the proposed reorganization.
Adjustments to Pro Forma Combining Statement of Operations
----------------------------------------------------------
The following assumptions were made as part of the pro forma combining statement
of operations.
The pro forma combined Federated Capital Appreciation Fund will use all of the
Federated Capital Appreciation Fund's current service providers at their current
contracted rates.
22
<PAGE>
Under terms of the IAI Regional Fund's Management Agreement, Investment
Advisers, Inc. ("IAI") is required to pay for all expenses of the IAI Regional
Fund, except certain costs (primarily those incurred in the purchase and sale of
assets, taxes, interest and extraordinary expenses), in return for the fund
paying an all inclusive management fee equal to an annual rate of 1.25%
declining to 1.10% of average daily net assets. The Management Agreement also
provides that IAI will reimburse the IAI Regional Fund for the fees and expenses
it pays to Directors who are not "interested persons" of the Fund or reduce its
fee by an equivalent amount. For the year ended March 31, 2000, IAI Regional
Fund paid investment advisory fees equal to 1.25% of its average daily net
assets.
Federated Investment Management Company ("FIMC") acts as the investment adviser
for the Federated Capital Appreciation Fund. For its services, FIMC receives an
annual fee equal to 0.75% of the Fund's average daily net assets.
An adjustment to the combining investment advisory fee reflects investment
advisory fees charged at 0.75% of the pro forma combined fund's average daily
assets.
Administrative personnel and services will be provided to the combined entity by
Federated Services Company for a fee based on a scale that ranges from 0.15% to
0.075% of the average aggregate daily net assets of all funds advised by
Federated Investors, Inc., subject to a minimum fee of $125,000 plus $30,000 for
each additional class of shares per annum.
Custodian, transfer and dividend disbursing agent, and portfolio accountant fees
are calculated based on existing fund contracts that stipulate base fees and
other factors such as the fund's asset size, number of accounts, and number and
types of transactions.
The director's fees of the pro forma adjusted entity have been adjusted to
reflect estimated fees incurred by the Federated Capital Appreciation Fund's
board of directors.
The pro forma shareholder services fee has been adjusted to reflect the
combination of the IAI Regional Fund's net assets into Federated Capital
Appreciation Fund's Class A Shares.
Pro forma legal, share registration, insurance, and miscellaneous fees have been
adjusted to reflect the estimated charges of the combined entity.
23
<PAGE>
<TABLE>
IAI Regional Fund
Federated Capital Appreciation Fund
Pro Forma Combining Statements of
Assets and Liabilities
March 31, 2000 (Unaudited)
---------------------------------------------------------------------------------------------------------
<CAPTION>
Federated
IAI Capital
Regional Appreciation Pro Forma Pro Forma
Fund Fund Adjustment (3) Combined
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value $184,644,067 $636,691,686 $ - $821,335,753
Cash - 677 - 677
Income receivable 57,190 471,356 - 528,546
Receivable for shares sold 6,091,260 4,776,154 - 10,867,414
Receivable for Investments sold - 3,068,301 - 3,068,301
Prepaid assets 65,773 - - 65,773
------------ ------------ ------------- ------------
Total assets 190,858,290 645,008,174 - 835,866,464
