IAI
Mutual Funds
UPDATE
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QUARTERLY NEWSLETTER OF THE IAI FAMILY OF NO-LOAD MUTUAL FUNDS 2Q 2000
IAI MUTUAL FUNDS/FEDERATED INVESTORS PROXY Q&A
[SIDEBAR]
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 you know from the recent communications to our shareholders, Federated
Investors, Inc. and Investment Advisers, Inc. have agreed to a transaction
merging the IAI Mutual Funds into Federated Mutual Funds. Upon shareholder
approval, Federated will be responsible for portfolio management and shareholder
servicing of the funds.
By now, you should have received detailed proxy information about the
acquisition. We encourage you to read the material carefully because it contains
important information. For your convenience, we have provided an excerpt from
the proxy which provides answers to some of the most frequently asked questions
regarding the merger. If you have any additional questions, please feel free to
call our toll-free Investor Services Hotline at 1-800-945-3863. Again, we
sincerely appreciate your business and thank you for your confidence in our firm
and products. It has been a privilege to serve each shareholder in the IAI
mutual funds.
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 the
amounts of assets under management 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 ownership in the corresponding Federated Fund.
<PAGE>
Q&A (con't.)
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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 the 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
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 developing 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 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.
(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.)
WILL I INCUR TAXES AS A RESULT OF THIS REORGANIZATION?
This reorganization is expected to be a tax-free event. Shareholders will not
incur capital gains or losses on the conversion from IAI Fund shares into
Federated Fund shares as a result of this reorganization. Furthermore, the cost
basis on each investment will remain the same.
Shareholders will incur 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 the reorganization. Please note that
retirement accounts are exempt from such tax issues.
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.
[SIDEBAR]
WITH OVER 45 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE, FEDERATED HAS MADE A
SIGNIFICANT COMMITMENT TO DEVELOPING SUPERIOR PORTFOLIO MANAGEMENT STRATEGIES
AND WORLD-CLASS SHAREHOLDER SERVICES.