------------ ------------ ------------- ------------
LIABILITIES:
Payable for investments purchased 66,334 13,298,134 - 13,364,468
Payable for shares redeemed 11,663 263,441 - 275,104
Bank overdraft 409,637 409,637
Income distribution payable - 197,004 197,004
Accrued expenses 202,405 353,385 - 555,790
------------ ------------ ------------- ------------
Total liabilities 690,039 14,111,964 - 14,802,003
------------ ------------ ------------- ------------
NET ASSETS $190,168,251 $630,896,210 $ $821,064,461
------------ ------------ ------------- ------------
NET ASSETS CONSISTS OF:
Paid in capital $135,389,682 $394,826,770 $ 530,216,452
Net unrealized appreciation
(depreciation) of investments 29,921,574 202,614,761 - 232,536,335
Accumulated net realized gain (loss)
on investments 24,791,569 34,717,556 - 59,509,125
Accumulated undistributed net investment
income/ (Distributions in excess of net
investment income) 65,426 (1,262,877) - (1,197,451)
------------ ------------ ------------- ------------
Total Net Assets $190,168,251 $630,896,210 $ $821,064,461
============ ============ ============= ============
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE
Net Asset Value and Redemption Proceeds
Per Share $ 20.87 $ 31.02(1) $ 31.02
------------ ------------ ------------- ------------
Offering Price Per Share $ 20.87 $ 32.83(2) $ 32.83
------------ ------------ ------------- ------------
SHARES OUTSTANDING (ALL CLASSES) 9,113,962 20,430,834 (2,983,457) 26,561,339
------------ ------------ ------------- ------------
COST OF INVESTMENTS $154,722,493 $434,076,925 $588,799,418
------------ ------------ ------------
1 Class A shares
2 Computation of offering price per share 100/94.5 of net asset value. This factors in the sales load
charged to certain other investors of the Federated Capital Appreciation Fund. However, IAI Fund
shareholders will not pay any sales charges in connection with the reorganization or on any subsequent
purchases of or exchanges for shares of other Federated mutual funds; such transactions will be
effected at net asset value.
3 See Notes to Pro Forma Financial Statements for discussion of pro forma adjustments.
</TABLE>
24
<PAGE>
<TABLE>
IAI Regional Fund
Federated Capital Appreciation Fund
Pro Forma Combining Statements of Operations
Year Ended March 31, 2000 (unaudited)
------------------------------------------------------------------
<CAPTION>
Federated
IAI Capital
Regional Appreciation Pro Forma Pro Forma
Fund Fund Adjustment Combined
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,342,737 $ 4,421,230 $ - $ 5,763,967
Interest 1,394,159 1,208,404 - 2,602,563
------------- ------------- ------------- -------------
Total investment income 2,736,896 5,629,634 8,366,530
EXPENSES:
Investment advisory fee 2,736,606 2,975,424 (1,067,940) 4,644,090
Administrative personnel and services fee - 293,265 167,300 460,565
Custodian fees - 28,093 16,000 44,093
Transfer and dividend disbursing agent fees - 384,644 175,000 559,644
Directors' fees 89,804 4,908 (89,304) 5,408
Auditing fees - 19,983 - 19,983
Legal fees - 5,118 - 5,118
Portfolio accounting fees - 127,417 71,500 198,917
Shareholder services fees - 991,809 556,220 1,548,029
Share registration costs - 102,711 57,000 159,711
Printing and postage - 105,643 59,000 164,643
Interest expense 7,039 - (7,039)
Distribution services fee - 945,320 - 945,320
Miscellaneous - 19,403 15,000 34,403
------------- ------------- ------------- -------------
TOTAL EXPENSES 2,833,449 6,003,738 (47,263) 8,789,924
Less fees waived/reimbursed by adviser (89,804) - 89,804 -
------------- ------------- ------------- -------------
NET EXPENSES 2,743,645 6,003,738 42,541 8,789,924
------------- ------------- ------------- -------------
NET INVESTMENT INCOME/(NET OPERATING LOSS) $ (6,749) $ (374,104) $ (42,541) $ (423,394)
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 46,275,035 45,176,469 - 91,451,504
Net change in unrealized appreciation (depreciation)
on investments (23,558,321) 115,858,150 - 92,299,829
------------- ------------- ------------- -------------
Net realized and unrealized gain (loss) on investments 22,716,714 161,034,619 - 183,751,333
------------- ------------- ------------- -------------
Change in net assets resulting from operations $ 22,709,965 $ 160,660,515 $ (42,541) $ 183,327,939
============= ============= ============= =============
(See Notes to Pro Forma Financial Statements for a discussion of Pro Forma Adjustments)
</TABLE>
25
<PAGE>
IAI Regional Fund
Federated Capital Appreciation Fund
Pro Forma Combining Schedule of Investments
As of March 31, 2000
<TABLE>
<CAPTION>
Principal Amount Shares
Value
Federated Federated
IAI Capital Pro Forma IAI Capital Pro Forma
Regional Appreciation Combined Regional Appreciation Combined
Common Stocks--87.8%
Basic Materials--5.0%
<S> <C> <C> <C> <C> <C> <C>
181,000 181,000 AptarGroup 4,830,437 4,830,437
95,000 95,000 Bemis Company 3,503,125 3,503,125
126,500 126,500 Bowater, Inc. 6,751,938 6,751,938
182,500 182,500 Martin Marietta Materials 8,668,750 8,668,750
350,000 350,000 Millennium Chemicals, Inc. 7,000,000 7,000,000
55,000 55,000 Phelps Dodge Corp. 2,612,500 2,612,500
93,000 93,000 Plum Creek Timber Co., Inc. 2,290,125 2,290,125
156,500 156,500 (1) Smurfit-Stone Container Corp. 2,650,719 2,650,719
45,000 45,000 Southdown, Inc. 2,655,000 2,655,000
--------------------------------- ---------------------------------------------
Total 8,333,562 32,629,032 40,962,594
--------------------------------- ==============
Capital Goods--7.2%
90,500 90,500 Danaher Corp. 4,615,500 4,615,500
50,000 50,000 Emerson Electric 2,643,750 2,643,750
64,000 64,000 General Electric Co. 9,932,000 9,932,000
128,500 128,500 Honeywell International, Inc. 6,770,344 6,770,344
49,000 49,000 Koninklijke (Royal) Philips
Electronics NV, ADR 8,394,313 8,394,313
65,000 65,000 Minnesota Mining and Manufacturing 5,756,562 5,756,562
153,500 153,500 Pentair 5,689,094 5,689,094
163,000 163,000 Tyco International Ltd. 8,129,625 8,129,625
75,000 75,000 TRW 4,387,500 4,387,500
61,300 61,300 (1) Zebra Technologies Class A 3,065,000 3,065,000
--------------------------------- ---------------------------------------------
Total 21,541,906 37,841,782 59,383,688
--------------------------------- ==============
26
<PAGE>
Communication Services--5.8%
85,000 85,000 AT&T 4,781,250 4,781,250
118,200 118,200 (1) AT&T Canada, Inc. 7,210,200 7,210,200
244,928 244,928 BroadWing, Inc. 9,108,256 9,108,256
71,000 71,000 GTE Corp. 5,041,000 5,041,000
86,560 86,560 (1) MCI Worldcom, Inc. 3,922,250 3,922,250
40,000 40,000 (1) MGC Communications, Inc. 2,860,000 2,860,000
120,000 120,000 RR Donnelly 2,512,500 2,512,500
52,000 42,000 94,000 Telephone and Data System, Inc. 5,772,000 4,662,000 10,434,000
41,700 41,700 (1) Viatel, Inc. 2,092,819 2,092,819
--------------------------------- ---------------------------------------------
Total 13,065,750 34,896,525 47,962,275
--------------------------------- ==============
Consumer Cyclicals--6.8%
168,500 168,500 (1) BJ's Wholesale Club, Inc. 6,508,313 6,508,313
60,000 60,000 Block (H&R), Inc. 2,685,000 2,685,000
114,000 114,000 (1) Crown Castle International Corp. 4,317,750 4,317,750
12,200 12,200 (1) DoubleClick, Inc. 1,142,225 1,142,225
118,000 118,000 Ford Motor Co. 5,420,625 5,420,625
72,000 72,000 General Motors Corp. 5,962,500 5,962,500
67,500 67,500 Home Depot, Inc. 4,353,750 4,353,750
35,600 35,600 (1) Internet Capital Group, Inc. 3,215,125 3,215,125
118,500 118,500 Knight-Ridder, Inc. 6,036,094 6,036,094
91,000 91,000 Limited, Inc. 3,833,375 3,833,375
95,000 95,000 True North Communications, Inc. 3,734,688 3,734,688
58,500 58,500 Target 4,372,875 4,372,875
150,000 150,000 Walgren 3,862,500 3,862,500
--------------------------------- ---------------------------------------------
Total 8,235,375 47,209,445 55,444,820
--------------------------------- ==============
Consumer Staples--8.1%
98,178 98,178 (1) AT&T Corp. - Liberty Media
Group, Inc., Class A 5,817,047 5,817,047
77,000 77,000 CBS Corp. 4,360,125 4,360,125
125,400 125,400 (1) Charter Communications, Inc. 1,796,747 1,796,747
155,000 155,000 (1) De Vry 4,727,500 4,727,500
259,800 259,800 Fort James Corp. 5,715,600 5,715,600
155,000 155,000 (1) Heidrick & Struggles
International, Inc. 6,219,375 6,219,375
155,000 155,000 McDonald's 5,822,187 5,822,187
135,900 135,900 News Corp. Ltd., ADR 6,489,225 6,489,225
27
<PAGE>
91,000 91,000 PepsiCo, Inc. 3,145,188 3,145,188
133,500 133,500 (1) Safeway, Inc. 6,040,875 6,040,875
65,400 65,400 Time Warner 6,540,000 6,540,000
57,800 57,800 (1) UnitedGlobalCom, Inc.,
Class A 4,338,613 4,338,613
148,000 148,000 (1) Westwood One, Inc. 5,365,000 5,365,000
--------------------------------- ---------------------------------------------
Total 17,089,687 49,287,795 66,377,482
--------------------------------- ==============
Energy--5.0%
58,738 58,738 BP Amoco PLC, ADR 3,116,785 3,116,785
69,000 69,000 (1) Cooper Cameron Corp. 4,614,375 4,614,375
68,000 68,000 Diamond Offshore Drilling 2,715,750 2,715,750
61,000 76,000 137,000 Exxon Mobil Corp. 4,746,562 5,913,750 10,660,312
142,500 142,500 Halliburton Co. 5,842,500 5,842,500
363,000 363,000 (1) R&B Falcon Corp. 7,146,563 7,146,563
223,500 223,500 Tosco Corp. 6,802,781 6,802,781
--------------------------------- ---------------------------------------------
Total 7,462,312 33,436,754 40,899,066
--------------------------------- ==============
Financials--9.3%
226,000 226,000 Ace, Ltd. 5,169,750 5,169,750
155,500 155,500 Alliance Capital Management
Holding LP 6,443,531 6,443,531
166,000 166,000 Allstate Corp. 3,952,875 3,952,875
112,700 112,700 Capital One Financial Corp. 5,402,556 5,402,556
91,000 91,000 Chase Manhattan Corp. 7,934,063 7,934,063
89,398 89,398 Citigroup, Inc. 5,302,419 5,302,419
40,000 40,000 Federal Home Loan Mortgage Corp. 1,767,500 1,767,500
65,000 65,000 Fifth Third Bancorp 4,095,000 4,095,000
105,000 105,000 Household International 3,917,813 3,917,813
99,000 99,000 Lehman Brothers Holdings, Inc. 9,603,000 9,603,000
100,000 100,000 MGIC Investment 4,362,500 4,362,500
94,580 94,580 Morgan Stanley, Dean Witter & Co. 7,714,181 7,714,181
80,500 80,500 Nationwide Financial Services,
Inc., Class A 2,354,625 2,354,625
360,000 360,000 Sovereign Bancorp, Inc. 2,722,500 2,722,500
146,500 146,500 Wells Fargo Co. 5,997,344 5,997,344
--------------------------------- ---------------------------------------------
Total 8,280,313 68,459,344 76,739,657
--------------------------------- ==============
28
<PAGE>
Health Care--9.3%
100,000 106,500 206,500 Abbott Laboratories 3,518,750 3,747,469 7,266,219
51,900 51,900 Allergan 2,595,000 2,595,000
136,900 136,900 American Home Products Corp. 7,341,263 7,341,263
80,000 80,000 (1) Amgen, Inc. 4,910,000 4,910,000
77,000 74,000 151,000 Baxter International, Inc. 4,826,938 4,638,875 9,465,813
86,000 86,000 Bristol-Myers Squibb Co. 4,966,500 4,966,500
790,400 790,400 (1) Diametrics Medical 8,892,000 8,892,000
7,312 7,312 (1) GalaGen 18,967 18,967
28,000 28,000 Genentech, Inc. 4,256,000 4,256,000
125,000 125,000 Medtronic 6,429,687 6,429,687
61,000 61,000 Merck & Co., Inc. 3,789,625 3,789,625
167,500 167,500 (1) Sybron International 4,857,500 4,857,500
160,600 160,600 Teva Pharmaceutical
Industries Ltd., ADR 5,992,388 5,992,388
53,364 53,364 Warner-Lambert Co. 5,202,990 5,202,990
--------------------------------- ---------------------------------------------
Total 31,138,842 44,845,110 75,983,952
--------------------------------- ==============
Technology--26.8%
58,900 58,900 (1) ACTV, Inc. 2,065,181 2,065,181
85,000 85,000 (1) Adaptec, Inc. 3,283,125 3,283,125
156,000 156,000 (1) ADC Telecommunications 8,404,500 8,404,500
33,000 33,000 (1) Agilent Technologies, Inc. 3,432,000 3,432,000
68,000 68,000 (1) Amdocs Ltd. 5,010,750 5,010,750
40,000 111,500 151,500 (1) America Online, Inc. 2,690,000 7,498,375 10,188,375
39,500 39,500 (1) Apple Computer, Inc. 5,364,594 5,364,594
92,000 92,000 (1) Cisco Systems, Inc. 7,112,750 7,112,750
81,500 81,500 (1) Citrix Systems, Inc. 5,399,375 5,399,375
203,000 203,000 (1) Compuware Corp. 4,275,688 4,275,688
63,000 63,000 (1) Conexant Systems, Inc. 4,473,000 4,473,000
35,000 35,000 Corning 6,790,000 6,790,000
91,000 20,000 111,000 (1) DST Systems, Inc. 5,909,313 1,298,750 7,208,063
25,000 25,000 (1)Diamond Technology Partners 1,643,750 1,643,750
62,900 62,900 (1) EMC Corp. Mass 7,862,500 7,862,500
117,300 117,300 (1) Electronics for Imaging, Inc. 7,038,000 7,038,000
56,000 56,000 (1) Exodus Communications, Inc. 7,868,000 7,868,000
45,000 45,000 (1) Extreme Networks, Inc. 3,555,000 3,555,000
51,500 51,500 (1) F5 Networks, Inc. 3,489,125 3,489,125
120,000 120,000 Harris 4,147,500 4,147,500
29
<PAGE>
163,100 163,100 (1) IGATE Capital Corp. 7,359,888 7,359,888
14,700 14,700 (1) Infineon Technologies AG 803,035 803,035
44,000 44,000 (1) Inktomi Corp. 8,580,000 8,580,000
110,000 110,000 (1)IntraNet Solutions 5,060,000 5,060,000
23,900 23,900 (1) Keynote Systems, Inc. 2,443,775 2,443,775
58,000 58,000 (1) Lexmark Intl. Group, Class A 6,133,500 6,133,500
22,000 22,000 (1) Metromedia Fiber Network Class A 2,128,500 2,128,500
30,500 30,500 (1) Microsoft Corp. 3,240,625 3,240,625
43,500 43,500 (1) Motorola 6,193,312 6,193,312
37,000 37,000 Nokia Oyj, Class A, ADR 8,038,250 8,038,250
48,000 48,000 Nortel Networks Corp. 6,048,000 6,048,000
111,000 111,000 (1) Oracle Corp. 8,664,938 8,664,938
20,000 20,000 (1) QUALCOMM 2,986,250 2,986,250
82,100 82,100 (1) RF Micro Devices, Inc. 11,032,188 11,032,188
21,000 21,000 (1) S1 1,799,437 1,799,437
52,000 52,000 (1) SDL, Inc. 11,069,500 11,069,500
60,500 60,500 (1) Sun Microsystems, Inc. 5,669,039 5,669,039
35,000 35,000 (1) Tellabs 2,204,453 2,204,453
122,000 122,000 (1) Vitesse Semiconductor Corp. 11,742,500 11,742,500
--------------------------------- ---------------------------------------------
Total 49,957,015 169,851,451 219,808,466
--------------------------------- ==============
Transportation--1.2%
95,000 95,000 C.H. Robinson Worldwide 3,538,750 3,538,750
114,000 114,000 (1) FedEx Corp. 4,446,000 4,446,000
60,000 60,000 (1) Iron Mountain, Inc. 2,043,750 2,043,750
--------------------------------- ---------------------------------------------
Total 3,538,750 6,489,750 10,028,500
--------------------------------- ==============
Utilities--3.3%
221,000 221,000 Entergy Corp. 4,461,438 4,461,438
141,700 141,700 Equitable Resources, Inc. 6,349,931 6,349,931
102,000 102,000 Montana Power Co. 6,528,000 6,528,000
146,398 146,398 SCANA Corp. 3,595,901 3,595,901
146,600 146,600 Williams Cos., Inc. (The) 6,441,238 6,441,238
--------------------------------- ---------------------------------------------
Total 0 27,376,508 27,376,508
--------------------------------- ==============
Total Common Stocks 168,643,512 552,323,496 720,967,008
--------------------------------- ==============
30
<PAGE>
Corporate Bonds--2.9%
Capital Goods--0.4%
2,000,000 2,000,000 Sanmina Corp., Conv. Bond,
4.25%, 5/1/2004 3,202,160 3,202,160
--------------------------------- ==============
Communication Services--1.5%
6,000,000 6,000,000 Level 3 Communications, Inc.,
Conv. Bond, 6.00%, 3/15/2010 6,040,320 6,040,320
5,400,000 5,400,000 NEXTEL Communications, Inc.,
Conv. Bond, 5.25%, 1/15/2010 6,453,702 6,453,702
--------------------------------- ---------------------------------------------
Total 0 12,494,022 12,494,022
--------------------------------- ==============
Consumer Cyclicals--0.4%
1,060,000 1,060,000 Omnicom Group, Inc.,
Conv. Bond, 2.25%, 1/6/2013 2,039,323 2,039,323
840,000 840,000 Omnicom Group, Inc.,
Sub. Deb., 2.25%, 1/6/2013 1,616,068 1,616,068
--------------------------------- ---------------------------------------------
Total 0 3,655,391 3,655,391
--------------------------------- ==============
Technology--0.6%
1,640,000 1,640,000 ASM Lithography Holding NV,
Conv. Bond, 4.25%, 11/30/2004 1,973,182 1,973,182
3,600,000 3,600,000 Conexant Systems, Inc.,
Conv. Bond, 4.00%, 2/1/2007 3,265,272 3,265,272
--------------------------------- ---------------------------------------------
Total 0 5,238,454 5,238,454
--------------------------------- ==============
Total Corporate Bonds 24,590,027 24,590,027
--------------------------------- ==============
Preferred Stocks--3.1%
Basic Materials--0.3%
45,000 45,000 Monsanto Co., Conv. Pfd., $2.60 2,058,750 2,058,750
--------------------------------- ==============
Communication Services--0.9%
60,000 60,000 Cox Communications, Inc.,
PRIZES, $1.71 7,260,000 7,260,000
--------------------------------- ==============
Consumer Staples--0.9%
40,000 40,000 Cox Communications, Inc.,
PRIDES, $.88 2,540,000 2,540,000
37,800 37,800 Ralston Purina Co., SAILS, $1.08 1,103,288 1,103,288
71,500 71,500 XM Satellite Radio Holdings,
Inc., Conv. Pfd., $4.13 3,950,375 3,950,375
--------------------------------- ---------------------------------------------
Total 7,593,663 7,593,663
--------------------------------- ==============
Technology--0.5%
78,200 78,200 Verio, Inc., Conv. Pfd., $.84 4,398,750 4,398,750
--------------------------------- ==============
31
<PAGE>
Utilities--0.5%
92,000 92,000 K N Energy, Inc., Conv. Pfd., $3.55 4,347,000 4,347,000
--------------------------------- ==============
Total Preferred Stocks 25,658,163 25,658,163
--------------------------------- ==============
Repurchase Agreements--4.2%
34,120,000 34,120,000 ABN AMRO, Inc., 6.18%,
dated 3/31/2000, due 4/3/2000 34,120,000 34,120,000
--------------------------------- ==============
--------------------------------------------------
RESTRICTED SECURITIES - 0.0% (3)
--------------------------------------------------
Common Stocks - 0.0%
1,600 1,600 (1) Anglo Chinese Investment
Company, foreign 303,120 303,120
42,272 42,272 (1) Westgate Acquisition 0 0
--------------------------------- ---------------------------------------------
Total 303,120 303,120
--------------------------------- ==============
Non-Convertible Preferred Stock - 0.0%
86,198 86,198 (1) Westgate Acquisitions
Series A 0 0
--------------------------------- ==============
Limited Partnerships - 0.0%
(percentage ownership)
3.56% 3.56% (1) Alta Berkeley III, foreign 323,050 323,050
3.08% 3.08% (1) South Street Corporate
Recovery Fund I 0 0
3.85% 3.85% (1) South Street Leveraged
Corporate Recovery Fund I 0 0
6.20% 6.20% (1) Vanguard Associates III 63,169 63,169
--------------------------------- ---------------------------------------------
Total 386,219 386,219
--------------------------------- ==============
32
<PAGE>
Convertible Debentures - 0.0%
258,332 258,332 (1) Air Communications Series B,
10.00%, 02/28/97 0 0
Exercise Exercise
Price Date
Warrants - 0.0% ---------------------------------
Gala Gen $11.08 07/09/00 0
GalaGen $11.08 01/29/01 0
--------------------------------- ---------------------------------------------
Total 0
--------------------------------- ==============
Total Restricted Securities 689,339 689,339
--------------------------------- ==============
--------------------------------------------------
SHORT-TERM SECURITIES - 1.8%
--------------------------------------------------
Market
Rate Maturity Value (a)
Commercial Paper - 1.7% --------------------------------- ----------------
BP Amoco Capital (Financial)
4,300,000 4,300,000 6.23% 04/03/00 4,298,512 4,298,512
Bell Atlantic Network Funding
(Financial)
3,000,000 3,000,000 6.00% 04/10/00 2,995,500 2,995,500
(2) Warner Lambert (Health
Technology)
3,000,000 3,000,000 5.98% 04/04/00 2,998,505 2,998,505
Wisconsin Electric Fuel (Utilities)
1,048,000 1,048,000 6.00% 04/14/00 1,045,729 1,045,729
Xerox (Producer Manufacturing)
3,000,000 3,000,000 6.20% 04/06/00 2,997,492 2,997,492
--------------------------------- ---------------------------------------------
Total 14,335,738 14,335,738
--------------------------------- ==============
Investment Company - 0.1%
975,478 975,478 Firstar Institutional Money
Market Fund 5.69% 975,478 975,478
==============
33
<PAGE>
TOTAL SHORT-TERM SECURITIES 15,311,216
--------------------------------- ==============
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
$184,644,067 $636,691,686 $821,335,753
------------------------------------------------------------------------------------------------------------------------------------
(1) Non-income producing security.
(2) Represents security sold within terms of a private placement memorandum exempt from registration
under Section 144A 4(a) of the Securities Act of 1933. These issues may only be sold to other
qualified institutional buyers and are considered liquid under guidelines established by the
Board of Directors.
(3) Restricted securities generally must be registered with the Securities and Exchange Commission
under the Securities Act of 1933 prior to being sold to the public.
</TABLE>
